ECON 528 - Exam Two

surplus

when demand is lower than supply, which usually occurs at a high price

economies of scope

when producing two or more products jointly by one firm is less than the cost of producing them separately

E) Both A and D.

) Successful differentiation allows a firm to A) gain buyer loyalty to its brand (because some buyers prefer the differentiating features and are thus brand loyal). B) set the industry ceiling on price. C) attract many more buyers by charging a lower price than rivals and thereby take sales and market share away from rivals. D) command a premium price for its product and/or increase unit sales (because additional buyers are won over by the differentiating features), and/or. E) Both A and D.

actual cost of acquiring it

When inputs are in high supply and competitive, the marginal cost of an input = __

higher

When market of input is less competitive, firm may have to pay __than market price to acquire the goods

B) Public restrooms.

Which of the following markets is most likely to have a free-rider problem? A) International air travel. B) Public restrooms. C) Hotel rooms. D) Sushi.

A) economic rent.

12) The price of a factor of production that is in fixed supply is called A) economic rent. B) economic profit. C) a compensating differential. D) opportunity cost.

c. positive, and the good is a normal good.

Assume that a 4 percent increase in income results in a 2 percent increase in the quantity demanded of a good. The income elasticity of demand for the good is a. negative, and the good is an inferior good. b. negative, and the good is a normal good. c. positive, and the good is a normal good. d. positive, and the good is an inferior good.

false

Charging a different price for tickets to movies at twilight than after 6 o'clock is an example of bundling.

decreasing use of the input

If marginal cost of the input is greater than marginal revenue product, profit will improve by __

a. All of the above are correct.

The marginal revenue product of labor for a firm Select one: a. All of the above are correct. b. will increase if the price of the firm's output increases. c. is the firm's demand curve for labor. d. will decrease if the firm hires more labor.

the long run, all costs are variable costs.

costs in the long run

both variable cost and fixed costs

costs in the short run

tax incidence

division of the burden of a tax between the buyer and the seller.

1. Excess capacity 2. Price exceeds marginal cost

i. The two key differences between monopolistic competition and perfect competition are that in monopolistic competition, there is

b. WHEN P<ATC = NEGATIVE PROFIT

loss equation for monopolies

MC=MR

market equilibrium in perfect competition

true

Suppose a used-car salesman asks you the most you would be able to pay for a car and, unthinkingly, you answer truthfully, $4,800. Suppose, amazingly, that $4,800 is exactly the price for the car that you are presently examining. Then, the used-car salesman has effectively used perfect price discrimination on you.

d. cheat by producing a higher level of output.

Suppose that the duopolists competing in Cournot fashion agree to produce the collusive output. Given that firm two commits to this collusive output, it pays firm one to Select one: a. none of the above. b. cheat by raising prices. c. cheat by producing a lower level of output. d. cheat by producing a higher level of output.

quantity discounts

The practice of charging a lower per-unit price to customers who buy larger quantities

c. as Toyota expanded its capacity, it experienced diseconomies of scale.

The president of Toyota's Georgetown plant was quoted as saying, "Demand for high volumes saps your energy. Over a period of time, it eroded our focus [and] thinned out the expertise and knowledge we painstakingly built up over the years." This quote suggests that Select one: a. Toyota was experiencing an excess demand for its automobiles which it had difficulty keeping up with. b. Toyota was focused on "churning" out cars for which it did not invest sufficiently in training its workers. c. as Toyota expanded its capacity, it experienced diseconomies of scale. d. high demand for Toyota's cars prevented the company from focusing on its strength: auto design.

2.5 percent

The price elasticity of demand for Stork ice cream is -4. Suppose you're told that following a price increase, quantity demanded fell by 10 percent. What was the percentage change in price that brought about this change in quantity demanded? a. 40 percent b. 25 percent c. 2.5 percent d. 0.4 percent

P<ATC

loss equation for perfect competition in short run

Marginal Revenue Product

marginal revenue created from the marginal product resulting from one additional unit of the input

marginal revenue product = marginal product of the input * marginal revenue of the output

marginal revenue product equation

monopolistic competition

market structure in which 1. A large number of firms compete. 2. Each firm produces a differentiated product. 3. Firms compete on price, product quality, and marketing. 4. Firms are free to enter and exit.

a. The monopolist really supplies according to the demand of the market which it can control by charging price that maximizes his profit. i. Therefore, the monopolist does not have any supply curve.

monopoly supply curve

shortage

occurs when demand is higher than supply, which usually occurs at a low price

Optimal level: marginal revenue product = marginal cost of the input

optimal level of input/output

price > marginal cost = marginal revenue

pricing strategy equation for monopoly

price = marginal cost = marginal revenue

pricing strategy equation for perfect competition

versioning

pricing strategy in which a firm offers different product options designed to attract different types of consumers.

bundling

pricing strategy in which a firm sells two or more products together at a single price.

i. In the short run, a firm can earn both profit and loss and stay in business because entry or exit is not allowed.

profit and loss in SR in Perfect Competition

a. WHEN P > ATC = POSITIVE PROFIT

profit equation in monopolies

MR=MC

profit max for monopolistic competition

a. He needs to produce at a level where MR = MC b. He needs to make sure that P > MC because he has market power and he can assure profit. a. P> MC = MR

profit max in monopolies

MC = MR = P

profit max in perfect competition

The firm sells a second product, and consumers' demand for that product is NEGATIVELY correlated with their demand for the first product.

requirement for bundling

a. a Bertrand oligopoly.

"Tom and Jack are two local petrol stations. Although they have different constant marginal costs, they both survive continued competition." Tom and Jack do not constitute: Select one: a. a Bertrand oligopoly. b. a Cournot oligopoly. c. a monopolistically competitive industry. d. a Stackelberg oligopoly.

c) a Bertrand oligopoly.

) Sue and Jane own two local petrol stations. They have identical constant marginal costs, but earn zero economic profits. Sue and Jane constitute a) a Sweezy oligopoly. b) a Cournot oligopoly. c) a Bertrand oligopoly. d) none of the above.

D) independently setting a product's price without consideration of its rivals' pricing policies

) Which of the following is not part of an oligopolist's business strategy? A) deciding on how to manage relations with suppliers B) choosing what new technologies to adopt C) selecting which new markets to enter D) independently setting a product's price without consideration of its rivals' pricing policies

Bertrand Model of Oligopoly

- assume all firms can anticipate the prices that will be charged by their competitors. 1. If firms can reasonably anticipate the prices that other firms will charge and have a reasonable understanding of market demand, each firm can determine how customers would react to its own price and decide what production level and price leads to highest profit

gains from specialization of inputs

24) Which of the following explains why long-run average cost at first decreases as output increases? a. diseconomies of scale b. less-efficient use of inputs c. fixed costs becoming spread out over more units of output d. gains from specialization of inputs

B) in the short run, as more labor is hired, labor's marginal product falls because of the law of diminishing returns.

10) A reason why a perfectly competitive firm's demand for labor curve slopes downward is that A) each additional unit of labor hired is less efficient than previously hired units. B) in the short run, as more labor is hired, labor's marginal product falls because of the law of diminishing returns. C) the extra cost of hiring additional units of labor increases as a firm hires more units of labor. D) the firm's demand curve for the product that uses labor is downward sloping.

d) Firms could increase profits by jointly reducing output.

10) If firms are in Cournot equilibrium: a) Each firm could increase profits by unilaterally increasing output. b) Each firm could increase profits by unilaterally decreasing output. c) Firms could increase profits by jointly increasing output. d) Firms could increase profits by jointly reducing output.

A) equal to the marginal external cost at the economically efficient level of pollution.

10) If policymakers use a pollution tax to control pollution, the tax per unit of pollution should be set A) equal to the marginal external cost at the economically efficient level of pollution. B) equal to the marginal private cost of production at the economically efficient level of pollution. C) equal to the amount of the deadweight loss created in the absence of a pollution tax. D) at a level low enough so that producers can pass along a portion of the additional cost onto consumers without significantly reducing demand for the product.

A) people consume a pure public good without payment, even though the good may not be produced if no one chooses to pay.

11) The free rider problem refers to a situation in which A) people consume a pure public good without payment, even though the good may not be produced if no one chooses to pay. B) the marginal cost of allowing additional consumers to consume a public good is zero. C) high income individuals subsidize the production of goods, such as education, that make society better off. D) markets fail to allocate resources efficiently when benefits outweigh costs.

D) a demand curve that derives from the availability of resources.

11) The term "derived demand" refers to A) the demand for financial products called derivatives. B) the demand for a factor of production that is derived from the demand for the good the factor produces. C) a firm's estimated demand curve derived from sales data. D) a demand curve that derives from the availability of resources.

A) the fraction of an industry's sales accounted for by the four largest firms.

15) A four-firm concentration ratio measures A) the fraction of an industry's sales accounted for by the four largest firms. B) the production of any four firms in an industry. C) how the four largest firms became so concentrated. D) the fraction of employment of the four largest firms in an industry.

A) the lowest average cost of producing every level of output in the long run.

