ECO 110 FINAL

What is the firm's short-run decision rule?

Shut down if P < AVC

The firm's profit maximization rule

MR=MC at the profit-maximizing Q

Refer to Table 14-10. At which level of production will the firm maximize profit? a. 3 units b. 4 units c. 5 units d. 6 units

a. 3 units

Refer to Figure 14-13. If the price is $4.50 in the short run, what will happen in the long run? a. Nothing. The price is consistent with zero economic profits, so there is no incentive for firms to enter or exit the industry b. Individual firms will earn positive economic profits in the short run, which will entice other firms to enter the industry c. Individual firms will earn negative profits in the short run, which will cause some firms to exit the industry d. Because the price is below the firm's average variable costs, the firms will shut down

a. Nothing. The price is consistent with zero economic profits, so there is no incentive for firms to enter or exit the industry

Which of the following is a necessary characteristic of a monopoly? a. The firm is the sole seller of the product b. The firm's product has many close substitutes c. The firm generates a large economic profit d. The firm is located in a small geographic market

a. The firm is the sole seller of the product

A perfectly price-discriminating monopolist is able to... a. maximize profit and produce a socially optimal level of output b. maximize profit, but not produce a socially optimal level of output c. produce a socially optimal level of output, but not maximize profit d. exercise illegal preferences regarding the race and/or gender of its employees

a. maximize profit and produce a socially optimal level of output

Refer to Figure 15-8. What is the monopoly price and quantity? a. price = A; quantity = X b. price = B; quantity = Y c. price = B; quantity = X d. price = C; quantity = X

a. price = A; quantity = X

Which of the following statements is not correct? a. The competitive firm produces where P = MC b. The monopolist produces where P = MC c. The competitive firm produces where MR = MC d. The monopolist produces where MR = MC

b. The monopolist produces where P = MC

Monopoly firms face a. downward-sloping demand curves so they can sell as much output as they desire at the... b. downward-sloping demand curves, so they can sell only the specific price-quantity com....the demand curve c. horizontal demand curves, so they can sell as much output as they desire at the market price d. horizontal demand curves, so they can sell only a limited quantity of output at each price

b. downward-sloping demand curves, so they can sell only the specific price-quantity com....the demand curve

Refer to Figure 14-7. If the market starts in equilibrium at point Z in graph (b), a decrease in demand will ultimately lead to a. more firms in the industry but lower levels of output for each firm b. fewer firms in the market c. a new long-run equilibrium at point X in graph (b) d. lower prices once the new long-run equilibrium is reached

b. fewer firms in the market

Economies of scale occur when a. long-run average total costs rise as output increases b. long-run average total costs fall as output increases c. average fixed costs are falling d. average fixed costs are constant

b. long-run average total costs fall as output increases

In order to sell more of its product, a monopolist must.... a. lobby the government for a subsidy b. lower its price c. advertise d. enact barriers to entry in related markets

b. lower its price

A natural monopoly occurs when.... a. the product is sold in its natural state, such as water or diamonds b. there are economies of scale over the relevant range of output c. the firm is characterized by a rising marginal cost curve d. production requires the use of free natural resources, such as water or air

b. there are economies of scale over the relevant range of output

In the long run, each firm in a competitive industry earns a. zero accounting profits b. zero economic profits c. positive economic profits d. positive, negative, or zero economic profits

b. zero economic profits

Suppose that in a competitive market the equilibrium price is $2.50. What is the marginal revenue for the last unit sold by the typical firm in this market? a. less than $2.50 b. more than $2.50 c. exactly $2.50 d. The marginal revenue cannot be determined without knowing the actual quantity sold by the typical firm

c. exactly $2.50

Marginal revenue can become negative for a. both competitive and monopoly firms b. competitive firms but not for monopoly firms c. monopoly firms but not got competitive firms d. neither competitive nor monopoly firms

c. monopoly firms but not got competitive firms

For a monopolist, marginal revenue is... a. equal to price, as it is for a perfectly competitive firm b. less than price, as it is for a perfectly competitive firm c. equal to price, whereas marginal revenue is less than price for a perfectly competitive firm d. less than price, whereas marginal revenue is equal to price for a perfectly competitive firm

d. less than price, whereas marginal revenue is equal to price for a perfectly competitive firm

A competitive firm's SR supply curve if P > AVC then....

firm produces Q where P = MC

A competitive firm's SR supply curve if P < AVC then....

firm shuts down (produces Q = 0)

Long-run equilibrium

the process of entry or exit is complete - remaining firms earn zero economic profit