Econ 1030 Final
Suppose Carl's Candies sells 100 boxes of candy for $4 each. The total fixed cost of the 100 boxes is $100, and the average variable cost of the 100 boxes is $1.50 per box. Carl's makes a total profit of:
$150
Suppose Carl's Candies sell 100 boxes of candy for $5 each. The total fixed cost of the 100 boxes is $100, and the average variable cost of the 100 boxes is $1.50 per box. Carl's makes a profit per unit of:
$2.50
Suppose Carl's Candies sells 100 boxes of candy for $5 each. The total fixed cost of the 100 boxes is $100 and the average variable cost of the 100 boxes is $1.50 per box. Carl's makes a total profit of:
$250
To calculate profit, which three pieces of information must be indentified?
-Price -Quantity of output -Average total cost
For a perfectly competitive firm, the market price is equal to:
-average revenue -marginal revenue -demand
The two conditions the guarantee consumers will enjoy the lowest prices possible are:
-every firm producing the exact same product -individual firms being price takers
When there is productive efficiency:
-output is produced using the fewest resources possible to produce a good or a service -output is produced at the lowest possible total cost per unit of production
A number of entry barriers are present in oligopolistic markets, including:
-patents -pricing strategies -signifivant costs of capital -economies of scale that may allow only a small number of firms to operate in a market -control of the resources needed to produce output
An argument can be made that the economic profits generated by pure monopolies have two positive impacts on dynamic growth:
-potential economic profits give firms and entrepreneurs incentives to develop new production processes and products -When a monopoly earns an economic profit, it has the financial capital to develop more innovations
producing the goods and services so that their marginal benefit equals their marginal cost
Allocative efficiency is:
amount of revenue per unit of a product sold
Average revenue is the:
Allocative efficiency occurs when:
MB=MC
additional revenue associated with the sale of an additional unit
Marginal revenue is the:
extra or additional revenue associated with the production of an additional unit of output
Marginal revenue is the:
combine characteristics of competitive markets and characteristics of pure monopolies
Monopolistically competitive markets:
A firm should shutdown if:
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using the fewest resources possible to produce a good or service
Productive efficiency is:
extra or additional cost associated with the production of an additional unit of output
The marginal cost is the:
(T/F): Natural monopolies are rare and tend to be regulated by the government.
True
(T/F): There are a few important exceptions in which monopolies are actually encouraged to incentivize positive outcomes
True
An outcome in which, unless the players can collude, neither player has a incentive to change his or her strategy is:
a Nash equilibrium
A situation in which a particular strategy yields the highest payoff, regardless of the other player's strategy is:
a dominant strategy: a situation in which a particular strategy yields the highest payoff, regardless of the other players strategy
A table showing the potential outcomes arising from the choices made by decision makers is:
a payoff matrix: is a table showing the potential outcomes arising from the choices made by decision makers
Monopolistic competition is a market characterized by:
a relatively large number of sellers producing a differentiated product, for which they have some control over the price they change, in a market with relatively easy market entry and exit
For each of the markets listed below, determine whether the market can reasonably be described as oligopolistic. a. Satellite television b. hotels c. tomatoes d. oil
a. oligopolistic b. not c. not d. oligopolistic
Pure monopolies do not achieve _________ efficiency, meaning that they do not produce the amount of output that maximizes the sum of producer and consumer surplus
allocative
The amount of revenue produced per unit of an output sold is the ________ revenue
average
Impediments that prevent firms from entering a market or industry are known as:
barriers to entry
For a monopoly, the marginal revenues per unit fall ______ the price per unit, because when the price _________, the monopoly gives up some revenue on units it could have sold at higher prices.
below, decreases
Allocative efficinecy occurs when the goods and services that are most wanted by consumers are produced in such a way that their marginal ________ equals their marginal _______
benefit, cost
Monopolies do not achieve allocative efficiency because they do not produce in such a way that their price or marginal __________ equals their marginal _________
benefit, cost
When firms, individuals or any group of economic actors engage in _________ they coordinate their actions to achieve a desired outcome
collusion
A situation in which individuals, firms or any group of actors coordinate their actions to achieve a desired outcome is:
collusion; a situation in which individuals, firms or and group of actors coordinate their actions to achieve a desired outcome.