2) The long-run average cost curve shows A) the lowest average cost of producing every level of output in the long run. B) where the most profitable level of output occurs. C) the average cost of producing where diminishing returns are not present. D) the plant size or scale that the firm should build.

constant returns to scale because average total cost is constant as output rises

25) In the long run a company that produces and sells dog beds incurs total costs of $1,200 when output is 30 beds and $1,600 when output is 40 beds. Firm A exhibits a. diseconomies of scale because total cost is rising as output rises. b. constant returns to scale because average total cost is constant as output rises. c. diseconomies of scale cost is rising as output rises. d. economies of scale because average total cost is falling as output rises.because average total

D) An increase in the output level will increase profit.

3) All of the following statements are true of the minimum efficient scale except one. Which one? A) All possible economies of scale have been exhausted. B) The short-run average total cost curve's minimum point is equal to the long run average cost curve's minimum point. C) Any increase in the scale of operation will encounter diseconomies of scale. D) An increase in the output level will increase profit.

C) The equilibrium price is likely to decrease and profits are likely to decrease.

3) Assume the market for organic produce sold at farmers' markets is perfectly competitive. All else equal, as more farmers choose to produce and sell organic produce at farmers' markets, what is likely to happen to the equilibrium price of the produce and profits of the organic farmers in the long run? A) The equilibrium price is likely to increase and profits are likely to remain unchanged. B) The equilibrium price is likely to remain unchanged and profits are likely to increase. C) The equilibrium price is likely to decrease and profits are likely to decrease. D) The equilibrium price is likely to increase and profits are likely to increase.

B) the firm has achieved the lowest possible average cost of production.

4) At the minimum efficient scale A) all possible economies of scale have not been exhausted. B) the firm has achieved the lowest possible average cost of production. C) any increases in the scale of operation will encounter further economies of scale. D) marginal cost is at its minimum.

B) negative externalities

4) Mandatory motorcycle helmet laws are designed to reduce the severity of injuries resulting from motorcycle involvement in traffic accidents. In this sense, these mandatory helmet laws are reducing ________ of risky behavior. A) positive externalities B) negative externalities C) the private benefit D) the social benefit

C) marginal cost curve above its minimum average variable cost.

5) A perfectly competitive firm's supply curve is its A) marginal cost curve. B) marginal cost curve above its minimum average total cost. C) marginal cost curve above its minimum average variable cost. D) marginal cost curve above its minimum average fixed cost.

D) people who are not directly involved in producing or paying for a good or service benefit from it.

5) A positive externality results when A) economists are sure that a good or service provides benefits to consumers. B) someone pays for a good or service even though she is not directly affected by the production or consumption of it. C) when people who live in one country benefit from the production of a good or service that occurs in another country. D) people who are not directly involved in producing or paying for a good or service benefit from it.

A) It is upward-sloping.

5) The president of Toyota's Georgetown plant was quoted as saying, "Demand for high volumes saps your energy. Over a period of time, it eroded our focus [and] thinned out the expertise and knowledge we painstakingly built up over the years." Based on this quote, what must be true of the plant's average cost of production curve? A) It is upward-sloping. B) It is downward-sloping. C) It is a ray from the origin. D) It is U-shaped.

B) interdependence of firms.

6) A characteristic found only in oligopolies is A) break even level of profits. B) interdependence of firms. C) independence of firms. D) products that are slightly different.

B) the supply curve shifted to the left resulting in an increase in the equilibrium price.

6) In 2004, hurricanes destroyed a large portion of Florida's orange and grapefruit crops. In the market for citrus fruit A) the supply curve shifted to the right resulting in an increase in the equilibrium price. B) the supply curve shifted to the left resulting in an increase in the equilibrium price. C) the demand curve shifted to the right resulting in an increase in the equilibrium price. D) the demand curve shifted to the left resulting in a decrease in the equilibrium price

C) a group of firms that enter into a formal agreement to fix prices to maximize joint profits.

7) A cartel is A) a temporary storage facility for automobiles. B) a group of firms that enter into an informal agreement to fix prices to maximize joint profits. C) a group of firms that enter into a formal agreement to fix prices to maximize joint profits. D) an example of a group of firms that collectively regulate a competitive industry

C) private production exceeds the economically efficient level.

7) Because producers do not bear the external cost of pollution A) the economically efficient level of production is achieved. B) private production is below the economically efficient level. C) private production exceeds the economically efficient level. D) the market price is too high.

c. economies of scope.

7) Producing 200 units of good Y and 100 units of good X in the same factory costs the firm $50,000. In contrast, producing 200 units of good Y in one factory and 100 units of good X in another factory costs the firm $75,000. So if the firm produces the two goods together, it achieves: a. quadratic returns to scale. b. diseconomies of scope. c. economies of scope. d. diseconomies of scale and diseconomies of scope.

A) an increase in consumer income

7) Which of the following would cause both the equilibrium price and equilibrium quantity of cotton (assume that cotton is a normal good) to increase? A) an increase in consumer income B) a drought that sharply reduces cotton output C) a decrease in consumer income D) unusually good weather that results in a bumper crop of cotton

B) the equilibrium price of MP3 players will decrease; the equilibrium quantity will increase.

8) Assume that both the demand curve and the supply curve for MP3 players shift to the right but the supply curve shifts more than the demand curve. As a result A) both the equilibrium price and quantity of MP3 players will decrease. B) the equilibrium price of MP3 players will decrease; the equilibrium quantity will increase. C) the equilibrium price of MP3 players may increase or decrease; the equilibrium quantity will decrease. D) the equilibrium price of MP3 players will increase; the equilibrium quantity will decrease.

D) is too low and equilibrium quantity is too high.

8) If there is pollution in producing a product, then the market equilibrium price A) is too high and equilibrium quantity is too low. B) and equilibrium quantity are too low. C) and equilibrium quantity are too high. D) is too low and equilibrium quantity is too high.

d. All of the above are correct.

8) The marginal revenue product of labor for a firm a. will increase if the price of the firm's output increases. b. is the firm's demand curve for labor. c. will decrease if the firm hires more labor. d. All of the above are correct.

the seller can separate markets by geography, income, age, etc., and charge different prices to these different groups

8) Third-degree price discrimination exists whenever: a. the seller knows exactly how much each potential customer is willing to pay and will charge accordingly. b. different prices are charged by blocks of services. c. the seller can separate markets by geography, income, age, etc., and charge different prices to these different groups. d. the seller will bargain with buyers in each of the markets to obtain the best possible price.

B) to be able to earn larger profits than if it was not part of the cartel

8) What is the incentive for a firm to join a cartel? A) to be able to earn profits in the long run but not in the short run B) to be able to earn larger profits than if it was not part of the cartel C) to completely insulate itself from competition D) to produce a larger amount of output than if it was not part of the cartel

B) an increase in supply

9) Which of the following would cause a decrease in the equilibrium price and an increase in the equilibrium quantity of salmon? A) a decrease in demand and an increase in supply B) an increase in supply C) an increase in supply and an increase in demand greater than the increase in supply D) a decrease in demand and a decrease in supply

the price of the product.

A change in all of the following variables will change the market demand for a product except a. population and demographics. b. income. c. the price of the product. d. tastes.

population

A change in which variable will change the market demand for a product? A) the price of the product B) population C) technology D) the prices of substitutes in production

E) it has an edge over rivals in attracting customers and coping with competitive forces.

A company achieves competitive advantage whenever A) it has a product offering that is differentiated from the product offerings of rivals. B) its customers exhibit a high degree of loyalty to the company's brand. C) it has more core competences than its rivals. D) it has a better credit rating than rivals. E) it has an edge over rivals in attracting customers and coping with competitive forces.

c. how to compete successfully-its plans for positioning the company in the marketplace, its specific efforts to please customers and improve its competitive strength, and the type of competitive advantage it intends to establish.

A company's competitive strategy deals with Select one: a. how it plans to unify its functional and operating strategies into a cohesive effort aimed at successfully taking customers away from rivals. b. its plans for under-pricing rivals and achieving product superiority. c. how to compete successfully-its plans for positioning the company in the marketplace, its specific efforts to please customers and improve its competitive strength, and the type of competitive advantage it intends to establish. d. the specific actions management plans to take to gain a competitive advantage over rivals e. the specific actions management intends to take to strongly differentiate its product offering from the offerings of rival companies in the industry.

e. buyers are large, have significant power to bargain down prices, use the product in much the same ways, and have common user requirements.

A competitive strategy of striving to be the low-cost provider is particularly attractive when Select one: a. there are many ways to achieve higher product quality that have value to buyers. b. most rivals are pursuing best-cost or broad differentiation strategies. c. most rivals are trying to differentiate their product offering from those of rivals. d. buyers are not swayed by advertising and are not very brand-loyal. e. buyers are large, have significant power to bargain down prices, use the product in much the same ways, and have common user requirements.

accounting; opportunity

A firm earns a normal profit when its total revenues just offset both the ________ cost and ________ cost. a. explicit; accounting b. accounting; opportunity c. accounting; replacement d. historical; replacement

b. Entry Barriers to prevent potential entrants

A firm that is threatened by the potential entry of competitors into a market builds excess production capacity. This is an example of Select one: a. collusion or cartel b. Entry Barriers to prevent potential entrants c. Bertrand competition d. Cournot competition

d. of the law of diminishing marginal returns.

