Economics - Chp 6,7,8,9,11

(Table: Cakes) Use Table: Cakes. Pat is opening a bakery to make and sell special birthday cakes. She is trying to decide how many mixers to purchase. Her estimated fixed and average variable costs if she purchases 1, 2, or 3 mixers are shown in the table. Assume that average variable costs do not vary with the quantity of output. If Pat purchases 3 mixers and bakes 400 cakes per day, what is her average fixed cost?

$

(Figure: The Perfectly Competitive Firm) Use Figure: The Perfectly Competitive Firm. The figure shows a perfectly competitive firm that faces demand curve d and maximizes profit. If the market price is $3, the firm will produce _____ units of output per day.

300

(Figure: Cost Curves for Corn Producers) Use Figure: Cost Curves for Corn Producers. The market for corn is perfectly competitive. If the price of a bushel of corn is $14, in the short run, the farmer will produce _____ of corn and earn an economic _____ equal to _____.

4 bushels, Profit 0

When a cherry orchard in Oregon adds a worker, the total cost of production increases by $24,000. Adding the worker increases total cherry output by 600 pounds. Therefore, the marginal cost of the last pound of cherries produced is:

40.00

(Table: Workers and Output) Use Table: Workers and Output. After graduation, you achieve your dream of opening an art shop that specializes in selling mud statues. You pay $10 per day on a loan from your uncle, regardless of how much you produce. You also pay $10 per day to each of the workers who you hire to make the mud statues. The total cost of producing 43 statues is:

50

(Table: Cost Data) Use Table: Cost Data. The average total cost of producing 6 purses is:

50.00

Use Table: Production Function for Soybeans. Assume that the fixed input, capital, is 10 acres of land and a tractor, which have a combined cost of $150 per day. The cost of labor is $100 per worker per day. The total cost of producing 70 bushels of soybeans is:

550.00

(Figure: Game-Day Shirts) Use Figure: Game-Day Shirts. Rick is one of 10 vendors who sell game-day T-shirts at football games in a perfectly competitive market. His costs are identical to the costs of the other 9 vendors. When the industry is in long-run equilibrium, the price of each shirt will be _____, and the total quantity supplied in the market will be _____.

?

(Figure: The Profit-Maximizing Firm in the Short Run) Use Figure: The Profit-Maximizing Firm in the Short Run. If the market price is less than P 2, the firm will _____ in the short run.

?

(Table: Cakes) Use Table: Cakes. Pat is opening a bakery to make and sell special birthday cakes. She is trying to decide how many mixers to purchase. Her estimated fixed and average variable costs if she purchases 1, 2, or 3 mixers are shown in the table. Assume that average variable costs do not vary with the quantity of output. If Pat purchases 2 mixers and bakes 400 cakes per day, what is her average fixed cost?

?

(Table: Cost Data) Use Table: Cost Data. The average total cost of producing 2 purses is:

?

(Table: Costs of Birthday Cakes) Use Table: Costs of Birthday Cakes. Assume that fixed costs are $10. What is the marginal cost of the fourth cake?

?

(Table: Total Product and Marginal Product) Use Table: Total Product and Marginal Product. The marginal product of the second worker is _____ units per period.

?

(Table: Variable Costs for Lawns) Use Table: Variable Costs for Lawns. During the summer, Alex runs a lawn-mowing service, and lawn-mowing is a perfectly competitive industry. Assume that costs are constant in each interval; so, for example, the marginal cost of mowing each of the lawns from 1 through 10 is $10. Also assume that he can only mow the quantities of lawn given in the table (and not numbers in between). His only fixed cost is $1,000 for the mower. His variable costs include fuel, his time, and mower parts. If the price for mowing a lawn is $60, how many lawns will Alex mow?

?

A business produces 10 pairs of eyeglasses. It incurs $35 in average total cost and $5 in average fixed cost. The average variable cost of producing 10 pairs of eyeglasses is:

?

As defined in the text, the long run is a planning period:

?

In the long run:

?

Linda's Copy Shop Production. Linda's production runs into diminishing returns to her variable inputs when she employs the _____ unit.

?

Use Table: Variable Costs for Lawns. During the summer, Alex runs a lawn-mowing service, and lawn-mowing is a perfectly competitive industry. Assume that costs are constant in each interval; so, for example, the marginal cost of mowing each of the lawns from 1 through 10 is $10. Also assume that he can only mow the quantities of lawn given in the table (and not numbers in between). His only fixed cost is $1,000 for the mower. His variable costs include fuel, his time, and mower parts. If the price for mowing a lawn is $40, how much is Alex's total cost at the profit-maximizing output?

?

The short-run individual supply curve for a perfectly competitive firm is given by the marginal cost curve above minimum average fixed cost.

False

The short-run industry supply curve is more elastic than is the long-run industry supply curve.

False

Which statement describes a necessary condition for perfect competition?

Firms produce a standardized product.

As a firm increases production in the short run, the marginal cost of output increases because the marginal product of the variable input decreases.

TRUE

When long-run average total cost is constant as output increases, the firm has constant returns to scale

TRUE

If a California avocado stand operates in a perfectly competitive market, that stand's owner will be a price:

Taker

What's a unit?

The MPL is defined as the increase in the quantity of output when you increase the quantity of that input by one unit.

input

The resources or factors of production used in the production of a firm's output

Which statement is NOT characteristic of perfect competition?

There are many producers; one firm has a 25% market share, and all of the remaining firms have a market share of less than 2% each.

A firm's total output times the price at which it sells that output is _____ revenue.

