ECON 2000 EXAM 3
Refer to Figure above. A profit-maximizing monopolist would earn profits of $126 $96. $120. $117.
$120. MR = MC quantity times ATC price. (10 x 12)
Sarah prepares tax returns and does bookkeeping. Last year her revenues from the tax and bookkeeping business were $150,000, and her expenses for the business were $15,000. When she started her tax and bookkeeping business, Sarah gave up her supplemental job doing in-home pet sitting. She used to earn $10,000 per year from pet sitting. Assume that she incurred no costs for her pet sitting business. Sarah's economic profits are $150,000. $135,000. $125,000. $160,000.
$125,000. Economic profit = total revenue - Accounting cost - Opportunity cost (150000 - 15000 - 10000) = 125000
Suppose a firm operating in a competitive market has the following cost curves: Refer to Figure 14-2. If the market price is $10, what is the firm's short-run economic profit? $30 $50 $15 $9
$15 total cost = MC units (5) x ATC price at 5 units (7) = 35 total revenue = MC price x unit (10x5) = 50 50-35 = 15
Refer to Figure above. In order to maximize profits, the monopolist should charge a price of $12. $9. $23. $20.
$20. MR = MC dotted line going upwards.
The concert promoters of a heavy-metal band, WeR2Loud, know that there are two types of concert-goers: die-hard fans and casual fans. For a particular WeR2Loud concert, there are 1,000 die-hard fans who will pay $150 for a ticket and 500 casual fans who will pay $50 for a ticket. There are 1,500 seats available at the concert venue. Suppose the cost of putting on the concert is $50,000, which includes the cost of the band, lighting, security, etc. How much additional profit can the concert promoters earn by charging each customer their willingness to pay relative to charging a flat price of $150 per ticket? $100,000 $25,000 $50,000 $75,000
$25,000 = (150 x 1500) + (50 x 500) - (150 x 1500)
A firm in a competitive market has the following cost structure: What is the lowest price at which this firm might choose to operate? $2 $5 $3 $4
$3 total cost - fixed cost (=$1) then divide by quantity to find lowest. 9/3 = $3
Suppose that for a particular firm the only variable input into the production process is labor and that output equals zero when no workers are hired. In addition, suppose that the average total cost when 5 units of output are produced is $30, and the marginal cost of the sixth unit of output is $60. What is the average total cost when six units are produced? $10 $25 $30 $35
$35 (30 x 5) = 150 + 60 = 210 210/6 units = $35
Gwen has decided to start her own photography studio. To purchase the necessary equipment, Gwen withdrew $2,000 from her savings account, which was earning 1% interest, and borrowed an additional $4,000 from the bank at an interest rate of 10%. What is Gwen's annual opportunity cost of the financial capital that has been invested in the business? $660 $280 $60 $420
$420 (2000 x 1%) + (4000 x 10%)
Granting a pharmaceutical company a patent for a new medicine will lead to (i) a product that is priced higher than it would be without the exclusive rights. (ii) incentives for pharmaceutical companies to invest in research and development. (iii) higher quantities of output for the new medicine than without the patent. (i) and (ii) only (i) and (iii) only (ii) and (iii) only (i),(ii), and (iii)
(i) and (ii) only patent allows them to raise prices due to exclusive rights. research and development costs are covered. without the patent, prices would lower in the long run
Suppose that a firm operating in perfectly competitive market sells 300 units of output at a price of $3 each. Which of the following statements is correct? (i) Marginal revenue equals $3. (ii) Average revenue equals $3. (iii) Total revenue equals $900. (i) only (iii) only (i),(ii), and (iii) (i) and (ii) only
(i),(ii), and (iii) (i) change in total revenue/ change in quantity (ii) total revenue / quantity (iii) price x quantity
Which of the following statements is true? (i) When a competitive firm sells an additional unit of output, its revenue increases by an amount less than the price. (ii) When a monopoly firm sells an additional unit of output, its revenue increases by an amount less than the price. (iii) Average revenue is the same as price for both competitive and monopoly firms. (iii) only (ii) only (i) and (ii) only (ii) and (iii) only
(ii) and (iii) only competitive firm revenue would decrease. For monopoly and competition, marginal revenue is lower than price for any outcome after eqilibrium
A monopolist faces the following demand curve: What is the marginal revenue from the sale of the 4th unit? $24 $9 $3 -$3
-$3 TR 1x15 = 15 2x12 = 24 3x9 = 27 4x6 = 24 5x3 = 15 MR 24-15 = 9 27-24 = 3 24-27 = -3 15-24 = -9
A monopolist faces the following demand curve: Refer to Table above. If a monopolist faces a constant marginal cost of $10, how much output should the firm produce in order to maximize profit? 3 units 5 units 2 units 4 units
3 units ??????