A firm's demand curve for labor slopes downwards because Select one: a. of rising marginal product. b. workers supply less labor services as the wage rate falls. c. firms supply less labor as the wage rate rises. d. of the law of diminishing marginal returns.

D) meaningfully lower overall costs than competitors.

A low-cost leader's basis for competitive advantage is: A) using an everyday low pricing strategy to gain the biggest market share. B) bigger profit margins than rival firms. C) high buyer switching costs because of the company's differentiated product offering. D) meaningfully lower overall costs than competitors. E) a reputation for charging the lowest prices in the industry.

a. agree to a low cartel production level and then produce more than its quota.

A member of a cartel like OPEC has an incentive to Select one: a. agree to a low cartel production level and then produce more than its quota. b. argue for larger production quotas for each member of the cartel. c. support equal production quotas for each member. d. abide by its individual production quota.

c) of product differentiation.

A monopolistically competitive firm faces a downward-sloping demand curve because A) it is able to control price and quantity demanded. B) there are few substitutes for its product. C) of product differentiation. D) its market decisions are affected by the decisions of its rivals

d. have some control over its price because its product is differentiated.

A monopolistically competitive firm will Select one: a. charge the same price as its competitors do. b. produce an output level that is productively and allocatively efficient. c. always produce at the minimum efficient scale of production. d. have some control over its price because its product is differentiated.

C) the marginal social cost of producing a good or service exceeds the private cost.

A negative externality exists if A) there are price controls in a market. B) there are quantity controls in a market. C) the marginal social cost of producing a good or service exceeds the private cost. D) the marginal private cost of producing a good or service exceeds the social cost.

b. Yes, it should continue to produce because it is minimizing its loss.

A perfectly competitive firm produces 3,000 units of a good at a total cost of $36,000. The fixed cost of production is $20,000. The price of each good is $10. Should the firm continue to produce in the short run? Select one: a. No, it should shut down because it is making a loss. b. Yes, it should continue to produce because it is minimizing its loss. c. Yes, it should continue to produce because its price exceeds its average fixed cost. d. There is insufficient information to answer the question.

d. upward sloping and is the portion of the marginal cost curve that lies above the

A perfectly competitive firm's short-run supply curve is Select one: a. horizontal at the minimum average total cost. b. perfectly elastic at the market price. c. upward sloping and is the portion of the marginal cost curve that lies above the average total cost curve. d. upward sloping and is the portion of the marginal cost curve that lies above the

c. The price falls to $12.

A perfectly competitive wheat farmer in a constant-cost industry produces 3,000 bushels of wheat at a total cost of $36,000. The prevailing market price is $15. What will happen to the market price of wheat in the long run? Select one: a. The price rises above $15. b. The price remains constant at $15. c. The price falls to $12. d. There is insufficient information to answer the question.

bundling

A restaurant in an isolated spot on the coast of Maine sells only complete meals at a fixed price (called prix fixe), with the opportunity to select à la carte choices. Which type of price discrimination is being practiced? a. bundling b. first-degree price discrimination c. universal access d. two part tariffs

true

A sale on men's slacks at T.J. Maxx, where if you buy the first pair at full price, you can buy the second pair at half price, is an example of differential pricing.

b. keep their prices constant

According to the Bertrand model, a firm will assume that rival firms will Select one: a. match price cuts but not price increases b. keep their prices constant c. match price increases but not price cuts d. keep their rates of production constant

false

According to the profit-maximization goal, the firm should attempt to maximize short-run profits since there is too much uncertainty associated with long-run profits. True of false

The $10,000 Adam spent on equipment is a fixed cost of business and the $12,000 he'll need to continue operations is a variable cost.

Adam spent $10,000 on new equipment for his small business, "Adam's Fitness Studio." Membership at his fitness center is very low and at this rate, Adam needs an additional $12,000 per year to keep his studio open. Which of the following is true? a. The fixed cost of running the studio is $22,000. b. The variable cost of running the studio is $22,000. c. The $10,000 Adam spent on equipment is a fixed cost of business and the $12,000 he'll need to continue operations is a variable cost. d. The $10,000 Adam spent on equipment is the total cost of starting the business and the $12,000 he'll need to continue operations is a marginal cost.

C) a benefit or cost experienced by someone who is not a producer or consumer of a good or service.

An externality is A) a benefit realized by the purchaser of a good or service. B) a cost paid for by the producer of a good or service. C) a benefit or cost experienced by someone who is not a producer or consumer of a good or service. D) anything that is external or not relevant to the production of a good or service.

b. The demand for gasoline-powered automobiles would increase and the equilibrium price of gasoline-powered automobiles would increase.

An increase in input costs in the production of electric automobiles caused the price of electric automobiles to rise. Holding everything else constant, how would this affect the market for gasoline-powered automobiles (a substitute for electric automobiles)? Select one: a. The supply of gasoline-powered automobiles would increase and the equilibrium price of gasoline-powered automobiles would decrease. b. The demand for gasoline-powered automobiles would increase and the equilibrium price of gasoline-powered automobiles would increase. c. The demand for gasoline-powered automobiles would increase and the equilibrium price of gasoline-powered automobiles would decrease. d. The demand for gasoline-powered automobiles would decrease because consumers could afford to buy fewer gasoline-powered automobiles.

d. oligopoly

An industry has a 4-firm concentration ratio of 85. We would call this industry a: Select one: a. monopoly b. purely competitive industry c. very competitive one d. oligopoly

c. firms pursuing aggressive business strategies, independent of rivals' strategies.

An oligopolistic industry is characterized by all of the following except Select one: a. production of standardized products. b. the possibility of reaping long run economic profits. c. firms pursuing aggressive business strategies, independent of rivals' strategies. d. existence of entry barriers

false

Answer whether the following statement is true or false: Economic rent for an input is higher if the input is abundant is supply Select one: True False

false

Answer whether the following statement is true or false: If the marginal revenue product of an input is less than the price of that input, the input is too expensive and the firm should stop using that input and try to find some alternate inputs. Select one: True False

d. restrict firms from engaging in behaviors that make markets less competitive

Antitrust laws: Select one: a. encourage firms to work together on setting prices, market share, and output levels. b. cannot be used to prevent the merger of two firms. c. ensure that firms with market power are not penalized for colluding. d. restrict firms from engaging in behaviors that make markets less competitive

A) positive externality.

Article Summary According to a study by the Center for Neighborhood Technology, homes located within one-half mile of frequently-used public transportation held their value much better during the recent housing market downturn than did those without easy access to public transportation, and the greater home values reflect greater demand for neighborhoods in close proximity to public transportation. In addition to higher home values, the study found that close proximity to public transportation offers lower transportation costs, a wider variety of travel options, and access to more employment opportunities. Source: Meg Handley, "Study: Proximity to Public Transit Boosts Home Values," U.S. News & World Report, March 22, 2013. 6) Refer to the Article Summary. Higher home values which result from close proximity to public transportation are an example of a ________ due to the public transportation. A) positive externality. B) negative externality. C) private cost. D) social cost.

As the level of output increases, the value of average fixed cost decreases. The same fixed cost is divided by a larger and larger output. The difference between average total cost and average variable cost is average fixed cost, so as is stated above, the value decreases.

As the level of output increases, what happens to the value of average fixed cost, and what happens to the difference between the value of average total cost and average variable cost?

c. both the equilibrium price and quantity of MP3 players will increase.

Assume that both the demand curve and the supply curve for MP3 players shift to the right but the demand curve shifts more than the supply curve. As a result Select one: a. the equilibrium price of MP3 players may increase or decrease; the equilibrium quantity will increase. b. the equilibrium price of MP3 players will increase; the equilibrium quantity may increase or decrease. c. both the equilibrium price and quantity of MP3 players will increase. d. the equilibrium price of MP3 players will decrease; the equilibrium quantity may increase or decrease.

d. the supply curve will shift to the left and the equilibrium price will increase

Assume the market for organically-grown produce is perfectly competitive. All else equal, as farmers find it less profitable to produce and sell organic produce in this market Select one: a. the supply curve will shift to the left, the demand curve will shift to the left, and the equilibrium price will increase. b. the demand curve will shift to the left and the equilibrium price will decrease. c. the supply curve will shift to the right, the demand curve will shift to the left, and the equilibrium price will decrease. d. the supply curve will shift to the left and the equilibrium price will increase

c. Each member of a cartel has an incentive to "cheat" on the collusive agreement by producing more than its share when everyone else sticks with the collusive agreement.

