exam 3 micro notecard
The total variable cost incurred by a firm will depend upon:
-the prices of its variable inputs (e.g., the hourly wage rate that workers are paid) -the production techniques that are used (i.e., its short run production function) - the amount of output produced ->> all of the above
If a production process undergoes a technological improvement then:
A) a given amount of inputs will yield more output B) the short run production function (or total product curve) will rotate upward C) total variable cost and average variable cost will be reduced at all positive levels of output D) a given amount of output may be produced with fewer inputs -->>ALL OF THE ABOVE
If the level of technology used in the production of a good improves:
A) a given amount of inputs will yield more output B) the total product curve will rotate upward C) total variable cost and average variable cost will be reduced at all positive levels of output D) a given amount of output may be produced with fewer inputs -->>> E) all of the above
Which of the following is not correct regarding the behavior of monopolies in the marketplace?
A) because of their market power they charge the highest price possible B) they sell their output at prices that maximize per-unit profits instead of total profits C) because of their market power they are guaranteed to earn economic profits -->>D)all of the above
If a technological improvement occurs in a production process, then:
A.a given amount of inputs will yield more output B. a given amount of output may be produced with fewer inputs C. total variable cost and average variable cost will be reduced at all positive levels of output D. the short run production function (or total product curve) will rotate upward -->>E.all of the above
Suppose a firm's lease agreement (rental contract) on its facility has expired and it is free to move to a new location or to stay in its current location (i.e., it can change both its level of capital and labor). The firm expects to have a monthly budget of $2000, and the price of labor is expected to be Pl = $8 per unit and the price of capital is expected to be Pk = $20 per unit. Given this information, the firm's monthly budget constraint is:
L = 250 - 2.5K.
For a purely competitive firm _______________; and for a uniform-price monopolist _______________ :
P = MR = AR; P = AR > MR
For a purely competitive firm ___; and for a uniform-price monopolist ____ :
P = MR = AR; P = AR > MR.
Suppose a firms production function is Q = 2K^0.5 L^0.5. If the level of capital is fixed at 25 units, then the firms short run production function is:
Q = 10L ^0.5
Suppose a firms production function is Q = 0.4K0.5 L0.5. Its level of capital is fixed at 100 units, the price of labor is PL = $4 per unit, and the price of capital is PK = $8 per unit. Given this information, the firms short run production function is:
Q = 4L0.5
Consider a firm whose production function is Q = 0.4K0.5 L0.5. Its level of capital is fixed at 100 units, the price of labor is PL = $4 per unit, and the price of capital is PK = $2 per unit. Given this information, the firms total cost function is:
TC = 200 + Q2/4.
Suppose a firms production function is Q = 0.4K0.5 L0.5. Its level of capital is fixed at 100 units, the price of labor is PL = $4 per unit, and the price of capital is PK = $8 per unit. Given this information, the firms total cost function is:
TC = 800 + Q2/4.
Assume that in the short run a firm which is producing 100 units of output (Q) per-period has average:
TFC = $200 TVC = $300 TC = $500.
Assume a firm closes down in the short run and produces no output. As a result:
TFC and TC are positive, but TVC is zero.
Suppose the demand for a monopolists good is described by the demand function P = 100 - 0.5Q. It follows that the monopolists total revenue function relating the total revenues (TR) to the quantity sold (Q) is:
TR = 100Q - 0.5Q2
Suppose the demand for a monopolists good is described by the demand function P = 100 - 2Q. It follows that the monopolists total revenue function relating the total revenues (TR) to the quantity sold (Q) is:
TR = 100Q - 2Q2.
Consider a perfectly competitive market described by the demand function P = 75 - 0.45Q and supply function P = 15 + 0.3Q. If the market is in equilibrium, then an individual firm's total revenue (TR), average revenue (AR) and marginal revenue (MR) functions are:
TR = 39Q, AR = 39, and MR = 39.
Consider a short run production process in which MPL increases initially as more and more labor is employed and then decreases beyond a point as the gains from specialization are exhausted. It follows that:
TVC will increase initially at a decreasing rate and beyond a point it will increase at an increasing rate
Consider a short run production process where MP increases initially and then decreases. As output continuously increases from zero:
TVC will increase initially at a decreasing rate but will eventually increase at an increasing rate.
Suppose that a monopolist is producing a level of output (Q) such that AVC = $10, AFC = $2, P = $10, MR = $8, and MC = $6. Based on this information, the firm is realizing:
a loss which could be reduced by reducing price and increasing output.
Suppose that a monopolist is producing a level of output (Q) such that AVC = $8, AFC = $2, P = $12, MC = $10, and MR = $8. Based on this information, the firm is realizing:
a profit which could be increased by producing less output.