Total

Cindy's Nails operates in the perfectly competitive pedicure industry. The city is considering requiring nail salons to be certified by a health inspector. The certification will cost $1,000 annually and is thus a fixed cost. The certification will affect Cindy's decision to operate in the long run but will not affect the number of pedicures she chooses to perform in the short run.

True

Firms choose their level of fixed cost in the long run based on the amount of output that they expect to produce.

True

If the Kansas corn market is perfectly competitive, it means there is easy entry into this market.

True

In long-run equilibrium in a perfectly competitive market, all firms will be operating at the same level of marginal cost.

True

A firm's shut-down point is the minimum value of _____ cost.

average variable

The difference between total revenue and total cost is:

economic profit or loss.

It is common in large breweries for the long-run average total cost to decline as output increases. This indicates that many breweries operate with:

economies of scale.

Perfect competition is a model of the market that does NOT assume:

firms facing downward-sloping demand curves.

The best example of a fixed input

fixed input is the factory, building, equipment, Land or other capital used in production.

A perfectly competitive firm will earn a profit and will continue producing the profit-maximizing quantity of output in the short run if the price is:

greater than average total cost.

An assumption of the model of perfect competition is:

identical goods.

A fixed cost:

is positive, even if the firm doesn't produce any output in the short run

When a firm produces a small amount of output, the spreading effect:

is stronger than the diminishing returns effect

When a firm produces a small amount of output, the spreading effect:

is stronger than the diminishing returns effect.

Marginal product

is the change in output resulting from a one-unit increase in the amount of labor input (ΔQ/ΔL)

long run

is the period in which all inputs can be varied.

production function

is the relationship between the quantity of inputs a firm uses and the quantity of output it produces.

What do we mean by a unit of labor?

it doesn't matter, as long as you are consistent.

For the Colorado beef industry to be classified as perfectly competitive, ranchers in Colorado must have _____ on prices and beef must be a _____ product.

no noticeable effect; standardized

Suppose that some firms in a perfectly competitive industry are earning positive economic profits. In the long run, the:

number of firms in the industry will increase.

In perfect competition, the profit-maximizing level of output occurs where the:

price < marginal cost above minimum AVC.

Ashley, who makes knitted caps, determines that her marginal cost of knitting one more cap is $10. A consumer offers her $12 for one more knitted cap. Ashley will:

sell the additional cap since the marginal revenue is greater than the marginal cost for the unit.

Hank operates a perfectly competitive firm in the long run. For several periods, the market price has been $20, and his break-even price is $22. Given the chance to change his fixed costs, Hank should

seriously consider exiting the industry since he is consistently making economic losses

Janet's poodle grooming salon has a total cost curve expressed by the equation TC = 100 + 3 Q 2, where Q is the quantity of dogs groomed. Given this expression, Janet is operating in the:

short run, and her fixed costs are $100

total product curve

shows how the quantity of output depends on the quantity of the variable input for a given quantity of the fixed input

In the short run:

some inputs are fixed and some inputs are variable

As production increases and the fixed cost is divided by larger quantities of output, average fixed cost drops. This is referred to as the _____ effect.

spreading

Production

the process of turning inputs into outputs

The marginal product of labor is the:

the slope of the total product of labor curve.

For Heidi, the marginal cost of producing one additional photograph equals the change in _____ cost divided by the change in the _____ of photographs.

total; number

In 2016, the poverty threshold for a household with one person was:

$11,880

Use Table: Demand for Solar Water Heaters. The marginal cost of producing solar water heaters is zero, and only two firms, Rheem and Calefi, produce them. If Rheem and Calefi get into a price war, the equilibrium price in the market will be

0

If a perfectly competitive firm sells 300 units of output at $1 per unit, its marginal revenue is:

1

As of 2015, approximately _____ of working-age adult Americans have no health insurance.

1% to 10%

Use Table: Lindsay's Farm. Lindsay's fixed cost of production is:

200.00

The Perfectly Competitive Firm) Use Figure: The Perfectly Competitive Firm. The firm faces demand curve d and maximizes profit. In a long-run equilibrium, this firm will produce _____ units of output and sell its output for _____.

250; $1.90

Use Table: Lunch. This table shows market demand for picnic lunches for people taking all-day rafting trips on the river. Joe has a firm providing this service, and his marginal cost and average cost for each lunch are a constant $4. If Joe is a monopolist, how many lunches will he produce in the long run?

30

Payoff Matrix for Ajinomoto and ADM. The optimal combination for maximum combined profit occurs when ADM produces _____ million pounds and Ajinomoto produces _____ million pounds.

30,30

other people money effect

3rd party pays - like insurance - consumers are insensitive

(Figure: PPV) Use Figure: PPV. The figure shows the demand and marginal revenue for a pay-per-view football game on cable TV. Assume that the marginal cost and average cost are a constant $20. If the cable company is a monopoly, how much consumer surplus is there when the monopolist maximizes profit?

80

(Figure: Marginal Product of Labor) Use Figure: The Marginal Product of Labor. The total product of labor for eight workers is _____ bushels.

96

(Figure: Long-Run Average Cost) Use Figure: Long-Run Average Cost. This firm has _____ in the output region from B to C.

?

Use Figure: Payoff Matrix I for Blue Spring and Purple Rain. The figure refers to two producers of bottled water. Each has two strategies available to it: a high price and a low price. The dominant strategy for Purple Rain is to:

?

Use Figure: Pricing Strategy in Cable TV Market I. In the figure, the dominant strategy for CableNorth:

?

