Final Econ Review
In the case of a Long Run for a Competitive Firm, for Productive efficiency to be realized, price must equal minimum ATC and for Allocative efficiency, price equal marginal cost
True
Making choices based on comparing marginal benefits with marginal costs is referred to as Marginal analysis
True
Price strategies by firms not a characteristic of pure competition
True
The law of supply indicates that, other things equal, producers will offer more of a product at high prices than at low prices
True
The main purpose of the antitrust laws is to prevent the monopolization of industries
True
The term Laissez-Faire means "let it be"
True
Which of the following constitutes an implicit cost to the Johnston Manufacturing Company
Use of savings to pay operating expenses instead of generating interest income
The ability of a good or service to satisfy wants is called
Utility
Which of the following statements about utility is true
Utility is difficult to measure quantitatively
If Tyson corporation, a firm that raises and processes chickens, combined with Kentucky Friend Chicken, the resulting merger would be an example of a
Vertical Merger
A positive statement is concerned primarily with
What is
Which of the following gave the Federal Trade Commission responsibility to protect the public against false and misleading advertising
Wheeler-Lea Act of 1938
In the short run, a purely competitive firm that seeks to maximize profit will produce
Where total revenue exceeds total cost by the maximum amount
The market system's answer to the fundamental question "How will the system accommodate change" is essentially
"Through the guiding function of prices and the incentive function of profits"
What Price will the Pure Monopoly charge? What is the economic profit?
$122; $28
Larry Krispy's implicit costs, including a normal profit, are
$132,000; Potential earnings- $50,000 + Entrepreneur's talent- $80,000 + Forgone interest- $2,000
Creamy Crisp's implicit costs are
$136,000; Entrepreneur's potential earnings- $50,000
Michelle's implicit costs, including a normal profit will be
$136,000; Value of entrepreneur's talent- 80,000 + Entrepreneur's potential earnings- 50,000 + Entrepreneur's forgone interest on personal funds- $6,000
Creamy Crisp's explicit costs are (Utilities are $6,000)
$146,000; Annual Lease- $20,000, Payment to workers- $120,000, Utilities- $6,000
Creamy Crisp's explicit costs are (Utilities are $8,000)
$150,000; Utilities- $8,000, Annual Lease- $22,000, Payment to workers- $120,000
Suppose the price of lattes is $80. What is the price of 40 donuts
$2,400 monthly income; 40 donuts costs $1,600
Suppose that a business incurred implicit costs of $200,000 and explicit costs of $1 million in a specific year. If the firm sold 4,000 units of its output at $300 per unit, its accounting profits were
$200,000
Suppose that a business incurred implicit costs of $200,000 and explicit costs of $1 million in a specific year. If the firm sold 4,000 units of its output at $300 per unit, its accounting profits were
$200,000 and its economic profits were $0
Suppose the price of lattes is $80. What is the price of 30 donuts
$2400 total income; 30 donuts = $1200
Assume that in the short run a firm is producing 100 units of output, has average total costs of $200, and has average variable costs of $150. The firm's total fixed costs are
$5,000
Amanda buys a ruby for $330 for which she was willing to pay $340 to Tony. The minimum acceptable price by Tony was $140. What is Amanda experiencing
A consumer surplus of $10
Jennifer buys a piece of costume jewelry for $33, for which she was willing to pay $42. The minimum acceptable price to the seller, Nathan, was $30. Jennifer experiences
A consumer surplus of $9, and Nathan experiences a producer surplus of $3
The term Oligopoly indicates
A few firms producing either a differentiated or homogenous product
Price-fixing is considered to be a per se violation of the antitrust laws because
A guilty verdict need only show that there was a conspiracy to fix prices, not that it succeeded
Darcy and Rachel live down the hall from each other in the same dorm. Darcy likes to play her music loudly down the hall, and Rachel finds the music annoying. A Coase Theorem solution for this problem would be for
Darcy and Rachel to negotiate a mutually agreeable level of volume and/or selection of music
The basic issue in the DuPont cellophane case was
Defining the relevant market
Derrick's Burgers
Derrick's is operating in the short run, but not the long run
The relationship between quantity supplied and price is ______ and the relationship between quantity demanded and price is ______
Direct; Inverse
In which of the following cases was the firm found not guilty of violating the Sherman Act
DuPoint cellophane case
Suppose that corn prices rise significantly. If farmers expect the price of corn to continue rising relative to other crops, then we would expect
Farmers to plant more corn
Which one of the following is concerned with industrial regulation, as district from social regulation
Federal Communications Commission
The use of money for exchange and trade
Fosters more specialization in production