A fixed cost is:
any cost which does not change when the firm changes its output.
A fixed cost is:
any cost which does not change when the firm changes the amount of output it produces.
{scalc} The law of diminishing marginal product (or returns) states that:
as more and more of a variable input, such as labor, is employed to a short-run production process, beyond a point output will increase at a decreasing rate.
If a firms total fixed costs increase, then:
average fixed costs and average total costs will rise.
If a firm's total fixed costs increase:
average fixed costs and average total costs would rise.
An important relationship between variable inputs and output in the short run is given by the law of diminishing marginal product (or returns). The law states that as more of a variable input, such as labor, is employed:
beyond a point output will increase at a decreasing rate.
If a monopolist successfully engages in perfect (first-degree) price discrimination, then:
both profits and output to increase
Suppose that at 500 units of output a firm is producing such that marginal revenue is equal to marginal cost. The firm is selling its output at $6 per unit and average total cost at 500 units of output is $5. Given this information we:
can say that the firm is maximizing profit in the short run.
Suppose that at 500 units of output a firm is producing such that marginal revenue is equal to marginal cost. The firm is selling its output at $6 per unit and average total cost at 500 units of output is $5. On the basis of this information we:
can say that the firm is maximizing profit in the short run.
Suppose a firm has monopoly power in the production of a particular good. If it finds that revenue and cost conditions are such that at all levels of output the price it can charge in order to sell all of the units is less than the average variable costs then it is in the firm's best interest to:
close down because its operating losses will exceed its shut-down losses at all levels of output.
Suppose a pure monopolist is charging a price of $12 and the associated marginal revenue is $9. We thus know that:
demand is elastic at this price
The market demand curve for a good that is produced and traded in a perfectly competitive market is ___, while the demand curve for a single competitive firm's good is ____.
downward sloping, perfectly elastic.
If production is occurring where price exceeds marginal cost, the purely competitive firm will:
fail to maximize profits and inputs will be underallocated to the product (i.e., not enough is produced).
A patent or copyright is a barrier to entry based on:
government action to encourage and protect private research and development efforts.
The total revenue generated by a perfectly competitive firm:
i. appears graphically as an upward sloping straight line from the origin. ii. increases by a constant amount as the quantity of output produced and sold increases.
A firms marginal cost of production is the:
i. change in total variable cost that results from producing each additional unit of output. ii. change in total cost that results from producing each additional unit of output.
Which of the following is correct regarding the relationship between the marginal product of labor (MPL) and the average product of labor (APL)?
i. if MPL is greater than APL, then APL will be increasing. ii. if MPL is less than APL, then APL will be decreasing.
Consider a perfectly competitive firm that produces and sells 20 units of output per-period (e.g., weekly) at the market price of $4. If average fixed cost is $1, average variable cost is $2, and marginal cost is $4, then the firm:
i. is maximizing total profit by producing and selling 20 units of output. iii. is earning a per-period total profit of $20.
Suppose that workers at a firm shirk and management does not discourage them from doing so. It follows that:
i. the level of output produced per period will be less than the level of output if laborers do not shirk. ii. more time will be required to produce a given level of output than if laborers do not shirk. iii. the total labor costs required to produce a given level of output will be greater than if laborers do not shirk but total fixed costs will be unaffected.
If a firms management permits its laborers to shirk and its laborers choose to do so, then:
i. the level of output produced per period will be less than the level of output if laborers do not shirk. ii. more time will be required to produce a given level of output than if laborers do not shirk. iii. the total labor costs required to produce a given level of output will be greater than if laborers do not shirk but total fixed costs will be unaffected.
Under which of the following situations would a monopolist increase profits by lowering price (and increasing output):
if it discovered that it was producing where MC < MR.
In which of the following would a perfectly competitive firm increase profits by reducing output:
if it discovered that it was producing where MC > MR.
Suppose a monopoly is operating in the short run. Under which of the following situations would it increase its per-period total profits by lowering price and increasing output:
if it were producing a level of output such that MC < MR.
Under which of the following situations would a perfectly competitive firm increase its per-period total profits by increasing output:
if it were producing a level of output such that MC < MR.
. Which of the following is not correct regarding a short run production process?
if total product is at a maximum, then average product is also at a maximum.
As noted in class, marginals and averages are closely related. Which of the following is correct regarding the relationship between the average product of labor and the marginal product of labor?
iii. if marginal product is greater than average product, then average product will be increasing. iv. if marginal product is less than average product, then average product will be decreasing
A 'natural' monopoly, such as a local electricity provider, is the result of:
iii. long-run average total costs declining continuously as output increases. iv. economies of scale existing over a wide range of output.
In economics, the difference between the short run and the long run is that:
in the long run no inputs are fixed whereas in the short run at least one input is fixed.