Refer to Table above. What is the marginal product of the third worker? 20 units 80 units 40 units 60 units
60 units (240-180)=60 (change in total product
The diagram depicts the market situation for a monopoly pastry shop called MuffinHaus . Refer to Figure above. Based upon the information shown, how many units will MuffinHaus produce to maximize profits? 130. 105. 90. 70.
70. WHERE MR = MC
A seller in a competitive market can sell all he wants at the going price, so he has little reason to charge less. considers the market price to be a "take it or leave it" price. will lose all his customers to other sellers if he raises his price. All of the above are correct.
All of the above are correct. so many people, prices must stay similar to stay in competition
For a large firm that produces and sells automobiles, which of the following costs would be a variable cost? the cost of the steel that is used in producing automobiles the unemployment insurance premium that the firm pays to the state of Missouri that is calculated based on the number of worker-hours that the firm uses All of the above are correct. the cost of the electricity of running the machines on the factory floor
All of the above are correct. variable costs = vary with the quantity of output produced
The efficient scale of production occurs at which quantity? D C A B
C efficient scale minimizes ATC
Which area represents the deadweight loss from monopoly? A+B+C+F C+F A+B G
G area between MC and Demand and dotted line
Suppose a firm in a competitive industry has the following cost curves: Refer to Figure above. If the price is $2 in the short run, what will happen in the long run? Individual firms will earn negative economic profits in the short run, which will cause some firms to exit the industry. Because the price is below the firm's average variable costs, the firms will shut down. Individual firms will earn positive economic profits in the short run, which will entice other firms to enter the industry. Nothing. The price is consistent with zero economic profits, so there is no incentive for firms to enter or exit the industry.
Individual firms will earn negative economic profits in the short run, which will cause some firms to exit the industry. if it was $6, positive economic profits
Which of the following is not an example of a barrier to entry? Jackie owns the copyright to a popular song. She receives royalties every time a radio station plays her song. Caroline owns the patent for a new running shoe. She receives payments from the company who manufactures the shoes. John owns the only parcel of lakeside property with a beach that is safe for swimming. He charges admission to neighbors who want to use the beach. John Jr. owns the best seafood restaurant in a popular resort area. He charges high prices because the quality of the food is so good.
John Jr. owns the best seafood restaurant in a popular resort area. He charges high prices because the quality of the food is so good. free entry, just higher prices of goods
Refer to Figure 16-11. The graph depicts a monopolistically competitive firm in the short run. Which of the following explanations best describes the long run adjustment? Firms will exit this market and each firm will have a smaller share of the total market demand, shifting this firm's demand to the left. More firms will enter this market and each firm will have a larger share of the total market demand, shifting this firm's demand to the right. More firms will enter this market and each firm will have a smaller share of the total market demand, shifting this firm's demand curve to the left. Firms will exit this market and each firm will have a larger share of the total market demand, shifting this firm's demand to the right.
More firms will enter this market and each firm will have a smaller share of the total market demand, shifting this firm's demand curve to the left. price > ATC firms will make a profit, and enter, lowering the share
Refer to Figure above. Assume that the market starts in equilibrium at point W in panel (b) and that panel (a) illustrates the cost curves facing individual firms. Suppose that demand increases from D0 to D1. Which of the following statements is not correct? Point Y is a long-run equilibrium point. Points W, Y, and Z are short-run equilibria points. Point W is a long-run equilibrium point. Point Z is a long-run equilibrium point.
Point Y is a long-run equilibrium point. point Y has a higher price. long run would be point Z.
Which of the following is not an example of price discrimination by a firm? a natural gas company charging customers a higher rate in the winter than in the summer coupons in the Sunday newspaper children's meals at a restaurant a senior citizens' discount
a natural gas company charging customers a higher rate in the winter than in the summer Price Discrimination- sell same good at different prices to different buyers firm can increase profit by charging high WTP separate customers raises economic welfare
Bob's Butcher Shop is the only place within 100 miles that sells bison burgers. Assuming that Bob is a monopolist and maximizing profit, which of the following statements is true? The price of Bob's bison burgers will be less than Bob's marginal cost. The price of Bob's bison burgers will equal Bob's marginal cost. The price of Bob's bison burgers will exceed Bob's marginal cost. Costs are irrelevant to Bob because he is a monopolist.
The price of Bob's bison burgers will exceed Bob's marginal cost. to maximize profits, MR = MC in a monopoly, MR is less than price so monopolist must lower price to sell additional unit of output. so output price will be greater than marginal cost.