Marginal utility becomes negative beginning with the
Fourth unit
List the 4 characteristics of the Pure Competition
Free entry and exit, Price takers, Homogeneous product, large number of sellers
The prisoner's dilemma is generally demonstrated through
Game theory
Refer to the diagram above. Flow 3 represents
Good and services
Select the graph above that shows the change in the market for wheat, when the cost of fertilizer decreases
Graph C
Select the graph that best shows the change in the market for Florida oranges, when a major frost damages the orange crop in California
Graph D
Accounting profits are typically
Greater than economic profits because the former do not take implicit costs into account
The merger of a firm in one industry with another firm in the same industry that sells similar products is called a
Horizontal merger
Which of the following distinguishes the short run from the long run in pure competition
Firms can enter and exit the market in the long run but not in the short run
All of the following are regulatory commissions dealing with industrial regulation (as distinct from social regulation) except the
Food and Drug Administration
In which of these continuum of degrees of competition (lowest to highest) is oligopoly properly placed
Pure Monopoly, oligopoly, monopolistic competition, pure competition
Refer to the diagram for a nondiscriminating monopolist. Marginal revenue will be zero at output
Q2
If products C and D are close substitutes, an increase in the price of C will
Shift the demand curve for D to the right
Other things equal, an increase in a consumer's money income
Shifts the individual's budget line rightward because she can now purchase more of both products
Economics may be best defined as what
Social science concerned with how individuals, institutions, and society make optimal choices under conditions of scarcity
The market system's answer to the fundamental question "How will the system accommodate change?" is essentially
Through the guiding functions of prices and the incentive function of profits
Creamy Crisp's accounting profit is
Total Revenue - Explicit Cost; $380,000 - $150,000 = $230,000
Accounting profits equal total revenue minus
Total explicit cost
In pure competition market models the demand and marginal revenue do not diverge
True
Mention the four major market models
Pure Competition, Monopolistic Competition, Oligopoly, Pure Monopoly
In which of the following industries is the entry of new firms the most difficult
Pure Monopoly
In which of the following industry structures is the entry of new firms the most difficult
Pure Monopoly
The value for X is
15
A purely competitive seller is
A "price taker"
Which of the following is correct
A purely competitive firm is a "price taker" while a monopolist is a "price maker"
Refer to the above table. At a price
A shortage of 1,000 units
Pure monopoly refers to
A single firm producing a product for which there are no close substitutes
Refer to the diagram, which pertain to a purely competitive firm producing output q and the industry in which it operates. The predicted long-run adjustments in this industry might be offset by
A technological improvement in production methods
Suppose Jeffburgers requires that, as a condition of purchase, all restaurants using its product must buy and make available its new sales product. This arrangement is an example of
A tying contract
Restructuring of a major industry resulted from the
AT&T Case
Which of the following industries most closely approximates pure competition
Agriculture
What basic functions does the Entrepreneur perform for the economy
All of the above
Which of the following best illustrates the circular flow model in action
All of these answers illustrate the workings of the circular flow model
The basic purpose of the other-things-equal assumption is to
Allow one to reason about the relationship between
Which of the following is a correct statement
Although they are generalizations, economic laws are useful because they allow us to predict and therefore influence or adjust to events
Refer to the diagram. If actual production and consumption occur at Q3
An efficiency loss (or deadweight loss) of e+f occurs
An example of a horizontal merger is one between an airline and
Another airline
Blain's Burger Barn operates in a perfectly competitive market. Balin's is currently earning economic profits of $20,000 per year. Based on this information, we can conclude that
Balin's is operating in the short run, but not the long run
Which of the following is a characteristic of Pure Monopoly
Barriers to entry
Which of the following statements pertains to microeconomics
Because the minimum wage was raised, Mrs. Olsen decided to enter the labor force
A recent study found that an increase in the federal tax on beer (which would increase the price of beer) would reduce the demand for marijuana. Based on this information we can conclude that
Beer and marijuana are complementary goods
Which planet has the absolute advantage in coffee? Which planet has the absolute advantage in fried chicken? Which planet has the comparative advantage in coffee? Which planet has the comparative advantage in fried chicken?