Medicare

A federal program of health insurance for persons 65 years of age and older

Technology Superiority

A firm that maintains a consistent technological advantage over potential competitors can establish itself as a monopolist.

perfectly competitive market

A market that meets the conditions of (1) many buyers and sellers, (2) all firms selling identical products, and (3) no barriers to new firms entering the market.

GOVERNMENT-CREATED BARRIER

A patent gives an inventor a temporary monopoly in the use or sale of an invention or A copyright gives the creator of a literary or artistic work sole rights to profit from that work.

short run

A period during which at least one of a firm's resources is fixed

Which transaction is a transfer payment?

A senior citizen receives a Social Security payment.

Monopoly Profit Maximization

Choosing Quantity - Choose Q where MR = MC and Choosing Price - Choose the highest price you can get away with, which is the highest price consumers will pay for that quantity.

wellfare state

Collection of government programs designed to alleviate economic hardship

(Figure: The Profit-Maximizing Firm in the Short Run) Use Figure: The Profit-Maximizing Firm in the Short Run. Which curve is the AVC curve?

Curve O

Single-payer system:

a health care system in which the government is the principal payer of medical bills funded through taxes. Like medicare

The long run refers to the time period when:

all inputs are variable.

A firm will NOT produce

if P < min AVC.

In order to find the profit-maximizing quantity of output for a monopolist,

you look for the point where the MR curve crosses the MC curve.

(Table: Cakes) Use Table: Cakes. Pat is opening a bakery to make and sell special birthday cakes. She is trying to decide how many mixers to purchase. Her estimated fixed and average variable costs if she purchases 1, 2, or 3 mixers are shown in the table. Assume that average variable costs do not vary with the quantity of output. If Pat purchases 3 mixers and bakes 100 cakes per day, what is her average fixed cost?

$

Use Table: Demand Schedule of Gadgets. The market for gadgets consists of two producers, Margaret and Ray. Each firm can produce gadgets with no marginal cost or fixed cost. Suppose that these two producers have formed a cartel, agreed to split production of output evenly, and are maximizing total industry profits. If Margaret decides to cheat on the agreement and sell 100 more gadgets, Margaret's profit will be _____, and Ray's profit will be _____

$1,400; $1,000

Firms will choose to produce

(even at a loss) if they can cover their variable AND SOME of their fixed costs.

If a nation's Gini coefficient is rising over time, it is an indicator of a(n):

. increase in income inequality.

One framework used to analyze strategic choices is:

.game theory.

(Figure: PPV) Use Figure: PPV. The figure shows the demand and marginal revenue for a pay-per-view football game on cable TV. Assume that the marginal cost and average cost are a constant $40. If the cable company practices perfect price discrimination, deadweight loss will be:

0

The Profit-Maximizing Output and Price) Use Figure: The Profit-Maximizing Output and Price. Assume that there are no fixed costs and AC = MC = $200. If this were a perfectly competitive industry, producer surplus would be:

0

The U.S. is unique in that

1. We rely much more on private health insurance 2. We spend much more on health care per person 3. We are the only wealthy nation with a large number of uninsured people

Four principle Models of a Market Structure

1. perfect competition 2. monopoly 3. oligopoly 4. monopolistic competition

Rationale for Welfare States

1.) Alleviating income inequality 2.) Alleviating economic insecurity 3.) reducing poverty and provided access to health care

Premise of prisioner dilemma

1.) Each player has an incentive to choose an action that benefits itself at the other player's expense. 2.)When both players act in this way, both are worse off than if they had acted cooperatively.

What causes poverty

1.) Lack of education 2.)lack of english proficiency 3.) non-white or non-male 4.)bad luck

producing an additional unit of output has two effects on total revenue

1.) Positive Quantity effect: one more unit is sold increasing total revenue by the price at which the unit is sold 2.) A negative price effect: in order to sell one more unit, the monopolist must cut the market prices on all units sold.

three important product differentiations

1.) Style or type, 2.) location 3.)quality

Increasing outputs have two opposing effects on ATC

1.) The spreading effect: The larger the output, the more output over which fixed cost is spread, leading to lower average fixed cost. 2.)The diminishing returns effect: The larger the output, the more variable input required to produce additional units, which leads to higher average variable cost.

Tacit collusion is limited by a number of factors

1.) less concentration 2.) complex prices and product scheming 3.) differences in interests 4.) barginning power of buyers

Monopolies barriers to entry

1.)control of natural resources or inputs 2.)increasing returns to scale 3.)technological superiority 4.)network externality 5.)government made barriers like patents and copy rights

In 2014, health care expenditures in the United States accounted for _____ of GDP.

15% to 20%

(Table: Costs of Birthday Cakes) Use Table: Costs of Birthday Cakes. Assume that fixed costs are $10. What is the average fixed cost of 4 cakes?

2.50

Payoff Matrix for Gehrig and Gabriel. The figure describes two people who sell handmade Davy Crockett figurines in San Antonio. Both Gehrig and Gabriel have two strategies available to them: to produce 5,000 figurines each month or to produce 7,000 figurines each month. The combined profits of the two are maximized if Gehrig produces _____ figurines and Gabriel produces _____

5000, 5000

For which item(s) is/are the ability-to-pay principle is a good justification - . the welfare state II. government transfers III. the income tax structure IV. Pigouvian subsidies

?

If a monopolist is producing a quantity that generates MC = MR, then profit:

?

QUESTION 21 The rising income gap among highly educated workers in the United States:

?

