Microeconomics Exam 3

Monopolistic competition is similar to monopoly because both market structures are characterized by firms being price makers rather than price takers, true or false

true

Price discrimination can maximize profits if the seller can prevent the resale of goods between customers, true or false?

true

The long-run market supply curve in a competitive market will

typically be more elastic than the short-run supply curve.

For a monopolistically competitive firm, what is the profit maximizing quantity of output?

where marginal revenue equals marginal cost.

Is limited entry a characteristic of a competitive market?

No

Does a city with two firms who are licensed to sell school uniforms for the local schools, have an oligopoly?

yes

Is the US postal service an example of public ownership of a monopoly?

yes

Whenever a cartel in a duopoly breaks down,​

​total output in the market will rise.

The Sherman Antitrust Act prohibits price-fixing in the sense that competing executives cannot even talk about fixing prices, true or false

true

When an oligopoly market reaches a Nash equilibrium, a firm will have chosen its best strategy, given the strategies chosen by other firms in the market, true or false

true

the average fixed cost curve always declines with increased levels of output, true or false?

true

What is the value of C?

$100

What is the value of E

$100

Ryzard decides to open his own business and earns $60,000 in accounting profit the first year. When deciding to open his own business, he withdrew $20,000 from his savings, which earned 6 percent interest. He also turned down three separate job offers with annual salaries of $30,000, $40,000, and $45,000. What is Ryzard's economic profit from running his own business?

$13,800

The information below applies to a competitive firm that sells its output for $45 per unit. • When the firm produces and sells 100 units of output, its average total cost is $24.5. • When the firm produces and sells 101 units of output, its average total cost is $24.65. Refer to Scenario 14-2. Suppose the firm is producing 100 units of output and its fixed cost is $900. Then its average variable cost amounts to

$15.50.

What is the value of F

$150

A monopoly firm maximizes its profit by producing Q = 500 units of output. At that level of output, its marginal revenue is $40, its average revenue is $80, and its average total cost is $44. Refer to Scenario 15-1. At Q = 500, the firm's profit is

$18,000

Korie wants to start her own business making custom furniture. She can purchase a factory that costs $400,000. Korie currently has $500,000 in the bank earning 3 percent interest per year. Suppose Korie purchases the factory using $200,000 of her own money and $200,000 borrowed from a bank at an interest rate of 6 percent. What is Korie's annual opportunity cost of purchasing the factory?

$18,000

Scenario 17-1 ​ Assume that a local restaurant sells two items, salads and steaks. The restaurant's only two customers on a particular day are Mr. Carnivore and Ms. Leafygreens. Mr. Carnivore is willing to pay $20 for a steak and $7 for a salad. Ms. Leafygreens is willing to pay only $8 for a steak, but is willing to pay $12 for a salad. Assume that the restaurant can provide each of these items at zero marginal cost. Refer to Scenario 17-1.If the restaurant is unable to use tying, what is the profit-maximizing price to charge for a steak?

$20

Suppose a firm in a competitive market earned $3,000 in total revenue and had a marginal revenue of $30 for the last unit produced and sold. What is the average revenue per unit, and how many units were sold?

$30 and 100 units

What is the value of D

$50

Refer to Table 13-5. Each worker at the Wooden Chair Factory costs $12 per hour. The cost of each machine is $20 per day regardless of the number of chairs produced. What is the total daily cost of producing at a rate of 55 chairs per hour if the factory operates 8 hours per day

$520

What is the marginal cost of producing the fifth unit of output?

$70

Taylor sells 400 candy bars at $0.50 each. Her total costs are $125. Her profits are

$75

A monopolist can sell 300 units of output for $50 per unit. Alternatively, it can sell 301 units of output for $49.60 per unit. The marginal revenue of the 301st unit of output is

-$70.40

At which number of workers does diminishing marginal product begin

2

A firm produces 400 units of output at a total cost of $1200, if total variable costs are $1000, average fixed cost is

50 cents

Long question that can't fit on screen

Answer is 30 units.

Which of the following is unique to a monopolistically competitive firm when compared to an oligopoly?

Monopolistic competition features many sellers.

If a bakery charges a higher price for brownies than for cookies, is that price discrimination?

No

If a certain market were a monopoly, then the monopolist would maximize its profit by producing 4,000 units of output. If, instead, that market were a duopoly, then which of the following outcomes would be most likely if the duopolists successfully collude?

One duopolist produces 2,400 units of output and the other produces 1,600 units of output.

Raiman's Shoe Repair produces custom-made shoes. When Mr. Raiman produces 12 pairs per week, the marginal cost of the 12th pair is $84, and the marginal revenue of the 12th pair is $70. What would you advise Mr. Raiman to do?

Produce fewer custom-made shoes

Two CEOs from different firms in the same market collude to fix the price in the market. This action violates the

Sherman Antitrust Act of 1890.

Which of the following is a necessary characteristic of a monopoly?

The firm is the sole seller of its product.

In which of the following markets are strategic interactions among firms most likely to occur?

