Micro Final Exam
If the price elasticity of supply in the kiwi fruit industry equals 1, supply is
unit elastic
Output per day Workers per day Total cost 0 0 $10 5 1 20 15 2 30 18 3 40 20 4 50 In Exhibit 7-5, what are variable costs at 15 units of output?
$20
Suppose Guild produces 5,000 guitars per year. Its average total cost is $90, and its fixed cost is $250,000. What is its variable cost?
$200,000
The profit-maximizing (or loss-minimizing) price the firm would charge in Exhibit 10-12 is
$3.25
If Debbye is willing to pay $50 for a pair of shoes but only has to pay $20 because the shoes are on sale, then her consumer surplus on that pair of shoes is
$30
At the profit-maximizing output for the firm in Exhibit 9-3, the single price monopolist will earn a profit of ______ per unit of output?
$4
In Exhibit 8-14, what area represents total loss at the loss-minimizing output?
ejkf
Watt Power and Light, an electric company, will suffer an economic loss
if regulators insist that it produce where price equals marginal cost because marginal cost is less than average cost
At its present rate of output, 200 units, a perfectly competitive firm has total cost of $10,000, marginal cost of $38, and fixed cost of $2,000, and it charges the market price of $38 per unit. To maximize profit or minimize loss, this firm should
shut down
The monopolistic competitor in Exhibit 10-1 is in
short-run equilibrium because it is earning a positive economic profit
Q P TC 1 $27 $10 2 24 17 3 21 25 4 18 40 5 15 60 At the profit-maximizing output, the monopolistically competitive firm in Exhibit 10-3 is in
short-run equilibrium because price is greater than average total cost
If Evan has an absolute advantage in cleaning and bookkeeping when compared to Gloria, then
we can conclude nothing about comparative advantage
Output per day Workers per day Total cost 0 0 $10 5 1 20 15 2 30 18 3 40 20 4 50 In Exhibit 7-5, what is the marginal cost of the 15th unit of output?
$1
At the profit-maximizing output level, total cost for the firm in Exhibit 10-11 is
$5,600
In Exhibit 5-5, what is the total revenue at point a?
$50
Consider Exhibit 10-13. If two firms each produced 500 units, the total cost of supplying 1,000 units would be
$6,000
Suppose Ernie gives up his job as financial advisor for P.E.T.S., at which he earned $30,000 per year, to open up a store selling spot remover to Dalmatians. He invested $10,000 in the store, which had been in savings earning 5 percent interest. This year's revenues in the new business were $50,000, and explicit costs were $10,000. Calculate Ernie's economic profit.
$9,500
Each point on a production possibilities frontier requires full employment of resources.
True
In Exhibit 8-14, what area represents total cost at the loss-minimizing output?
0jka
Exhibit 2-1 Hans Maria Loads of laundry per hour 4 12 Pages typed per hour 6 8
1 1/2 pages
The profit-maximizing output and price for the firm in Exhibit 9-3, which charges the same price to all customers, are
117 and $24
Labor Total product (pairs of shoes) 0 0 1 20 2 50 3 75 4 80 5 75 Given the information in Exhibit 7-2, what is the average product of the third unit of labor?
25 pairs of shoes
Labor Total product (pairs of shoes) 0 0 1 20 2 50 3 75 4 80 5 75 Given the information in Exhibit 7-2, what is the marginal product of the third unit of labor?
25 pairs of shoes
Loads of laundry per hour 4 12 Pages typed per hour 6 8
3/2 of a load of laundry
cones Total Utility Marginal Utility 1 10 - 2 18 - 3 24 6 4 28 - 5 30 2 n Exhibit 6-3, the total utility of consuming five scones is
30
In one week, Tetah can knit 15 sweaters or bake 480 cookies. The opportunity cost per sweater for Tetah is
32 cookies
If the value of the price elasticity of demand is -0.2, this means that a
5 percent decrease in price causes a 1 percent increase in quantity demanded
Scones Total Utility Marginal Utility 1 10 - 2 18 - 3 24 6 4 28 - 5 30 2 In Exhibit 6-3, the marginal utility of consuming the second scone is
8
If all six suppliers of cement to Metropolis all agree to establishes a price of $45 per ton, this would be
A cartel
Elasticity measures
the responsiveness of decision makers to changes in prices, income, or other variables
Which of the following tends to make demand for a good more elastic?
