Final Exam Study
If a firm increases all of its inputs by 10 percent and it's output increases by 15 percent, the
It is encountering economies of scale
Allocative inefficiency due to unregulated monopoly is characterized by the condition:
P>MC
Cash expenditures a firm makes to pay for resources are called:
explicit costs
In an increasing cost industry is the result of
higher resource prices that occur as the industry expands
If a purely competitive firm is maximizing economic profit,
it may or may not be maximizing per-unit profit.
Many people believe that monopolies charge any price they want to without affecting sales. Instead, the output level for a profit-maximizing monopoly is determined by:
marginal cost = marginal revenue
An industry comprised of four firms, each with about 25 percent of the total market for a product, is an example of:
oligopoly
One feature of pure monopoly is that the firm is:
price maker
Price discrimination refers to
the selling of a given product at different prices that do not reflect cost differences.
Refer to the graph provided. There are diseconomies if scale
Beyond Q4
Implicit costs are:
"payments" for self-employed resources
For a purely competitive seller, price equals:
average revenue, marginal revenue, total revenue divided by output
If a regulatory commission wants to provide a natural monopoly with a fair return, it should establish a price that is equal to:
average total cost
average fixed cost
declines continually as output increases
As output increases, average fixed costs
decrease
A purely competitive seller has a
A constant horizontal graph where D = MR
At what price would the firm break even?
At the price equal to minimum ATC
The accompanying graph represents the purely competitive market for a product. When the market is at equilibrium, the total opportunity cost of producing the equilibrium output level would be represented by the area
C
A firm sells a product in a purely competitive market. The marginal cost of the product at the current output of 1,000 units is $2.50. The minimum possible average variable cost is $2.00. The market price of the product is $2.50. To maximize profit or minimize losses, the firm should:
Continue producing 1,000 units
Productive efficiency refers to:
Cost minimization, where P = minimum ATC
In moving down the elastic segment of the monopolist's demand curve, total revenue is:
Increasing and marginal revenue is positive
Resource costs increase in a purely competitive industry. This change will result in a(n):
Decrease in the short-run supply curve for a firm in the industry
All of the following statements apply to a purely competitive market in the, except
Total fixed costs remain constant even when output expands in the long run
In the standard model of pure competition in the short run, a profit-maximizing firm will produce the output quantity where the gap between
Total revenue and total cost is the largest, with revenue higher than cost
In the standard model of pure competition, a profit maximizing entrepreneur will close down in the short run if:
Total revenue is less than total variable costs
In graph with c a horizontal line and a a straight positive slopes line, curve a represents
Total revenue only
A purely competitive firm's short-run supply curve is;
Upsloping and equal to the portion of the marginal cost curve that lies above the average variable cost curve
In a purely competitive industry, the output quantity would be
Where MC = (AR = D)
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.
When a firm doubles its inputs and finds that its output has more than doubled, this is known as:
economies of scale
The long-run supply curve in a constant-cost industry would be:
horizontal
A constant-cost industry is one in which:
if 100 units can be produced for $100, then 150 can be produced for $150, 200 for $200, and so forth.
example of price discrimination
A major airline sells tickets to a senior citizens at lower prices than to other passengers
Because the marginal product of a variable resource at first increases and then decreases as the output of the firm is increased: A. total cost at first increases at a decreasing rate and then increases at an increasing rate. B. total variable cost at first increases at an increasing rate and then increases at a decreasing rate. C. average total cost at first increases and then diminishes. D. average fixed cost will rise beyond the point of diminishing returns.
