Econ Test 2

____________ tells a firm whether it can earn profits given the price in the market. Marginal cost Total cost Average cost Average fixed cost

Average cost

Market power means the ability to: A. earn a normal profit. B. have some control over price. C. eliminate competition. D. earn an economic profit.

b

Market power means the ability to: A.earn a normal profit. B.have some control over price. C.eliminate competition. D.earn an economic profit.

b

The ________________ arises when a price changes because consumers have an incentive to consume less of the good with a relatively higher price and more of the good with a relatively lower price. substitution effect income effect preferences effect law of diminishing marginal utility

substitution effect

The marginal cost curve is generally ______________, because diminishing marginal returns implies that additional units are ________________________. downward-sloping; more costly to produce upward-sloping; more costly to produce downward-sloping; less costly to produce upward-sloping; less costly to produce

upward-sloping; more costly to produce

A firm is an economic institution that transforms _____ of production into _____ for consumers. A. inputs; outputs B. inputs; resources C. outputs; outputs D. factors; inputs

a

At 500 units of output, total cost is $50,000 and variable cost is $5,000. What does fixed cost equal at 500 units? A. $45,000 B. $9,000 C. $50,000 D. $5,000

a

Marginal revenue is: A.always increasing in a monopoly. B.equal to the market price in monopoly industries. C.equal to the change in total revenue derived from the sale of one additional unit. D.equal to total revenue in monopoly industries.

a

Market structure analysis allows economists to: A. predict the behavior of firms. B. create the conditions of competition. C. remodel the economy. D. eliminate economic profits.

a

Occasionally, ___________________ may lead to pure monopoly; in other market conditions, they may limit competition _____________. a. barriers to entry; to a few oligopoly firms b. barriers to entry; to a natural monopoly c. deregulation; requiring new patent law d. deregulation; requiring new copyright law

a

The assumed goal of any firm is to: A. maximize profit. B. maximize revenue. C. minimize cost. D. minimize taxes.

a

Which event would cause the entire budget line to shift outward? A.Income increased. B.Income decreased. C.The price of one of the goods decreased. D.The price of one of the goods increased.

a

Which of the following is a characteristic of a monopoly firm? A. barriers to entry B. vertical individual demand curve C. easy entry and exit D. many buyers and sellers

a

Which of the following is a characteristic of a monopoly firm? A.barriers to entry B.vertical individual demand curve C.easy entry and exit D.many buyers and sellers

a

The perfectly competitive market structure assumes all of the following except: ease of entry and exit. identical products. a small number of buyers and sellers. zero economic profit in the long run.

a small number of buyers and sellers.

A constantly declining long-run average cost curve is a characteristic of what type of industrial structure? A. perfect competition B. natural monopoly C. oligopoly D. monopoly

b

A constantly declining long-run average cost curve is a characteristic of what type of industrial structure? A.perfect competition B.natural monopoly C.oligopoly D.monopoly

b

A perfectly competitive firm has total revenues equal to $360 when it produces 40 units. What is the marginal revenue for the 41st unit? A. $360 B. $9 C. $8.78 D. $369

b

According to the law of diminishing marginal utility: A.total satisfaction declines as additional units are consumed. B.as more units are consumed, additional satisfaction falls. C.as more units are consumed, additional satisfaction rises. D.total satisfaction always increases.

b

Economists assume that consumers attempt to maximize: A. total profits. B. total utility. C. marginal utility. D. total income.

b

If the marginal revenue for the next unit being produced is $50, but the marginal cost is $45, the firm should: A. hold production constant. B. increase production. C. consider stopping production before more losses are incurred. D. decrease production.

b

The perfectly competitive firm's short-run supply curve is the: A. MC curve above the ATC curve. B. MC curve above the AVC curve. C. AVC curve. D. MC curve above the TC curve.

b

The reason a monopoly imposes a deadweight loss on society is that: A. government is concerned about the negative impact of a monopoly on consumers. B. consumers are denied output for which they are willing to pay more than the cost of producing it. C. social losses weigh heavily on public authorities. D. there is a gain in profitability to firms that would have been in the industry had there been no monopoly.

b

The reason a monopoly imposes a deadweight loss on society is that: A.government is concerned about the negative impact of a monopoly on consumers. B.consumers are denied output for which they are willing to pay more than the cost of producing it. C.social losses weigh heavily on public authorities. D.there is a gain in profitability to firms that would have been in the industry had there been no monopoly.

b

The use of sharp, temporary price cuts as a form of ______________would enable traditional US automakers to discourage new competition from smaller electric car manufacturers. a. natural monopoly b. predatory pricing c. monopolistic competition d. copyright

b

Occasionally, may lead to pure monopoly; in other market conditions, they may limit competition barriers to entry; to a few oligopoly firms barriers to entry; to a natural monopoly deregulation; requiring new patent law deregulation; requiring new copyright law

barriers to entry; to a few oligopoly firms

Marginal Utility Can: be positive, negative, or zero. be positive or negative, but not zero. decrease, but not become negative. increase positively, but not negatively.

be positive, negative, or zero.