Use Table: Demand Schedule of Gadgets. The market for gadgets consists of two producers, Margaret and Ray. Each firm can produce gadgets at a marginal cost of $2 and no fixed cost. Suppose that these two producers have formed a cartel, agreed to split production of output evenly, and are maximizing total industry profits. If Margaret decides to cheat on the agreement and sell 100 more gadgets, the market price of gadgets will be:

?

increasing returns to scale (economies of scale)

A given quantity of output is produced more cheaply by one large firm than by two or more smaller firms.

welfare state

A government that undertakes responsibility for the welfare of its citizens through programs in public health and public housing and pensions and unemployment compensation etc.

Patient Protection and Affordable Care Act (PPACA)

A law—commonly referred to as Obamacare or the Affordable Care Act—signed by President Obama in March 2010. PPACA includes a number of health-related laws that will take effect over several years, including prohibiting denial of coverage based on pre-existing conditions, expanding Medicaid eligibility, allowing dependent children to remain on their parents' insurance plan until they turn 26, and restricting insurers' ability to enforce annual spending caps

Monopoly

A market in which there are many buyers but only one seller.

Oligopoly

A market structure in which a few large firms dominate a market - LIke COLA

Average Total Cost (ATC)

ATC=TC/Q

(Figure: The Profit-Maximizing Firm in the Short Run) Use Figure: The Profit-Maximizing Firm. O is the _____ curve.

AVC

Market power refers to the

Ability of a firm to raise prices

Common techniques for price discrimination

Advance purchase restrictions Volume discounts Two-part tariffs

Rationale for the welfare state? 1st points

Alleviate economic inequality - modest transfer from rich to poor do more good than harm - Like a poverty program

Duopoly

An oligopoly consisting of only two firms is a duopoly. Each firm is known as a duopolist. Realizes the proficts would be higher if it limited its production (and kept prices higher)

How do monopolies protect their profits in the long run?

Barriers to entry

The government agency in the United States that reviews proposed mergers of firms in the same industry and prohibits mergers that it believes will reduce competition is the:

Department of Justice.

Ingredients for California Electricity Crisis

Deregulation, Large up-front fixed costs, incumbent firms could now manipulate the market.

long-run supply curve

D↑ > P↑ > profits> entry> S↑ > P↓ > back to zero profit (on LRS curve).

Employment-based health insurance an advantage?

Employees are likely to contain a representative mix of healthy and less healthy people, rather than a selected group of people who want insurance because they expect to pay high medical bills.

Short-run economic profits in a perfectly competitive industry encourage firms to _____ the industry, and short-run losses encourage firms to _____ the industry.

Enter, Exit

The best example of variable input

Examples of variable inputs are labor or machinery

A trust is a government agency that enforces laws limiting the power of oligopolies.

FALSE

According to the optimal output rule, profits are maximized when firms produce where the difference between marginal revenue and marginal cost is the largest.

False

Competition among sellers in monopolistic competition means that all of the firms in the industry will produce the same product.

False

Gas stations are not monopolistically competitive because everyone knows the gasoline is the same, regardless of where it is purchased.

False

In the long run, some of a firm's costs are fixed, while others are variable.

False

Lawn mowing is a perfectly competitive industry. Alex's Lawn-Mowing Service should close if Alex expects his long-run economic profits to equal zero

False

The law enacted in 1890 to break up existing monopolies and prevent the formation of new ones was the Glass-Steagall Act

False

The purpose of the Sherman Antitrust Act was to encourage the establishment of monopolies to replace trusts.

False

Medicaid

Federal program that provides medical benefits for low-income persons.

tacit collusion

Firms indirectly coordinate actions by signaling their intention to reduce output and maintain pricing above competitive levels.

Rationale for the welfare state? 3rd point

General external benefits to society - by helping disadvantage people avoid unemployment, crime and cronic health problems

The _____ is widely used to measure income inequality.

Gini coefficient

Poverty rose much faster in the Great Depression than the Great Recession: Why?

Government antipoverty programs protected the poor.

Children raised in poverty are more likely to live in poverty as adults than are other children because low income is highly correlated with: I. higher high school dropout rates. II. a greater risk of mental problems and behavioral disorders. III. higher rates of illness and hospitalization.

Higher high school dropout rates, a greater risk of mental problems and behavioral disorders, higher rates of illness and hospitalization.

Which factor is/are associated with poverty? I. lack of adequate employment II. lack of education III. lack of proficiency in English

I, II, and III

When is production profitable?

If TR > TC, the firm is profitable. If TR = TC, the firm breaks even. If TR < TC, the firm incurs a loss.

entry and exit

If firms are earning a positive economic profit, others will enter the industry and if firms are earning negative profits, they might choose to exit the industry. Entry and exit will ensure that prices equal the minimum point of the long run average cost curve in the long run.

Means-tested program

Income security program benefiting only individuals or families whose incomes fall below a certain level.

When a monopolist practices price discrimination, compared with a single-price monopolist, monopoly profits will:

Increase

In the United States, individuals pay directly (out of pocket) _____ of medical costs.

Less than 15%

Consequences of poverty

Lower life expectancy and worse health. Social issues - poor housing, crime, mental health. Poor sanitation. Low levels of education/training. Weak economic growth. Low living standards.

How to calculation marginal Product

MPL=Dq/Dl

How many producers are there in a monopolistic competition?

Many

How many producers are there in a perfect competition?

Many

QUESTION 26 The change in total output resulting from a one-unit increase in the quantity of an input used, holding the quantities of all other inputs constant, is:

Marginal Product

Why would firms remain in an industry if profits are zero?