Collusion makes firms better off because if they act as a single entity (a cartel) they can reduce output and increase their prices and profits. But some cartels have failed and others are unstable. Which of the following is a reason why cartels often break down? Select one: a. Most cartels do not have a dominant strategy. b. When a cartel is profitable the amount of competition it faces increases. c. Each member of a cartel has an incentive to "cheat" on the collusive agreement by producing more than its share when everyone else sticks with the collusive agreement. d. Members of a cartel may resent having to share their profits equally.

a and d

Consider the following characteristics: a. a market structure with barriers to entry b. demand curves that are easily identified c. firm cannot make zero profits in the long run d. firm can reap long run profits. Which of the characteristics in the list above is shared by an oligopolist and a monopolist?

a and b only

Consider the following pairs of items: a. shampoo and conditioner b. iPhones and earbuds c. a laptop computer and a desktop computer d. beef and pork e. air-travel and weed killer Which of the pairs listed will have a negative cross-price elasticity? Select one: a. c and d only b. a, b, and c only c. e only d. a and b only

change in quantity supplied

indicates whenever seller changes the amount of the good in question that he wants to sell at a given price. MOVEMENT ALONG supply curve

resource approach

Determining what the firm excels in then deciding what goods or services would best exploit these capabilities

The supply of pineapples will increase resulting in a lower equilibrium price and a higher equilibrium quantity but the lower price will not shift the supply curve for pineapples

Discuss the correct and incorrect economic analysis in the following statement. "If good weather in Hawaii creates a bumper crop of pineapples, the supply of pineapples will increase. This will result in a price decrease, which will then cause the supply of pineapples to decrease."

d. monopolistic competition

Excess capacity and high advertising expenditures are encountered in Select one: a. non-profit competition b. monopoly c. perfect competition d. monopolistic competition

change in supply

indicates whenever seller's supply behavior towards the good in question changes SHIFT in supply curve

b. the price of a factor of production that is fixed in supply.

Economic rent is defined as Select one: a. the revenue received by a factor of production with an upward sloping supply curve. b. the price of a factor of production that is fixed in supply. c. the surplus received by employing a factor of production in its highest valued use. d. what you pay to rent your apartment or house.

d. as a firm expands its production, its profit margin per-unit of output increases.

Economies of scale exist as a firm increases its size in the long run because of all of the following except Select one: a. as a larger input buyer, the firm can purchase inputs at a lower per unit cost. b. the firm can afford more sophisticated technology in production. c. labor and management can specialize even further in their tasks.  d. as a firm expands its production, its profit margin per-unit of output increases.

b. the cost of publishing a magazine is lower for book publishers than for other firms.

Economies of scope exist between book publishing and magazine publishing if Select one: a. the cost of publishing a book falls over time as the publisher acquires more experience. b. the cost of publishing a magazine is lower for book publishers than for other firms. c. the cost of publishing a magazine is lower for firms that publish many magazines than for firms that publish only one magazine. d. the cost of a publishing a book is not subject to diminishing marginal returns.

a. produces more than one product.

Economies of scope refers to the decrease in average total cost that can occur when a firm a. produces more than one product. b. has monopoly power in world markets. c. controls the raw materials used as inputs. d. narrows the scope of its regional markets.

an increase in the price of beer will lead to an increase in revenue for beer sellers and beer is a normal good.

Economists estimated that the price elasticity of beer is -0.30 and the income elasticity of beer is 0.09. This means that A) an increase in the price of beer will increase the quantity demanded of beer and beer is a normal good. B) an increase in the price of beer will lead to an increase in revenue for beer sellers and beer is a normal good. C) a decrease in the price of beer will lead to an increase in revenue for beer sellers and beer is an inferior good. D) an increase in the price of beer will lead to a decrease in the quantity demanded of beer and beer is a necessity.

c. Although consumers may pay a price greater than marginal cost and the product is not produced at minimum average total cost, they benefit from being able to buy a differentiated product more closely suited to their tastes.

Economists have long debated whether there is a significant loss of well-being to society in markets that are monopolistically competitive rather than perfectly competitive. Which of the following offers the best reason why some economists believe that monopolistically competitive markets benefit consumers despite any loss of well-being? Select one: a. Consumers pay a price equal to the marginal cost of producing a product, even though it is not produced at the minimum average total cost. b. Consumers are better off choosing from a variety of differentiated products, even though product differentiation causes barriers that restrict entry into monopolistically competitive markets. c. Although consumers may pay a price greater than marginal cost and the product is not produced at minimum average total cost, they benefit from being able to buy a differentiated product more closely suited to their tastes. d. Although consumers may pay a price greater than marginal cost for a product, the product is produced at the minimum average total cost.

Economic Profit = Total Revenue - Opportunity Cost (explicit +implicit)

Equation for economic profit

false

Evaluate the Statement; Cost approach is the easier approach to achieve optimal production when the firm is at the start of their production plan Select one: True False

False

Evaluate the Statement; Resource approach is the easier approach to achieve optimal production after the firm has already established a production plan and requires only incremental changes in their plan to achieve the maximum possible profit Select one: True False

inelastic

Excess burden (deadweight loss) is smaller, the more __ is demand or supply

An increase in consumer preference will shift the demand curve to the right, which increases the equilibrium price and the equilibrium quantity. A decrease in the number of manufacturers will shift the supply curve to the left, which will increase the equilibrium price and decrease the equilibrium quantity. In both cases, the equilibrium price increases. For the equilibrium quantity to increase, the rightward shift in demand resulting from the increase in consumer preference must be more than the leftward shift in supply which results from the decrease in manufacturers.

Explain how it would be possible for the equilibrium price and equilibrium quantity to both increase in the market for motorcycles if consumer preference for motorcycles increases and the number of motorcycle manufacturers decreases.

A. By offering flood insurance, people will not be deterred from building or buying houses in an area that is hazardous for floods. It may actually encourage people to build near water in hopes of getting an insurance payment in event of flooding. B. By having a guaranteed contract for an extended period of time, the NBA player is protected from losing his job or receiving lower pay regardless of his performance. He will have no incentive to work hard. C. People will be less likely to search hard for a job knowing they have the benefits for an extended period of time. They may turn down "undesirable" jobs because they are covered by benefits. D. The person will feel more protected in the four-wheel drive SUV which may result in him/her being less cautious on the road under this sense of security.

Explain how moral hazard could arise in the following situations. a.The federal government offers flood insurance for homes. b.An NBA player signs a long-term guaranteed contract. c.The government lengthens the time to collect unemployment benefits from 26 to 99 weeks. d.In an area where the roads are frequently snow-covered and icy, a person trades in her rear-wheel drive sports car for a four-wheel drive SUV.

Mass production involves production in mass quantity. It could be done by adopting various technological innovation such as the assembly line, or simply by finding cheaper source of resource. Economies of scope occur when producing two or more products jointly by one firm is less than the cost of producing them separately (producing chocolate and peanut butter product together). Mass production focuses on one good. Economies of Scope focus on the mix of goods. Mass production tries to minimize cost by utilizing division of labor or specialization. Economies of Scope minimizes by exploiting the complementarity between the mix of goods.

Explain the difference between how mass production and economies of scope effect the cost of production.

Both of these methods suggest ways of minimizing cost for the firm. Both of these methods suggest that firms can minimize costs by producing more (either one or more of all).

Explain the similarity between how mass production and economies of scope effect the cost of production.

A supply curve that shows the relationship between the price of a product and the quantity that suppliers are willing and able to supply. The monopolist selects its profit maximizing output by equating marginal revenue to marginal cost and takes the price dictated by the demand curve. Thus, there is no array of prices and quantities supplied.

Explain why the monopolist has no supply curve?

Segmenting/Third-Degree Price Discrimination

Firm charges different prices to different groups of customers or market segments. Firm acts as a monopolist for each of the market segment.

Second-Degree Price Discrimination

Firms do not have perfect information on everyone. They cannot distinguish between various consumers.

The maximum amount that buyers are willing to pay for each unit.

First (Perfect) degree price discrimination means that a firm charge: a. Different prices to different groups of buyers. b. The maximum amount that buyers are willing to pay for each unit. c. Different prices to people of different racial or ethnic backgrounds. d. One single price—the maximum possible—to all of its buyers.

customers who have an elastic demand for the product

For a firm that can effectively price discriminate, who will be charged a lower price? A) customers who have an elastic demand for the product B) customers who have an inelastic demand for the product C) buyers that are members of the largest market segment D) buyers that are members of the smallest market segment

True

For a price discriminating airline, if the demand for business travelers were to expand, a proactive price discriminator would expand the number of seat assignments to business travelers and likely raise business traveler ticket prices. a. It could be true or false b. True c. It is neither false nor true d. False

The Coase theorem states that the problem with externalities is a problem with property rights, and if firms owned these rights, they could sell them to other firms who value the externality more than the original firm does to produce the product/service. A. The psychic discomfort faced by the church is more than the value of the bookstore to the owner. There is a negative externality for the church of $250,000. To solve this, the church could buy out the bookstore at a value between $200,000 (the value to the owner) and $250,000 (the negative externality on the church). B. The owner values the location of the store at a value higher than the negative externality on the church. To solve this, the church could renew the lease to the bookstore but at a price between the discomfort value ($250,000) and location value to the bookstore owner ($450,000).

For the following situations, use the Coase theorem to explain how a socially efficient solution may arise. a. An adult bookstore, with a legal right to operate, causes psychic discomfort of $250,000 for a nearby church. The adult bookstore owner values his business at $200,000. b. A church has purchased a building with storefronts leased to several businesses. The church must decide whether to allow the businesses to renew their leases. One of the businesses is an adult bookstore whose owner values the location at $450,000. The continued operation of the adult bookstore would generate $250,000 of psychic discomfort to the church.

d. through patents causes higher consumer prices but encourages firms to innovate and bring new products to the market.