Consumers have a long time to adjust to a price change
Suppose a perfectly competitive increasing-cost industry is in long-run equilibrium when market demand suddenly increases. What happens to the typical firm in the long run?
It experiences a higher average total cost and equilibrium price
A university should not disband its football team if it has already paid for the stadium.
False
Because firms in an oligopoly are interdependent, they attempt to maximize revenues rather than profits
False
Marginal revenue is the change in total revenue from using one more unit of an input in the short run.
False
Monopolistic competitors are protected by barriers to entry.
False
Something is called a barrier to entry only if it makes entry into an industry absolutely impossible.
False
The law of diminishing marginal utility implies that the marginal utility of my fifth hot dog is less than the marginal utility of my second soft drink, other things constant.
False
When using game theory to analyze oligopoly, firms will always have a dominant strategy.
False
Suppose Ferd truthfully tells the car dealer the maximum amount he's willing to pay for a Ford Mustang: $20,000. The dealer says, "You're in luck; we have one on the lot for $20,000." Which of the following statements is true?
Ferd gets no consumer surplus
Which of the following is true of firms in both monopolistic competition and perfect competition?
Firms can enter and leave the industry with relative ease.
Which of the following is a long-run adjustment?
Glow Electric disassembles one of its nuclear power plants
Hans Maria Loads of laundry per hour 4 12 Pages typed per hour 6 8
Hans specialized in typing and Maria in doing laundry
Suppose a perfectly competitive constant-cost industry is in long-run equilibrium when market demand suddenly falls. What happens to the industry in the long run?
It experiences the same equilibrium price but produces less output
A utility-maximizing consumer who is considering two goods, x and y, would allocate her budget in such a way that
MUx/Px = MUy/Py
Hans Maria Loads of laundry per hour 4 12 Pages typed per hour 6 8
Maria has an absolute and a comparative advantage in doing laundry
For the situation depicted in Exhibit 10-4, what will happen in the long-run?
New firms will enter the market driving economic profit to zero.
On a straight-line production possibilities frontier, which of the following is true?
Opportunity costs are constant.
If the natural monopoly in Exhibit 15-5 is regulated so that it earns a normal profit, then
P = $22 and Q = 6
For perfectly competitive firms, what is the relationship among market price (P), average revenue (AR), and marginal revenue (MR)?
P = AR = MR
One of the ways that a perfectly competitive firm and a nondiscriminating monopolist are different is that
P = MR for a perfectly competitive firm but not for a monopolist
In Exhibit 9-18, a price discriminating monopolist will charge what price?
P1 in segment A and P2 in segment B
Refer to exhibit 4-14. The market demand curve is given by D1 and the supply by S1. Equilibrium price is P2 and equilibrium quantity is Q1. What will the new equilibrium price and quantity be if there is an increase in the birth rate?
P4 and Q3
A physicians' professional association supports legislation seeking higher quality medical care. According to the special interest theory of regulation, who likely will benefit most from this legislation?
Physicians, through increased prices for medical care.
In the short run, which of the following should the firm in Exhibit 10-4 do?
Produce 10 units at a price of $40 per unit.
Cartels are inherently unstable.
Rrue
Which of the following is not true regarding a change in quantity demanded?
The demand curve shifts whenever the quantity demanded changes.
Which of the following illustrates the law of diminishing marginal utility?
The marginal utility of Diane's second Coke is greater than the marginal utility of her third Coke, other things constant.