Means the market price of the firm is covering all of its costs including enough to pay labor and capital their ordinary opportunity cost.

programs are designed to provide benefits to people whose income falls below some minimum.

Means-tested

Which program provides in-kind transfers?

Medicaid

Which U.S. welfare program is an in-kind benefit that is NOT means-tested?

Medicare

IS THERE A MONOPOLY SUPPLY CURVE?

Monopolists don't have supply curves since they control prices there is no set relationship between Price and Quantity supplied.

If large fixed costs result in ATC falling as output increases and this occurs over the relevant range of output, this industry is a:

Natural Monopoly

imperfect competition

No one firm has a monopoly, but producers can affect market prices. Cell Phone companies

Which statement does NOT describe OPEC?

OPEC is the name of the free-trade zone encompassing the Middle East and other oil-producing nations

Which statement is NOT true about OPEC?

OPEC operates in a perfectly competitive market.

quantity effect

One more unit is sold, increasing total revenue by the price at which the unit is sold.

A perfectly competitive firm is definitely earning an economic profit when:

P > ATC

Use Figure: Monopoly Profits in Duopoly. If the two firms in the figure colluded to split production evenly and to maximize their joint profits, the market price they set would be _____, and each firm's economic profit would be _____. (Assume that the market demand curve is D 2.)

P2; given by the area of the rectangle bounded by P1P2EF = FEBG

If a monopoly has a linear demand curve and is producing at the profit-maximizing level of output, at that level of output, demand is:

Price Elastic

Calculating total costs and Profit

Profit = TR − TC = (TR/Q − TC/Q) × Q, or Profit = (P − ATC) × Q

Optimal output rule:

Profit is maximized by producing the quantity of output at which the marginal revenue of the last unit produced is equal to its marginal cost.

How to ensure natural monopolies pass on cost saving to consumers?

Public (Government) Ownership and Price Regulation

Use Figure: Monopoly Profits in Duopoly. Given the duopoly industry illustrated in the figure, if each firm acted on the belief that it faced demand curve D 2 and acted without consideration of the other, each firm would attempt to maximize economic profits by producing quantity _____ and setting price equal to _____.

Q2; P2

(Figure: Short-Run Monopoly) Use Figure: Short-Run Monopoly. The profit-maximizing quantity of output is quantity:

R

overcoming the prisoner's dilemma

Repeated interaction and tacit collusion

Children in low-income families that can't afford insurance but are above the poverty threshold are covered by:

SCHIP (State Children's Insurance Health Program

Which U.S. welfare program is a monetary benefit that is NOT means-tested?

Social Security

Which example BEST illustrates social insurance?

Social Security

Which program is NOT an antipoverty program?

Social Security

An example of a social insurance program is:

Social Security payments to the disabled

A market that is in long-run equilibrium must also be in short-run equilibrium.

TRUE

A profit-maximizing monopoly will never set price in the inelastic region of the demand curve.

TRUE

Consumer surplus in monopoly is smaller than it is in the same industry operating under perfect competition.

TRUE

impossible when there are many producers

Tacit Collusion

____ is/are a means-tested monetary benefit in a welfare program.

Temporary Assistance for Needy Families

zero consumer surplus

The entire surplus is captured by the monopolist in the form of profit.

Deregulation

The lifting of government restrictions on business, industry, and professional activities.

price effect

To sell the last unit, the monopolist must cut the market price on all units sold. This decreases total revenue.

Government payments to individuals for which no good or service is exchanged are

Transfer Payments

A monopoly can choose the price or it can choose the quantity, but it cannot choose price and quantity independent of each other.

True

A monopoly increases price by limiting the quantity supplied to a market.

True

A trust is formed when shareholders of the major companies in an industry place their shares in the hands of a board of trustees that controls the companies and acts as a single firm that can engage in monopoly pricing.

True

An oligopoly that engages in price discrimination will charge higher prices to customers with the most inelastic demand.

True

Consumer surplus is higher under a single-price monopoly than it is under a perfectly price-discriminating monopoly.

True

Scale is the size of a firm's operations

True

Tacit collusion is not feasible in monopolistic competition because of the large number of competing firms.

True

The noncooperative equilibrium of a prisoners' dilemma game can be avoided if the game is played repeatedly and firms engage in strategic behavior.

True

When a monopolist practices price discrimination as opposed to setting a single price, the monopolist sells more and increases profits.

True

Marginal product initially rises as more workers are hired; then it declines.

True - example: Past a certain point, another field worker will be so crowded that his marginal product will be lower than the last worker's

A factor of production whose quantity can be changed in the SHORT run is a(n) _____ factor of production

Variable

A perfectly competitive firm will continue producing in the short run as long as it can cover its _____ cost.

Variable

Use Figure: Collusion. The price charged by the industry with collusion is shown by:

W

Why would a firm would want to enter an industry if the market price is only slightly greater than the break-even price?

We are using economic profit as our measure, so if the market price is above the break-even level (no matter how slightly), the firm can earn more in this industry than it could elsewhere.

Monopoly profit comes at consumers' expense:

When a monopoly raises prices and lowers Q, consumer surplus falls and deadweight loss is created.

In a long-run equilibrium, economic profits in a perfectly competitive industry are:

Zero

In-Kind Benefit

a benefit given in the form of goods or services - food stamps, medicaid, affordable care act

Sunk cost

a cost that has already been committed and cannot be recovered

Given that the definition of poverty has not been adjusted to reflect the long-term rise in average incomes, you would expect _____ in the percentage of the population living below the poverty line.

a decrease

Natural monopolies are NOT likely to include:

a diamond-mining company.

