Econ Final Exam

When marginal cost is below average variable cost, average variable cost must be

Falling

In the long run, a monopolistically competitive firm produces the optimal level of output. Which of the following must be true for the firm?

P = ATC > MR = MC.

Cartels are illegal in the United States.

True

You own a small deli that produces sandwiches, soups, and other items for customers in your town. Which of the following is a decision most likely to be made in the long run at your deli?

You renovate the second floor of your building to increase the size of the dining room

A progressive tax is one levied on

a higher percentage of income as income rises

A firm that is in an oligopoly knows that its ________ affect its ________ and that the ________ of its rivals will affect it.

actions; rivals; reactions

The long run refers to the period for which

all inputs are variable

Variable cost divided by the quantity of output produced is

average variable cost

In the classic prisoners' dilemma with two accomplices in crime, the Nash equilibrium is for:

both to confess.

The marginal external cost of a good or activity equals the amount

by which the marginal social cost curve is higher than the supply curve.

The government has adopted an emissions tax if it:

charges automobile drivers 10 cents for each unit of automobile emissions.

Product differentiation under monopolistic competition means that each firm

charges slightly different prices

If a good is subject to the free-rider problem and an inefficiently high level of consumption, the good must be a(n)

common resource.

The idea of diminishing returns to an input in production suggests that if a local college adds more custodians, the marginal product of labor for the custodial staff will ________

decrease

The marginal benefit of pollution emissions ________ as the quantity of pollution emissions ________.

decreases; increases

A higher rate is most likely to decrease the amount of revenue that the government collects from an excise tax if

demand and supply are both very elastic.

An excise tax is a tax charged on

each unit of a good or service that is sold.

Monopolistically competitive firms

earn a positive economic profit if price is greater than ATC.

Laws that require, for example, vehicles to have catalytic converters or that restrict or prohibit leaf burning are both examples of:

environmental standards

If a monopolistically competitive firm is in long-run equilibrium, then price ________.

equals average total cost.

Activities that generate external costs will likely be carried out at levels that ________ those that would be efficient.

exceed

An e-Book is similar to a published book in that it is ________, but it is also similar to national defense in that it is ________.

excludable; nonrival in consumption

Monopolistic competition is different from monopoly because of which one of the following features

firms facing some competition

In an oligopoly

firms recognize their interdependence.

The tendency of people or firms to consume a public good without paying for it is called the ________ problem.

free-rider

Since the 1960s, power plants have taken actions, such as switching to low-sulfur coal and installing scrubbers in their smokestacks, which have significantly reduced the problem of acid rain. Power plants took these actions mainly because

government policies provided power companies with incentives to take these actions

The price in a long-run equilibrium for a monopolistically competitive firm is __________and output is ________, compared to that of a perfectly competitive firm with an identical production function and cost curves.

higher; smaller

Suppose the government imposes a $4 per month excise tax on cable TV. If the demand for cable TV is perfectly inelastic and the supply curve is elastic, then the price of cable TV will

increase by exactly $4.

Assuming a normal upward-sloping supply curve and downward-sloping demand curve, if the government imposes a $5 excise tax on leather shoes and collects the tax from the suppliers, the price of leather shoes will

increase by less than $5

Marginal cost is the

increase in total cost when one more unit of output is produced

A negative externality

is an uncompensated cost imposed by an individual or firm on others

When Aishe's Bar-B-Que produces 10 pork sandwiches, the total cost is $5. When 11 pork sandwiches are produced, the total cost rises to $6. From this we know that the marginal cost of the eleventh pork sandwich

is greater than the average cost of 11 pork sandwiches

The elasticity of demand for Gala apples is relatively elastic, so if a tax is levied on the consumers of Gala apples, the tax incidence:

is typically on producers more than consumers.

A good is most likely to be artificially scarce if:

it is excludable but nonrival.

A monopolistically competitive industry is characterized by a

large number of firms producing similar products, with relatively easy entry for firms

An industry with production that generates external costs produces a quantity of output that is

larger than the socially optimal quantity

The broccoli market is perfectly competitive. This means that the price of broccoli is ________ than the price would be if the market were monopolistically competitive, and broccoli output is ________ than if it were monopolistically competitive.

lower; greater

In long-run equilibrium in monopolistic competition:

marginal cost is less than price.

The difference between the marginal social cost curve and the marginal cost of production curve is the

marginal external cost

To maximize profit, a monopolistically competitive firm should produce the level of output at which

marginal revenue equals marginal cost

A(n) ________ is a single firm with ________, whereas a(n) ________ implies an industry with ________ firm(s) where there is (are) ________.

monopoly; barriers to entry; monopolistic competition; many; easy entry and exit

Given any downward-sloping demand curve for a good, the more price-elastic the supply curve, the ________ equilibrium output will fall and the ________ will be the deadweight loss when the government imposes an excise tax.

more; larger

As a big music fan, you want to attend a weekend blues festival in your town. The purchase of a wristband gives you and thousands of other fans access to the outdoor concert pavilion. The blues festival is a good that has the characteristics of being

nonrival and excludable.