Exhibit 4-5 depicts the milk market. The horizontal line, P, represents a price ceiling imposed by the government. Which of the following is true?
The quantity supplied at the price ceiling will equal the quantity sold
Each point along a nation's production possibilities frontier represents efficient use of all resources.
True
Exhibit 10-15 Dan'l Boone Tobacco Advertise Don't advertise Eagle Tobacco Advertise 1150, 1150 2020, 630 Don't advertise 630, 2020 1500, 1500 xhibit 10-15 depicts the payoff matrix facing Eagle Tobacco and Dan'l Boone Tobacco with respect to their decisions to advertise or not. Eagle Tobacco and Dan'l Boone Tobacco have the same dominant strategy.
True
If a monopolistically competitive firm is in long-run equilibrium and average cost equals $150, then the market price must be $150.
True
If people specialize in producing those goods for which they possess a comparative advantage, then the economy as a whole can produce a greater quantity of goods.
True
If suppliers expect an increase in price, they will reduce the current supply of a good.
True
In regards to monopolistic competition, some economists argue that consumers are willing to pay a higher price in order to enjoy a wider selection of goods and services.
True
In the long run in monopolistic competition, firms earn zero economic profit.
True
Inefficiency is a flaw of a command economy because there is less incentive for resources to flow to their highest-valu
True
Positive marginal utility implies increasing total utility.
True
If all six suppliers of cement to Metropolis all agree to establishes a price of $45 per ton, this would be
a cartel
formal agreement among the firms in an industry to coordinate their production and pricing decisions in order to earn monopoly profits is known as
a cartel
Refer to Exhibit 4-2. Which of the following would cause a shift of demand from D' to D?
a decline in consumers' incomes if it is a normal good
Which of the following would cause an increase in the supply of wheat?
a decrease in the price of corn
The payoff matrix refers to
a listing of the rewards and penalties associated with pursuing various strategies
At the profit-maximizing output level, the firm represented in Exhibit 8-11 experiences
a profit of abfm
Recognizing the incentive power of property rights and markets, some of the most die-hard central planners are now allowing
a role for markets
Which of the following describes the market structure of monopoly?
a single firm producing all of the output for the industry
Which of the following firms is most likely to be a perfectly competitive firm?
a soybean farmer
Price Quantity Demanded $50 2 40 3 30 4 20 5 10 6 In Exhibit 9-1, the marginal revenue of the sixth unit is
a. -$40
In recent years, the number of farms has fallen while the average farm size has increased. What concept may explain this phenomenon?
economies of scale
Movement from point a to point b in Exhibit 7-11 indicates that the firm is experiencing
economies of scale
For which of the following goods is the value of income elasticity most likely to be negative?
a. airline tickets b. toothpaste C. macaroni and cheese d. clothes e. champagne
Which of the following is inconsistent with the model of perfect competition?
advertising of product differences in the industry
If a perfectly competitive firm is operating in long-run equilibrium and market demand suddenly falls, the short-run result will be
an economic loss
Q P TC 1 $27 $10 2 24 17 3 21 25 4 18 40 5 15 60 At the profit-maximizing output, the firm in Exhibit 10-3 is earning
an economic profit of $38
A prisoner's dilemma can be described as a situation in which
an individual decision maker finds it in his best interest to pursue a course of action that can lead to a less than desirable outcome for the group
In the long run in monopolistic competition, a firm will not produce the output level that minimizes average cost because
at that output level, MC is greater than MR
In Exhibit 7-8, A is marginal cost, B is average variable cost and C is average total cost, the vertical distance between lines B and C at any level of output represents
average fixed cost
The capture theory of regulation, espoused by George Stigler, asserts that
producers "capture" regulatory agencies so that regulation favors producers
The term opportunity cost suggests that
because goods are scarce, in order to get some good you must give up some other good in return
Labor Total product (pairs of shoes) 0 0 1 20 2 50 3 75 4 80 5 75
between the second and third units of labor
The welfare loss associated with the unregulated natural monopoly in Exhibit 15-4 is shown by the area
cef
Assume that you allocate your income to calzones and juice and that you have not yet spent your entire budget. If the marginal utility of a fourth calzone is 100 and the marginal utility of a third glass of juice is 50, you would
consider the relative prices of calzones and juice before deciding what to consume next
Because of specialization and comparative advantage, most people
consume the products of many other specialists
The retail market for video rentals is a monopolistically competitive market. A greater supply of video rental outlets along with the increased availability of substitutes like cable channels would likely make rental rates
crash
In order to prove that Coca Cola and 7-Up are substitutes, one should test the __________ and get a __________.