Beta Beta Beta Alpha
United States most important trading partner quantitatively is
Canada
A purely competitive firm
Cannot earn economic profit in the long run
Three major means of collusion by Oligopolists are
Cartels, informal understandings, and price leadership
Which product will the firm produce? If the price of Airbuds rose to $16, which product will the firm produce? If the firm produces Airbuds at a price of $16, what would tend to happen to the number of firms producing Airbuds
Catobuds Airbuds More would jump into the industry
Which of the following is a distinguishing feature of a command system
Central planning
Marginal revenue is the
Change in total revenue associated with the sale of one more unit of output
Which law prohibited mergers by stock acquisition if the effect was to lessen competition
Clayton Act of 1914
The main mechanism that regulates the market system is
Competition
Mention three types of mergers
Conglomerate, Horizontal, Vertical
Which of the following is not a basic characteristic of pure competition
Considerable non-price competition
An industry comprising a very large number of sellers producing a standardized product is known as
Pure Competition
Using technique A will result in an
Economic profit of $3
The primary force encouraging the entry of new firms into a purely competitive industry is
Economic profits earned by firms already in the industry
Mention 4 of the industries that Deregulation has occurred
Electricity, Railroads, Telecommunications, Airlines
Barter
Entails the exchange of goods for goods
Long-run adjustments in purely competitive markets primarily take the form of
Entry or exit of firms in the market
The spillover effects of consumption or production is referred to as
Externalities
An industry comprising a small number of firms, each of which considers the potential reactions of its rivals in making price-output decisions, is called a Monopoly
False
Suppose that corn prices rise significantly. If farmers expect the price of corn to continue rising to other crops, then we would not expect the supply to increase as farmers plant more corn
False
The term oligopoly indicates a one-firm industry
False
The table shows market shares of firms in hypothetical industries. Assume these are distinct industries with no buyer-seller relationships or competition among them. A merger between Firm 2 and Firm 3 in Alpha would be a ________ merger
Horizontal merger
Noel went to his favorite hamburger restaurant with $3, expecting to buy a $2 hamburger and a $1 soda. When he arrived, he discovered that hamburgers were on sale for $1 each, so Noel bought two hamburgers and a soda. Noel's response to the decrease in the price of hamburgers is best explained by
Income Effect
If the price of product X rises, then the resulting decline in the amount purchased will
Increase the marginal utility of the last unit consumed of this good
Which of the following companies was not fined in 2011 for attempting to run an international cartel and fix prices
Intel
A function of the Federal Trade Commission is to
Investigate instances of faulty and misleading advertising
A market
Is an institution that brings together buyers and sellers
Consumer surplus
Is the difference between the maximum prices consumers are willing to pay for a product and the lower equilibrium price
Which of the following statements applies to a purely competitive producer
It will not advertise its product
Shakira is the hottest new pop singer, but her agent discovers that internet sales of Shakira's music have been poor due to internet piracy. However, concerts are regularly sold out and merchandise (such as T-Shirts) sells well. If Shakira wants to enhance profits, economists would most likely recommend that she
Keep prices of downloads low and raise prices for concerts and merchandise
Flow 2
Land, Labor, Capital, and Entrepreneurial ability
The data above illustrates the
Law of Diminishing marginal utility
What is antitrust legislation
Laws against not forming monopolies
The term "Laissez faire" means
Let it be
Which of the following has been a significant factor in the ability of iPads to compete effectively against laptop and desktop computers
Many consumers perceive that iPads are superior to laptops and desktop computers for the consumption of digital media
A competitive firm in the short run can determine the profit-maximizing (or loss-minimizing) output by equating
Marginal revenue and marginal cost
When a firm is maximizing profit, it will necessarily be
Maximizing the difference between total revenue and total cost
Karlee's Kreations sells handbags in a purely competitive market. Karlee's is currently breaking even. Based on this information, we can conclude that Karlee's Kreations
May be operating in either short-run or long-run equilibrium
An industry comprising 40 firms, none of which has more than 3 percent of the total market for a differentiated product is an example of
Monopolistic Competition
Under monopolistic competition, entry to the industry is
More difficult than under pure competition but not nearly as difficult as under pure monopoly
Mrs. Arnold is spending all her money income by buying bottles of soda and bags of pretzels in such amounts that the marginal utility of the last bottle is 60 utils and the marginal utility of the last bag is 30 utils. The prices of soda and pretzels are $.60 per bottle and $.40 per bag respectively. It can be concluded that
Mrs. Arnold should spend more on soda and less on pretzels
Mutual interdependence means that each oligopolistic firm
Must consider the reactions of its rivals when it determines its price policy
Of the following countries, which one best exhibits the characteristics of a Laissez faire economy
New Zealand
The minimum wage would be increased so low-income workers can earn a living wage The unemployment rate is too high and should be reduced through government actions The rate of inflation was about 2 percent last year, a low for the past decade The government should take action to break up the monopoly power of Google Interest rates should be lower in the United States so that people can afford to build a home The Federal government achieved a budget surplus for the first time in thirty years
Normative Normative Positive Normative Normative Positive
Which of the following nations is not a member of the OPEC oil cartel
Norway
A purely competitive firm is precluded from making economic profits in the long run because
Of unimpeded entry to the industry
What two generalizations can be made about the pricing behavior of Oligopolists
Oligopolies tend to have inflexible price and Oligopolies tend to change price simultaneously
In which of the following market structures is there clear-cut mutual interdependence with respect to price-output policies
Oligopoly
Caleb sold gold coins for $1,000 that he bought a year ago for $1,000. He says "At least I didn't lose any money on my financial investment." His economist friend points out that in effect he did lose money because he could have received a 3 percent return on the $1,000 if he had bought a bank certificate of deposit instead of the coins. The economist's analysis in this case incorporates the idea of
Opportunity Costs
Suppose that Betty's Beads is a typical firm operating in a perfectly competitive market. Based on this information, we can conclude that
Potential new firms will be encouraged by Betty's success to enter the market
Assume that a firm can produce product A, product B, or product C with the resources it currently employs. Those resources cost the firm a total of $100 per week. Assume, for the purposes of this problem, that the firm's costs cannot be changed. The market prices and the quantities of A, B, and C these resources can produce are given as follows. Which product will the firm produce?