Monopolist

a firm that is the only producer of a good that has no close substitutes

In the short run

a firm will produce if P > shutdown price (min AVC).

prisioners dilemma

a game in which pursuing dominant strategies results in noncooperation that leaves everyone worse off

Government transfer

a government payment to an individual or a family

poverty program

a government program designed to aid the poor

Social Insurance Program

a government program designed to provide protection against unpredictable financial distress

negative income tax

a government program that supplements the income of low-income working families (like earned income tax credit

Tacit collusion in an industry is limited by:

a large number of firms and the bargaining power of buyers.

natural monopolies

a market that runs most efficiently when one large firm supplies all of the output - Like natural gas, water, electricity

Gini Coefficient

a number that summarizes a country's level of income inequality based on how unequally income is distributed across quintiles (higher = less equal)

product differentiation

a positioning strategy that some firms use to distinguish their products from those of competitors

dominant strategy

a strategy that is best for a player in a game regardless of the strategies chosen by the other players

non-price competition

a way to attract customers through style, service, or location, advertising, but not a lower price

Medicare is health insurance coverage provided to:

all Americans age 65 and older and is not means-tested.

In perfect competition, _____ are _____, and _____ are price takers.

all goods; standardized; all market participants

A dominant-strategy equilibrium occurs when:

all players' action of choice is always best for them, regardless of the action of the other players.

Among the reasons for a welfare state is the desire to alleviate income inequality and:

alleviate economic insecurity.

Rationale for the welfare state? 2nd point

alleviating economic insecurity - protection against unpredicable financial distress - Social Insurance Programs to provide a level of protection

poverty threshold

an income level below that which is needed to support families or households - in 2020, 26246 for a family of 4 and 17330 for a family of 2

fixed input

an input whose quantity is fixed for a period and cannot be varied.

In 2015, _____ of the U.S. population was living in poverty.

approximately 13%

Players who don't take their interdependence into account

arrive at a Nash, or noncooperative, equilibrium

The total cost curve becomes steeper

as more output is produced, a result of diminishing returns.

price differentiation

attempt by a firm to convince buyers that its product is different from the products of other firms in the industry

marginal cost is upward sloping

because of diminishing returns

Why is the marginal cost curve upward sloping?

because of diminishing returns to inputs

Average fixed cost is downward sloping

because of the spreading effect.

game theory

behavior in situations of interdependence - a way of predicting outcomes in strategic situations like oligopolies

Average variable cost also is upward sloping

but is flatter than the marginal cost curve.

Large barriers to entry in the gas station business explain why the only two gas stations in a small town:

can earn an economic profit in the long run

In the United States since World War II, the distribution of income has:

changed first toward equality and then, after 1968, toward greater inequality.

The poverty threshold is adjusted each year to reflect:

changes in the cost of living

Use Figure: Payoff Matrix II for Blue Spring and Purple Rain. The figure describes two producers of bottled water. Each has two strategies available to it: a high price and a low price. The dominant strategy for Purple Rain is to

charge a low price.

Price discrimination is the practice of:

charging different prices to buyers of the same good.

"you can't take it with you" effect

consumers are insensitive to the price of life-saving drugs

Value in diversity

consumers gain from the increased diversity of products

The sources of differentiated products do NOT include:

consumers' dislike of having options.

Critics of the National Collegiate Athletic Association (NCAA) argue that the NCAA monopolizes college athletics and prevents student athletes from earning money while in college. If this is true, what type of entry barrier does the NCAA have?

control of a scarce resource or input

Monopolistic competition is similar to perfect competition because firms in both market structures:

do not face any barriers to entry to the industry in the long run.

The MAIN reason a monopoly engages in price discrimination is that

doing so increases its profits.

For the monopolistically competitive wild-caught seafood market, the demand curve for any individual firm is _____, and there are _____ producers of seafood.

downward sloping; many

In a perfectly competitive industry with free entry and exit,

each firm will have zero economic profit in long-run equilibrium

Private health insurance:

each member of a large pool of individuals pays a fixed amount annually to a private company that agrees to pay most of the medical expenses of the pool's members (United States)

In the long run, each firm in a perfectly competitive industry will:

earn only enough to cover the opportunity costs of all resources used in production.

Suppose that you build a new jumbo jet that can carry five times more passengers than can any other competitor. You have high fixed costs due to the quantity of capital used to build the jets, and average cost is decreasing for all levels of demand. In this case, your monopoly would result from:

economies of scale

The long-run market equilibrium of a perfectly competitive industry is

efficient: no mutually beneficial transactions go unexploited.

At the profit-maximizing level of production, a perfectly competitive industry will produce an _____ amount of output, and a monopolist produces an _____ amount of output.

efficient; inefficient

antitrust policies

efforts undertaken by the government to prevent oligopolistic industries from becoming or behaving like monopolies

Becky works for a large grocery store that provides a health insurance program to all workers. This is an example of:

employment-based health insurance

competition among sellers

entry by more producers reduces the quantity each existing producer sells

Medicaid is funded by:

federal and state governments

How many producers are there in a oligopoly?

few

If P > break-even (min ATC), firms are profitable.

firms are profitable.

Cullusion

firms cooperating to raise each other's profits

Average fixed cost

fixed cost divided by the quantity of output ATC = FC/Q

Monopolistic competition is characterized by

free entry and exit in the long run

The natural monopoly:

generates more consumer surplus than would an unregulated monopolist if regulated to produce where marginal cost equals marginal revenue.