Government encouragement of monopoly: Select one: a. results in the regulated firm producing beyond the competitive output level. b. reduces the market power of regulated firms. c. usually leads to lower prices and higher consumer surplus. d. through patents causes higher consumer prices but encourages firms to innovate and bring new products to the market.

a. Property rights could provide an incentive for individuals to better manage the public goods.

How could the expansion of property rights be used to address a problem with public goods or common resources? Select one: a. Property rights could provide an incentive for individuals to better manage the public goods. b. Property rights will place the public good or common resource under the direct control of the government. c. Property rights can never be used to address public good or common resource problems. d. Property rights will make the good non-rival and non-excludable

Second-degree price discrimination

If a firm charges customers $ 200 per unit of the first unit purchased, and $160 per unit for each additional unit purchased in excess of one unit. Then, what is the economic term of this strategy? a. Profit maximization pricing b. Third -degree price discrimination c. First-degree price discrimination d. Second-degree price discrimination

a. operating in the short run.

If a producer is not able to expand its plant capacity immediately, it is Select one: a. operating in the short run. b. operating in the long run. c. losing money. d. bankrupt.

c. new firms will enter in the long run causing market supply to increase, market price to fall and profits to decrease.

If a typical firm in a perfectly competitive industry is earning profits, then Select one: a. new firms will enter in the long run causing market supply to decrease, market price to rise and profits to increase. b. all firms will continue to earn profits. c. new firms will enter in the long run causing market supply to increase, market price to fall and profits to decrease. d. the number of firms in the industry will remain constant in the long run.

Charging different prices for the same good or service.

If an economist says that firm practices price discrimination, that firm is: a. Producing two products, one with decreasing returns to scale and the other with increasing returns b. Exploiting the poor. c. Making great efforts to keep its costs as low as possible. d. Charging different prices for the same good or service.

When firms earn no economic profit but earn a normal profit, they earn precisely as much as they could have earned by investing their time and money elsewhere. In other words, each producer is able to earn sufficient accounting profits to cover the opportunity cost of invested factors (time and money) and to continue operating. The source of the confusion stems from the difference between accounting and economic profits.

If firms do not earn economic profits in a competitive equilibrium, why would the firms choose to stay in business?

a. collectively undertaken by the industry group.

If identical firms sell an undifferentiated product, advertising is likely to be Select one: a. collectively undertaken by the industry group. b. strategically aimed at deterring entry. c. focused on secret ingredients. d. used to attack the rivals' products.

increasing the use of that input

If marginal revenue product is greater than marginal input cost, firm can improve profitability by ___

b. the four largest firms account for 80 percent of total output.

If the 4-firm concentration ratio for industry A is 80: a. the four largest first account for 20 percent of total output. b. the four largest firms account for 80 percent of total output. c. the industry is a monopoly. d. the industry is competitive.

complements.

If the cross-price elasticity of demand for computers and software is negative, this means the two goods are A) substitutes. B) complements. C) inferior. D) normal.

d. more capital should be used and less labor

If the marginal product of capital is six times as large as the marginal product of labor and the price of capital is three times as large as the price of labor, for costs to be minimized: Select one: a. the price of capital must fall. b. more labor should be used but the use of capital should remain constant. c. more labor should be used and less capital. d. more capital should be used and less labor

b. None of the above is correct

If the marginal product of labor is 2, the marginal product of capital is 4, the wage rate is $3, the rental price of capital is $6, and the price of output is $1.50, then the firm should Select one: a. Hold output constant, but hire more labor and less capital b. None of the above is correct c. Decrease output by reducing the quantity of capital, reducing the number of units of labor, or both d. Increase output by hiring more labor, more capital, or both

will decrease by 45 percent.

If the percentage increase in price is 15 percent and the value of the price elasticity of demand is -3, then quantity demanded a. will decrease by 45 percent. b. will increase by 5 percent. c. will decrease by 5 percent. d. will increase by 45 percent.

buyers of steel are more sensitive to a price change if they have more time to adjust to the price change.

If the price of steel increases drastically, the quantity of steel demanded by the building industry will fall significantly over the long run because a. buyers of steel are less sensitive to a price change if they have more time to adjust to the price change. b. profits will fall by a greater amount in the long run than in the short run. c. sales revenue in the building industry will fall sharply. d. buyers of steel are more sensitive to a price change if they have more time to adjust to the price change.

should shut down in the short run

If total variable cost exceeds total revenue at all output levels, a perfectly competitive firm A) should produce in the short run. B) is making short-run profits. C) should shut down in the short run. D) has covered its fixed cost.

Because consumers in your town could buy books on the Internet or by driving to another town that has a bookstore store, you would not have a monopoly under the narrow definition of the term. However, because competition from on-line sellers and stores in other towns may not be sufficient to eliminate your economic profits in the long run, you may have a monopoly in the broader sense of the term.

If you own the only bookstore in a small town, do you have a monopoly?

should shut down.

If, for a given output level, a perfectly competitive firm's price is less than its average variable cost, the firm

B) economies of scale.

If, when a firm double all its inputs, its average cost of production decreases, then production displays A) diminishing returns. B) economies of scale. C) diseconomies of scale. D) declining fixed costs.

The demand curve shifts to the left.

In June, buyers of titanium expect that the price of titanium will fall in July. What happens in the titanium market in June, holding everything else constant? A) The demand curve shifts to the right. B) The quantity demanded increases. C) The quantity demanded decreases D) The demand curve shifts to the left.

d. one who waits for others to produce a good and then enjoys its benefits without paying for it

In economics, the term "free rider" refers to Select one: a. one who volunteers her services. b. a supervisor who delegates menial time-consuming activities to others. c. a person who evades taxes. d. one who waits for others to produce a good and then enjoys its benefits without paying for it

d. dedicate some parks, or at least one park, exclusively for the use of visitors bringing dogs to the park

In the city of Alvarez, with the exception of guide dogs for blind people, all dogs are banned from its three public parks, regardless of whether the animals are leashed. Many residents are pushing for a change in policy. Canine lover Sara Northridge observed, "There are 800 or more homes here. There are three parks within 10 minutes, and almost everyone has a dog, but we can't take our dogs there." Others fear that allowing dogs would detract from their enjoyment of the parks. Tim Cortis retorted, "We're not preventing dog lovers from enjoying the park, just come without your dog." Which of the following is a way of dealing with the problem by assigning property rights to a particular group? Select one: a. impose a fee only for dog-owners to use the public parks; non dog owners do not pay a fee b. impose a two-tier entry fee system - a lower fee for non dog owners and a higher fee for dog owners c. allow dog owners to bring their dogs to the park but insist that they keep watch over their dogs d. dedicate some parks, or at least one park, exclusively for the use of visitors bringing dogs to the park

c. one firm plays a leadership role and its competitor's simply react to the leader's quantity

In the quantity leadership model: Select one: a. prices are higher and quantities are slightly less than we would see if the firms colluded to achieve the monopoly outcome b. each firm takes the prices charged by its competitors as given c. one firm plays a leadership role and its competitor's simply react to the leader's quantity d. each firm takes the quantities produced by its competitors as given

c. All of the above

In which markets are network effects likely? Select one: a. Markets subject to increasing returns b. Market for trendy products. c. All of the above d. Hi-tech product markets

b. It enables Juicy to price its products at a premium and differentiate them from lower priced products.

Juicy Couture has been successful in selling women's clothing using an unusual strategy. According to an article in the Wall Street Journal, the key to the firm's strategy is to "limit distribution to maintain the brand's exclusive cachet, even if that means sacrificing sales, a brand-management technique once used only for high-end luxury brands." In 2006, Juicy clothes were sold in only four department stores: Neiman Marcus, Saks, Bloomingdale's, and Nordstrom. In 2006, its sales have more than quadrupled since 2002. Source: Rachel Dodes, "From Track Suits to Fast Track," Wall Street Journal, September 13, 2006. How does limiting the number of stores in which Juicy's products are sold contribute to its success? Select one: a. It helps establish Juicy's products as luxury items favored by the very wealthy. b. It enables Juicy to price its products at a premium and differentiate them from lower priced products. c. By sacrificing sales, the company was able to focus on producing high quality products. d. Maintaining the exclusivity of a product increases the demand for the product.

c. average variable cost and the cumulative number of units produced

Learning curves represent the relationship between Select one: a. total cost and technology b. average variable cost and the rate of increase in technology c. average variable cost and the cumulative number of units produced d. average variable cost and the number of units produced per time period

Coupons

indirect price discrimination in hopes of charging customers with less elastic demand more

a. There is market failure because the use of the antibiotic creates a negative externality. Using the antibiotic creates a societal cost because the bacteria will become resistant to the antibiotic making it harder to fight in the future. B. Because society pays the cost of the antibiotics, farmers will overuse the antibiotic. They won't consider the externality because they do not pay the cost

Many livestock farmers give antibiotics to their herds. The antibiotics help breed drug-resistant bacteria, making them less effective. This harms future users of antibiotics, who will be using less-effective drugs. a. What is the nature of the market failure? b. Explain whether livestock farmers are more likely to overuse or underuse antibiotics.

b. Max should continue to run the tattoo parlor until his lease runs out

Max Shreck, an accountant, quit his $80,000-a-year job and bought an existing tattoo parlor from its previous owner, Sylvia Sidney. The lease has five years remaining and requires a monthly payment of $4,000. Max's explicit cost amounts to $3,000 per month more than his revenue. Should Max continue operating his business? Select one: a. This cannot be determined without information on his revenue. b. Max should continue to run the tattoo parlor until his lease runs out c. Max's explicit cost exceeds his total revenue. He should shut down his tattoo parlor. d. If Max's marginal revenue is greater than or equal to his marginal cost, then he should stay in business.

a. reduce market power in the phone industry.