A situation in which individuals, firms or any groups of actors coordinate their actions to achieve a desired outcomes is:
collusion`
A market structure characterized by a relatively large number of sellers producing a differentiated product, for which they have some control over the price they change, in a market with relatively easy market entry and exit is known as monopolistic ___________
competition
______________ markets maximize the availability of goods and services and the consumer's ability to buy them.
competitive
A perfectly ________ market is characterized by a large number of __________ producing a ____________ product and taking the market __________ as given, with easy entry and exit into the market.
competitive, sellers, standardized, price
In a perfectly competitive market, we assume the product is identical in the minds of ____________.
consumers
Economic profits generated by pure monopolies have two positive impacts on ________ growth
dynamic
__________ efficiency refers to the development of new products and processes, reducing costs and improving existing products
dynamic
Total revenue minus the implicit and explicit costs of production is ___________ profit
economic
Total revenue minus the implicit costs and explicit costs of production is _________ profit
economic
The monopoly will charge a higher price in the market with the relatively more __________ demand curve
elastic
When consumers are relativly sensitive to changes in price, demand is considered relatively __________
elastic
If the marginal revenue associated with selling one more unit of output is positive, the demand is:
elastic, because this would increase total revenue
The marginal revenue is the:
extra or additional revenue associated with the production of an additional unit of output.
A perfectly competitive firm will incur its total ______ cost of production when it shuts down temporarily in the short run.
fixed
When a firm shuts down in the short run, it must still pay the ______ costs
fixed
producers may or may not earn economic profits
in an oligopoly:
As the market price __________, all else held constant, a profit-maximizing firm can afford to expand its production
increases
The output level for a monopolistically competitive firm is lower than the output level that achieves the minimum average total cost for the firm and as such:
is not productivity efficient in the long run
When the total revenue is _______ than the total cost, the level of profit that occurs is a loss.
less
At the shutdown point, the price is ______ the average variable cost
less than
The level of profit that occurs when the total revenue is less than the total cost is a _______
loss
The level of profit that occurs when the total revenue is less than the total cost is known as a ________
loss
Extra or additional revenue associated with the production of an additional unit of output is the ________ revenue
marginal
The extra or additional revenue associated with the production of an additional unit of output is the ______ revenue
marginal
Because monopolistically competitive firms face a downward-sloping demand curve, their _________ revenue curve lies below the ________ curve
marginal, demand
For a monopoly, the ________ revenue curve is located below the _________ curve
marginal, demand
In a perfectly competitive market, a single firm is a price taker, and therefore, can only charge the ________ price
market
Because ___________ competitive firms have some control over prices, the firm will charge consumers the price they are willing and able to pay for the available output, which is found by projecting the profit-maximizing output level onto the _______ curve
monopolistic, demand
Through advertising and branding, _________ competitive firms increase the demand for their products and make those demand relatively _________ inelastic, allowing them to change _________ prices and generate larger economic profits
monopolistic, more, higher
For _____________, competitive firms, branding is important because many consumers do not like taking risks
monopolistically
In the short run, as the ______ rises, so does the level of output supplied
price
Monopolistically competitive firms are able to have some control over the _______ of their products
price
The demand for a perfectly competitive firm's product is a horizontal line originating at the market ________
price
The practice of selling the same good or service to different consumers at different prices is known as:
price discrimination
Firms that take or accept the market price and have no ability to influence that price are known as ________
price takers
Tax revenue equals:
price times quantity
For a monopoly the marginal revenue is below the demand curve, because the monopoly has to lower the ________ on _______ units to sell more
price, all
Firms use price discrimination to increase their ________
profit
If you live in a town or a city that has a single provider of electricity or natural gas, that natural monopoly provider is most likely a __________ monopoly
regulated
If you live in a town or a city that has a single provider of electricity or natural gas, then that natural monopoly provider is most likely subject to price ________
regulation
For the profit-maximizing level of output, the price charged by a monopoly is not just different but greater than marginal _________
revenue
Profit equals total ________ minus total cost
revenue
Total ________ equals price times quantity
revenue
When a firm has a loss, the total _______ is less than the total cost
revenue
A monopolistically competitive firm should produce output until the marginal ________ equals the marginal ________
revenue, cost
Profit equals (average ________ revenue minus average total _______) multiplied by output
revenue, cost
The decision to shut down temporarily is a __________ decision, while the decision to exit an industry can be made only in the __________
short-run, long run
Game theory is the study of the _________ behavior of decision markers
strategic
In a perfectly competitive market, the price the firm should charge is the market price beacuase the firm is a price _______
taker
The allocatively efficient price can create a dilemma for regulators when:
the average total cost associated with the competitive quantity is higher than the price the natural monopoly is able to charge for it.