Goverment transfer programs

government payment to an individual or family

Social Security:

guaranteed retirement income through a payroll tax

If a product's usefulness increases with the number of users, it:

has network externalities.

Price-takers are individuals in a market who:

have no ability to affect the price of a good in a market.

Redistribution programs are means-tested. To qualify for such a program, a person must demonstrate that:

his or her income (or means) is below a certain specified level.

short-run industry supply curve

how the Q supplied by an industry depends on the market price (given a fixed number of producers).

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

in perfect competition.

The provision of specific goods and services (rather than cash) to needy people by way of welfare programs is:

in-kind benefits.

Food stamps, Medicaid, and housing subsidies are all:

in-kind transfers

A factor that has been associated with the increase in income inequality in the United States is the:

increase in immigration.

Demand Schedule of Gadgets. The market for gadgets consists of two producers, Margaret and Ray. Each firm can produce gadgets with no marginal cost or fixed cost. Suppose that these two producers have formed a cartel, agreed to split production of output evenly, and are maximizing total industry profits. If Margaret decides to cheat on the agreement and sell 100 more gadgets, Margaret's quantity effect will be a(n) _____ in profit of _____.

increase; $400

A monopolist responds to an increase in marginal cost by _____ price and _____ output.

increasing; decreasing

Employment-based health insurance:

insurance that a company provides to its employees.

Oligopoly is a market structure characterized by:

interdependence: each firm's decision affects the profit of the other firms.

Tit for tat:

involves playing cooperatively at first, then doing whatever the other player did in the previous period

variable cost

is a cost that depends on the quantity of output produced. It is the cost of the variable input

fixed cost

is a cost that does not depend on the quantity of output produced. It is the cost of the fixed input.

perfectly competitive industry

is an industry in which producers are price takers.

variable input

is an input whose quantity the firm can vary at any time.

The marginal revenue received by a firm in a perfectly competitive market

is equal to its average revenue.

For a perfectly competitive firm, marginal revenue:

is equal to price.

Employment-based insurance:

is provided by companies to their employees.

MARGINAL COST

is the change in total cost generated by one additional unit of output. MC = ΔTC/ΔQ

A monopolistically competitive industry is characterized by a _____ number of firms producing _____ products with _____ entry.

large; similar; relatively easy

Differences in inequality among rich countries

largely reflect different policies rather than differences in the underlying economic situation

anti-trust laws

laws that encourage competition in the marketplace

Studies of family income over time reveal that:

many people who start out at the bottom of the income ladder when they are young move up the income ladder as they age and move down again when they retire

Monopolistic competition

market struction that is a little like monopoly and a little like perfect competition 1.) Many competitors 2.) products similar but not identical 3.) free entry and exit from the industry in the long run (resturants)

When a welfare program is provided to those whose income falls below some minimum, it is said to be:

means-tested

A _____ program is one for which the recipient qualifies on the basis of _____.

means-tested; income

The _____ identifies the level of income at which half of the households in the population earn more and half of the population earns less.

median household income

In large shopping malls, the retail clothing market is MOST illustrative of:

monopolistic competition

fixed costs

must be paid whether or not the firm produces in the short run.

Most electric, gas, and water companies are examples of _____ monopolies.

natural

deadweight loss of monopoly

net loss to society when a firm with market power restricts output and increases the price

price war

occurs when two or more firms compete primarily by lowering their prices

Break-even price

of a price-taking firm is the market price at which it earns zero profit.

The welfare state:

often takes up a large share of government spending in wealthy countries.

How many producers are there in a monopoly?

one

The outcome of a strategic choice is called a:

payoff

A social insurance program is aimed at:

people who have encountered unexpected financial distress.

The market for grade A large eggs in California is BEST considered to be an example of:

perfect competition.

The market structure in which price discrimination CANNOT occur is:

perfect competition.

The percentage of the population that falls below the poverty threshold is called the:

poverty rate

Suppose a perfectly competitive market is suddenly transformed into one that operates as a monopoly market. We would expect price to _____, output to _____, consumer surplus to _____, producer surplus to _____, and deadweight loss to _____.

price to Rise, output to Fall, consumer surplus to fall, producer surplus to rise, and deadweight loss to rise. rise; fall; fall; rise; rise

Total Revenue

price x quantity sold

Temporary Assistance for Needy Families is a means-tested program that:

provides limited assistance to poor households with children.

Unemployment Insurance (UI)

provision for workers who lose their job; about 35% of previous salary until they find a new job or until benefits run out, usually at 26 weeks

An increase in production by a monopolist has two opposing effects on revenue

quantity effect & price effect

Some of the major causes of poverty are lack of education, bad luck, lack of proficiency in English, and:

racial and gender discrimination.

If rival solar roof panel manufacturers in Reno limit production and _____ prices in a way that increases their profits without meeting with one another in a formal way, they are engaging in _____ collusion.

raise; tacit

An advantage for an individual of having employment-based insurance is that it:

receives favorable tax treatment.

What a monopolist does

reduces the quanitity supplied and moves up the demand curve, raising the price

Poverty programs are aimed at:

reducing the percentage of families living below the poverty line.

Nash equilibrium (noncooperative equilibrium)

results when each player in a game chooses the action that maximizes his or her payoff given the actions of other players, ignoring the effects of his or her action on the payoffs received by those other players

Over the past two decades, the share of income going to the richest Americans has _____ than the share going to the poorest Americans.

risen faster

Much of the rise in income inequality in the past 20 years in the United States comes from:

rising gap among the incomes of highly educated workers.

if a game is played repeatedly, players may engage in strategic behavior,

sacrificing short-run profit to influence future behavior.

principle of marginal analysis

says that the optimal amount of an activity is the quantity at which marginal benefit equals marginal cost.