The market for tennis balls

Suppose a market is initially perfectly competitive with many firms selling an identical product. Over time, however, suppose the merging of firms results in the market being served by only three or four firms selling this same product. As a result, we would expect

a decrease in market output and an increase in the price of the product.

In monopolistically competitive markets, free entry and exit suggests that

all firms earn zero economic profits in the long run.

The fundamental source of monopoly power is

barriers to entry.

If a firm in a monopolistically competitive market successfully uses advertising to decrease the elasticity of demand for its product, the firm will

be able to increase its markup over marginal cost.

Haidy consumes Pepsi exclusively. She claims that there is a clear taste difference and that competing brands of cola leave an unsavory taste in her mouth. In a blind taste test, Haidy is found to prefer Pepsi to store-brand cola nine out of ten times. The results of Haidy's taste test would refute claims by critics of brand names that

brand names cause consumers to perceive differences that do not really exist.

Assume a certain firm in a competitive market is producing Q = 1,000 units of output. At Q = 1,000, the firm's marginal cost equals $15 and its average total cost equals $11. The firm sells its output for $12 per unit. Refer to Scenario 14-1. To maximize its profit, the firm should

decrease its output but continue to produce.

Whenever a perfectly competitive firm chooses to change its level of output, its marginal revenue

does not change

In the prisoners' dilemma game, self-interest leads

each prisoner to confess.

A benefit to society of the patent and copyright laws is that those laws

encourage creative activity.

When new firms enter a perfectly competitive market,

existing firms may see their costs rise if more firms compete for limited resources.

If marginal cost is rising, marginal product must be

falling

Economists usually prefer private ownership to public ownership of natural monopolies, true or false?

false

Unlike monopolies and monopolistically competitive markets, oligopolies prices do not exceed their marginal costs, true or false

false

An oligopolist will increase production if the output effect is

greater than the price effect.

The equilibrium quantity in markets characterized by oligopoly is

higher than in monopoly markets and lower than in perfectly competitive markets.

Bubba is a shrimp fisherman who could earn $5,000 as a fishing tour guide. Instead, he is a full-time shrimp fisherman. In calculating the economic profit of his shrimp business, the $5,000 that Bubba gave up is counted as part of the shrimp business's

implicit costs

a difference between explicit and implicit costs is that

implicit costs do not require a direct monetary outlay by the firm, whereas explicit costs do

For a firm to price discriminate,

it must have some market power.

A firm cannot price discriminate if

it operates in a competitive market.

A firm that shuts down temporarily has to pay

its fixed costs but not its variable costs.

Suppose that a "doggie day care" firm uses only two inputs: hourly workers (labor) and a building (capital). In the short run, the firm most likely considers

labor to be variable and capital to be fixed

Economies of scale occur when

long-run average total costs fall as output increases

In order to sell more of its product, a monopolist must

lower its price.

average total cost is increasing whenever

marginal cost is greater than average total cost

The two types of imperfectly competitive markets are

monopolistic competition and oligopoly

In a long-run equilibrium,

only a perfectly competitive firm operates at its efficient scale.

total revenue equals

price times quantity

If duopoly firms that are not colluding were able to successfully collude, then

price would rise and quantity would fall.

The deadweight loss associated with a monopoly occurs because the monopolist

produces an output level less than the socially optimal level.

In the short run, a firm operating in a monopolistically competitive market

produces an output where marginal revenue equals marginal cost, and the price is determined by demand.

Delish, a moderately priced restaurant, has recently announced intentions to open a restaurant in Boston, MA. Assume that the restaurant market in Boston is characterized by monopolistic competition. Refer to Scenario 16-2. As a result of the new restaurant, consumers in Boston are likely to experience a

product-variety externality, which is a positive externality.

The intersection of a firm's marginal revenue and marginal cost curves determines the level of output at which

profit is maximized

Defenders of advertising argue that in some markets advertising may

provide information to customers about products, including prices and seller locations.

The accountants hired by Forever Fitness have determined total fixed cost to be $75,000, total variable cost to be $130,000, and total revenue to be $125,000. Because of this information, in the short run, Forever Fitness should

shut down because staying open would be more expensive.

According to one theory, advertising sends a signal to consumers about the quality of the product being offered. An implication of this theory is that

the existence of an expensive advertisement is more important than the content of the advertisement.

A government-created monopoly arises when

the government gives a firm the exclusive right to sell some good or service.

total cost is the

the market value of the inputs a firm uses in production

The short-run supply curve for a firm in a perfectly competitive market is

the portion of its marginal cost curve that lies above its average variable cost.

A natural monopoly occurs when

there are economies of scale over the relevant range of output.

According to the Clayton act, individuals can sue to recover damages from illegal cooperative agreements, true or false

true

Brand names may help consumers if they provide information about the quality of a product when acquiring such information is difficult, true or false?

true

In a natural monopoly, if the government requires marginal cost pricing, it will likely have to subsidize the firm, true or false?

true

In a prisoners' dilemma game, if the players play the game repeatedly, the players can achieve a higher payoff, on average, than when they play the game only once, true or false?

true