Econ 300 - Chapters 5-8

Which of the following are true in long-run competitive market equilibrium?

- economic profit is eliminated - price equals minimum average total cost

Which of the following factors will alter costs and shift the marginal cost (or short-run supply curve) to a new location?

- improvements in technology - firm expectations

Assuming some inputs are fixed and cannot change, if beyond some point of production, a firm experiences decreased output when hiring one more worker, then the firm is experiencing the law of

diminishing marginal returns.

When economists sort firms according to the number and relative size of firms in an industry, they are sorting according to

market structure

The total quantity of labor that workers are willing and able to supply at alternative wage rates in a given time period, ceteris paribus, is the

market supply of labor

A competitive firm ______ earn economic profit in the short run but will earn ______ economic profit in the long run.

may; zero

A firm that produces the entire market supply of a particular good or service in the market structure is called a(n)

monopolist

A firm that produces the entire market supply of a particular good or service is a(n)

monopolist

A market made up of many firms, each of which has some distinct brand image, is called

monopolistic competition

_________ ______ is characterized by many firms supplying essentially the same product, but each enjoys significant brand loyalty.

monopolistic competition

All of the following describe perfectly competitive firms, except:

produce a large fraction of total supply

When price is ______ average total cost, the firm incurs an economic profit.

above

If you purchase the factory that you are currently using, the ______ cost will change.

accounting

In the long run, a perfectly competitive firm will earn ______ economic profit.

zero

The marginal costs of harvesting refer to the additional costs incurred to harvest ______ (how many?) basket(s) of fish.

1 (one)

If the market price is high and firms are earning economic profit, what is the common sequence of events for a competitive market?

1. Prices signal higher demand 2. Economic profit attracts new suppliers 3. The market supply shifts to the right 4. Price slides down the market demand curve 5. Economic profits are eliminated

Match the following: Instructions

1. Produce where P = MC - a perfectly competitive firm is profit maximizing 2. Produce where P > MC - a perfectly competitive firm should expand output to increase profit 3. Produce where P < MC - a perfectly competitive firm should reduce output to increase profit

Each identical worker is worth no more than the marginal revenue product of the last worker hired and each identical worker

is paid the same wage rate.

The law of ______ states that as successive units of a variable input are added to a fixed input, beyond some point the marginal physical product will decline. Multiple choice question.

diminishing returns

How do variable costs move in relation with output?

directly

A(n) ______ is the only seller of a good in a particular market. Multiple choice question.

monopoly

In ______, barriers to entry are erected to exclude potential competition.

monopoly

Patents provide a firm with a ______ position for the life of the patent.

monopoly

The market demand curve is ______ and the demand curve facing a perfectly competitive firm is ______.

downward sloping; horizontal

A firm's monetary payments to those who supply transportation services is an example of

explicit costs

Economic costs =

explicit costs + implicit costs

A technological relationship expressing the maximum quantity of a good attainable from different combinations of ______ is known as a production function. Multiple choice question.

factor inputs

In an oligopoly there are Blank______ firm(s).

few

In a duopoly there are two firms rather than one. In order to maximize industry profits how might these two firms choose to behave?

More like a monopolist

An example in the text of exclusive licensing as a barrier to entry occurred when ________

Nintendo forbade game creators from writing software for competing firms

An example in the text of exclusive licensing as a barrier to entry occurred when __________.

Nintendo forbade game creators from writing software for competing firms

Economic profit =

(total revenue) - (total economic cost)

A firm's monetary payments to those who supply transportation services is an example of _________.

Opportunity

What determines the equilibrium wage rate and level of employment in a labor market?

The intersection of the market labor demand curve and the market labor supply curve

What method can be used to calculate average total cost?

Total cost divided by total output (Q)

Regardless of industry structure, a firm positions itself in the best profit-maximizing level of production if that amount of output reflects the point at which the last unit's marginal revenue is equal to its marginal cost. Why?

