Econ Exam Review

In the long run, perfectly competitive firms earn ["negative", "zero", "positive", "either positive, negative, or zero"] economic profit and ["positive", "negative", "zero", "either positive, negative, or zero"] accounting profit.

zero positive

The law of diminishing marginal returns says that as the firm uses more of ["all inputs", "a variable", "a fixed input"] , with a given quantity of ["capital", "fixed inputs", "variable inputs"] , the marginal product of the variable input eventually diminishes.

"a variable" "fixed inputs"

Sue quit her $40,000 per year job and opened a coffee shop that she calls Top Brew. In the first year, Top Brew earned $200,000 in revenue. For the same year, Top Brew paid $80,000 to employees in wages, spent $40,000 on ingredients such as coffee beans, $15,000 rent for the building to house Top Brew. Sue also used $50,000 of her personal savings to purchase equipment for Top Brew, which she was earning $4,000 in interest each year. Assuming no depreciation in the value of the equipment, Sue's economic profit from Top Brew for the year is

$21,000 (subtract everything from revenue except $50,000 from her personal savings)

Which of the following characteristics of a monopoly is present in an oligopoly? Select all that apply. - Sellers have (limited) freedom to raise prices while still maintaining positive revenue - The profit-maximizing output is determined where MC = MR - There is only one firm in the market - Marginal revenue is downward-sloping - A single producer holds all of the market power

- Sellers have (limited) freedom to raise prices while still maintaining positive revenue - The profit-maximizing output is determined where MC = MR - Marginal revenue is downward-sloping

Which of the following are characteristics of a oligopoly? Choose all that apply. - The firm produces different goods or services. - The firm's demand curve is perfectly elastic. - The firm produces identical goods or services. - The firm determines the price to charge its buyers. - There are high barriers to entry or exit. - The firm's demand curve is linear and downward sloping.

- The firm produces different goods or services. - The firm produces identical goods or services. - The firm determines the price to charge its buyers. - There are high barriers to entry or exit.

A moral hazard is a situation where a person or business _____ has a tendency to take risks they wouldn't normally take don't have the same aligned goals might alter their behavior because they won't have to deal with the negative consequence All of the answers are correct.

All of the answers are correct.

At the profit maximizing level of output, firms shutdown when price < marginal cost price < average variable cost price > average total cost average total cost < price < average variable cost

price < average variable cost

The profit maximizing level of output for the perfectly competitive firm occurs where price = marginal revenue marginal revenue = average total cost price = marginal cost total revenue = total cost

price = marginal cost

When Dominant Pizza is willing to sell a pizza to a student who lives on-campus at a lower price than it is willing to sell the identical pizza to a student who lives a block away from the campus, the pizza firm is practicing

price discrimination

Joe, a hairdresser, offers students a discount price on haircuts. This form of pricing is an example of price discrimination. an average cost pricing rule. a marginal cost pricing rule. perfect price discrimination.

price discrimination.

The principal-agent problem suggests - principals and agents will never have the same goals. - principals and agents always have the same goals. - principals and agents are more likely to have the same goals if the principal gives the agent flexibility to make his own decisions. - principals and agents are more likely to have the same goals if the agent's pay is tied to satisfying the principal's goals.

principals and agents are more likely to have the same goals if the agent's pay is tied to satisfying the principal's goals.

In the short run, a firm will - produce and incur an economic loss if its total revenue covered its total variable cost but not its total cost. - produce and earn an economic profit if its total revenue was equal to its total cost. - not produce if its total revenue does not cover its total cost. - produce and break even if its total revenue covered its total fixed cost but not its total variable cost.

produce and incur an economic loss if its total revenue covered its total variable cost but not its total cost.

An implicit cost is an opportunity cost that is adjusted for the rate of inflation. is measured by the amount of cash the firm actually pays out. requires no actual payment of cash. is actually part of the firm's normal profit.

requires no actual payment of cash.

The fundamental reason a single-price monopoly creates a deadweight loss is that it raises fixed cost. raises variable cost. restricts output. reduces the elasticity of demand.

restricts output.

In comparison with a perfect competition, a single-price monopolist with the same costs creates a ["larger", "smaller"] consumer surplus and earns a ["larger", "smaller"] economic profit.

smaller larger

When ["Marginal revenue", "Marginal cost", "Marginal profit"] is above ["Average revenue", "Average variable cost, but below average total cost", "Average total cost"], both the average total cost and average variable cost are ["increasing", "decreasing"].

