ECON102 quizzes 5-8

A monopolist faces a demand curve given by: P = 40 -Q, where P is the price of the good and Q is the quantity demanded. The marginal cost of production is constant and is equal to $2. There are no fixed costs of production. What is the deadweight loss associated with this monopoly?

$180.50

All of the following are characteristics of a perfectly competitive market EXCEPT

heterogeneous products

Economies of scale can result from

increased specialization -Firms can capitalize on economies of scale by allowing workers to specialize in specific tasks -This tends to increase productivity and reduce costs

Consider the graph above. The slope of the production function reflects

increasing marginal cost -The slope of the production function is marginal product -When marginal product falls, marginal cost rises

A monopoly

is an industry with a single seller of a good with no close substitutes

Economic profit

is never larger than accounting profit -Economic profit = total revenue less total opportunity costs -Total opportunity costs include both explicit and implicit costs

Relative to a competitively organized industry, a monopoly

produces less output and charges a higher price

Suppose a monopolist faces the following demand curve: What is the marginal revenue of the 5th unit of output?

$0 -Total revenue from selling 4 units is $200. Total revenue from selling 5 units is $200. The marginal revenue is the additional revenue earned when a firm produces and sells an extra unit of a good

Consider the table above. What is the average fixed cost at 24 units of output?

$0.50

Dexter is an accountant earning $45,000 per year but he hates his job. Dexter decides to leave his accounting job and start his own white water rafting guided tour business. He needs $80,000 to start his business. Dexter has $40,000 in savings that he will use to start his new business and he borrows the remaining $40,000 from a bank. The interest rate is 3%. The explicit cost of opening Dexter's white water rafting business is ____ and the implicit cost of opening the new business is ______.

$1,200; $46,200

In the above figure, assume that S0 represents the industry supply curve and D0represents the demand curve in a perfectly competitive market. A perfectly competitive firm will charge

$1.25 -A perfectly competitive firm takes the equilibrium industry price

Suppose the price elasticity of demand for a monopolist is -2. If price equals $20, then marginal revenue equals

$10

Consider the table above. What is the price of the final good?

$10 -The MRP of labor is equal to the price of the final good multiplied by the MP of labor

A monopolist faces a demand curve given by: P = 210 - 5Q, where P is the price of the good and Q is the quantity demanded. The marginal cost of production is constant and is equal to $60. There are no fixed costs of production. How much profit will the monopolist make?

$1125

A monopolist faces a demand curve given by: P = 220 - 3Q, where P is the price of the good and Q is the quantity demanded. The marginal cost of production is constant and is equal to $40. There are no fixed costs of production. What is the deadweight loss associated with this monopoly?

$1350

A monopolist faces a demand curve given by: P = 40 -Q, where P is the price of the good and Q is the quantity demanded. The marginal cost of production is constant and is equal to $2. There are no fixed costs of production. What price should the monopolist charge in order to maximize profit?

$21

Consider the table above. What is the marginal revenue product of the 4th worker?

$30 -The fourth worker contributes $3*10= $30 to the firm's total revenue

Consider the table above. What is the marginal profit when 2 workers are hired?

$30 -The marginal profit is equal to the MRP of labor minus the wage

A monopolist faces a demand curve given by: P = 105 - 3Q, where P is the price of the good and Q is the quantity demanded. The marginal cost of production is constant and is equal to $15. There are no fixed costs of production. How much profit will the monopolist make?

$675

The above figure represents the cost curves for a perfectly competitive firm. If the market price is $1, the firm will produce

0 units

A monopolist faces a demand curve given by: P = 105 - 3Q, where P is the price of the good and Q is the quantity demanded. The marginal cost of production is constant and is equal to $15. There are no fixed costs of production. How much output should the monopolist produce in order to maximize profit?

15 units

When a firm is able to charge each consumer exactly what they are willing to pay for a good, this is called

1st degree price discrimination

Which of the following will lead to a Pareto Efficient outcome?

1st degree price discrimination -With 1st degree price discrimination, there is no deadweight loss --All of the surplus is captured by the firm

In the United States, a patent is currently granted for a period of

20 years

Consider the table above. At what level of output does ATC reach its minimum?

24 -ATC = TC/Q -At Q=24, ATC = 27/24

Consider the table above. How many workers will the firm hire?

4 -The firm will hire workers up to the point where the wage equals the MRP of labor

Consider the table above. If 4 workers are hired, how much output is produced?

43 -Sum the marginal products up to L = 4

Consider the table above. What is the marginal product of the second worker?

8 -Marginal product is calculated as the change in output divided by the change in labor

The above figure represents the cost curves for a perfectly competitive firm. If the market price is $4, the firm will produce

8 units

Which of the following is always true for a perfectly competitive firm that is maximizing profits?

MR=MC=P*

A perfectly competitive firm will produce until

P*=MC

Which is always true for a perfectly competitive firm?

P*=d=MR

Which of the following is not necessary for a firm to engage in price discrimination?

The firm must know the willingness to pay of every consumer -Firms must know the willingness to pay of every consumer only if it wants to practice 1st degree price discrimination

You own a bagel shop that uses capital and labor in its production process. You recently realized that your marginal product per dollar for capital is larger than your marginal product per dollar for labor. What should you do to increase profit?