- Each unit of output after the MR = MC amount will earn less revenue than its costs. - Each unit of output prior to the MR = MC rule earns more revenue for the firm than its costs.

If market price is ______ minimum average total costs, the resulting ______ will cause firms to exit the industry.

- Horizontal firm demand curve - Zero economic profits in the long run - Identical products

Which of the following could be arguments in favor of market power (and monopolies) providing benefits to society?

- Large companies have economies of scale. - Entrepreneurial incentives lead to greater invention and innovation. - Research and development is more likely.

Which of the following are characteristics of the perfectly competitive market structure?

- Low barriers to entry - Many firms - Identical products

Which of the following are true in long-run competitive market equilibrium?

- Price equals minimum average total cost. - Economic profit is eliminated.

The upward slope of an individual's labor supply curve is a reflection of which two phenomena?

- The increasing opportunity cost of labor. - The decreasing marginal utility of income as a person works more hours.

Which of the following are reasons that a monopolist is considered to have market power?

- The monopolist exerts some control over the price. - The monopolist controls the quantity supplied.

Which of the following are reasons that many monopolies conduct research and development?

- They have the resources (profits) to do so. - They are sheltered from competition.

Which of the following factors will alter costs and shift the marginal cost (or short-run supply curve) to a new location?

- prices of factor inputs - technology

A minimum wage

- reduces the quantity of labor demanded - increases the quantity of labor supplied

Which of the following explains the concept of explicit costs?

-A firm's monetary payments made for the use of resources owned by others. -A firm's monetary payments to those who supply labor services, materials, fuel, and transportation services.

Which of the following are types of costs that do not vary with changes in output (i.e., fixed costs)?

-Factory rental payments -Leases on machinery

Which of the following factors will alter costs and shift the marginal cost (or short-run supply curve) to a new location?

-Firm expectations -Improvements in technology

Which of the following are examples of variable costs? (Select all that apply.)

-Labor -Fuels -Materials

Resource inputs used to produce goods and services include:

-Labor -Land -Capital -Entrepreneurial ability

Which of the following would incur an explicit cost?

-Labor services -Utility usage -Raw materials

Which of the following are examples of fixed costs? (Select all that apply.)

-Leased sewing machine payments -Factory rental payments -Interest on a firm's debts

Which are the two production time periods?

-Long run -Short run

Which of the following are examples of variable costs? (Select all that apply.)

-Materials -Fuel -Labor

Which of the following are features of the demand curve facing a perfectly competitive firm? (Select all that apply.)

-One firm in a competitive industry is so small that it cannot change market equilibrium. -Lower prices reduce revenue because the output could all be sold at the current price. -Higher prices make customers buy from a competitor.

A firm's total costs of producing a specific output depend on which of the following?

-The quantities of resources required to produce a given output. -The market value of the needed resources required to produce a given output.

Which of the following would incur an explicit cost?

-Utility usage -Labor services -Raw materials

The two most important costs a firm needs to understand to make profitable production decisions include

-average total cost -marginal cost

What types of costs do firms incur when producing products?

-explicit -implicit

Which of the following are considered market structures?

-monopoly -perfect competition -oligopoly -monopolistic competition

The factors that will shift supply (i.e., the determinants of a firm's supply) do not include

-tastes and preferences -demand

Which of the following best describes monopolistic competition?

A relatively large number of sellers producing similar products but each seller has brand loyalty.

Which of the following is true?

An increase in the demand for a product will increase the demand for labor used in its production, and vice versa.

Which of the following best describes perfect competition?

An industry involving a very large number of firms and none of those firms have market power.

Which of the following best summarizes why a firm in a perfectly competitive market will not increase its product price?

Asking a price higher than the market price would be futile because consumers could substitute with other perfectly identical products.

Which of the following describes why marginal revenue is less than price under a monopoly?

Because to get added sales, the firm must reduce prices

Which statement below is true of the variable cost and the total cost of production?

Both variable and total costs increase at first by decreasing amounts and then by increasing amounts as output increases.