Wenqin lives in a city that has a huge public rose garden. Residents can stroll through the rose garden, enjoy the scenic vistas, or have a picnic, all without paying a fee. The public rose garden is a good that is best described as:

nonrival and nonexcludable

Since the public safety that a police force provides is ________ in consumption, the efficient price ________.

nonrival; is zero

If an activity generates external costs, the decision makers generating the activity will

not be faced with its full costs.

If drivers decide to make phone calls without considering the costs imposed on others, the

number of phone calls made while driving will be more than the socially optimal quantity

Public goods are not sold in efficient quantities in the marketplace because

once supplied to a buyer, they are made available at no cost to someone else

An industry with a large number of small firms producing a standardized product in a market with easy entry and exit of firms is

perfect competition

Taxation according to the ability-to-pay principle is best illustrated in the United States by

personal income taxes.

The total cost curve is

positively sloped

A(n) ________ is excludable and rival in consumption.

private good

Income tax rates are such that Mr. R. Hood earns $35,000 per year and pays $7,000 in taxes, while Mr. G. Gisbourne earns $1 million per year and pays $200,000 in taxes. This tax is

proportional.

Although most citizens have access to police protection, they also take measures, such as putting locks on their doors, to protect themselves. We can explain this because police protection is a(n) ________ good, while self-protection is a(n) ________ good.

public; private

Brianna and Jess must pay an income tax. Both Brianna and Jess pay $1,000 in taxes each year, but Brianna earns $20,000 and Jess earns $10,000. From this information, you can infer that the tax system is:

regressive.

Assume the same upward supply curve for each of the following goods. Considering demand only, a tax on which of the following goods would result in the largest deadweight loss?

restaurant meals

If a good that involves external costs is priced to take these costs into account, then its price will

rise, and output will fall.

The marginal social cost of pollution rises as the quantity of pollution emissions___________

rises

Determining who pays the burden of the tax is a question about

tax incidence

The idea that even in the presence of externalities an economy can reach an efficient solution as long as transaction costs of making a deal are low is known as

the Coase theorem.

The excess capacity in monopolistic competition may be viewed as

the cost of product diversity.

The free-rider problem is a direct result of

the inability to exclude nonpayers.

The efficient quantity of pollution emissions occurs where

the marginal social benefit of pollution is equal to the marginal social cost of pollution

When farmers raise pigs, there are a number of external costs. In particular, raising pigs generates methane gas. Without government regulation, the equilibrium price and quantity of pigs raised means that

the price will be less than the marginal social cost

The efficient level of pollution is

the quantity at which its total benefits exceed its total costs by the greatest possible amount

A firm's marginal cost is

the ratio of the change in total cost to the change in the quantity of output.

Public goods should be produced up to the point at which the marginal cost of production equals

the sum of the individual marginal benefits from all consumers of that unit.

A familiar example of a negative externality is loud music on a college campus. In principle, it should be possible to internalize this externality by permitting students to negotiate about rights to play music during particular time periods. The most likely reason that this does not happen is that

the transaction costs associated with identifying and establishing communication with students would be high

suppose government officials have set an emissions tax to reduce pollution. Assume the optimal tax would be $1,500 but government officials have set the tax equal to $500. At the equilibrium with the $500 tax

there will be too much pollution.

An advantage of tradable emissions permits is that

they provide incentives for firms to develop technologies that are less polluting.

The benefits principle says that

those who benefit from public spending should bear the burden of the tax that pays for that spending

Average variable cost is

total variable cost divided by quantity

Assume the federal government determines the total level of pollutants that can be discharged by city industries. A city is able to exchange the rights to this total discharge level with other cities. This is an example of

tradable emissions permits.

In the absence of government action, polluters will pollute up to the point at which the marginal social benefit of pollution is

zero

If an eyeglass business produces 10 pairs of eyeglasses and incurs $30 in average variable cost and $35 in average total cost, then total fixed cost is

$50

Darren runs a barbershop with average fixed costs equal to $60 per day and a total output of 50 haircuts per day. What is his weekly total fixed cost if he is open six days per week?

18,000

ATC =

AVC + AFC

Which of the following is correct about celebrity spokespersons advertising products?

Celebrity advertising signals consumers that the product is reliable, because the firm is willing to pay the high fees associated with hiring a celebrity.