In economics, the difference between the short run and the long run is that:
in the short run at least one input is fixed whereas in the long run no inputs are fixed.
. Suppose a perfectly competitive firm is producing a level of output where MR=$8.50; ATC=$6.00; AVC=$4.00; MC=$7.50. In order to maximize profit, the firm should __ .
increase output but not price.
Suppose a perfectly competitive firm is producing at a level of output where MR=$8.50; ATC=$6.00; AVC=$4.00; MC=$7.50. In order to maximize profit, the firm should ___.
increase output but not price.
Suppose a monopoly is producing a level of output such that marginal revenue is equal to marginal cost. The firm is selling its output at a price of $12 per unit and is incurring average variable costs of $14 per unit and average total costs of $16 per unit. Given this information, it may be concluded that the firm:
is operating at a loss that could be reduced by shutting down.
Suppose that at 100 units of output a firm is producing such that marginal revenue is equal to marginal cost. The firm is selling its output at a price of $4 per unit and is incurring average total costs of $6 per unit and average variable costs of $1 per unit. On the basis of this information we can conclude that in the short run a purely competitive firm:
is operating at a loss that is less than the loss incurred by shutting down.
Consider a perfectly competitive firm producing a level of output such that marginal revenue is equal to marginal cost. The firm is selling its output at a price of $8 per unit and is incurring average variable costs of $4 per unit and average total costs of $6 per unit. Given this information, it may be concluded that the firm:
is operating at maximum total profit.
Consider a perfectly competitive firm that is producing a level of output such that marginal revenue is equal to marginal cost. The firm is selling its output at a price of $10 per unit and is incurring average variable costs of $5 per unit and average total costs of $8 per unit. Given this information, it may be concluded that the firm:
is operating at maximum total profit.
Which of the following is characteristic of a purely competitive seller's demand curve?
it is equal to the firm's marginal revenue and average revenue curves
If a perfectly competitive firm is producing and selling that level of output such that P = ATC, we can conclude that:
it will earn zero profit
If a monopoly produces and sells a quantity of output (Q) for a price per unit (P) that is equal to average total cost (ATC), then:
it will earn zero profit.
A firms marginal cost of production is the:
iv. change in total cost that results from producing each additional unit of output. v. change in total variable cost that results from producing each additional unit of output.
In contrast to a perfectly competitive firm, the demand curve for a monopolists good is:
less elastic at all levels of output
If a firm wants to know how much it would save if it were to reduce the level of output it produces, it will evaluate its:
marginal cost function.
Similar to a monopoly that is operating in the short run, if a perfectly competitive firm wants to know how much additional cost it will incur by producing an extra unit of output, then it will evaluate its:
marginal cost function.
If the price of one of the firm's variable inputs decreases, such as the hourly wage rate, then:
marginal cost, average variable cost, and average total cost would all fall.
If the price of one of the firm's variable inputs increases, such as the hourly wage rate, then:
marginal cost, average variable cost, and average total cost would increase at all levels of output.
. If a firm's total variable costs decrease, then:
marginal cost, average variable cost, and average total costs will decline.
The 1st, 2nd, and 3rd workers employed by a firm add 12, 6, and 3 units to total product, respectively. Therefore the:
marginal product of the third worker is 3 and average product of the three workers is 7.
For a pure monopolist the relationship between total revenue and marginal revenue is such that:
marginal revenue is positive when total revenue is increasing but turns negative when total revenue begins to decrease
If a firm is producing and selling a level of output that maximizes total profit, then it will be:
maximizing the difference between total revenue and total cost.
Similar to a firm operating in a purely competitive industry, a monopolist that chooses to produce in the short-run:
may incur losses.
If a monopolist's demand curve for the good it produces is not changing over time (i.e., shifting outward or inward), then under uniform pricing the monopolist:
must lower price if it wants to sell more units of output versus fewer units of output.
If a firm is confronted with economic losses in the short run, it will decide whether or not to produce by comparing:
price and minimum average variable cost
With respect to the pure monopolist's demand curve it can be said that under uniform pricing:
price exceeds marginal revenue at all positive levels of output.
A perfectly competitive firms average fixed cost function is AFC = 30/Q, its average variable cost function is AVC = 6 + 0.1Q, and it marginal cost function is MC = 6 + 0.2Q. The firm optimizes by producing the level of output that maximizes profit or minimizes loss. If the market price of the good is P = $12, then the firm will:
produce 30 units of output and earn a total profit of $60.
Suppose a perfectly competitive firm is confronted with deciding whether to operate or shut down. Its average fixed cost function is AFC = 30/Q, its average variable cost function is AVC = 6 + 0.1Q, and its marginal cost function is MC = 6 + 0.2Q. The firm optimizes by producing the level of output that maximizes profit or minimizes loss. If the market price of the good is P = $12, then the firm will:
produce 30 units of output and earn a total profit of $60.