With a downward-sloping demand curve, how can a monopolist increase sales?

By charging a lower price

How is total profit calculated?

By multiplying per-unit profit by the total quantity sold

Which of the following best summarizes why a firm in a purely competitive market will not lower its product price?

Charging a price lower than market price would cause its profits to shrink as its competitors continue to charge the market price.

Which of the following is not a market structure or model?

Competitive monopoly

What is the difference in demand between a perfectly competitive firm and market demand?

Demand for the perfectly competitive firm is horizontal, and market demand is downward sloping.

________ refers to the fact that demand for labor and other factors of production depends on the demand for final goods and services.

Derived demand

How do variable costs move in relation with output?

Directly

______ and ______ costs are what firms pay for the inputs they use when producing output.

Explicit; implicit

Which of the following is most likely to result in high wage rates?

Increased labor demand and decreased supply of labor.

A monopolist will maximize profits when:

MR = MC

______ tends to decline as additional workers are hired.

Marginal physical product

An example in the text of bundled products as a barrier to entry occurred when

Microsoft forced consumers to purchase selected products that were included with its operating system

What are economies of scale?

Minimum average total costs decline with increases in the size of the plant.

Can a monopolist charge whatever price it wants?

No, because it is limited by the demand curve.

When the marginal cost of an additional unit of output exceeds the price, the firm should do what?

Not produce an additional unit of output

What must be done by employers to induce workers to work more hours per week?

Pay higher wages

Which group of costs is the most accurate example of variable cost?

Payments for materials, fuel, and transportation services

Economists distinguish between which two production time periods?

Short run and long run

Which of the following is an example in the text of government franchising as a barrier to entry?

The U.S. Post Office delivers first-class mail.

Which of the following summarizes the relationship between the market demand for labor and the level of wages?

The greater the demand for labor, the higher the average level of wages.

Which of the following best describes derived labor demand?

The hiring of summer laborers by farmers to grow crops

What factors are involved in a firm's total cost of producing a specific output?

The price and quantity of the resources needed to produce that output

Which of the following summarizes why it is possible for a firm to freely enter and exit a perfectly competitive market?

There are no significant legal, technological, financial, or other obstacles prohibiting firms from entry and exit.

Why are some industries permitted to operate as natural monopolies instead of encouraging competition?

They can supply the entire market at a lower cost than if there were competing companies.

Which of the following are criticisms of Big Tech? Select all that apply.

They charge excessive fees. They have lessened competition. They take advantage of suppliers by forcing them to accept low prices for their inputs. They enjoy near-monopoly status.

______ profit is found by multiplying per-unit profit at the profit-maximizing output (the difference between price and average total cost) by the profit-maximizing output.

Total

The average total cost curve is

U-shaped.

How much will a monopolist produce?

Up to the output at which marginal revenue equals marginal cost

______ costs are those costs that change with the level of output.

Variable

______ costs are those costs that change with the level of output. Multiple choice question.

Variable

Which of the following summarizes the significance of worker productivity and product demand in helping to determine high pay rates?

Where labor is highly productive and product demand is strong, labor demand also is strong and pay is high.

Which of the following is least likely to be characterized as a monopoly?

Your local coffee shop

If the government grants an exclusive right to produce or license a product this is known as:

a patent

A technological relationship expressing the maximum quantity of a good attainable from different combinations of factor inputs is known as

a production function

Competition forces firms to produce at output levels at which ______ is minimized.

average total cost

Which of the following curves first falls and then rises?

average total cost

The initial dominance of the falling average fixed costs combined with the later rising marginal costs causes the ______ to be U-shaped.

average total cost curve

In ______, high prices and profits signal consumers' demand for more output.

both monopoly and perfect competition

An example of an entrance barrier occurs when corporations force consumers to purchase complementary products. This practice is often called

bundling products

A firm operating in a perfectly competitive market is a price taker because it:

cannot change market price, it can only adjust to it

Within perfect competition, an individual firm ______ affect price by changing output. A market as a whole ______ affect price by changing market output.

cannot; can

______ is the concept that resource constraints place a ceiling on potential output.

capacity

Marginal physical product is calculated as change in total output divided by:

change in input quantity

Variable costs are those expenses that

change with the level of output.