Marginal cost Average total cost increasing

What relationships must hold for a single-price monopolist to maximize profit, such that profits are positive? - Marginal cost equal to demand - Average total costs are lower than marginal revenue - Average total costs are larger than marginal cost - Marginal revenue equal to marginal cost - Marginal revenue equal to demand - Price is higher than average total cost

Marginal revenue equal to marginal cost Price is higher than average total cost

The market with the lowest barriers to entry is _____. Perfect Competition Oligopoly Monopoly Monopolistic Competition

Perfect Competition

What are the four features of game theory?

Players, Strategies, Information, Payoffs

Which of the following is true for BOTH a monopoly and a perfectly competitive firm? - The demand for the individual firm's product is perfectly elastic. - Marginal revenue equals price. - The profit maximizing output level occurs where marginal revenue is equal to marginal cost. - Firms earn positive economic profit in the long run.

The profit maximizing output level occurs where marginal revenue is equal to marginal cost.

Which of the following are characteristics of a monopoly? Choose all that apply. - Few buyers - The firm's demand curve is perfectly elastic. - There are high barriers to entry or exit. - The firm produces a good or service with many substitutes. - The firm determines the price to charge its buyers. - The firm's demand curve is downward sloping.

There are high barriers to entry or exit. The firm determines the price to charge its buyers. The firm's demand curve is downward sloping.

The demand for corn from Hoosier farms is perfectly elastic because corn from Hoosier farms is a normal good an inferior good. a perfect complement for corn from other farms. a perfect substitute for corn from other farms.

a perfect substitute for corn from other farms.

Compared to a similar perfectly competitive industry, a single-price monopoly ["may increase, decrease, or not change", "increases", "does not change", "decreases"] consumer surplus and ["increases", "does not change", "may increase, decrease, or not change", "decreases"] economic efficiency.

decreases decreases

In perfect competition, restrictions on entry into an industry apply to both capital and labor. do not exist. apply to labor but not to capital. apply to capital but not to labor.

do not exist.

When long-run average total costs decrease as output increases, this is known as ["diseconomies of scale", "constant returns to scale", "economies of scale"]. This can be observed as the ["minimal point", "downwards sloping part", "upwards sloping part"] of the ["short-run", "long-run"] average cost curve.

economies of scale downwards sloping part long-run

When long-run average costs decrease as output increases, there are economies of scale. diseconomies of scale. constant marginal costs. constant returns to scale.

economies of scale.

Perfectly competitive markets are ["efficient", "inefficient"] because ["profit", "deadweight loss", "consumer surplus", "total surplus"] is maximized and firms produce at the lowest possible ["marginal", "average total", "total", "average variable"] cost.

efficient total surplus average total

The profit maximizing single price monopolist produces along the ["elastic", "inelastic"] portion of its demand curve.

elastic

The owner of a proprietorship might decide to incorporate the firm as a corporation in order to be eligible for patent protection of new products. be able to conduct business in more than one county. avoid the principal-agent problem. gain limited liability.

gain limited liability.

The short run is a period of time in which the quantities used of all factors of production are fixed. the quantity used of at least one factor of production is fixed. factor of production prices are fixed. the market prices of goods and services are fixed.

the quantity used of at least one factor of production is fixed.

A single-price monopoly charges the same price to all customers. at all times and that price equals the firm's marginal revenue. even if its cost curves shift. even if the demand curve shifts.

to all customers.

True or False: Both, monopoly and perfectly competitive MARKETS have a downward sloping demand curve.

true

A game in which any gains within the group are exactly offset by equal losses by the end of the game is called a _________ game.

zero sum

Which of the following are barriers to entry for a monopoly? Choose all that apply. - Patents - Ownership of a vital resource. - Public franchises - The existence of a close substitute good or service. - Diseconomies of scale

- Patents - Ownership of a vital resource. - Public franchises

A single-price monopolist will find when it produces its profit-maximizing amount of output that price exceeds marginal revenue. price exceeds marginal cost. All of other options occur at the profit-maximizing output level. marginal revenue equals marginal cost.

All of other options occur at the profit-maximizing output level.

Which of the following are examples of implicit opportunity costs for the firm? Choose all that apply. - Interest forgone - Workers' salaries - The owner's income - Utility costs - The owner's time - Depreciation - Rent payments

Interest forgone The owner's time Depreciation

Which of the following are characteristics of perfect competition? Choose all that apply. - Many sellers - Few buyers - Firms determine their own prices. - There are no barriers to entry or exit. - The market demand curve is downward sloping. - Firms produce slightly different products.