The principle that a firm should produce up to the point where the marginal revenue from the sale of an extra unit of output is equal to the marginal cost of producing the extra unit is known as the:
profit maximization rule
If the monopolist is operating on the inelastic segment of its demand curve, it can:
raise total revenue by raising price and reduce total costs by raising price and raise profits by raising price.
If a profit maximizing monopolist is producing a level of output such that marginal cost is $8 and its marginal revenue is $12, it will increase its profits by:
reducing price and increasing output.
The law of diminishing marginal product (or returns) describes the:
relationship between resource inputs and product outputs in the short run.
The market demand curve in a purely competitive industry is _______, while the demand curve to a single competitive firm is ______.
sloping downward, perfectly elastic.
The short-run market supply curve for a purely competitive industry can be found by:
summing horizontally the segments of the MC curves lying above the AVC curves for all firms comprising the industry.
Which of the following is not a characteristic of a perfectly competitive market?
the ability of an individual firm to affect the market price.
A firm's total variable costs will depend upon:
the amount of output produced.
Suppose a local bakery rents a facility at which it bakes loaves of bread using machinery and labor. Which of the following best describes one of its short run variable inputs?
the baking supplies (e.g., flour, eggs, salt, etc.).
The marginal product of labor (MPL) is:
the change in total output attributed to employing an additional worker.
The marginal product of labor is:
the change in total output attributed to employing an additional worker.
As opposed to the long run, if a perfectly competitive firm or a monopolist is in the short run, then:
the firm is not able to change the level of all of the inputs it uses.
Suppose the firms comprising the supply-side of a perfectly competitive market are earning economic profits, creating the incentive for new firms to enter the market and compete. Which of the following best describes the effect on the market resulting from the entry of new firms?
the market supply increases, causing price to decrease and the total output produced and sold to increase.
Consider a monopolist that employs a uniform pricing strategy, whereby all units are sold for the same price. The price that will yield the firm the maximum total profit is:
the price at which marginal revenue equals marginal cost.
. What do economies of scale, the ownership of essential raw materials, and patents have in common?
they are all barriers to entry
What do economies of scale, the exclusive ownership of essential raw materials used in the production process, and patents have in common?
they are all barriers to entry.
The principle that a firm should produce up to the point where the marginal revenue from the sale of an extra unit of output is equal to the marginal cost of producing the extra unit applies:
to both perfectly competitive firms and monopolies.
The rule of producing output to the point MR = MC in order to maximize total profit or minimize total operating losses applies:
to both perfectly competitive firms and monopolies.
Consider a firms per-period (e.g., hourly) production process. If it employs 1 unit of labor, then 6 units of output will be produced; if it employs 2 units of labor, then 10 units of output will be produced; and if it employs 3 units of labor, then 12 units of output will be produced. It follows that:
total output is increasing at an increasing rate and the marginal product of labor is increasing
If a firm employs 1 unit of labor, then 5 units of output will be produced; if it employs 2 units of labor, then 12 units of output will be produced; and if it employs 3 units of labor, then 20 units of output will be produced. It follows that:
total output is increasing at an increasing rate and the marginal product of labor is increasing.
The relationship between inputs and outputs in the short run is described by the law of diminishing marginal product (or returns). The shapes of which cost curves can be attributed to the law?
total variable cost, total cost, average variable cost, average total cost, and marginal cost.
The shapes of which cost curves can be attributed to the law of diminishing marginal product (or returns)?
total variable cost, total cost, average variable cost, average total cost, and marginal cost.
A firm that is confronted with fixed costs in the short run should produce versus shut down if the total revenue generated from the sales of its output is sufficient to cover its:
total variable costs
Suppose an entrepreneur rents a facility at which she bakes pizzas using labor, machinery, and ingredients. Which of the following best describes one of the entrepreneurs short run variable costs? the baking supplies (e.g., dough, sauce, cheese, etc.) the monthly rental payments made to the owner of the facility the facility where the pizzas are baked the hourly wage rate paid to workers total weekly payments made to laborers
total weekly payments made to laborers
For a monopolist, marginal revenue is less than price because:
when a monopolist lowers price to sell more output, the lower price applies to all units sold.
For a monopolist, marginal revenue is less than price under uniform pricing because:
when a monopolist lowers price to sell more output, the lower price applies to all units sold.
Consider a firm operating in a perfectly competitive industry. If the equilibrium market price of the good falls below the minimum of the firms average total cost curve but is greater than the minimum of its average variable cost curve, the firm:
will experience a loss but should continue to operate in the short-run.
