Econ After Midterm Questions

If a variable input is added to some fixed input, beyond some point the resulting extra output will decline.

This statement describes the law of diminishing returns.

Pure monopoly refers to

a single firm producing a product for which there are no close substitutes.

Marginal cost can be defined as the

change in total cost resulting from one more unit of production.

Broadly defined, technological advance

comprises new and improved goods and services and/or new and improved ways of producing or distributing them.

To the economist, total cost includes

explicit and implicit costs.

Pure monopoly is the best market structure for encouraging R&D and innovation.

false

Which is a major criticism of a monopoly as a source of allocative inefficiency?

A monopolist fails to expand output to the level where the consumers' valuation of an additional unit is just equal to its opportunity cost.

A pure monopolist will maximize profits by producing at that output where price and marginal cost are equal.

False

Which of the following distinguishes the short run from the long run in pure competition?

Firms can enter and exit the market in the long run but not in the short run.

To economists, the main difference between the short run and the long run is that

in the long run all resources are variable, while in the short run at least one resource is fixed.

U.S. firms collectively devote the largest portion of their total R&D spending to

innovation and diffusion.

A profit-maximizing firm should not undertake an R&D project for which the

interest-rate cost of funds exceeds the expected rate of return.

The modern view of technological advance is that it

is an internal element of capitalism, occurring in response to profit incentives.

The marginal revenue curve of a purely competitive firm

is horizontal at the market price.

The nondiscriminating monopolist's demand curve

is less elastic than a purely competitive firm's demand curve.

The nondiscriminating pure monopolist's demand curve

is the industry demand curve.

As it relates to the R&D decision, the interest-rate cost-of-funds curve

is the marginal cost element in the MB = MC decision framework.

In the short run, the individual competitive firm's supply curve is that segment of the

marginal cost curve lying above the average variable cost curve.

If a purely competitive firm is producing at the MR = MC output level and earning an economic profit, then

new firms will enter this market.

Pure monopolists may obtain economic profits in the long run because

of barriers to entry.

The total product curve graphically shows how much

output the firm can produce with various quantities of its variable input.

One major barrier to entry under pure monopoly arises from

ownership of essential resources.

The demand schedule or curve confronted by the individual, purely competitive firm is

perfectly elastic.

In the accompanying diagram, at output C, production will result in an economic profit.

true

In the long run for a purely competitive market, firms will earn only normal profits.

true

Marginal revenue is the addition to total revenue resulting from the sale of one more unit of output.

true

Which of the following will not hold true for a competitive firm in long-run equilibrium?

P equals AFC.

Which of the following is not a barrier to entry?

X-inefficiency

A purely competitive seller is

a "price taker."

Fixed cost is

any cost that does not change when the firm changes its output.

The MR = MC rule

applies both to pure monopoly and pure competition.

The MR = MC rule can be restated for a purely competitive seller as P = MC because

each additional unit of output adds exactly its price to total revenue.

The primary force encouraging the entry of new firms into a purely competitive industry is

economic profits earned by firms already in the industry.

Long-run adjustments in purely competitive markets primarily take the form of

entry or exit of firms in the market.

The corporate decision on type and level of R&D activity is difficult because

expected returns lie in the future and are highly uncertain.

The marginal benefit to a firm from its R&D expenditures is depicted by its

expected-rate-of-return curve.

Production costs to an economist

reflect opportunity costs.

Long-run competitive equilibrium

results in zero economic profits.

As it relates to R&D, a firm's expected-rate-of-return-curve, r,

slopes downward because the firm arrays, highest to lowest, the rates of return on R&D activities.

Marginal product is

the change in total output attributable to the employment of one more worker.

In a purely competitive industry,

there may be economic profits in the short run but not in the long run.

The MR = MC rule applies

to firms in all types of industries.

The law of diminishing returns explains why short-run marginal cost curves are upsloping.

true

The theory that R&D expenditures as a percentage of firms' sales first rise, reach a peak, and then fall with increases in industry concentration is called the inverted-U theory of R&D.

true

Variable costs are costs that change directly with output

true

In the short run, a purely competitive firm that seeks to maximize profit will produce

where total revenue exceeds total cost by the maximum amount.