Mobile phone portability allows consumers to retain their phone number if they change to a different phone network, which will tend to: Select one: a. reduce market power in the phone industry. b. discourage product differentiation and increase switching costs c. encourage the formation of natural monopolies. d. increase barriers to entry in the phone industry.

b. Mr. Fudd to pay Mr. Leghorn between $500 and $900 to continue hunting

Mr. Leghorn lives next door to Mr. Fudd. During hunting season, Mr. Fudd likes to shoot rabbits in his backyard, which activity he values at $900. The noise from the shooting disturbs Mr. Leghorn and prevents him from taking afternoon naps, which he values at $500. If Mr. Leghorn has the legal right to stop Mr. Fudd from hunting, the socially optimal outcome is for: Select one: a. Mr. Fudd to stop hunting b. Mr. Fudd to pay Mr. Leghorn between $500 and $900 to continue hunting c. Mr. Leghorn to pay $500 or less to get Mr. Fudd to stop hunting d. Mr. Fudd to pay Mr. Leghorn less than $500 to continue hunting

b. Cournot competition.

Oligopolists that have restrictions on productive capacity divide the market between themselves and charge prices greater than marginal costs. In this case they engage in: Select one: a. Betrand competition. b. Cournot competition. c. price competition. d. quality competition.

b. Advertising and brand management allow a firm to create an entry barrier which will insulate the firm from competition and from undertaking further product innovations.

One of your classmates asserts that advertising, marketing research, and brand management are redundant expenditures because a firm can obtain the same information by simply looking at what customers are already buying. Which of the following is not a response you might offer her? Select one: a. If a firm successfully manages its brand, customers become less price sensitive as they perceive fewer substitutes for the firm's brand. b. Advertising and brand management allow a firm to create an entry barrier which will insulate the firm from competition and from undertaking further product innovations. c. Marketing research could allow a firm to identify new market opportunities and at least, in the short run, a firm can make a profit supplying products to this market segment. d. Conducting market research is a good way for firms to keep abreast of changing consumer tastes and preferences.

a. economies of scale in farming

Over the past twenty years, the number of small family farms has fallen significantly and in their place there are fewer, but larger, farms owned by corporations. Which of the following best explains this trend? Select one: a. economies of scale in farming b. diseconomies of scale in farming c. diminishing returns to labor in farming

is the practice of charging different prices to different customers when the price differences cannot be attributed to variations in cost.

Price discrimination A) is the practice of charging different prices to different customers based on a seller's personal preferences and prejudices. B) is the practice of charging different prices to different customers based on the different costs of supplying the product to different customers. C) is the practice of charging different prices to different customers when the price differences cannot be attributed to variations in cost. D) is the practice of giving preferential treatment to certain groups of customers based on their long-standing relationship to the producer.

P>ATC

Profit in SR equation for Perfect Competition

c. a gain in producer surplus less than the loss in consumer surplus.

Relative to a perfectly competitive market, a monopoly results in Select one: a. a gain in producer surplus equal to the loss in consumer surplus. b. a gain in producer surplus equal to the gain in consumer surplus. c. a gain in producer surplus less than the loss in consumer surplus. d. greater economic efficiency.

third-degree price discrimination

Selling tickets in the orchestra region of the Metropolitan Opera for $55 and selling tickets in the upper balcony for $28 to listen to Luciano Pavoratti describes which type of price discrimination? a. This is not necessarily price discrimination b. bundling c. first-degree price discrimination d. third-degree price discrimination

third degree price discrimination

Some electric utilities offer one rate to commercial users and a different rate to residential users. This is an example of: a. peak load pricing b. third degree price discrimination c. universal access pricing d. bundling

third degree price discrimination.

Some electric utilities offer one rate to commercial users and a different rate to residential users. This is an example of: a. universal access pricing. b. bundling. c. peak load pricing. d. third degree price discrimination.

A 1 percent decrease in the price of grapefruit juice leads to a 6 percent increase in orange juice consumption.

Suppose the cross-price elasticity of demand between grapefruit juice and orange juice is approximately 6. What does this mean? A) A 1 percent decrease in the price of grapefruit juice leads to a 6 percent increase in orange juice consumption. B) A 6 percent increase in the price of grapefruit juice leads to a 1 percent increase in orange juice consumption. C) If the price of grapefruit juice rises by $1, 6 more cartons of orange juice will be purchased. D) The demand for orange juice is 6 times more than the demand for grapefruit juice.

A 1 percent increase in the price of the good causes quantity demanded to decrease by 3 percent.

Suppose the value of the price elasticity of demand is -3. What does this mean? A) A 1 percent increase in the price of the good causes quantity demanded to increase by 3 percent. B) A 1 percent increase in the price of the good causes quantity demanded to decrease by 3 percent. C) A 3 percent increase in the price of the good causes quantity demanded to decrease by 1 percent. D) A $1 increase in price causes quantity demanded to fall by 3 units.

a. The advertisement ensures that the other firm does not cheat. If a firm cheats on the agreement and charges the lower price, the rival firm will retaliate by doing the same.

Suppose two firms in a duopoly implicitly collude and charge a high price. How might each firm benefit from advertising that it will match the lowest price offered by its competitor? Select one: a. The advertisement ensures that the other firm does not cheat. If a firm cheats on the agreement and charges the lower price, the rival firm will retaliate by doing the same. b. The offer to match prices is a way of signaling to antitrust authorities that the firms are not engaged in illegal collusion c. The advertisement is meant to suggest to consumers that the offered price is actually the lowest price available d. The offer to match prices is a way of deterring entry by other large firms, thereby keeping the market share of the existing firms intact

a. when firms sell a differentiated product

The Bertrand model is a more plausible model of firm behavior than the Cournot model Select one: a. when firms sell a differentiated product b. because the Bertrand model predicts that firms will price at marginal cost. c. when firms set the quantity to be sold d. because firms that sell a non-differentiated product typically act as price takers.

a. If transaction costs are low, the efficient activity will occur, either the rancher or railroad installing fences to protect from rampaging cattle and/or sound insulation with trees, or if it is cheaper, fewer train trips per day. The cheapest or most efficient solution will happen, regardless of who is assigned the original property right

The Coase Theorem works best in places that transaction costs for contracts among people is low. Often in the world of torts and externalities both parties can claim that they have rights to impose on others. One case is that of a railroad that is noisy and scares the cattle and the rancher whose cattle sometimes wander in front of moving trains causing damage to them and the train. What does the Coase say would happen? Select one: a. If transaction costs are low, the efficient activity will occur, either the rancher or railroad installing fences to protect from rampaging cattle and/or sound insulation with trees, or if it is cheaper, fewer train trips per day. The cheapest or most efficient solution will happen, regardless of who is assigned the original property right b. The two party should fight with each other. The winner will be able to establish their right while the loser will can do nothing. c. The rancher should have the property right to be safe from noisy trains, and the railroad should be liable for weight loss of cattle from train whistles and rumbling noise. d. The train should have property right to be safe from wandering cattle, and the rancher should be liable for train damage of rampaging cattle.

wage levels

The antitrust laws regulate all of the following business decisions except ____. Select one: a. mergers b. wage levels c. collusion d. monopolistic practices

Most economists classify an industry with a four-firm concentration ratio greater than 40 percent as an oligopoly; therefore, the breakfast cereal industry would be considered an oligopoly. But the concentration ratio is a flawed measure of the extent of competition in the breakfast cereal industry. For example, concentration ratios do not include sales in the United States by foreign firms, so to the extent that foreign firms sell breakfast cereal in the United States, the concentration ratio understates the degree of competition in this industry. Also, since concentration ratios are calculated for the national market, regional or local competition is ignored. Concentration ratios are useful for providing a general idea of the extent of competition in an industry.

The breakfast cereal industry has a four-firm concentration ratio of 78 percent. Is this enough information to classify the industry as an oligopoly? Is a high concentration ratio evidence that an industry is not competitive?

it is derived from the demand for products that use labor in the production process.

The demand for labor is described as a derived demand because Select one: a. it is derived from the demand for products that use labor in the production process. b. it is derived by producers seeking to make profits by starting new businesses. c. it is derived from government institutions which rely on labor markets for the purpose of raising tax revenue. d. it is derived by workers seeking to earn income to fund the consumption of goods and services.

economic rent

The difference between the amount the provider of the limited input supply is able to charge and the minimum amount that would have been necessary to induce the provider to sell the unit to the firm

b. level of operation where long-run average costs are lowest.