You should increase the amount of capital you are using -You will increase profits by reducing the amount of labor you use and by increasing the amount of capital you use

The short run is a situation such that

at least one input to production is fixed in quantity

Which graph above represents a firm's total cost curve?

both (c) and (d) -Graph (c) shows constantly increasing marginal costs

If a firm wants to take advantage of economies of scale, they might

convert the production process into an "assembly line" -Specialization and an assembly line production process will enable a firm to capitalize on economies of scale

Marginal cost will eventually rise as production expands due to

diminishing marginal product -In the short run marginal product may at first increase, but will eventually decrease -Marginal cost may at first decrease, but will eventually increase

Consider the labor demand curve for the representative firm below. The curve eventually slopes downward due to

diminishing marginal returns

When each additional worker hired contributes less than the previous worker hired to total output, we can say there are (is)

diminishing marginal returns -As more and more of a variable input is added to a fixed input, the additional output produced by the variable input will eventually decline

When economic profits in a perfectly competitive industry are positive

either more firms will enter or existing firms will expand output

A profit maximizing firm will hire additional units of capital as long as the rental price of capital is

equal or less than the marginal product of capital multiplied by the final good's price -The firm will hire capital up to the point where the rental price of capital is equal to the MRP of capital

If a perfectly competitive firm chooses output such that MR< MC

it could decrease output and make more profit -If quantity is chosen such that MR<MC, then the extra revenue that it gained by producing the last unit was less than the extra cost Therefore, the firm should cut output -The firm is not profit maximizing

If a perfectly competitive firm is making positive economic profits, then

it is operating in the short run -In the long run, all perfectly competitive firms make zero economic profit and produce at minimum average total cost -A firm producing at its minimum average variable cost curve, it is making negative economic profits

If a situation is not Pareto Efficient, then

it is possible to make someone better off without making anyone else worse off

Your bagel shop uses both capital and labor in the production of bagels. In this production process capital and labor are complements. You install a new oven and the marginal product of capital increases. As a result

labor becomes more productive -Since K and L are complements, the more productive capital will allow labor to be more productive as well

If average total cost is rising, it must be true that

marginal cost is greater than average total cost -The marginal cost curve intersects the average total cost curve at its minimum, so if ATC is rising, then MC must be larger than ATC

A perfectly competitive firm using multiple inputs maximizes profit by hiring inputs until the

marginal product per dollar is the same for all inputs -When multiple inputs are used the profit maximizing condition requires that the marginal product per dollar for all inputs be equal to one another

The labor supply curve would shift to the right if

more workers immigrated to the area -Labor supply increases as immigration increases

Suppose a monopolist faces the following demand curve: What is the marginal revenue of the 6th unit of output?

none of these

Suppose the price elasticity of demand for a monopolist is -10. If price equals $20, then marginal revenue equals

none of these

A perfectly competitive firm faces a demand curve that is

perfectly elastic

When the price of a factor of production increases, firms that use that factor will

reduce output and increase their demand for other inputs -This is the output effect of a factor price increase. The demand for other inputs can go up or down depending on the substitutability between factors of production -EX. in an office, if secretaries can do the job of computers, then an increase in the price of computers would lead firms to hire more secretaries. --On the other hand, if secretaries cannot work without computers, an increase in the price of computers will decrease demand for secretaries

Which of the following is a fixed cost to a firm that produces ice cream?

rent paid for factory space

The marginal product of labor can be described as

the additional output produced by the last worker hired

In the above figure, the left hand side graph represents a perfectly competitive industry and the right hand side graph represents a perfectly competitive firm. Which of the following is TRUE?

the firm is making zero economic profit -Because P=ATC at the profit maximizing rate of output, the firm is making zero economic profit

The above figure represents the cost curves for a perfectly competitive firm. If the market price is $5, then

the firm will be making zero economic profit -Because $5 equals the ATC at the profit maximizing level of output, the firm will be making zero economic profit

In the above figure, the left hand side graph represents a perfectly competitive industry and the right hand side graph represents a perfectly competitive firm. Suppose that the original demand curve is D0, as labeled. Due to an increase in income, the demand curve shifts to the right. Then,

the firm will expand output

The above figure represents the cost curves for a perfectly competitive firm. If the market price is $1, then

the firm will shut down -Because $1 is less than AVC, the firm will shut down -It is not covering its variable costs

If a firm is a "price taker"

the firm's demand curve is horizontal at the competitive price -A price taker faces a perfectly elastic demand curve, which is horizontal at the competitive price

In the above figure, the left hand side graph represents a perfectly competitive industry and the right hand side graph represents a perfectly competitive firm. As the demand curve decreases from D2 to D1,

the firm's output decreases from 11 to 9

In the above figure, the left hand side graph represents a perfectly competitive industry and the right hand side graph represents a perfectly competitive firm. As the demand curve increases from D0 to D1,

the firm's output increases from 8 to 9

The production function shows the relationship between

the inputs to production and the quantity of output produced

The factors of production are

the inputs used in the production of goods and services -The factors of production are land, labor capital and entrepreneurship. These inputs are used to produce goods and services

The graph above represents

the marginal product of labor -This is a graph of the marginal product of labor since output (Q) is on the vertical axis

The marginal revenue product of labor is equal to

the output price multiplied by the marginal product of labor

When a firm is a price taker in the goods market, it has no control over market price. When a firm is a price taker in the labor market, it has no control over

the wage paid to the workers it hires

The average product of labor is calculated as

total output divided by the number of workers employed APL =Q/L

Norman's Bagel shop sold 3 million bagels last year. Half of the bagels were plain bagels and sold for $.50 each. The remaining bagels were cinnamon raisin bagels and sold for $.80 each. Last year Norman's

total revenue was $1.95 million TR = ($0.50*1.5million) + ($0.80*1.5million)