Product C; 40 profit
Braylon sees that his neighbors' lawns all need mowing. He offers to provide the service in exchange for a wage of $20 per hour. Some neighbors accept Braylon's offer, and others refuse. Economists would describe Braylon's behavior as
Rational self-interest because he is attempting to increase his own income by identifying and satisfying someone else's wants
There are a couple of problems with the effectiveness of Industrial Regulation. Mention 3 of these problems associated with its effectiveness
Regulation can actually end up perpetuating the monopoly, even when conditions have changed Regulated firms have less of an incentive since they are guaranteed a fair return regardless of costs Some firms may seek to be regulated if they believe that the regulation will reduce competition and raise prices
Market failures
Result in overproduction or underproduction of a good
What are the basic purposes of Antitrust policy
Seeks to prevent monopolization of an industry Strives to promote competition in markets so that there is no harmful manipulation of price and output by a firm It promotes economic efficiency in the economy
Movie producers A, B, and C secretly meet and agree to release their summer blockbuster firms in sequence, rather than at the same time. The U.S. Justice Department learns of the agreement and files an antitrust suit. The Federal government would most likely file character under the
Sherman Act
Which of the Laws made monopoly and restraints of trade criminal offenses against the federal government
Sherman Act of 1890
Movie producers A, B, and C secretly meet and agree to release their summer blockbuster films in sequence, rather than at the same time. The U.S. Justice Department learns of the agreement and files an antitrust suit. The federal government would most likely file charges under the
Sherman Act, Section 1
Suppose 20 units of product A can be produced by employing just labor and capital in the four ways shown below. Assume the prices of labor and capital are $2 and $3 respectively. If the price of produce A is $1.50, and the firm is producing efficiently, the firm will realize
Technique 4; produced 17 dollars
Among the following examples, the one that best illustrates a public good is
The bike paths around a city or town
A fundamental difference between the Command systems and Laissez-faire capitalism is that, in command systems,
The division of output is decided by central planning rather than by individuals operating freely through markets
Electric companies generally practice price discrimination and charge higher prices for electricity used for illumination and lower prices for electricity used for heat. These lower prices for electric heating result primarily from
The existence of good heating substitutes
Below are four statements. Identify normative statement
The government should take action to reduce the prices of prescription drugs charged by drug companies
Suppose that total sales in an industry in a particular year are $800 million and sales by the top four sellers are $50 million, $40 million, $30 million, and $30 million respectively. We can conclude that
The industry is monopolistic competitive
If the number of firms in a monopolistically competitive industry increases and the degree of product differentiation diminishes,
The industry would more closely approximate pure competition
Only one of the following statements is correct
The long-run supply curve for a purely competitive increasing-cost industry will be up-sloping
What is the price and quantity that will be charged by the monopoly? What area represents the efficiency loss?
The price that will reside in the market is P1 and the quantity will be Q1 The efficiency loss can be presented by the area between Q1 and Q2 above P3 and below P1
Below are four statements. Identify a positive statement
The rate of inflation was about 2 percent last year, a low for the past decade
Suppose the market for corn is a purely competitive, constant-cost industry that is in long-run equilibrium. Now assume that an increase in consumer demand occurs. After all resulting adjustments have been completed, the new equilibrium price will be
The same as the initial equilibrium price, but the new industry output will be greater than the original output
Which of the following conditions does not need to occur for a market to achieve allocative efficiency
The total revenue received by producers equals the total cost of production
Responsibility for enforcing the antitrust laws rests
With both Department of Justice and Federal Trade Commission
Identify which is not a barrier to entry
X-inefficiency
Which of the following is an example of market failure
all of these
Which market structure best characterizes the various internet markets
differentiated oligopoly