Exam 3 study guide Micro

A monopolistically competitive firm is one:

of many firms that sell products that are close but not perfect substitutes.

If a firm functions in an oligopoly, it is:

one of a small number of firms that produce goods that are either close or perfect substitutes.

The essential cause of the tragedy of the commons is the fact that:

one person's use of a commonly held resource imposes an external cost on others.

The tragedy of the commons refers to the:

overuse of resources that have no price.

The reason economists consider monopoly to be socially undesirable is that monopolists:

produce less than the socially optimal level of output.

If an activity generates a positive externality, the government can increase total economic surplus by ______ the activity, and if an activity generates a negative externality, the government can increase total economic surplus by ______ the activity.

subsidizing; taxing

Kate and Ali can live together a two-bedroom apartment for $600 per month, or they can each rent a one-bedroom apartment for $400 per month. Apart from the rent, they are indifferent between living together and living apart, except for one problem: Kate hates Ali's taste in music. Kate would be willing to pay up to $100 a month to avoid hearing Ali's music. Ali would give up listening to her music for no less than $300 per month. Which, if any, of the following ways of splitting the total monthly rent would induce them to live together?

Kate pays $250 per month and Ali pays $350 per month

Kate and Ali can live together a two-bedroom apartment for $600 per month, or they can each rent a one-bedroom apartment for $400 per month. Apart from the rent, they are indifferent between living together and living apart, except for one problem: Kate hates Ali's taste in music. Kate would be willing to pay up to $100 a month to avoid hearing Ali's music. Ali would give up listening to her music for no less than $300 per month. If Kate and Ali decide to live together, is it socially optimal for Ali play her music in the apartment?

Yes, because the benefit to Ali of listening to her music is greater than the cost to Kate.

Carmen listens to opera music every evening when she gets home from work. Carmen loves listening to opera, but her neighbor Paul, who can also hear the music, hates it. If Paul is the only person besides Carmen who can hear the music, then Carmen's music generates:

a negative externality

Given that most people like the smell of baking cinnamon rolls and dislike the smell of burning tires, baking cinnamon rolls generates ______ externality, and burning tires generates ______ externality.

a positive; a negative

The Coase theorem states that if private parties can negotiate the purchase and sale of the right to perform activities that cuase externalities, then they:

can always arrive at efficient solutions to the problems caused by externalities.

If coal mining produces a negative externality because it leads to environmental damage, then the

cost to society of producing an additional ton of coal will be less than the cost to coal mining companies of producing an additional ton of coal.

Price discrimination means charging:

different prices to different buyers for essentially the same good or service.

For perfectly competitive firms, marginal revenue ______ price; for monopolists marginal revenue ______ price.

equals; is less than

If a monopolist's marginal revenue exceeds its marginal cost at its current level of output, then to maximize its profit the monopolist should:

increase output until marginal revenue equals marginal cost.

Numerous studies have shown that breathing second-hand cigarette smoke is harmful to your health. This suggests that a tax on cigarettes will:

increase total economic surplus.

An external benefit implies that private markets will provide ______ than the socially optimal quantity, and an external cost implies that private markets will provide ______ than the socially optimal quantity.

less; more

For all firms, the additional revenue collected from the sale of one additional unit of output is termed:

marginal revenue

If the demand curve facing a monopolist shifts, then the monopolist's:

marginal revenue curve and profit-maximizing level of output will change.

In many cities in the United States, a single firm provides electricity. Those firms are:

monopolists

If a firm's production process exhibits increasing returns to scale, then doubling all the firm's inputs will lead output to _____.

more than double

Relative to a single price monopolist, a price discriminating monopolist generates:

more total surplus.

A cost of an activity that falls on people not engaged in the activity is call a(n):

negative externality

In order to achieve a socially optimal level of output, goods that entail negative externalities should be:

taxed

Economies of scale exist when:

the average cost of production falls as output rises.

If the marginal cost of reducing pollution is positive, then:

the optimal amount of pollution is greater than zero.

Lunch in Jamie's dorm is an all-you-can-eat buffet, served from 11 a.m. until 1 p.m. By noon, the buffet is picked over, and by 12:30, there are very few popular items left. The garbage bins, though, are full of food. The buffet in Jamie's dorm is an example of:

the tragedy of the commons

If the market equilibrium quantity is greater than the socially optimal quantity, one can infer that:

there is a negative externality associated with this good.