Econ 13-17

Refer to the Scenario. Grace owns a pumpkin patch. One spring day, Grace spends 12 hours planting $200 worth of seeds in her pumpkin patch. She expects that the seeds she planted will yield $500 worth of pumpkins. Grace is also an avid golfer and provides golf lessons at the local country club. Grace charges $30 per hour for her golf lessons. Grace's accountant would calculate the total cost of her pumpkin patch to equal

$200

Monopoly

-Equates marginal revenue and marginal cost -Has marginal revenue less than price -Earns economic profit in the long run -Charges a price above marginal cost -Faces a downward-sloping demand curve

Perfectly Competitive

-Produces at the minimum average total cost in the long run -Equates marginal revenue and marginal cost -Sells a product identical to those of its competitors -Can earn economic profit in the short run -Charges a price that is the same as marginal cost -Produces welfare-maximizing level of output

Monopolistically Competitive

-Sells a product differentiated from those of its competitors -Has marginal revenue less than price -Equates marginal revenue and marginal cost -Charges a price above marginal cost -Can earn economic profit in the short run -Produces above the minimum average total cost in the long run -Faces the entry of new firms selling similar products -Faces a downward-sloping demand curve

Which type of oligopoly always has the fewest number of firms? -A cartel -A monopoly -A cooperative -A duopoly

A duopoly

The event that occurs when agents in a game form an agreement about which strategies to implement

Collusion

If the price effect is zero, a market is -a duopoly -an oligopoly other than a duopoly -a monopoly -competitive

Competitive

A player's best choice, if it exists, regardless of his or her opponent's strategy

Dominant Strategy

A firm in a competitive market can change the market price by changing its own production level.

FALSE

A characteristic of monopolistic competition is a small number of firms.

False

Fixed costs are incurred only if the firm produces a positive quantity of output.

False

Which of the following is true with respect to firms in markets with highly differentiated products? -Firms will likely spend surprisingly little on taxes. -Firms will likely spend a substantial amount on taxes. -Firms will likely spend surprisingly little on advertising. -Firms will likely spend a substantial amount on advertising.

Firms will likely spend a substantial amount on advertising.

Which of the following statements is correct? -In the long run, all costs are fixed. -In the long run, there are no fixed costs. -In the short run, all costs are fixed. -In the short run, there are no fixed costs.

In the long run, there are no fixed costs.

The condition that firms use to exit a competitive market in the long run is

P < ATC

Which of the following costs should be ignored by a firm when making production decisions in the short run? -explicit costs -opportunity costs -implicit costs -sunk costs

Sunk cost

A farmer owns 50 bee hives. The farmer is able to produce 2,000 pounds of honey when he hires 2 workers. He is able to produce 4,000 pounds of honey when he hires 3 workers. Which of the following possibilities is consistent with the property of diminishing marginal product?

The farmer is able to produce 5,500 pounds of honey when he hires 4 workers.

If the government regulates the price that a natural monopoly can charge to be equal to the firm's average total cost, which of the following is not true? -The firm will not have an incentive to lower its production costs. -There will be deadweight loss in this market. -The firm will earn zero profits. -The firm will earn positive profits.

The firm will earn positive profits.

A strategy in which a player cooperates until the other player defects and then defects until the other player cooperates again

Tit-for-tat Strategy

A firm in the short run -can avoid paying fixed costs by operating where profits are maximized. -can avoid paying fixed costs if the firm shuts down. -cannot avoid paying fixed costs if the firm shuts down. -cannot avoid paying variable costs if the firm shuts down.

cannot avoid paying fixed costs if the firm shuts down.

If there is a reduction in market demand in a competitive market, then in the short run prices will -not move from the minimum of average total cost. -decrease. -not move from the minimum of marginal cost. -increase.

decrease

Livi owns and operates Livi's Love From Scratch cupcake bakery. Livi has 10 locations throughout her state. When Livi is producing a high level of output, her production area becomes quite crowded with workers. Sometimes the workers have to wait to use a mixer or oven. Further, Livi sometimes cannot keep track of which locations are serving which cupcake flavors on specific days. Livi's production process is most likely experiencing

diseconomies of scale.