A. total cost at first increases at a decreasing rate and then increases at an increasing rate.
A monopoly results in productive inefficiency because at the profit-maximizing output level
ATC is not at its minimum level
Refer to the graph. Which one of the following would cause a move from point b ton the short-run average total cost curve ATC1 to point e on short-run average cost curve ATC2? (1 is below 2 but identical)
An increase in wage
X-inefficiency is said to occur when a firm's
Average costs of producing any output are greater than the minimum possible average costs
Total fixed cost is
Average fixed cost at 1 unit of output
Assume a firm is operating at minimum average total cost in the short run. If there is a decrease in output it follows that:
Average fixed cost increases
Refer to the short-run production and cost data. In figure A curve 1 is
Average product and curve 2 is marginal product. Both are concave down. 2 is steeper and goes up higher
At output level H in the provided graph, the area
BCGH represents the firm's total fixed cost of production. Distance from AVC to ATC
If market price is $1.05, then the firm will produce
Between 15 and 20 units in the short run
Price is taken to be a "given" by an individual firm selling in a purely competitive market because:
Each seller supplies a negligible fraction of total market
Imperfectly competitive producers
Face down sloping demand curves, can alter their output by changing price, find that when they reduce price their total revenue increases by less that the new price
If a monopolist produces 100 units of output at a market price of $5 per unit with marginal revenue per unit equaling $4, we would expect that if the monopolist's good was provided under pure competition, quantity would be:
Higher than 100 units, price lower than $5, and MR = price
An industry where a change in the number of firms does not affect the prices of the resources used in the industry will have a long-run supply curve that is
Horizontal
Many economists agree that government should deal with monopolists on a case by case basis. Which of the following is not a government policy option?
If the monopoly is maximizing economic profits, the government can subsidize new firms to enter the industry
Which of the following statements about a competitive firm is correct?
In long-run equilibrium a competitive firm will produce at the point of minimum average costs
A purely competitive firm is producing at the point where it's marginal cost equals the price of its product. If the firm increases its output, then total revenue will
Increase and profits will decrease
The wage rate increases in a purely competitive industry. This change will result in a(n):
Increase in the marginal cost curve for a firm in the industry
Suppose that a monopolist calculates that at present output and sales levels, marginal revenue is $1 and marginal cost is $2. He could maximize profits or minimize losses by:
Increasing price and decreasing output
The long run ATC for a purely competitive firm that is producing at an equilibrium level of output, the firm's economic profit
Is zero
A purely competitive firm does not try to sell more of its product by lowering its price below the market price because
It can sell all it wants to at the market price
If a pure monopolist is producing at that output where MR = MC output
It will be in the interest of the firm, but not necessarily of society, to reduce output
The following statement about the "sunk cost fallacy" is true
It's the tendency to drag past costs into current marginal cost-benefit calculations, it comes from a desire to "get one's money's worth" out of a past expenditure, and it could lead one to "throw good money after bad"
The theory of creative destruction was advanced many years ago by:
Joseph Schumpeter
Round Things, Inc.'s production process exhibits economies of scale. Currently their long-run average cost is $1/unit. If Round Things doubles its use of all inputs, its new long-run average total cost will be:
Less than $1/unit
If the price of labor or some other variable resource decreased, the:
MC curve would shift downward
In the short run, the individual competitive firm's supply curve is that segment of the:
Marginal cost curve lying above the average variable cost curve
Refer to the diagram. If labor is the only variable input, the marginal product of labor is a
Maximum at point a. The lowest point on MC curve
In the short run, a firm is willing to produce at a price point where
Only AVC are being paid off
When a purely competitive firm is in long-run equilibrium:
Price and average total cost are equal
An economy is producing at the least-cost rate of production when:
Price and minimum average total cost are equal
An industry is producing at the least-cost rate of production when
Price and the minimum average cost are equal
The Ajax Manufacturing Company is selling in a purely competitive market. It's output is 100 units, which sell at $4 each. At this level of output, total cost is $600, total foxed cost is $100, and marginal cost is $4. The firm should
Produce zero units of output
The vertical distance between the horizontal axis and any point on a non-discriminating monopolist's demand curve measures
Product price and average revenue
In the short run, purely competitive firms earn ____ in equilibrium while in the long run firms earn ____ in equilibrium, respectively.