Many sellers There are no barriers to entry or exit. The market demand curve is downward sloping.

Which of the following statements about a monopoly is FALSE? The good produced by a monopoly has no close substitutes. A monopoly is the only producer of the good. None of the other options are true statements about a monopoly. Monopolies have no barriers to entry or exit.

Monopolies have no barriers to entry or exit.

In the prisoners' dilemma game, when each player takes the best possible action given the action of the other player, a _______ equilibrium is reached.

Nash

Which of the following are characteristics of a monopolistic market organization? Select all that apply. - Low barriers to entry - No close substitutes for the product/service in question - Many producers - Only one producer - High barriers to entry - Many close substitutes for the product/service in question - Inefficiency relative to competitive equilibrium

No close substitutes for the product/service in question Only one producer High barriers to entry Inefficiency relative to competitive equilibrium

Which of the following is characteristic of oligopoly, but NOT of monopolistic competition? The choices made by one firm have a significant effect on other firms. Each firm faces a downward-sloping demand curve. There is more than one firm in the industry. Firms are profit-maximizers.

The choices made by one firm have a significant effect on other firms.

A firm will expand the amount of output it produces as long as its ["marginal revenue", "marginal cost", "average total revenue"] exceeds its ["marginal cost", "average variable cost", "average total cost", "marginal revenue"].

["marginal revenue"] ["marginal cost"]

In perfect competition, each individual firm faces ________ demand curve. an upward sloping a perfectly elastic an inelastic a downward sloping

a perfectly elastic

An example of a variable resource in the short run is land. capital equipment. an employee. a building.

an employee.

In a repeated game, punishments that result in heavy damages are an incentive for players to adopt the strategies that result in a __________ equilibrium.

cooperative

In perfect competition, the marginal revenue of an individual firm equals the price of the product. is zero. is positive but less than the price of the product. exceeds the price of the product.

equals the price of the product.

True or False: Both, monopolist and perfectly competitive FIRMS have downward sloping demand curve.

false

Rent seeking by a monopolist ["increases", "decreases"] the social ["cost", "benefit"] of a monopoly and ["increases", "decreases"] its "average variable cost", "average total cost"].

increases cost increases average total cost

For a single-price monopoly, marginal revenue is ["positive", "negative"] when demand is elastic and is ["positive" "negative"] when demand is inelastic.

positive negative

An unregulated monopoly will produce in the inelastic range of its demand curve. flood the market with goods to deter entry. produce only where marginal revenue is zero. produce in the elastic range of its demand curve.

produce in the elastic range of its demand curve.

Having equal amount of information is known as _______ information.

symmetric

Normal profit is defined as the following: The economic profit of a firm The accounting profit of a firm the income associated with/received by the entrepreneur Total revenue minus total costs

the income associated with/received by the entrepreneur

The profit maximizing output for a firm is always where ["total profit", "total revenue", "marginal profit", "marginal revenue"] is equal to ["marginal cost", "average total cost", "total cost", "average variable cost"]

marginal revenue marginal cost

The most important goal of the firm is to maximize its revenues. maximize its profits. minimize its costs. maximize its sales volume.

maximize its profits.

When a firm is producing a given output at the least possible​ cost, it is producing on the​ downward-sloping portion of its​ short-run average cost curve its​ long-run average cost curve the lowest point on its​ long-run average cost curve the​ downward-sloping portion of its​ long-run average cost curve

its​ long-run average cost curve

The more perfectly a monopoly can price discriminate, the ["larger", "smaller"] its output and the ["larger", "smaller"] its profit.

larger larger

When Sidney's Sweaters, Inc. makes exactly zero economic profit, Sidney, the owner, will shut down in the short run. is taking a loss. makes an income equal to his best alternative forgone income. will boost output.

makes an income equal to his best alternative forgone income.

In a perfectly competitive market there are ["many", "few"] buyers, ["many", "few"] sellers producing ["identical", "different"] products.["Buyers and sellers", "Only sellers", "Neither buyers nor sellers", "Only buyers"] have full information and ["buyers and sellers", "only buyers", "neither buyers nor sellers", "only sellers"] have market power.

many many identical Buyers and sellers neither buyers nor sellers

As output increases if _______ product is decreasing, then marginal cost is ["increasing", "decreasing"].

marginal increasing