cross-price elasticity; positive number
In the long run, Bubba's Baby Boutique, a monopolistically competitive firm,
earns normal profit but zero economic profit
Economies of scale yield
declining average cost as output increases
If good B is a complement to good A, then a rise in the price of B
decreases the demand for A
A natural monopoly results when a firm has
decreasing average costs over the range of market demand
As the economy recovers from a recession, we should expect that
demand for inferior goods will fall and demand for normal goods will rise
In a game that can be repeated, the optimal solution is
dependent upon each firm's decision in the first round of decision making
According to the special interest theory, the licensing of beauticians would be
desired by some beauticians in order to restrict entry into their profession
Which of the following is not an example of an oligopolistic barrier to entry?
diseconomies of scale
Which of the following is not considered a barrier to entry?
diseconomies of scale
The short run is a period of time
during which at least one resource is fixed
Q TFC TVC TC MC 0 $10.00 $ 0.00 $ 10.00 1 10.00 20.00 30.00 $20.00 2 10.00 38.00 48.00 18.00 3 10.00 54.00 64.00 16.00 4 10.00 72.00 82.00 18.00 5 10.00 92.00 102.00 20.00 6 10.00 114.00 124.00 22.00 7 10.00 138.00 148.00 24.00 Consider Exhibit 8-5. If the market price is $21, this perfectly competitive firm will
earn a profit of $3.00
At the profit-maximizing output level, the firm in Exhibit 10-11 is
earning zero economic profit
Suppose demand increases and supply increases. Which of the following will happen?
equilibrium quantity will increase
A cartel is
explicit collusion
If marginal revenue is less than price for a firm, it must be true that the firm
faces a downward-sloping demand curve
Each member of a cartel
faces a temptation to cheat on the agreement because lowering its price slightly below the established price will usually increase the firm's sales and profit
As new monopolistically competitive firms enter the market, the demand facing each firm __________, causing the price charged by each firm to __________. In the long run, each firm will earn a __________ profit.
falls; fall; normal
Which of the following is most likely produced in a monopolistically competitive market?
fast food
A permanent decrease in demand for convenience store services is likely to cause which of the following in the long run?
fewer firms in the industry
Total Utility Quantity Games of billiards Games of bowling 0 0 0 1 100 70 2 180 130 3 240 180 4 272 210 5 288 218 6 292 222 Suppose you have $30 to spend on either bowling or billiards. A game of billiards costs you $4, and bowling costs $2 per game. Using the information in Exhibit 6-7, determine the utility-maximizing combination of bowling and billiards.
five billiards games, five games of bowling
For a person who owns and operates an automobile, insurance premiums are a __________ and maintenance and repairs are a __________.
