Beco post course assessment

In the textbook, The Applied Theory of Price, D. N. McCloskey refers to the equation MR= MC as the rule of rational life. Who follows this rule: monopolies, competitive firms, both or neither?

monopolies and competitive firms

A market structure in which there is only one producer/seller for a product. In other words, the single business is the industry. Entry into such a market is restricted due to high costs or other impediments, which may be economic, social, or political.

monopoly

In a competitive market, sellers sell their product

at world price

measures fixed cost per unit; total fixed cost divided by number produced

average fixed costs

average total expenditure per unit; sum of average variable and average fixed costs

average total costs

variable cost per unit; total variable costs divided by number of products produced

average variable costs

An oligopoly is a market structure in which a few firms dominate.

oligopoly

-most important concept in economics according to M&P -for any action one takes, he foregoes alternatives -highest valued alternative foregone -should not be equated with past expenses

opportunity costs

The economic definition of profit differs from the accounting definition of profit in that the economic definition includes

opportunity costs

For the following pairs of goods, which producer is more likely to charge a bigger markup? Trendy Shoes or Tennis shoes

someone selling trendy shoes

What's the rule: Monopolists charge a higher markup when demand is highly elastic or when it's highly inelastic?

highly inelastic

complements

-a good with a negative cross elasticity of demand -a good's demand is increased when the price of another good is decreased

For a competitive firm supplying wheat, if the world price (P) equals the firm's min average cost (min AC), then profits will be

0

On January 27, 2011, the price of Ford Motor Company stock hit an almost 10-year high at $18.79 per share. (Two years prior, in January 2009, Ford stock was trading for about a tenth of that price.) Suppose that on January 27, 2011, you owned 10,000 shares of Ford stock (a small fraction of the almost 3.8 billion shares). Suppose you offered to sell your stock for $18.85 per share, just slightly above the market price. How many shares would you sell?

0

When selling e-books, music on iTunes, and downloadable software, the marginal cost of producing and selling one more unit of output is essentially zero: MC = 0. Let's think about a monopoly in this kind of market. If the monopolist is doing its best to maximize profits, what will marginal revenue equal at a firm like this?

0

Imagine that you can hire four low-skilled workers to move dirt with shovels at $5 an hour, or you can hire one skilled worker at $24 an hour to move the same amount of dirt with a skid loader. Who will you hire if the minimum wage increases from $5 per hour to $6.50 per hour?

1 high-skilled worker

Suppose instead that on January 27, 2011, you wanted to sell your 10,000 shares of Ford stock but you reduced your asking price to $18.75 per share? How many shares would you sell?

10,000

Even if profit is negative, if revenues are ______ variable costs, then it's best to stay open in the short run.

>

For the following pairs of goods, which producer is more likely to charge a bigger markup?

A pharmaceutical company selling a new powerful antibiotic

How does a free market eliminate a shortage?

By letting the price rise.

Whenever money is used to purchase capital, interest costs are incurred. Sometimes those costs are explicit—like when Alex borrowed the money from the bank—and sometimes those costs are implicit— like when Tyler had to forgo the interest he could have earned had he left his funds in a savings account. If an economist and accountant calculated Alex and Tyler's costs, for whom would they have identical numbers and for whom would the numbers differ?

Economist and accountant would agree on Alex's costs and disagree on Tyler's.

For a monopoly producing a certain amount of output, price is less than marginal revenue.

False

True or False: When a competitive firm maximizes profit, profits are always greater than 0.

False

If a government decides to make health insurance affordable by requiring all health insurance companies to cut their prices by 30%, what will probably happen to the number of people covered by health insurance?

Fewer people will be covered because health insurance companies will supply less.

t's very difficult to build and operate a new power plant largely because new plants have to comply with a long list of environmental and safety regulations. Compared with a world with fewer such regulations, how do these rules change the average total cost of building and operating a power plant?

Increase average cost

Do these regulations increase or decrease the market power of power plants that already exist?

Increases market power of existing power plants

Do these regulations make it more or less likely that you will build a new power plant?

Less likely to build a new power plant

Business leaders often say that there is a "shortage" of skilled workers, and so they argue that immigrants need to be brought in to do these jobs. For example, an AP article entitled "New York farmers fear a shortage of skilled workers," pointing out that a special U.S. visa program, the H-2A program, "allows employers to hire foreign workers temporarily if they show that they were not able to find U.S. workers for the jobs." (Source: Thompson, Carolyn. May 13, 2008. N.Y. farmers fear a shortage of skilled workers Associated Press.) How do unregulated markets cure a "labor shortage" when there are no immigrants to boost the labor supply?

Let the price of labor increase.

Rapido, the shoe company, is so popular that it has monopoly power. It's selling 20 million shoes per year. The marginal cost of making extra shoes is quite low, and it doesn't change much if they produce more shoes. Rapido's marketing experts tell the CEO of Rapido that if it decreased prices by 20%, it would sell so many more shoes that profits would rise. If the expert is correct, at its current output, is MC=MR, is MC >MR, or is MC < MR?