Changes in the variable costs of resources will affect:
the marginal costs faced by firms
A clear benefit to monopolistic competition for consumers is product ________
variety
A clear benefit to monopolistic competition for consumers is product _________
variety
A company can break even and meet operating costs without a loss whit it earns _____ economic profit
zero
Normal profit is also known as _____ economic profit
zero
A number of _______ barriers are present in oligopolistic markets
entry
Characteristics of perfect competition:
-standardized products -easy entry and exit -large number of buyers and sellers
When regulators require a monopoly to charge the normal profit price:
-the monopoly has little incentive to reduce the costs of production -the monopoly has zero economic profit
In a perfectly competitive market, homogeneity means that firms must charge the market price for the goods or the services they produce because...
-there are hundreds of other perfectly good substitutes -the market is competitive
The four characteristics of a perfectly competitive market are:
1. a large number of buyers and sellers 2. easy entry and exit 3. a standardized product 4. producers who a price takers
The difference between the economic surplus when the market is at is competitive equilibrium and the economic surplus when the market is not in equilibrium is the:
deadweight loss
Monopolistic competition and perfect competition have one main characteristic in common: realtively easy market ______ and ______
entry, exit
The level of profit that occurs when total revenue is _____ to total cost is known as normal profit
equal
Profit maximization implies that perfectly competitive firms should expand production up to the point where marginal revenue ________ marginal cost
equals
The level of profit that occurs when the total revenue is ________ to the total cost is known as normal profit
equals
Total revenue minus the ________ and ________ costs of production is economic profit
explicit, implicit
Price discrimination is only possible when a firm is a price ______
maker
Because monopolies have ________ power and can influence the price of the goods they sell, they tend to produce ______ output and charge a _________ price than would prevail in a __________ equilibrium
market, lower, higher, competitive
Because monopolies have market power and can influence the price of the goods they sell, they tend to restrict ______ and charge a higher ________ than would prevail in a competitive equilibrium
output, price
A _________ matrix is a table showing the potential outcomes arising from the choices made by decision markets
payoff
A market structure characterized by the interaction of large numbers of buyers and sellers, in which the sellers produce a standardized, or homogeneous, product, is known as:
perfect competition
If selling another unit of output increases revenue, marginal revenue is _________
positive
The behavior followed by oligopolistic firms needs to be ___________, given that they face other competitors in their markets.
strategic
A dominant _____ is a situation in which a particular strategy yields the highest payoff, regardless of the other players strategy.
strategy
The efficiency loss resulting from a monopolistically competitive market is called:
deadweight loss
Profit ___________ implies that monopolistically competitive firms should expand production up to the point where the marginal revenue equals marginal cost
maximization
Monopolistically competitive firms are unable to produce enough output to reach the minimum average total cost because of the:
presence of other monopolistically competitive firms in the industry
A __________ dilemma is a term used to describe a situation in which the Nash equilibrium is not the outcome the maximizes the payoffs to both players
prisoner's
A __________ produces less output than a competitive firm, and therefore, is likely to hire less labor
monopoly
For monopolistically competitive firms, __________ their products is important because many consumers do not like taking risks and this way they can learn about products before buying them.