A monopolist will maximize its profit when it produces the quantity of output where: A. MC is minimized. B. P is maximized. C. MR = MC. D. MR = P.

c

A perfectly competitive firm is producing 100 units (profit maximizing). If the price is $12, marginal cost is $12, and average total cost is $11, this firm's profits are: A. $0. B. $1. C. $100. D. $10.

c

Compared with competitive markets, monopolies charge ______ prices and produce a ______ output. A. higher; higher B. lower; lower C. higher; lower D. lower; higher

c

Compared with competitive markets, monopolies charge ______ prices and produce a ______ output. A.higher; higher B.lower; lower C.higher; lower D.lower; higher

c

Demand curves for products can be derived from marginal utility analysis by changing the _____ and finding the resulting _____. A. income; changes in consumption B. income; price of the good C. price of one good; changes in utility-maximizing consumption D. price of one good; price of the other good

c

For a perfectly competitive industry in the long run all of the following are true, EXCEPT: A. the industry has achieved allocative efficiency. B. the industry has achieved productive efficiency. C. firms are earning a positive economic profit. D. consumer surplus is maximized.

c

In a perfectly competitive market, individual firms set: A. prices and quantities. B. prices but not quantities. C. quantities but not prices. D. neither prices nor quantities.

c

Marginal cost (MC) will equal average total cost (ATC) at the point where: A. MC is lowest. B. fixed cost is lowest. C. ATC is lowest. D. AVC is lowest.

c

Marginal revenue is: A. always increasing in a monopoly. B. equal to the market price in monopoly industries. C. equal to the change in total revenue derived from the sale of one additional unit. D. equal to total revenue in monopoly industries.

c

Suppose that Bob leaves a job that pays $50,000 per year in order to open a new sponge business. His insurance cost is $5,000, his material cost is $25,000, his lease payments are $10,000, and his sales revenue is $90,000. Bob's economic profit is: A. $90,000. B. $50,000. C. $0. D. $40,000.

c

The demand curve facing a monopoly firm is: A. equivalent to the firm's marginal cost curve. B. upward sloping when the firm experiences economies of scale. C. equivalent to the market demand curve. D. horizontal at the market equilibrium price.

c

The demand curve facing a monopoly firm is: A.equivalent to the firm's marginal cost curve. B.upward sloping when the firm experiences economies of scale. C.equivalent to the market demand curve. D.horizontal at the market equilibrium price.

c

The slope of the budget line is: A. zero, since both prices and income are assumed to be constant. B. negative, because of the marginal rate of substitution. C. negative, since to purchase more of one good means giving up some of the other good. D. positive, since income and prices are positive.

c

When firms in an industry are earning zero economic profit: A. they are likely to be investigated for price gouging. B. they are earning zero accounting profits. C. the number of firms in the industry is stable. D. their stocks are not valued by investors.

c

When perfectly competitive firms are earning short-run economic profits, all of the following happens, EXCEPT : A. firms are attracted to the industry by the profits. B. supply increases. C. the number of firms in the industry will fall. D. market prices fall.

c

A monopolist will maximize its profit when it produces the quantity of output where: A.MC is minimized. B.P is maximized. C.MR = MC. D.MR = P.

d

A perfectly competitive firm should continue to produce until: A. MC is at a minimum. B. MC = TC. C. ATC is at a minimum. D. MC = P.

d

Economists calculate profits as total revenue minus: A. depreciation. B. costs of raw materials. C. explicit costs and depreciation. D. explicit and implicit costs.

d

If Casey receives 50 utils from his first burrito, 13 from the second burrito, and 8 from the third burrito, then: A. his total utility is 29 utils. B. his marginal utility from a fourth burrito will be greater than 8 utils. C. his total utility is declining. D. his total utility is 71 utils.

d

Suppose the MU/ P for bottled water is greater than the MU/ P for bags of chips. To maximize total utility, the consumer should buy: A. less of both goods. B. more bags of chips and less bottled water. C. more of both goods. D. more bottled water and fewer bags of chips.

d

Tena has $50 per week to spend on lunches. Egg rolls cost $2 each and a plate of chow mein costs $7. Tena wants to buy five plates of chow mein and ten egg rolls per week. This combination of chow mein and egg rolls each week is: A. obtainable, but she could buy more chow mein. B. obtainable, but she would be spending every bit of her lunch money. C. obtainable, but she could buy more egg rolls. D. unobtainable.

d

When a natural monopoly exists in a given industry, the per-unit costs of production will be a. lowest when there are a large number of producers in the industry. b. lower for the smaller firms than for larger firms. c. minimized at the output that maximizes the industry's profitability. d. lowest when a single firm generates the entire output of the industry.

d

Which of the following would occur in the long run? A. A restaurant hires another server. B. A grocery store expands its hours of operation. C. An aircraft company adds another shift. D. A new movie theater is built.

d

Which of the following is most unlikely to present a barrier to entry into a market? market forces patent laws technological advantage deregulation

deregulation

The economies-of-scale curve is a long-run average cost curve, because it allows all factors of production to change. fixed costs cannot be changed. only variable costs are allowed to change. only marginal costs are allowed to change.

it allows all factors of production to change.

Behavioral economics integrates the fields of economics and: political science psychology business medicine

psychology

When a natural monopoly exists in a given industry, the per-unit costs of production will be lowest when there are a large number of producers in the industry. lower for the smaller firms than for larger firms. minimized at the output that maximizes the industry's profitability. lowest when a single firm generates the entire output of the industry.

lowest when a single firm generates the entire output of the industry.

Behavioral economics assumes: everyone acts differently so we cannot develop predictive models of human behavior. people can be predictably irrational. most people are rational. people are only irrational when it comes to money.

people can be predictably irrational.

The use of sharp, temporary price cuts as a form of would enable traditional US automakers to discourage new competition from smaller electric car manufacturers. natural monopoly predatory pricing monopolistic competition copyright

predatory pricing

Why would labor be treated as a variable cost? they are costs incurred in the act of producing that will decrease with quantity produced they are made before production starts and vary according to the specific line of business labor costs are an input cost that firms are unable to change in the short run producing larger quantities of a good or service generally requires more workers

producing larger quantities of a good or service generally requires more workers