The long-run average total cost curve

shows the relationship between output and average total cost when fixed cost has been chosen to minimize average total cost for each level of output

industry supply curve

shows the relationship between the price of a good and the total output of the industry as a whole.

Oligopoly is a market structure that is characterized by a _____ number of _____ firms that produce _____ products.

small; interdependent; identical or differentiated

diminishing returns

stage where output increases at a decreasing rate as more units of variable input are added - used to refer to a point at which the level of profits or benefits gained is less than the amount of money or energy invested.

Cartel

strongest form of cullision - agreement by several producers to restrict output in order to increase their joint profitcs

Which characteristic is NOT indicative of monopolistic competition?

tacit collusion

perfect price discrimination

takes place when a monopolist charges each consumer his or her willingness to pay—the maximum that the consumer is willing to pay - like a flea market, etc

One of the earliest actions of antitrust policy was the breakup of:

the Standard Oil Company

marginal benefit of a good or service

the additional benefit derived from producing one more unit of that good or service

mean household income

the average income across all households

The mean household income is:

the average income across all households.

The marginal cost curve intersects

the average total cost curve from below, crossing it at its lowest point.

price discrimination

the business practice of selling the same good at different prices to different customers

Marginal revenue:

the change in total revenue from an additional unit sold MR = ΔTR/ΔQ

If the regulation of a monopoly results in a price equal to marginal cost but the price is below average total cost:

the firm will need subsidies to stay in business.

Market Share

the fraction of the total industry output accounted for by that producer's output.

If health care is totally voluntary

the healthiest won't choose to buy it, creating an affordability problem.

Increases in income inequality in the United States are partially attributed to:

the impact of technological innovation on the demand for labor.

poverty threshold

the income level below which income is insufficient to support a family or household - considered officially poor.

Medium household income

the income of the household lying in the exact middle of the income distribution

spreading effect

the larger the output, the more output over which fixed cost is spread, leading to lower average fixed cost

median household income

the midpoint of all households ranked by income

Network externalities exist when a good's value to the consumer rises as:

the number of people who use the good increases.

Poverty rate

the percentage of people who live in households with income below the official poverty line

poverty rate

the percentage of people who live in households with income below the official poverty line - 2019 was 10.5%

Shut-down price

the price at which the firm is indifferent between operating and shutting down; equal to the minimum average variable cost

A market is in long-run equilibrium when

the quantity supplied equals the quantity demanded, given that sufficient time has elapsed for entry into and exit from the industry to occur

price leadership

the strategy by which one or more dominant firms set the pricing practices that all competitors in an industry follow

total cost

the sum of the fixed cost and the variable cost of producing that quantity of output TC = FC + VC

A network externality occurs when

the value of a good or service to an individual increasing as more others use the same good or service

In a perfectly competitive industry in equilibrium,

the value of marginal cost is the same for all firms.

Tacit collusion is difficult if:

there are many firms in the industry.

Use Figure: Pricing Strategy in Cable TV Market I. If neither CableNorth nor CableSouth advertises, then without any collusion:

there will be no incentive for either CableNorth or CableSouth to begin advertising

When economists say zero profits?

they mean what non economists mean by normal profit.

Use Figure: Pricing Strategy in Cable TV Market II. If CableNorth followed a high-price strategy one period but found that CableSouth followed a noncooperative low-price strategy, and CableNorth decided to lower prices for the next month, we would say that CableNorth is following a:

tit-for-tat strategy

Use Table: Coke and Pepsi Advertising Game. The soft-drink industry is dominated by Coke and Pepsi, and each firm spends a lot of money on advertising. Suppose each firm is considering a costly television commercial during halftime of the Super Bowl. The table shows the payoff matrix of profits that each firm would receive from its advertising decision, given the advertising decision of its rival. Profits in each cell of the payoff matrix are given as (Coke, Pepsi). If each firm makes the decision whether to advertise on the Super Bowl independently, the Nash equilibrium is for Coke _____ and Pepsi _____ during the Super Bowl.

to advertise; to advertise

The marginal product of labor is the change in _____ divided by the change in _____.

total output; the quantity of labor

profit

total revenue minus total cost or Profit =TR - TC

Average variable cost is:

total variable cost divided by quantity.

Marginal cost is the change in _____ cost resulting from a one-unit change in _____.

total; output

Average variable cost

variable cost divided by the quantity of output ATC = VC/Q

John Rawls believed that:

we should do unto others as we would like them to do unto us if we were in the same place

standardized product (commodity)

when consumers regard the products of different producers as the same good

noncooperative behavior

when firms ignore the effects of their actions on each others' profits

increasing returns to scale (economies of scale)

when long-run average total cost declines as output increases

decreasing returns to scale (diseconomies of scale)

when long-run average total cost increases as output increases.

constant returns to scale

when long-run average total cost is constant as output increases.

network externality

when the value of the good to an individual is greater when a large number of other people also use that good.

When a firm adds capital, in the short run variable costs for any level of output will:

decrease

The term diminishing returns refers to a:

decrease in the extra output due to the use of an additional unit of a variable input when all other inputs are held constant.

"Diminishing marginal returns" means that:

each additional unit of an input used will increase output, but by smaller and smaller amounts as imput increases