fixed cost; variable cost
Productive efficiency occurs in markets when
goods are produced at the lowest possible average total cost
Along a straight-line downward-sloping demand curve, elasticity is
greater at higher prices
Utility is
hard to measure because it is a subjective concept
If Family Travel Agency, a monopolistic competitor, offers services that are differentiated from the services of other producers in the industry, it
has some power to control the price it charges
Suppose that a price-discriminating monopolist divides its market into two segments. The firm will charge the lower price in the market segment where consumers
have relatively more elastic demand
Suppose a professor gives up her teaching job to devote her time to writing textbooks. If salaries of professors rise,
her economic profit from textbooks will fall
An increase in demand for chocolate chips would usually result in a(n)
higher equilibrium price and a higher equilibrium quantity
If Ed is willing to pay a maximum of $200 for a tweed sport coat but buys one for $180, that $20 saved is
his consumer surplus
For a given supply curve, an increase in demand will typically
increase both quantity and price
If a firm raises the price of its product, its total revenue will
increase only if demand is price inelastic
If the tea harvest is bad in a particular year, what will happen in the market for coffee?
increased price and increased quantity
When price decreases, consumer surplus
increases
When diminishing marginal returns set in, total product
increases at a decreasing rate
The shape of the total cost curve between outputs a and b in Exhibit 8-3 reflects
increasing marginal returns
The advantage of game theory is that it allows us to focus on the
individual firm's incentives to cooperate or not
The demand for flour is
inelastic because there are few substitutes for flour and it represents a small percentage of a consumer's budget
Which of the following characteristics distinguishes oligopoly from other market structures?
interdependence among firms in the industry
If variable cost rises from $60 to $100 as output increases from 15 to 20 units, the marginal cost of the twentieth unit
is $8
A perfectly elastic supply curve
is a horizontal straight line
If a firm facing a perfectly elastic demand curve raises its price,
its sales will decrease to zero
Suppose Lorna will buy more sweaters if the price of sweaters rises. She is violating the
law of demand
Which of the following prevents potential competitors from entering a monopolist's market?
legal restrictions
On a production possibilities frontier showing possible output levels of good A and good B, the opportunity cost of producing the first 10 units of A will usually be
less than the opportunity cost of producing the second 10 units of A
In the short run, a perfectly competitive firm will always shut down if, at all positive output levels, total revenue is
less than variable cost
Zara is the largest fashion retailer in Europe. Which of the following would not a barrier to entry that protects Zara's market power?
little advertising
In Exhibit 2-5, if society moves from point c to point d, society
loses 30 mufflers
The price that represents the shutdown point for a perfectly competitive firm is the
lowest point on the average variable cost curve
Monopolistically competitive industries consist of
many firms, each selling a slightly different product
Which of the following best explains why marginal cost eventually increases as output increases?
marginal product decreases
Monopolistically competitive firms
may earn short-run economic profits, although long-run economic profit is typically zero
Sally is allocating her budget between two goods, A and B. If Sally has used up the budget on a combination of A and B for which MUA/PA exceeds MUB/PB, she can increase total utility by buying
more A and less B
A unique feature of oligopoly markets is
mutual interdependence
The cross-price elasticity of demand between rifles and bullets is likely to be
negative because the goods are complements
In the short run, a monopolistically competitive firm is
not guaranteed any level of economic profit
Interdependent decision making on price, quality, or advertising is characteristic of
nterdependent decision making on price, quality, or advertising is characteristic of
An inferior good is
one that consumers buy less of as their income rises
Although both perfectly competitive and monopolistically competitive firms earn normal profits in the long run, monopolistically competitive firms will not
operate where price equals marginal cost
A perfectly competitive firm is a price taker. Therefore, it faces a
perfectly elastic demand curve for its output
In a rental market like the one in Exhibit 4-6, a government-imposed rule that rent cannot exceed $750 per month would be called a
price ceiling
At the profit-maximizing quantity, the demand curve facing the firm in Exhibit 9-3 is
price elastic
Demand is elastic whenever
price elasticity has an absolute value greater than 1
Monopolistically competitive firms do not achieve allocative efficiency in the long run because
price is greater than marginal cost
Price Quantity demanded Quantity supplied $1.00 100 10 1.20 90 30 1.40 80 50 1.50 70 70 1.60 60 90 If the price of the good described in Exhibit 4-1 is $1.60, then an economist would expect the
price to decrease to $1.50
If an industry is a constant-cost industry
prices of its inputs remain constant as the number of firms increases
Bob produces gizmos in a perfectly competitive market where the market price is equal to average total cost. At current production in Bob's firm the MC is greater than MR. To maximize profit Bob should
produce less gizmos
In the long run, a monopolistically competitive firm will
produce where price equals average total cost
A monopolistically competitive firm can raise price somewhat due to
product differentiation
Monopolistic competition is similar to
pure monopoly, in that firms face downward-sloping demand curves, and similar to perfect competition, in that long-run economic profit is zero
Which of the following is correct when a price floor is set above the equilibrium price?