Land of Many Lakes (LML) sells butter to a broker in Albert Lea, Minnesota. Because the market for butter is generally considered to be competitive, LML can choose both the price at which it sells its butter and the quantity of butter that it produces. can choose the price at which it sells its butter but not the quantity of butter that it produces. can choose quantity of butter that it produces but not the price at which it sells its butter. cannot choose either the price at which it sells it butter or the quantity of butter that it produces
can choose quantity of butter that it produces but not the price at which it sells its butter. competitive markets usually have the same price ranges
If Farmer Green plants no seeds on his farm, he gets no harvest. If he plants 1 bag of seeds, he gets 5 bushels of wheat. If he plants 2 bags, he gets 9 bushels. If he plants 3 bags, he gets 12 bushels. A bag of seeds costs $120, and seeds are his only cost. Farmer Green's production function exhibits constant marginal product. The production function is unrelated to the marginal product. increasing marginal product. diminishing marginal product.
diminishing marginal product. MPL = change in output/change in labor MP(1)=(5-0)/(1-0)=5 MP(2)=(9-5)/(2-1)=4 MP(3)=(12-9)/(3-2)=3 diminishing = MP decline as quantity of input increases
If long-run average total cost decreases as the quantity of output increases, the firm is experiencing diseconomies of scale. fixed costs greatly exceeding variable costs. economies of scale. coordination problems arising from the large size of the firm.
economies of scale. economics of scale = long run ave falls as output increases (opposite = reg) diseconomies of scale = long run ave rises as output increases (same = dis)
Joe 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 Joe gave up is counted as part of the shrimp business's explicit costs. total revenue. marginal costs. implicit costs.
implicit costs. do not require spending of money. he could've made 5000 but decided to be a fisherman. Economic profit = total rev - total costs
Suppose that firms in a competitive industry are earning positive economic profits. All else equal, in the long run, we would expect the number of firms in the industry to increase. We do not have enough information with which to answer this question. remain the same. decrease.
increase.
A firm that is a natural monopoly would experience a lower average total cost if more firms entered the market. is not likely to be concerned about new entrants eroding its monopoly power. is taking advantage of diseconomies of scale. All of the above are correct.
is not likely to be concerned about new entrants eroding its monopoly power. natural monopoly= single firm can produce the entire market Q at lower cost than several firms
A monopolist produces less than the socially efficient quantity of output but at a higher price than in a competitive market. the socially efficient quantity of output but at a higher price than in a competitive market. possibly more or possibly less than the socially efficient quantity of output, but definitely at a higher price than in a competitive market. more than the socially efficient quantity of output but at a higher price than in a competitive market.
less than the socially efficient quantity of output but at a higher price than in a competitive market. Monopolist is the lone supplier and thus faces a downward sloping demand curve, the profit is maximized (MR = MC) at a quantity which is less than that obtained in a competitive market and the price charged is higher corresponding to the lower quantity produced.
A monopolistically competitive industry is characterized by a few firms, identical products, and free entry. a few firms, differentiated products, and barriers to entry. many firms, differentiated products, and free entry. many firms, differentiated products, and barriers to entry.
many firms, differentiated products, and free entry. monopolistic competition- many firms sell similar but not identical products, novels & movies monopoly- one firm, tap water, cable perfect competition- many firms and identical products, wheat, milk oligopoly- few sellers offer similar or identical products (tennis balls and cigarettes)
Refer to Figure 13-1. As the number of workers increases, marginal product increases but at a decreasing rate. total output increase at an increasing rate. marginal product decreases. total output decreases.
marginal product decreases. total output would increase but at a decreasing rate
A perfectly price-discriminating monopolist is able to maximize profit and produce a socially-optimal level of output. produce a socially-optimal level of output, but not maximize profit. maximize profit, but not produce a socially-optimal level of output. exercise illegal preferences regarding the race and/or gender of its employees.
maximize profit and produce a socially-optimal level of output. perfect price- monopolist produces the competitive quantity but charger each buyer his WTP (no DWL) single price- monopolist charges the same price to all buyers
Which of the following industries is least likely to exhibit the characteristic of free entry? corn farming grocery stores municipal water and sewer restaurants
municipal water and sewer free entry lol
A profit-maximizing firm will shut down in the short run when average revenue is greater than marginal cost. price is less than average total cost. price is less than average variable cost. average revenue is greater than average fixed cost.
price is less than average variable cost. shit idk
For a firm, the production function represents the relationship between quantity of output and total cost. implicit costs and explicit costs. quantity of inputs and total cost. quantity of inputs and quantity of output.
quantity of inputs and quantity of output. production function is the quantity of inputs used to make a good and the quantity of output of that good.
A competitive market is in long-run equilibrium. If demand increases, we can be certain that price will rise in the short run. Some firms will enter the industry. Price will then rise to reach the new long-run equilibrium. fall in the short run. All, some, or no firms will shut down, and some of them will exit the industry. Price will then rise to reach the new long-run equilibrium. not rise in the short run because firms will enter to maintain the price. rise in the short run. Some firms will enter the industry. Price will then fall to reach the new long-run equilibrium.
rise in the short run. Some firms will enter the industry. Price will then fall to reach the new long-run equilibrium.
A firm operating in a monopolistically competitive market can earn economic profits in the short run but not in the long run. neither the short run nor the long run. both the short run and the long run. the long run but not in the short run.
the short run but not in the long run. perfect comp- no long run monopolistic comp- no long run monopoly- positive long run