MC less than MR

In the town of Freedonia, the government declares that all street parking must be free: There can be no parking meters. In an almost identical town of Meterville, parking costs $5 per hour (or $1.25 per 15 minutes). Where will it be easier to find parking: in Freedonia or Meterville?

Meterville

One town will tend to attract shoppers who hate driving around looking for parking. Which one?

Meterville

Which town will likely attract shoppers with higher incomes?

Meterville

A patent is a government-created monopoly.

True

For the following statements, decide whether it is true or false. When a monopoly is maximizing its profits, price is greater than marginal cost.

True

Just based on self-interest, who is more likely to support strong patents on pharmaceuticals: Young people or old people?

Young people

For the following pairs of goods, which producer is more likely to charge a bigger markup? A movie theatre or street vendor?

a movie theatre selling popcorn

suppliers maintaining prices at high level and restricting competition

cartels

What's the rule: Monopolists charge a higher markup when customers have many good substitutes or when they have few good substitutes?

customers have few good substitutes

Who is more likely to support strong patent and copyright protection on video games: People who really like old-fashioned videogames or people who want to play the best, most advanced videogames?

cutting edge video gamers

For the good produced by the firm indicates the quantities of a firm's good or service that buyers are willing and able to buy at each price.

demand; demand curves

increases in production lead to increases in long run average costs

diseconomies of scale

The monetary costs and opportunity costs a firm pays and the revenue a firm receives. Economic profit = total revenue - (explicit costs + implicit costs).

economic profits

increases in production lead to decreases in long run average costs

economies of scale

A proportionate saving gained by producing two or more distinct goods, when the cost of doing so is less than that of producing each separately.

economies of scope

which profession would calculate a larger cost?

economist

-expands on law of demand -measures the responsiveness of the quantity demanded to price changes

elasticity of demand

Consequences (benefits or costs) that are experiences by parties not directly related to the decision (Acid rain example), external parties not always factor into this decision. Solution is to force decision makers to incur the costs they would otherwise ignore. Can happen between corporation departments.

externalities

expenses that do not vary with production

fixed costs

over the long run all expenses are either variable or avoidable fixed costs, short run is a period of time in which there is at least one fixed cost

long run and short run

A competitive firm maximizes profit by choosing a level of output where the world price is equal to the firm's

marginal cost

most important measure of unit cost; additional cost of producing an additional unit of output ; difficult to measure with certainty

marginal cost

The additional output generated by an additional input.

marginal product

-additional revenue generated by an additional unit of output -sum of the output and price effect

marginal revenue

Which of the following is true when a monopoly is producing the profit-maximizing quantity of output? More than one may be true.

marginal revenue=marginal cost

All firms are trying to maximize their profits (profit = TR - TC). The rule from the previous question tells us that in the special case where marginal cost is zero, "profit maximization" is equivalent to which of the following statements?

maximize total revenue

All firms sell an identical product; · All firms are price takers - they cannot control the market price of their product; · All firms have a relatively small market share; · Buyers have complete information about the product being sold and the prices charged by each firm; and · The freedom of entry and exit characterize the industry, sometimes referred to as "pure competition".

perfect competition

selling the same product to different groups of customers at different prices

price discrimination

A review of the jargon: Is the minimum wage a "price ceiling" or a "price floor?"

price floor

You've been hired as a management consultant to WaffleCo, a maker of generic-brand frozen waffles. They're each trying to figure out if they should produce a little more output or a little bit less in order to maximize their profits. The firms all have typical marginal cost curves: They rise as the firm produces more. Your staff did all the hard work for you of figuring out the price of the firm's output is $4 per box and the marginal cost of producing one more unit of output is $2 per box at its current level of output. However, they forgot to collect data on how much the firm is actually producing at the moment. Fortunately, that doesn't matter. In your final report, you need to decide if the firm should produce more, less, or stay at the current output level. What do you recommend?

produce more

With these price controls on bread, would you expect bread quality to rise or fall?

quality falls

A competitive firm maximizes profit by choosing

quantity

If the government forced all bread manufacturers to sell their products at a "fair price" that was half the current, free-market price, what would happen to the quantity supplied of bread?

quantity supplied decreases.

A competitive market has which of the following characteristics?

small scale buyers, small scale sellers, similar products

-two goods that are used for the same purpose -have a positive cross elasticity of demand

substitutes

-a cost that will not change if the decision is implemented -never relevant to a decision

sunk costs

Supply is a fundamental economic concept that describes the total amount of a specific good or service that is available to consumers. Supply can relate to the amount available at a specific price or the amount available across a range of prices if displayed on a graph.

supply; supply curves

Who is impacted most by a change in the minimum wage?

teenagers

Which type of cost is dependent on the amount of quantity produced by a firm?

variable costs

expenses that do vary with production; most of the time are relevant costs

variable costs