Profits or losses; normal profit
In the diagram, the range of diminishing marginal returns is
Q1Q3. Top of marginal product curve to when marginal product is zero
In the inelastic portion of a monopolist's demand curve, an increase in price will
Reduce output quantity, increase total revenue, and decrease total cost.
If the price of product Y is $25 and it's marginal cost is $18
Resources are under allocated to Y
creative destruction
Stimulates growth, contributes to the production of new goods, and forces firms to be innovative
Suppose that the corn market is purely competitive. If the corn farmers are currently earning negative economic profits, then we would expect that in the long run the market's
Supply curve will shift to the left
If a regulatory commission imposed upon a non discriminating natural monopoly a price that is equal to marginal cost and below average total cost at the resulting output, then
The firm must be subsidized or it will go bankrupt
Which of the following is true for a purely competitive firm in short run equilibrium?
The firm's marginal revenue is equal to its marginal cost
Under what conditions would an increase in demand lead to a lower long-run equilibrium price?
The firms in the market are part of a decreasing-cost industry.
A firm doubles the quantity of all resources it employs and, as a result, output doubles. Which of the following is correct?
The long-run average total cost curve is flat
Refer to the provided graph showing the marginal product and the average product of labor. At which quantity of labor employed is marginal product equal to average product?
When they intersect
Assume a purely competitive constant-cost industry is initially at long-run equilibrium. Now suppose that a decrease in demand occurs. After all the long-run adjustments have been completed, the new equilibrium price
Will be the same as the initial price, and the output will be less
Which of the following is not a barrier to entry?
X-inefficiency
The law of diminishing returns results in
a total product curve that eventually increases at a decreasing rate.
If marginal cost exceeds average total cost in the short run, then which is likely to be true?
average total cost is increasing.
In a typical graph for a purely competitive firm, the intersection of the total cost and total revenue curves would be:
break-even point
In the short run, output:
can vary as the result of using a fixed amount of plant and equipment more or less intensively
The long-run equilibrium of a purely competitive industry ensures:
consumer and producer surplus is maximized
The process by which new firms and new products replace existing dominant firms and products is called
creative destruction
The main difference between the short run and the long run is that:
in the short run, one or more inputs are fixed
A pure monopolist should never produce in the
inelastic segment of its demand curve because it can increase total revenue and reduce total cost by increasing price.
For a purely competitive firm, total revenue:
is price times quantity sold, increases by a constant absolute amount as output expands, and graphs as a straight upsloping line from the origin
Costs to an economist:
may or may not involve monetary outlays
If a purely competitive firm is producing at the MR = MC output level and earning an economic profit, then:
new firms will enter this market.
If a profit-seeking competitive firm is producing its profit-maximizing output and its total fixed costs fall by 25 percent, the firm should:
not change its output
When a purely competitive firm is in long-run equilibrium:
price equals marginal cost
Resources are efficiently allocated when production occurs where:
price is equal to marginal cost
Other things equal, a price discriminating monopolist will
produce a larger output than a nondiscriminating monopolist.
Which of the following is most likely to be a fixed cost?
property insurance premiums
Suppose a firm in a purely competitive market discovers that the price of its product is above its minimum AVC point but everywhere below ATC. Given this, the firm:
should continue producing in the short run but leave the industry in the long run if the situation persists.
If at the MC = MR output, AVC exceeds price:
some firms should shut down in the short run
In comparing the changes in TVC and TC associated with an additional unit of output, we find that:
the changes in TC and TVC are equal
If a purely competitive firm is producing where price exceeds marginal cost, then
the firm will fail to maximize profit and resources will be underallocated to the product.
When diseconomies of scale occur:
the long-run average total cost curve rises.
Economists use the term imperfect competition to describe
those markets that are not purely competitive.
The average total cost is equal to
total cost/output
A firm reaches a break-even point (normal profit position) where:
total revenue and total cost are equal
Economies and diseconomies of scale explain
why the firm's long-run average total cost curve is U-shaped.
If you know that when a firm produces 10 units of output, total costs are $1,030 and average fixed costs are $10, then total fixed costs are:
$100
