microeconomics final

Profit =

(P - AC) x Q

In a perfectly competitive market, a firm will set its price:

Equal to market price.

If price increases, a firm will:

Expand production.

For a firm with market power, marginal revenue is:

Lower than price.

Refer to the four panels in the figure. Which panel shows a competitive firm making zero economic profits?

Panel B

Total revenue is

Price x Quantity.

Implicit cost:

a cost that does not require an outlay of money.

Explicit cost:

a cost that requires a money outlay.

Which event would shift the demand curve for piano lessons from D1 to D2, as shown in the diagram?

a decrease in the price of pianos

Monopoly

a firm with market power

When a single firm can supply the entire market at lower cost than two or more firms, we say that the industry is:

a natural monopoly

A competitive firm will maximize its profit at the quantity:

a.Where MR = MC.

In competitive markets, the demand curve faced by the individual firm is:

perfectly elastic.

market power

the power to raise price above marginal cost without fear that other firms will enter the market

All of the following conditions would cause the demand curve for a good to be more elastic EXCEPT:

the price of the good falls.

Refer to the figure. If a tax shifts the supply curve from S1 to S2, the value of deadweight loss is:

$100

Refer to the figure. Suppose a subsidy allows sellers to receive their product at the price of $8 with a quantity of 400 units. What is the dollar amount of the subsidy per unit of the good?

$2

Refer to the table. The maximum profit available to the company is:

$224.

Refer to the figure. At the equilibrium quantity, total surplus is:

$480 "Total surplus" refers to the sum of consumer surplus and producer surplus.

Refer to the figure. Calculate consumer surplus when this monopoly is regulated.

$6,400

If a $3 tax per unit purchased was placed on buyers instead of sellers, buyers would pay ________ and sellers would receive ________.

$6; $3

In the diagram, at which price is there a surplus?

$80

A constant cost industry has two characteristics:

1.It meets the conditions for a competitive industry. 2.It demands only a small share of its major inputs.

Profit = 80 AC = 8 Q = 10 What is the price?

16=price

The elasticity of demand for a good is -0.75. A 4 percent increase in price will cause a:

3 percent decrease in quantity demanded.

refer to the table. What is the marginal cost of producing the seventh barrel of oil?

36

Refer to the table. What is the marginal revenue of producing the fifth barrel of oil?

50

Refer to the table. How many barrels of oil should the company produce to maximize profit?

8

In which of the following scenarios will automobile prices be the lowest?

A competitive automobile company buys its steel from a competitive steel producer.

Decreasing Cost Industry:

An industry in which industry costs decrease with greater output; shown with a downward sloped supply curve.

Constant Cost Industry:

An industry in which industry costs do not change with greater output; shown with a flat supply curve.

Increasing Cost Industry:

An industry in which industry costs increase with greater output; shown with an upward sloped supply curve.

Why is the world unlikely to ever literally run out of oil?

As the cheap-to-produce oil gets used up, the price of oil will rise, encouraging conservation and production using more expensive techniques.

In the accompanying pizza market, with a $2 tax imposed on the sellers, how much of the tax is paid by the buyers and how much of the tax burden is borne by the sellers? (on the graph, where the tax wedge is, $11.50 is hitting the demand curve while $9.50 is hitting the supply curve)

Buyers pay $1.50 and sellers pay $0.50 of the tax.

If a firm produces at the output where MR = MC, it will always make a profit.

False. If average cost is greater than price, the firm will have a loss

Refer to the figures. If these figures represent the market for blue jeans, which figure shows the effect of an increase in the price of denim, a raw material used to make jeans?

Figure A

A monopolist's price is:

Higher than a competitive firm's.

A perfectly competitive industry exists under which of the following conditions?I. The product sold is similar across firms. II. There are many sellers, each small relative to the total market. III. There are many sellers, each with total assets less than $2 million. IV. The threat of competition exists from potential sellers that have not yet entered the market

I, II, and IV only

•Firms will exit the industry when

P < AC.

•Firms will enter the industry when

P > AC.

Which of the following is always TRUE for monopolies?

P > MR

Cars and gasoline are complements. What will happen to the demand curve for gasoline if the price of cars decreases?

The demand curve for gasoline will shift upward and to the right.

An industry is ______________ when firms don't have much influence over the price of their product.

competitive

Total cost:

cost of producing a given quantity of output.

Fixed costs:

costs that do not vary with output.

Variable costs:

costs that do vary with output.

Unlike price floors, subsidies:

do not create surpluses

Gains from trade are maximized at the:

equilibrium price and quantity.

The supply curve for oil slopes upward because:

oil will only be extracted from more costly sources when the price of oil is higher.

The oil industry is an increasing cost industry because:

expanding output requires firms to use more expensive production methods to find and extract oil from less desirable locations.

Barriers to entry:

factors that increase the cost to new firms of entering an industry.

We can break total costs into two components: ________ costs and ______ costs.

fixed; variable TC = FC + VC

The elasticity of supply measures

how responsive the quantity supplied is to a change in the price of a good or service.

Economic growth in China has led to more Chinese people owning cars, which:

increased demand for oil, causing oil prices to rise.

▪The more _________ the demand curve, the more a monopolist will raise price above MC.

inelastic

A 4 percent increase in the price of beer will cause a 1 percent decline in the quantity of beer demanded. The demand for beer is:

inelastic.

Apple's iPod provides an example that market power may arise from:

innovation.

▪A firm with _____________ faces a downward sloping demand curve.

market power

▪zero profits really means _________ profits.

normal

Which of the following mostly likely has a perfectly inelastic supply curve?

prehistoric cave paintings

A tax on sellers of popcorn will:

reduce the size of the popcorn market.

A subsidy is a:

reverse tax.

Economies of Scale:

the advantages of large-scale production that reduce average cost as quantity increases.

Marginal cost (MC):

the change in total cost from producing an additional unit.

Marginal revenue (MR):

the change in total revenue from selling an additional unit. MR = △TR / △Q

Average Cost of Production:

the cost per unit, or the total cost of producing Q units divided by Q. AC = TC / Q

The question of who pays the greater amount of a commodity tax is determined by

the relative elasticities of demand and supply.

The price elasticity of demand is:

the responsiveness of quantity demanded to changes in the price of the product

Long run:

the time after all exit or entry has occurred.

Short run:

the time period before exit or entry can occur.

Accounting profit:

total revenue minus explicit costs.

Economic profit:

total revenue minus total costs including implicitcosts.

Natural Monopoly:

when a single firm can supply the entire market at a lower cost than two or more firms.

In which situation would you expect supply to be less elastic?

when looking at the global supply

When comparing a monopoly with a competitive industry, monopoly quantity:

will be lower, and monopoly price will be higher, than that of a competitive firm

In a competitive equilibrium, firms earn ______ economic profits

zero

▪__________ means that the price is just enough to pay labor and capital their opportunity costs.

zero profits

1.What price to set?

•In a competitive industry, a firm sets its price at the market price.

3.When to exit and enter?

•In the short run, the firm should shut down only if price is less than average variable cost. •In the long run, a firm should enter if P > ACand exit if P < AC.

▪Two effects make demand for pharmaceuticals inelastic:

•The "you cant take it with you" effect: -The "other people's money" effect

• 1.What quantity to produce?

•To maximize profit, a competitive firm should produce the quantity that makes P = MC.

▪Every producer must answer three questions:

•What price to set? •What quantity to produce? •When to enter and exit the industry?

▪Total costs include:

•explicit money costs and •Implicit opportunity costs, or the costs of foregone alternatives.