econ final
Assume that all firms in this industry have identical cost curves, and that the market is perfectly competitive.
$10. When price is equal to $10 (the minimum of the ATC curve), all firms in the market earn zero economic profit.
Explicit costs
measure the payments made to the firm's factors of production
)Generally, ______ motivates firms to enter an industry, while ______ motivates firms to exit an industry
economic profit; economic loss
According to the textbook, the most important and enduring sources of market power are
economies of scale
)A credible threat is
in the threatener's interest to carry out
The accompanying figure shows the demand curve, marginal revenue curve, marginal cost curve, and average total cost curve for a monopolist. At the socially optimal level of output, this monopolist would
incur an economic loss of $64.
)Cartel agreements are difficult to sustain because
it's a dominant strategy for each cartel member to cheat on the cartel agreement
Economic theory assumes that a firm's goal is to
maximize its economic profit
Refer to the accompanying table. Suppose all firms in this industry have identical costs to this firm and are producing 15 units of output. One can predict that
new firms will enter the industry. At Q = 15, firms are earning an economic profit. Thus, other firms will have an incentive to enter this industry.
)Game theory is not useful in understanding perfect competition because in a perfectly competitive market
no single firm can influence the market price, so firms' decisions are not interdependent
A monopolistically competitive firm is one
of many firms that sell products that are close but not perfect substitutes
Adam Smith coined the term "invisible hand" to describe the process by which the actions of independent, self-interested buyers and sellers will
often lead to the most efficient allocation of resources
)If a firm operates in an oligopoly, it is
one of a small number of firms that produce goods that are either close or perfect substitutes
Consumer surplus is the cumulative difference between
the amount consumers are willing to pay and the price they actually pay
)Economies of scale exist when
the average cost of production falls as output rises
)A coalition of firms who agree to restrict output for the purpose of earning an economic profit is called a(n)
cartel
A pure monopoly exists when
a single firm produces a good with no close substitutes
What is player A's dominant strategy?
Down
)Subsidies are most likely to
reduce total economic surplus.
Suppose the accompanying figure shows the demand curve, marginal revenue curve, and marginal cost curve for a monopolist. At this monopolist's profit-maximizing level of output, consumer surplus is
$2,000.
At this monopolist's profit-maximizing level of output, the deadweight loss to society equals
$24 per day.
Taylor used to work as a yoga instructor at the local gym earning $41,000 a year. Taylor quit that job and started working as a personal trainer. Taylor makes $55,000 in total annual revenue. Taylor's only out-of-pocket costs are $12,000 per year for rent and utilities, $1,000 per year for advertising and $2,500 per year for equipment. Taylor's accounting profit is _______, and Taylor's economic profit is _______.
$39,500; $−1,500
If a price ceiling were imposed at $4, producer surplus would be
$4
If the government provides a subsidy of $500 per ton, then the cost of subsidy, which must be borne by taxpayers, will be ______ per day.
$6,000
)Suppose the accompanying figure shows the demand curve, marginal revenue curve, and marginal cost curve for a monopolist. At this monopolist's profit-maximizing level of output, its total revenue equals the area
0FJB.
This monopolist maximizes its profit by producing ______ units per day and charging a price of ______ per unit.
4; $18
)Refer to the accompanying figure. What is the Nash equilibrium of this game?
A chooses Up, B chooses Left
The profit-maximizing level of output for this monopolist is ______ units per day.
F
If a price ceiling were imposed at point G, the consumer surplus would be represented by the area
GAEF
Player 1 and Player 2 are playing a game in which Player 1 has the first move at A in the decision tree shown below. Once Player 1 has chosen either Up or Down, Player 2, who can see what Player 1 has chosen, must choose Up or Down at B or C. Both players know the payoffs at the end of each branch. What is the equilibrium outcome of this game?
Player 1 chooses Down, and Player 2 chooses Up
Player 1 and Player 2 are playing a game in which Player 1 has the first move at A in the decision tree shown below. Once Player 1 has chosen either Up or Down, Player 2, who can see what Player 1 has chosen, must choose Up or Down at B or C. Both players know the payoffs at the end of each branch. What is the equilibrium outcome of this game?
Player 1 chooses Up and Player 2 chooses Down.
)The figure below depicts the short-run market equilibrium in a perfectly competitive market and the cost curves for a representative firm in that market. Assume that all firms in this market have identical cost curves.
The number of firms in the market will rise as firms enter the market in response to positive economic profit.
)A dominant strategy exists if
a player has a strategy that yields the highest payoff regardless of the other player's choice
)Refer to the accompanying figure. Player B can infer that Player A will
always choose Up
)Start-up costs
are the one-time costs incurred when beginning the production of a new product
The payoffs of this game are such that
both firms would benefit from a law that made publishing coupons illegal
If the government provides a subsidy of $500 per ton, then relative to before the subsidy, total economic surplus will ______ by ______ per day.
decrease; $1,000
Suppose that you have noticed that almost all of the car dealers in your city are located along a three-block stretch of the same street. A likely reason for this clustering of car dealers is that
each dealer is attempting to locate closest to the customers
)In the long run, in a perfectly competitive industry
economic profit and loss are driven to zero by entry and exit
Assume that all firms in this industry have identical cost curves, and that the market is perfectly competitive.
exit the market, leading the market supply curve to shift back to S2.
The essential feature that differentiates imperfectly competitive firms from perfectly competitive firms is that an imperfectly competitive firm
faces a downward-sloping demand curve
)One difference between the long run and the short run in a perfectly competitive industry is that
firms necessarily earn zero economic profit in the long run but may earn positive or negative economic profit in the short run.
)A decision tree is used when modeling
games in which timing matters
)One problem with government ownership of natural monopolies is that
government-owned firms have weaker incentives to cut costs than do privately-owned firms
)A price setter is a firm that
has some degree of control over its price
A credible promise is
in the promiser's interest to keep.
)The profit maximizing rule P = MC applies to
perfectly competitive firms only.
)Free entry and exit of firms is a characteristic of
perfectly competitive industries
The cumulative difference between the price producers actually receive for a good and the lowest price for which they would have been willing to sell it is called
producer surplus
"Market power" refers to a firm's ability to
raise its price without losing all of its sales
)When a pharmaceutical company introduces a new drug, its research and development costs are ______, and the cost of the chemicals used in manufacturing the drug are ______.
start-up costs; variable costs
Game theory provides tools that are used to model
strategic interdependencies.
)Once a firm has determined the quantity of output it wishes to sell, the maximum price it can charge for each unit is determined by
the demand curve facing the firm
)If a firm is earning zero economic profit, then
the firm's accounting profit is equal to the firm's implicit costs
)A prisoner's dilemma is a game in which:
the players' payoffs are smaller when both play their dominant strategy compared to when both play a dominated strategy.
The three elements of a game are
the players, the strategies, and the payoffs
)If all firms in a perfectly competitive industry are earning a normal profit, then
there is no incentive for firms to enter or exit the industry
Refer to the figure below. If Cory chooses A, then Jess's best response is:
to choose B.
Accounting profit is equal to
total revenue minus explicit costs
)Economic profit is equal to
total revenue minus the sum of explicit and implicit costs