Firms will have an incentive to exit a competitive market when -economic profits are positive. -economic profits are negative. -price is equal to marginal cost. -price is less than marginal cost.

economic profits are negative.

Bill's Bow Ties manufactures stylish custom bow ties. The firm has five employees and operates out of Bill's home. Recently, Bill designated one employee as the fabric cutter. Two other employees dedicate all of their time to sewing ties. The fourth employee focuses on sales and marketing and Bill manages the finances. Bill's Bow Ties is likely experiencing

economies of scale.

Input costs that require an outlay of money by the firm are called _______ costs while input costs that do not require an outlay of money by the firm are called _______ costs.

explicit; implicit

Fixed costs are incurred only if the firm produces a positive quantity of output.

false

For all firm types price equals marginal revenue, and for competitive firms price equals average revenue.

false

If a firm experiences diminishing marginal productivity of labor, the total-cost curve gets flatter as the quantity of output increases.

false

When average total cost equals marginal cost, marginal cost is at its minimum.

false

If a firm in a competitive market increases the quantity of output sold, total revenue should -remain the same. -decrease. -change proportionately to the change in total costs for the firm. -increase.

increase.

When a firm exits a competitive market in the long run -it avoids paying fixed costs but not variable costs. -it avoids paying both fixed and variable costs. -it avoids paying variable costs but not fixed costs. -it does not avoid paying either fixed or variable costs.

it avoids paying both fixed and variable costs.

Which of the following is true if a firm increases its level of output by one unit and profits decrease? -marginal revenue is equal to marginal cost -marginal revenue is less than marginal cost -marginal revenue is greater than marginal cost -price is greater than average total cost

marginal revenue is less than marginal cost

A visual representation of a game showing all possible strategies for each player and all potential outcomes and payoffs

payoff matrix

Which of the following is not correct with respect to firms in a competitive market in the long-run? -economic profits are zero -price is equal to average total cost -price is above average total cost -price is equal to marginal cost

price is above average total cost

Which of the following correctly describes when a firm in a competitive market should shut down in the short run? -price is less than average total cost -price is equal to marginal cost -price is less than average variable cost -price is greater than marginal cost

price is less than average variable cost

Firms that spend a substantial amount of money on famous actors for advertisements are -using resources inefficiently in the market. -signaling to consumers about the quality of the good. -attempting to misinform consumers about product quality. -attempting to manipulate consumers through psychological means.

signaling to consumers about the quality of the good.

Which of the following describes an imperfectly competitive firm? -some price setting ability -horizontal demand curves -many small firms -identical products

some price setting ability

If a firm in a competitive market doubles the quantity of units sold, total revenue will exactly double

true

It is possible to have positive accounting profit and zero economic profit for a firm.

true

A data analysis firm has an idle computer. If the firm hires another worker to put the idle computer to use,

variable costs will rise.

In the long-run, firms in a competitive market will have -economic profit proportionate to marginal costs. -zero economic profit. -positive economic profit. -negative economic profit.

zero economic profit.

Frida operates Frida's FroYo and spends $1,200 per week on frozen yogurt, $18 per week on cardboard bowls, $3 per week on spoons, $77 per week on candy and other toppings, and $2,300 on rent for the storefront and equipment. Frida sells her frozen yogurt for $4 per serving and she sells 1,500 servings per week. Frida's average variable cost is about

$0.87.

The monopolist's supply curve is shown by the marginal cost curve above the minimum point of average total cost, like the competitive firm's supply curve.

False

Which of the following is not an example of an opportunity cost that is also an implicit cost?

lease payments for the building in which the firm operates

A tractor company plans to operate out of its current factory, which is estimated to last 25 years. All cost decisions it makes during the 25-year period

short-run decisions

Profits for a firm can be calculated using which of the following formulas?

(P - ATC)*Q

Profit is defined as a firm's

total revenue minus total cost.