_______ firms are always under pressure from other firms in the industry to hold down costs.

competitive

If Carlos declines to work extra hours because he earns enough to pay for all of his expenses and instead wants to spend time with his family, then Carlos is behaving as if the marginal utility of income:

decreases

Once a monopolist identifies the profit-maximizing rate of output, the ______ curve shows how much consumers are willing to pay for that specific quantity of output.

demand

The sum of the marginal cost curves of all the firms is the ______ supply curve.

demand

In perfect competition, a firm's economic profit is the ______ total revenues and total costs.

difference between

The ______ is the value or worth of all resources used to produce the good or service.

economic cost

The ______ is the value or worth of all resources used to produce the good or service. Multiple choice question.

economic cost

______ in a competitive industry will attract new firms into the industry.

economic profits

A firm's minimum average total costs decline with increases in the size of the plant when ______ exist.

economies of scale

In perfectly competitive markets, firms can freely:

enter and exit

The ______ argument in favor of monopoly is based on the idea that greater profit encourages more entrepreneurial activity.

entrepreneurial incentives

Each firm will hire labor up to the point where the marginal revenue product is

equal to the wage rate.

Marginal revenue for the perfectly competitive seller is ______ price, whereas for the monopolist it is ______ price. Multiple choice question.

equal to; less than

When Nintendo forbade game creators from writing software for competing firms, Nintendo created a monopoly through

exclusive licensing

_________ costs are the monetary payments a firm makes to those who provide the resources or inputs to production.

explicit

Factory rental payments, sewing machine lease payments, and interest on a firm's debts are all examples of Blank______ costs.

fixed

Factory rental payments, sewing machine lease payments, and interest on a firm's debts are all examples of ______ costs. Multiple choice question.

fixed

Factory rental payments, sewing machine lease payments, and interest on a firm's debts are all examples of_______ costs.

fixed

In the long run there are no Blank______ costs. Multiple choice question.

fixed

If a firm has the ability to alter the market price of a good or service, then it

has market power

A monopolist finds it profitable to charge a(n) __________ price and supply a smaller quantity, compared with competitive firms.

higher

A perfectly competitive firm cannot charge a(n) ______ price than its competitors because consumers could substitute with other perfectly identical products.

higher

The market supply curve of labor slopes upward, which indicates that

higher wage rates increase the number of workers and the hours of employment.

Variable costs (increase/decrease) with increases in output.

increase

As output increases, total cost

increases

Wages must increase to compensate for the

increasing opportunity cost of labor

If price is initially less than average total cost, resulting losses will cause firms to leave the industry eventually resulting in:

industry contraction that decreases market supply

The ______ industry was an example of an industry that achieved monopoly power through patents.

instant photography camera

The decision to build, buy, or lease plant and equipment or the decision to enter or exit an industry is known as the ______ decision.

investment

The decision to build, buy, or lease plant and equipment or the decision to enter or exit an industry is known as the _______ decision.

investment

The decision to build, buy, or lease plant and equipment or the decision to enter or exit an industry is known as the _________ decision.

investment

The decision to build, buy, or lease plant and equipment or the decision to enter or exit an industry is known as the

investment decision

The demand curve for a perfectly competitive firm is perfectly horizontal because:

it cannot obtain a higher price by restricting its output, nor does it need to lower its price to increase its sales volume

The marginal revenue product schedule is also the firm's demand schedule for labor or any production input because:

it shows the quantity of labor that will be hired (demanded) based upon the revenues each additional unit of labor hired produces.