The minimum efficient scale is Select one: a. the smallest output level where the firm finally reaches productive efficiency. b. level of operation where long-run average costs are lowest. c. the plant size that yields the most profit. d. the level of output where diminishing returns have not set in yet.

a. no competitors apparently found the profit level attractive enough to enter the market.

The reason that the Fisherman's Friend restaurant in Stonington, Maine had a monopoly on selling seafood dinners in that town is most likely due to Select one: a. no competitors apparently found the profit level attractive enough to enter the market. b. the restaurant owned all the fresh seafood in the state. c. occupational licensing. d. a government-imposed barrier.

b. products are differentiated.

The reason that the coffeehouse market is monopolistically competitive rather than perfectly competitive is because Select one: a. there are many firms in the market. b. products are differentiated. c. barriers to entry are very low. d. entry into the market is blocked.

b. Both measures indicate that the industry is not perfectly competitive.

There are five firms in an industry with sales at $5 million, $10 million, $8 million, $12 million, and $10 million, respectively. What is the proper conclusion that we can draw from the calculated four-firm concentration ratio and HHI? Select one: a. The four-firm measure suggests the industry is highly competitive, while the HHI suggests the industry is relatively uncompetitive. b. Both measures indicate that the industry is not perfectly competitive. c. Both measures indicate the industry is served by a monopoly d. The four-firm measure suggests the industry is relatively uncompetitive, while the HHI suggests the industry is highly competitive

Change in quantity demanded

This reflects a Movement Along the same demand curve when only price of the good changes

Change in quantity demanded

This reflects a Movement Along the same demand curve when only price of the good changes.

change in demand

This reflects a SHIFT of the demand curve whenever consumers' behavior change This occurs whenever something other than price of the good changes

Change in demand

This reflects a SHIFT of the demand curve whenever consumers' behavior change.

a. study buyers" needs and behavior very carefully to learn what they consider important, what they think has value, and what they are willing to pay for

To be successful with a differentiation strategy, a company has to Select one: a. study buyers" needs and behavior very carefully to learn what they consider important, what they think has value, and what they are willing to pay for b. outspend rivals on R&D in order to have differentiating attributes that rivals don't have. c. Concentrate on differentiating its product on the basis of superior product quality or personalized customer service. d. incorporate more differentiating features into its product/service offering than rivals and also charge a price no higher than the prices charged by rivals. e. have a state-of-the-art value chain and concentrate on providing buyers with a technologically superior product

replacement

Unlike an accountant, an economist measures costs on a(n) ________ basis. a. explicit b. conservative c. replacement d. historical

the preference rankings of vacationers traveling together are negatively correlated.

Vacation tours to Europe invariably package visits to disparate regions: cities, mountains, and the seaside. Bundling, a type of second degree price discrimination, is most profitable when: a. the preference rankings of vacationers traveling together are negatively correlated. b. preference for the seaside is always higher than preferences for city excursions c. preference rankings of vacationers traveling together are positively correlated. d. a preference for cities is always higher than preferences for mountain vistas.

Minimum efficient scale is the lowest level of output at which all economies of scale have been exhausted — that is, where the long-run average cost curve stops sloping downward. In the long run, firms that don't reach minimum efficient scale will have higher average costs than competitors that do reach minimum efficient scale, so they will probably be driven out of business. However, firms that justify selling at premium prices due to product differentiation can survive.

What is minimum efficient scale? What is likely to happen in the long run to firms that do not reach minimum efficient scale?

b. Diminishing marginal returns, which applies only in the short run when at least one factor is fixed, explains why marginal cost increases, while diseconomies of scale, which applies in the long run when all factors are variable, explains why average cost increases.

What is the difference between "diminishing marginal returns" and "diseconomies of scale"? Select one: a. Diminishing marginal returns, which applies only in the long run when all factors are variable, explains why average variable cost increases, while diseconomies of scale, which applies in the short run when at least one factor is fixed, explains why average total cost increases. b. Diminishing marginal returns, which applies only in the short run when at least one factor is fixed, explains why marginal cost increases, while diseconomies of scale, which applies in the long run when all factors are variable, explains why average cost increases. c. Both concepts explain why marginal cost increases after some point but diminishing marginal returns applies only in the short run when there is at least one fixed factor, while diseconomies of scale applies in the long run when all factors are variable. d. Both concepts explain why average total cost increases after some point but diminishing marginal returns applies only in the short run when there is at least one fixed factor, while diseconomies of scale applies in the long run when all factors are variable.

b. convince customers that its card has greater value than those offered by rival firms.

When a credit card company offers different services with its card, like travel insurance for air travel tickets purchased with the credit card or product insurance for items purchased with the card, the credit card company is trying to Select one: a. create a perfectly competitive market in which to sell its credit card. b. convince customers that its card has greater value than those offered by rival firms. c. create a barrier to entry for competing firms. d. shift the demand curve for competing firms to the right.

opportunity cost of producing a good or service, which includes both implicit and explicit cost.

When an economist uses the term "cost" referring to a firm, the economist refers to the a. cost that can be actually verified and measured. b. explicit cost of producing a good or service but not the implicit cost of producing a good or service. c. implicit cost of producing a good or service but not the explicit cost of producing a good or service. d. price of the good to the consumer. e. opportunity cost of producing a good or service, which includes both implicit and explicit cost.

c. The good is typically under supplied in a market where the free-rider problem occurs

When the free-rider problem occurs in a market for a good, what is true of the quantity of the good supplied relative to the efficient quantity of the good? Select one: a. When the free-rider problem occurs, the good can be provided completely free of charge. b. The good is typically oversupplied in a market where the free-rider problem occurs c. The good is typically under supplied in a market where the free-rider problem occurs d. The good is typically efficiently supplied in a market where the free-rider problem occurs.

b. keeping a junked car parked on your front lawn

Which of the following activities create a negative externality? Select one: a. repainting the house you live in to improve its appearance b. keeping a junked car parked on your front lawn c. graduating from college d. cleaning up the sidewalk on your block

all

Which of the following are sources of market power? I.government-issued patents and copyrights II.a Minnesota law requiring all new funeral homes to have an embalming room, which costs upward of $30,000, whether or not it is functional or will be used III.a Portland, Oregon, law that makes it a crime for limousine companies to charge less than $50 per ride

a. People can sometimes enjoy common goods without contributing to them

Which of the following best describes the free-rider problem? Select one: a. People can sometimes enjoy common goods without contributing to them b. Industrious people always attract others who try to capitalize on their success c. Everyone would be better off if everyone refrained from pursuing self-interest d. A person who receives welfare from the government thereby loses the incentive to work

B) Entry barriers into the industry are low.

Which of the following characteristics is common to monopolistic competition and perfect competition? A) Firms produce identical products. B) Entry barriers into the industry are low. C) Each firm faces a downward -sloping demand curve. D) Firms take market prices as given.

b. Is the intervention program economically efficient?

Which of the following criteria should be used to evaluate if government intervention in a market for the purpose of environmental protection is justified? Select one: a. Does the intervention program make the amount of economic surplus as large as possible? b. Is the intervention program economically efficient? c. Is the damage to the environment from government intervention as small as possible? d. Does the intervention program reduce pollution to zero using the least costly method?

all

Which of the following is (are) examples of moral hazard? I. An unemployed worker reduced his effort to find a job after he became eligible for unemployment insurance. II. Banks make exceptionally risky investments because they expect government bailouts if their investments fail. III. After a university made the morning-after pill available on campus, more students became sexually promiscuous.

a. Each maximizes profits by producing a quantity for which marginal revenue equals marginal cost.

Which of the following is a characteristic shared by a perfectly competitive firm and a monopoly? Select one: a. Each maximizes profits by producing a quantity for which marginal revenue equals marginal cost. b. Each sets a price for its product that will maximize its revenue. c. Each maximizes profits by producing a quantity for which price equals marginal cost. d. Each must lower its price to sell more output.

a. As the size of the firm increases it becomes more difficult to coordinate the operations of its manufacturing plants.

Which of the following is a reason why a firm would experience diseconomies of scale? Select one: a. As the size of the firm increases it becomes more difficult to coordinate the operations of its manufacturing plants. b. To finance an increase in the size of its plant a firm must borrow more money or sell more shares of stock. c. As the size of the firm increases, it must operate in other countries where differences in language, customs and laws increase its average costs. d. As the size of the firm increases, it becomes more difficult to find markets where it doesn't already have operations

As the size of the firm increases it becomes more difficult to coordinate the operations of its manufacturing plants

Which of the following is a reason why a firm would experience diseconomies of scale? A) To finance an increase in the size of its plant a firm must borrow more money or sell more shares of stock. B) As the size of the firm increases, it becomes more difficult to find markets where it doesn't already have operations. C) As the size of the firm increases it becomes more difficult to coordinate the operations of its manufacturing plants. D) As the size of the firm increases, it must operate in other countries where differences in language, customs and laws increase its average costs.