branding
When firms, individuals or any group of economic actors engage in __________, they coordinate their actions to achieve a desired outcomes
collusion
In economics, we refer to a situation in which there is only one firm but no real barriers to entry as a __________ market
contestable
The difference between the economic surplus when the market is at its competitive equilibrium and the economic surplus when the market is not in equilibrium is the:
deadweight loss
A pure monopoly has the overall market ______ to itself, because it is the only seller in a market
demand
Price ___________ is the practice of selling the same good or services to different consumers at different prices
discrimination
A pure ________ has the overall demand to itself because it is the only seller in a market
monopoly
A pure ________ is the only seller in a market
monopoly
It is unlikely for a pure __________ to be productively efficient
monopoly
_________ profit is also known as zero economic profit
normal
Determine how each of the events below would affect the demand curve for food at Steve's Shrimp Shack, a seafood restaurant operating in a monopolistically competitive restaurant market. The demand could increase (rightward shift) or decrease (leftward shift) and it also could become more or less elastic. 1. The number of other restaurants in the area increase: 2. Steve institutes a frequent-diner program whereby a customer who visits five times receives a sixth meal free 3. The number of consumers in the area increases
1. Demand will: decrease, Elasticity of demand will: increase 2. Demand will: increase, Elasticity of demand will: decrease 3. Demand will: increase, Elasticity of demand will: not change
To calculate profit, we need to identify three pieces of information:
1. average total cost 2. price 3. quantity of output
Four characteristics of a perfect competitive market?
1. easy entry and exit 2. standardized product 3. producers who are price takers 4. Large number of buyers and sellers
To calculate profit, which three pieces of information need to be identified?
1. price 2. Average total cost 3. Quantity of output
In a __________ competitive market, consumers can usually find exactly what they are looking for based on their preferences and budgets
monopolistic
A business will charge a lower price to the group with the relatively more _____ demand and a higher price to the group with the relatively more _______ demand
elastic, inelastic
The demand for a ____________ competitive firm is more elastic than the demand faced by a pure ________ because of the availability of close substitutes
monopolistically, monopoly
Producing output at the lowest possible total cost per unit of production is:
productive efficiency
Because the products of monopolistically competitive firms are ___________ from other companies in their industry, these firms are able to have some control over the _______ of their products
differentiated, price
Economic profit creates an incentive for other perfectly competitive firms to _______ the market
enter
For ____________ competitive firms, branding serves as a single to consumers about the products they are going to purchase.
monopolistic
______________ competitive firms are able to have some control over the price of their products
monopolistic
A market structure characterized by a single seller is a ____________
monopoly
The demand faced by a pure ________ is downward sloping
monopoly
For the profit-maximizing level of output, the price changed by a monopoly is not just different but ____ than marginal revenue
more
Games can have:
more than one Nash equilibrium
In a monopolistically competitive market, competitors make close substitutes, so demand curves are relatively _____ elastic than those faced by monopolies and _______ elastic than those faced by perfectly competitive firms
more, less
All firms maximize ________ by producing the quantity of output at which the marginal revenue is equal to the marginal cost
profit
__________ interdependence is a situation in which the strategy followed by one producer will likely affect the profits and behavior or another producer
mutual
A manufacturer's profits are determined not only by its decisions but also by the decisions of the other firms in the industry. This is why we say that oligopolistic firms are:
mutually interdependent
A _________ monopoly is an industry in which economics of scale are so extensive that the market is better served by a single firm.
natural
If the government forces the monopoly to sell at a price equal to the average total cost, the natural monopoly would make a ________ profit
normal
The level of profit that occurs when the total revenue is equal to the total cost is known as __________ profit
normal
The price that occurs where the demand and the average total cost curves cross is called the:
normal profit price
Monopolistic competition and a monopoly are:
not the same market structure
______________ efficiency is producing output at the lowest possible average total cost of production
productive
An industry in which economics of scale are so extensive that the market is better served by a single firm is known as a:
natural monopoly
Pure monopolies do not achieve allocative efficiency, meaning that they do not produce the amount of output that maximizes the sum of ________ and __________ surplus.
producer, consumer
The demand for a perfectly competitive firm's product is a __________ line originating at the market price.
horizontal
Total revenue minus the ________ and ________ costs of production is economic profit.
implicit, explicit
Total rrevenue minus the __________ and _________ costs of production is economic profit
implicit, explicit
When the total revenue earned by a firm is less than the total cost of production, the firm faces a _______
loss
Producing output at the lowest possible total cost of production per unit is _________ efficiency
productive
Profit equals the total _________ minus the total ________
revenue, cost
The availability of close ____________ in monopolistically competitive markets allow consumers to be more responsive to ______ changes
substitutes, price
Price takers are firms that take or accept the _______ price and have no ability to influence that price.
market
In a perfectly competitive market, homogeneity means that firms must charge the market price for the goods or the services they produce, because there are hundreds of other perfectly good ___________
substitutes