When labor is highly productive and product demand is strong, which of the following are common effects on the available workforce?

labor demand is strong pay is high

The willingness and ability to work specific amounts of time at alternative wage rates in a given time period is called:

labor supply

The practice of a monopolist suing a potential competitor to stop entry into the market is known as:

legal harassment

The opportunity cost of work is:

leisure

Firms in competitive markets face

low barriers to entry

With a downward-sloping demand curve, a monopolist can only increase sales by charging a ______ price.

lower

The market supply curve of labor slopes upward, which indicates that

lower wage rates decrease the number of workers and the hours of employment.

The change in total revenue given a change in quantity sold is called ________ revenue.

marginal

The change in total revenue when one more unit is sold is called _______ revenue.

marginal

A firm is producing 4 units at a total cost of $100. The firm can produce an additional unit for a cost of $70. The cost of one additional unit is known as a(n)

marginal cost

A perfectly competitive firm should produce the amount of output where price equals ________.

marginal cost

The change in total cost divided by the change in output is:

marginal cost

The offer (supply) of goods at prices equal to their marginal cost is known as

marginal cost pricing

In a monopoly, ______ is less than the price for every unit of output except the first.

marginal revenue

According to the profit-maximizing rule, a monopolist should produce a rate of output where

marginal revenue equals marginal cost

The profit-maximizing rate of output for a monopolist is one where

marginal revenue equals marginal cost

A firm's labor demand curve is the:

marginal revenue product

A firm that has the ability to alter the market price of a good is said to have:

market power

In a competitive market no individual firm has any

market power

Total cost increases with output because more production requires

more resources

As compared to a monopoly, a perfectly competitive industry output is ______, prices are ______, and profits are ______.

more; lower; smaller

High profits in a particular industry indicate that consumers want ______ of that industry's output. They get that desired output when ______ firms are in the industry.

more; more

Drag and drop the market structures to correspond to the correct level of competitiveness, with 1 being most competitive and 5 being least competitive.

most competitive - perfect competition (2) - duopoly competition (3) - Oligopoly (4) - monopolistic Least competitive (5) - monopoly

In perfect competition, a firm's total revenue can be calculated by Blank______ the product price and the quantity demanded.

multiplying

Firms that want to hire workers or encourage current workers to work more hours

must pay higher wage rates to attract them away from the alternative job opportunities available to them.

An industry in which each firm's lowest ATC is substantially higher than that of a single seller is an inefficient one and allows a single, low-cost production seller to be efficient describes a:

natural monopoly

In a perfectly competitive market:

no buyer or seller can have any control over the market price.

In a(n) __________ a few large firms supply all or most of the market.

oligopoly

In an ________ a few large firms supply all or most of the market.

oligopoly

The market structures designated as "imperfect competition" are:

oligopoly and monopolistic competition

The amount of leisure time that is given up in order to work is commonly thought of as the _________.

opportunity cost of work

A monopolist uses the rule of marginal revenue equals marginal cost to determine the profit-maximizing ___________.

output

Average total cost equals total cost divided by total _______

output

The selection of the short-run rate of ______ (with existing plant and equipment) is the production decision.

output

Compared to perfectly competitive firms, monopolists:

own the ballpark and can set the rules of the game

A firm gets a(n) ________ when the government grants an exclusive right to the firm to produce or license a product.

patent

A market in which no buyer or seller has market power is called _______ competition.

perfect

A firm that does not have the ability to alter the market price of the good it produces is part of the market structure called

perfect competition

Only ______ exhibits marginal cost pricing

perfect competition

A market in which no buyer or seller has market power is called

perfect competition.

