ECON 2201 Chapter 8

Owners and managers may be different people with the same goals. may be different people with different goals, and in the long run firms that do best are those in which the managers are allowed to pursue their own independent goals. must be the same people. may be different people with different but exactly complementary goals. may be different people with different goals, but in the long run firms that do best are those in which the managers pursue the goals of the owners.

may be different people with different goals, but in the long run firms that do best are those in which the managers pursue the goals of the owners.

The amount of output that a firm decides to sell has no effect on the market price in a competitive industry because the market price is determined (through regulation) by the government the demand curve for the industry's output is downward sloping the short run market price is determined solely by the firm's technology the firm's output is a small fraction of the entire industry's output the firm supplies a different good than its rivals

the firm's output is a small fraction of the entire industry's output

Following Example 8.8 in the book, the long-run supply of rental housing in most U.S. communities is more inelastic than the long-run supply of owner-occupied housing. Why? Local rental housing regulations Limited demand for rental housing Limitations on the urban land available for rental housing A and C above are correct

A and C above are correct Local rental housing regulations Limitations on the urban land available for rental housing

Use the following statements to answer this question: I. Markets may be highly (but not perfectly) competitive even if there are a few sellers. II. There is no simple indicator that tells us when markets are highly competitive. I and II are false I and II are true I is true and II is false I is false and II is true

I and II are true

Ronny's Pizza House operates in the perfectly competitive local pizza market. If the price of pizza cheese increases (ceteris paribus), what is the expected impact on Ronny's profit-maximizing output decision? Output decreases because the price of pizza must also increase Output increases because the marginal cost curve shifts upward Output increases to cover the higher input cost Output decreases because the marginal cost curve shifts upward

Output decreases because the marginal cost curve shifts upward

Imposition of an output tax on all firms in a competitive industry will result in higher profits for the industry as price rises. a downward shift in each firm's marginal cost curve. the entry of new firms into the industry. a downward shift in each firm's average cost curve. a leftward shift in the market supply curve.

a leftward shift in the market supply curve.

The authors note that the goal of maximizing the market value of the firm may be more appropriate than maximizing short-run profits because: managers will not focus on increasing short-run profits at the expense of long-run profits. this would more closely align the interests of owners and managers. the market value of the firm is based on long-run profits. all of the above

all of the above

Which of the following cases are examples of industries that have potentially increasing costs due to scarce inputs? Medical care Petroleum production Legal services all of the above

all of the above

In a constant-cost industry, an increase in demand will be followed by an increase in supply that will bring price down below the level it was before the demand shift. no increase in supply. an increase in supply that will bring price down to the level it was before the demand shift. an increase in supply that will not change price from the higher level that occurs after the demand shift. a decrease in demand to keep price constant.

an increase in supply that will bring price down to the level it was before the demand shift.

A price taker is a firm that accepts different prices from different customers. a consumer who accepts different prices from different firms. a perfectly competitive firm. a firm that cannot influence the market price. both C and D

both C and D a perfectly competitive firm. a firm that cannot influence the market price.

An improvement in technology would result in increased quality of the good, but little change in MC. upward shifts of MC and reductions in output. downward shifts of MC and increases in output. upward shifts of MC and increases in output. downward shifts of MC and reductions in output.

downward shifts of MC and increases in output.

In the long run, a firm's producer surplus is equal to the revenue it earns in the long run. difference between total revenue and total fixed costs. positive economic profit it earns in the long run. difference between total revenue and total variable costs. economic rent it enjoys from its scarce inputs.

economic rent it enjoys from its scarce inputs.

At the profit-maximizing level of output, marginal profit is increasing. is zero. is positive. may be positive, negative or zero. is also maximized.

is zero.

Scenario 8.1: Two soft-drink firms, Fizzle & Sizzle, operate on a river. Fizzle is farther upstream, and gets cleaner water, so its cost of purifying water for use in the soft drinks is lower than Sizzle's by $500,000 yearly. According to Scenario 8.1, Fizzle and Sizzle cannot be perfect competitors because they are not identical firms. would be perfectly competitive if it costs Fizzle $500,000 yearly to keep that land. would be perfectly competitive if their purification costs were equal; otherwise, not. may or may not be perfect competitors, but their position on the river has nothing to do with it.

may or may not be perfect competitors, but their position on the river has nothing to do with it.

A firm never operates on the downward-sloping portion of its ATC curve. on the downward-sloping portion of its AVC curve. at the minimum of its AVC curve. at the minimum of its ATC curve. on its long-run marginal cost curve.

on the downward-sloping portion of its AVC curve.

Revenue is equal to price times quantity minus marginal cost. price times quantity minus total cost. price times quantity minus average cost. price times quantity. expenditure on production of output.

price times quantity.

If the market price for a competitive firm's output doubles then at the new profit maximizing output, price has increased more than marginal cost competitive firms will earn an economic profit in the long-run. at the new profit maximizing output, price has risen more than marginal revenue the marginal revenue doubles the profit maximizing output will double

the marginal revenue doubles

The demand curve facing a perfectly competitive firm is the same as its average revenue curve and its marginal revenue curve. not defined in terms of average or marginal revenue. the same as its marginal revenue curve, but not its average revenue curve. the same as its average revenue curve, but not the same as its marginal revenue curve. not the same as either its marginal revenue curve or its average revenue curve.

the same as its average revenue curve and its marginal revenue curve.

If any of the assumptions of perfect competition are violated, graphs with downward-sloping demand curves cannot be used to study the firm. there may still be enough competition in the industry to make the model of perfect competition usable. one must use the monopoly model instead. graphs with flat demand curves cannot be used to study the firm. supply-and-demand analysis cannot be used to study the industry.

there may still be enough competition in the industry to make the model of perfect competition usable.