quantity supplied exceeds quantity demanded at the set price
Which of the following would not be considered price discrimination?
renting recently released videos at a higher price than the old classic videos
Three firms that are successful in colluding to raise their prices must
restrict output
The price elasticity of demand helps determine the effect of price changes on a firm's
revenues
If oligopolists engaged in some sort of collusion, industry output would be __________ and the price would be _____
smaller, higher
Increasing marginal returns are generally the result of
specialization and division of labor
Game theory focuses on
strategic behavior among interdependent firms
As the price of milk increases, producers are normally willing to supply greater quantities. This is known as the law of
supply
Price Quantity demanded Quantity supplied $1.00 100 10 1.20 90 30 1.40 80 50 1.50 70 70 1.60 60 90 If the price of the good described in Exhibit 4-1 is $1.60, then there is a
surplus of 30 units
Utility is determined by an individual's
tastes and preferences
Which of the following would most likely increase the supply of college textbooks?
technology of book production improves
Adam Smith believed that people's pursuit of their own self-interests
tended to promote the general welfare
The relationship between average and marginal variables can be stated as follows: if the marginal is greater than the average,
the average is increasing
Sugar and honey are viewed as substitutes for each other in many cooking applications. If the price of sugar rises, we
the demand for honey to increase
Suppose consumers spent $42 million on Christmas trees last year when the average tree cost $30 and this year spent $42 million when the average tree costs $25. Assuming nothing else changed, this data suggests that
the demand for trees is unit elastic
If the cross-price elasticity of demand between two goods is positive, then
the goods may have similar uses
The law of comparative advantage says that...
the individual with the lowest opportunity cost of producing a particular good should produce it
In both monopolistic competition and non-price-discriminating monopoly,
the marginal revenue curve lies below the demand curve
Newspaper vending machines illustrate that publishers believe
the marginal utility of a second identical newspaper is zero or less
The reason that you don't drink five cups of coffee at breakfast is that
the marginal utility of extra cups of coffee eventually diminishes
Point g in Exhibit 2-3 is efficient because
the only way to increase production of A is by decreasing production of B
In the long run, a perfectly competitive industry is allocatively efficient because
the opportunity cost of resources needed to produce the last unit of output just equals the marginal value to consumers of the last unit
Suppose that for Jason the marginal utility of $50-per-serving caviar is 100 and the marginal utility of $1-per-serving popcorn is 10. For his snack, Jason should buy
the popcorn, whether he has the $50 or not
Suppose Thelma and Louise both sell fried green tomatoes in a perfectly competitive market. If Louise increases her output
the price Thelma can charge is unaffected
Saccharin and aspartame are both low-calorie substitutes for sugar. If saccharin is found to cause cancer,
the price of aspartame will increase
In order to derive a demand curve for cheese, we would change
the price of cheese and hold other things constant
If there is a shortage in the market for jeans,
the price should begin to rise
Unlike firms in a perfectly competitive industry, monopolists have control over
the price they charge for the product
The main reason a monopolist can earn long-run economic profit, whereas a perfectly competitive firm cannot, is that
there are no barriers to entry in perfect competition
In Exhibit 7-8, when output is 10,
total cost equals $80
We can tell that demand is elastic as price falls between point a and point b in Exhibit 5-6 because
total revenue is increasing