Marginal blank product is the contribution of each worker to production as measured by the change in total output that occurs when the worker is employed.

physical

Capacity is the concept that resource constraints place a ceiling on

potential output

A monopolist has market __________ because it controls the quantity produced and thus has some control over the price.

power

A firm's total revenue is calculated ______ as multiplied by quantity sold.

price

Competition, reflected in the entry and exit of firms, eliminates economic profits and losses by adjusting the product ______ to equal the minimum average total cost.

price

For a perfectly competitive firm, total profits are maximized where marginal costs are equal to

price

In a perfectly competitive market, the market price is the same as the firm's

price

Marginal revenue for a perfectly competitive firm is equal to __________ while for a monopolist marginal revenue is less than price.

price

Within perfect competition, an individual firm would not be able to affect ______ and is therefore known as a price-taker, yet a market as a whole can affect price by changing market output.

price

For a perfectly competitive firm, total profits are maximized where

price = marginal cost

A firm should produce another unit of output when:

price is greater than marginal cost

In a perfectly competitive catfish market, an increase in the price of catfish supplied by one firm will cause consumers of catfish to substitute for other firms' catfish. This situation exemplifies the economic concept of

price taking

Marginal revenue for the perfectly competitive seller is equal to ______, whereas for the monopolist it is less than ______. Multiple choice question.

price; price

The ability and willingness to ______ specific quantities of a good at alternative prices in a given time period, ceteris paribus, is known as supply.

produce

The competitive process creates strong pressures for firms to pursue

product and technological innovation

The selection of the short-run rate of output (with existing plant and equipment) is the ______ decision.

production

The selection of the short-run rate of output with existing plants and equipment is known as the

production decision

A technological relationship expressing the maximum quantity of a good attainable from different combinations of resources is a

production function

A technological relationship expressing the maximum quantity of a good attainable from different combinations of resources is a _____function.

production function

Improvements in ______ will shift the production function upward.

productivity

The difference between total revenue and total cost is

profit

Total revenue minus total cost is:

profit

In perfect competition, a firm's economic profit is equal to:

profit per unit multiplied by quantity

Barriers to entry prevent competitive firms from entering the market and therefore preserve ______ in the monopoly market.

profits

The monopolist wants to sell a price-quantity combination where marginal ______ is equal to marginal ______.

revenue; cost

Profit is the difference between total ______ and total ______. Multiple choice question.

revenue; costs

A perfectly competitive firm is a price taker, whereas a monopolist ______ the price.

sets

Economists distinguish between which two production time periods?

short run and long run

If an industry were to unionize:

some employees would be excluded from the market and become unemployed union members would see an increase in wages

When evaluating whether or not monopolies are bad for society, market ______ per se is not the problem. What counts is market ______.

structure; behavior

In a perfectly competitive industry, an increase in the price of firm A's product will cause consumers to

substitute products from the many other firms in the industry

The ability and willingness to sell (produce) specific quantities of a good at alternative prices in a given time period, ceteris paribus, is known as

supply

The willingness and ability to work specific amounts of time at alternative wage rates in a given time period is called labor __________

supply

Firms within perfect competition are considered to be price ________

takers

A perfectly competitive firm ______ the market price. A monopolist ______ the market price. Multiple choice question.

takes;sets

The time frame in which there are no fixed cost is known as:

the long run

The extra revenue generated by firms when they add labor depends on:

the marginal physical product of the workers and the price for the products they are helping to produce.

The derived demand for resources by producers for a product will be low when:

the product is selling poorly

The choice of how intensively to use available plant and equipment in the short run is referred to as

the production decision

The selection of the short-run rate of output (with existing plan and equipment) is referred to as

the production decision

The market value of all resources used to produce a good or service is called _____ cost

total

______ cost is the sum of all resources used to produce a good or service.

total

Marginal revenue is the change in ______ divided by the change in output.

total revenue

In perfect competition, a firm's economic profit is equal to:

total revenue minus total cost

Economic profit is

total revenue minus total economic cost

If the price of a product were to triple, marginal revenue product associated with the production of the product will

triple

The total cost and variable cost curves are ______, whereas the fixed cost curve is ______.

upward sloping; horizontal

When graphing production costs, the total cost curve will be ______ and the fixed cost curve will be ______.

upward sloping; horizontal

The demand for labor is the quantities of labor that employers are willing and able to hire at alternative

wage rates

Marginal revenue is less than price at every unit of output because the monopolist

would have sold these prior units at a higher price if it had not produced and sold the extra output.