C) incomplete property rights or inability to enforce property rights

Which of the following is a source of market failure? A) unforeseen circumstances which leads to the bankruptcy of many firms B) a lack of government intervention in a market C) incomplete property rights or inability to enforce property rights D) an inequitable income distribution

a. A $95 ticket to the Magic Kingdom gives you entrance to the park and free access to all the rides

Which of the following is an example of bundling? Select one: a. A $95 ticket to the Magic Kingdom gives you entrance to the park and free access to all the rides b. An automobile manufacturer includes Michelin tires on its new cars c. HP includes a toner cartridge with the purchase of a new laser printer d. A shoe store doesn't sell shoes for jus

d. All of the above are examples of strategic behavior.

Which of the following is an example of strategic behavior that we see in oligopoly? e. a. A firm builds excess capacity to discourage the entry of competitors. b. A firm adopts the pricing behavior of a dominant firm under the assumption that other firms will do likewise. c. Firms in an industry increase advertising expenditures to avoid losing market share. d. All of the above are examples of strategic behavior.

b. As output increases, the managers can begin to have difficulty coordinating the operations of their firms.

Which of the following is not a reason why firms experience economies of scale? Select one: a. Technology can make it possible to increase production with a smaller increase in at least one input. b. As output increases, the managers can begin to have difficulty coordinating the operations of their firms. c. Larger firms may be able to purchase inputs at lower costs than smaller competitors. d. Workers and managers can become more specialized, enabling them to be more productive.

all

Which of the following practices mitigates moral hazard? I.A health insurance company's policy requires a $500 deductible and a 20% coinsurance rate. II.Progressive Insurance offers drivers a discount for using a black box that records miles driven and the number of sudden stops. III.Homeowner insurance does not cover claims arising from backyard trampolines.

b. all of the above

Which of the following public policies has (have) the effect of restricting competition? Select one: a. patents b. all of the above c. licensing d. copyrights

Demand is more elastic in the long run than it is in the short run.

Which of the following statements about the price elasticity of demand is correct? A) The elasticity of demand for a good in general is equal to the elasticity of demand for a specific brand of the good. B) The absolute value of the elasticity of demand ranges from zero to one. C) Demand is more elastic in the long run than it is in the short run. D) Demand is more elastic the smaller the percentage of the consumer's budget the item takes up

I.In the face of a positive externality, a perfectly competitive market produces less than the socially optimal quantity of output. II.If vaccinations generate an external marginal benefit, their marginal social benefit will always exceed their private marginal benefit.

Which of the following statements is (are) TRUE? I.In the face of a positive externality, a perfectly competitive market produces less than the socially optimal quantity of output. II.If vaccinations generate an external marginal benefit, their marginal social benefit will always exceed their private marginal benefit. III. In unregulated markets, the presence of negative externalities—but not positive externalities—causes deadweight losses.

I.Public goods tend to be underprovided.

Which of the following statements is (are) TRUE? I.Public goods tend to be underprovided. II.One person's consumption of a public good diminishes its use to another person. III.The marginal cost of providing a public good to another consumer is infinite.

a. Advertising could make the monopolistic competitor's demand more inelastic, but advertising has no effect on a perfect competitor's demand.

Which of the following statements is true about advertising by a monopolistically competitive firm? Select one: a. Advertising could make the monopolistic competitor's demand more inelastic, but advertising has no effect on a perfect competitor's demand. b. Advertising will be more beneficial if a monopolistic competitor colludes with other firms to advertise the products of the industry as a whole rather than an individual firm's product. c. Since the monopolistic competitor, like the perfect competitor, makes zero profit in the long run, it is a waste of resources to advertise its products. d. Monopolistically competitive firms tend to shun advertising because advertising draws attention to the variety of differentiated products available in the industry.

d. Governments should supply the efficient quantity where the marginal cost is equal to the marginal social benefit

Which of the following statements is true if a government decides that it must provide a public good, other things constant? Select one: a. Governments should supply an unlimited amount of public goods free of charge. b. Governments should provide the most profitable public goods c. Governments should minimize average total cost when providing a public good. d. Governments should supply the efficient quantity where the marginal cost is equal to the marginal social benefit

c. an increase in supply and an increase in demand greater than the increase in supply

Which of the following would cause an increase in the equilibrium price and an increase in the equilibrium quantity of watermelons? Select one: a. an increase in supply b. a decrease in demand and an increase in supply c. an increase in supply and an increase in demand greater than the increase in supply d. an increase in demand and an increase in supply

c. Those with high wages which result from them possessing the innate ability to develop some skill to a very high level

Which type of workers is most likely to enjoy substantial economic rent? Select one: a. Those with high wages which compensate them for unpleasant aspects of their jobs. b. Those with low wages which result from no need to have a period of training. c. Those with high wages which result from them possessing the innate ability to develop some skill to a very high level d. Those with low wages which can be paid because their jobs have other very pleasant aspects.

Economies of scope may arise because production of two or more goods may share an input. For example, beef and hides share the input cattle, so there will be cost savings from producing the two goods together rather than separately. Heating oil and kerosene are byproducts of refining oil. A steel company can produce different types of steel in the same furnace, which will be cheaper than trying to produce each type of steel in its own separate facility.

Why do economies of scope arise?

The National Football League has spent a great deal of time and money to establish a successful brand name and to get consumers to automatically think of the NFL when they see anyone using the term "Super Bowl." By not legally challenging even the smallest of restaurants or bars, the NFL not only faces the possibility that consumers will think these restaurants and bars are associated with the NFL and that these restaurants and bars will take advantage of that perception, but also that other restaurants , bars, or other companies would choose to use the term without fear of legal action or retribution. If the NFL did not attempt to legally defend its trademark, even in the smallest of cases, it could eventually face the possibility of "Super Bowl" no longer being associated with the NFL.

Why would an organization as large as the National Football League (NFL) incur large legal expenses to try to prevent bars and restaurants from using their trademarked term "Super Bowl" in their advertising?

Change in Quantity demanded

indicates whenever consumer changes the amount of the good in question that he wants to buy.

c. Yes

Would you expect economies of scope to occur in the following situation; Producing two goods that use the same resource Select one: a. No b. I cannot answer based on the available information c. Yes d. I do not know.

isoquant line

a curve showing all combinations of two inputs, such as capital and labor that will produce the same level of output

false

a. Over time, more experienced workers will demand higher wage and therefore, will lead to an increased in the cost of production for the producers.

depreciation costs

an opportunity cost of a firm using capital that it owns—measured as the change in the market value of capital over a given period

Cournot Model of Oligopoly

assume all firms can determine the upcoming production levels or operating capacities of their competitors

false

b. When you produce more, average cost of production increases.

MPL/Wage = MPK/Rental rate

cost minimizing equilibrium condition

excess burden of tax

deadweight loss from a tax. 2. Keeps track of inefficiencies created by government intervention

Under monopoly, there is a loss in consumer surplus - added to producer surplus Buyers buy less and pay more = inefficient Producer charge more and produce less

deadweight loss in monopoly explanation

4. At the market equilibrium price, the demand faced by an individual firm at the market equilibrium price is very large and non-existent in any other price. a. Hence, the demand curve faced by a single firm at the market equilibrium price is horizontal and perfectly elastic demand curve it faces is also its marginal revenue curve.

demand curve in perfect competition

burden of tax

equal to the tax revenue and deadweight loss.

P = minimum ATC or P=MC=ATC because MC intersects ATC at lowest point

equilibrium (no economic profit) condition in LR for perfect competition

Perfect/First-Degree Price Discrimination

firm charges each customer exactly according to his or her willingness to pay

0 - PC less than 40 - monopolistic competition more than 60- oligopoly 100 - monopoly

four firm concentration ratio market indicators

Change in Demand

indicates whenever consumer behavior towards the good in question changes

P< AVC

shut down condition in SR for perfect competition

P=AVC

shutdown point for perfect competition

the ratio of input prices

slope of isocost line

-MPlabor/MPcapital

slope of isoquant line

cost approach

start with the goods and services that a firm intends to provide and then decide what production configuration will achieve the intended output at the lowest cost

the supply curve of firm in the short run is the upward sloping part of MC curve above AVC curve.

supply curve of Perfect competition in the SR

price discrimination

the business practice of selling the same good at different prices to different customers

inelastic

the buyer pays a larger share of the tax, the more ___ the *demand* for the good.

larger; more

the more inelastic the demand curve the ____ deadweight loss AND buyer pays ____ of tax burden

four-firm concentration ratio

the percentage of the value of sales accounted for by the four largest firms in the industry.

excess capacity

the quantity it produces is less that the quantity at which average total cost is a minimum.

incentive compatibility

the requirement under an indirect price discrimination strategy that the price offered to each consumer group is chosen by that group

Normal Profit

the return to entrepreneurship; part of a firm's opportunity cost because it is the cost of the entrepreneur not running another firm.

inelastic

the seller pays a larger share of the tax, the more ___ is the *supply* of the good.

Herfindahl-Hirschman Index

the square of the percentage market share of each firm summed over the largest 50 firms in a market.

i. Since the sellers cannot control the market price and since there are intense competitions among the sellers, the goods produced by the sellers are Identical or Homogenous.

types of goods in perfect competition

For versioning to work, the marginal cost of the products offered to different consumers need NOT be equal. The only requirement: the markup must be higher for the segment with the less elastic demand.

versioning requirements

breakeven point

volume level that separates the range with economic loss from the range with economic profit