Econ Exam 2 Review
If the market price is $25, the average revenue of selling five units is
$25.
Golda Rush quit her job as a manager for Home Depot to start her own hair dressing salon, Goldilocks. She gave up a salary of $40,000 per year, invested her savings of $30,000 (which was earning 5 percent interest) and borrowed $10,000 from a close friend, agreeing to pay 5 percent interest per year. In her first year, Golda spent $18,000 to rent a salon, hired a part-time assistant for $12,000 and incurred another $15,000 on equipment and hairdressing material. Based on this information, what is the amount of her implicit costs?
$41,500
Assume an industry contains four firms and has a Herfindahl-Hirschman Index equal to 3,450. If three of the firms have market share of 50%, 25%, and 10%, respectively, what is the market share of the remaining firm?
15%
What is the value of the Herfindahl-Hirschman Index in Scenario 1 and how is the industry categorized?
1700; moderately concentrated
Which of the following is involved in a competitive firm's short run decision?
Choosing a rate of output using existing plant and equipment
Suppose you have a fixed amount of income to spend on two goods, X and Y. The price of good X is Px = $10 and the price of good Y is Py = $5. The marginal utility of X is MUx = 60 utils and the marginal utility of Y is MUy = 15 utils. How should consumption of X and Y change, if at all, to increase utility?
Consumption of good X should increase, and consumption of good Y should decrease.
A monopolist sets price at a point on the _____, corresponding to the rate of output determined by the intersection of ____.
Demand; marginal revenue and marginal cost
Both buyers and sellers are price takers in a perfectly competitive market because
Each buyer and seller is too small relative to others to independently affect the market price.
Which of the following is a characteristic shared by a perfectly competitive firm and a monopoly?
Each maximizes profits by producing a quantity for which marginal revenue equals marginal cost.
If an increase in the size of a factory results in reductions in minimum average total costs, this is known as:
Economies of scale
Which of the following is true for a monopolist?
Profit is maximized where marginal cost equals marginal revenue.
Suppose a perfectly competitive firm increases its output. In order to sell this additional output, the firm:
Should price it at the market price
Which of the following is a characteristic of stock?
Stock represents ownership in a firm
A merger between two large airlines, such as American Airlines and U.S. Airways
Would not be allowed by the Federal Trade Commission if the merger reduced competition.
Which of the following is an example of a way in which a firm in oligopoly can escape the prisoner's dilemma?
advertising that it will match its rival's price
Marginal cost (MC) will equal average total cost (ATC) at the point where the:
average total cost is the lowest.
The prices per pound of apples, pears, and grapes are $1.50, $2, and $2.50, respectively. Clara's marginal utils for the last pound bought of each is: 30 MU for apples, 35 MU for pears, and 60 MU for grapes. If Clara wants to maximize utility out of her limited budget for fruit, she should:
buy more grapes and fewer pears
Hannah owns an auto repair shop. She has incurred over $100,000 in startup costs (sunk costs) and currently faces fixed costs of $5,000 per month. She also has labor costs equal to $3,000 per month. Hannah earns revenue of $10,000 per month. Given this information, Hannah should:
continue to run her business since she is making a profit of $2,000.
Marta takes her 72-year-old mother and her 11-year-old son to the local water park. Marta pays $12 for her ticket, $8 for her mother's senior citizen ticket, and $6 for her son's children's ticket. This is an example of:
third-degree price discrimination.
Suppose a monopoly firm produces software and can sell 10 items per month at a price of $50 each. In order to increase sales by one item per month, the monopolist must lower the price of the software by $1 to $49. The marginal revenue of the 11th item is:
$39
Wendy leaves her job as a dancer to start her own dance studio. As a dancer, she made $34,000 per year. During the studio's first year she paid $4,300 per year for insurance, $1,846 for music and licensing fees, $150 for a boom box, and $11,300 for rent and utilities. She received $60,480 in tuition payments. Wendy's economic profit was:
$8,884.
Which of the following might be used to protect a monopoly from competition?
A patent
How do a sole proprietorship and a corporation differ?
All of these are differences between the two types of businesses.
Even though the U.S. became a net exporter of oil in 2020 and 2021, it still imported about ______ of the oil needed to meet the demands of domestic consumption.
40%
A monopolist practicing first-degree price discrimination
Captures all consumer surplus.
If a seafood restaurant can raise the price of its fried shrimp without losing all of its customers, then the restaurant definitely
Has market power
If, for a perfectly competitive firm, price exceeds the marginal cost of production, the firm should
Increase its output.
Which of the following is a clear example of the law of diminishing marginal utility?
Julia eats three cookies. She takes 20 seconds to eat the first one, 1 minute to eat the second one, and 3 minutes to finish the third one.
A perfectly competitive firm produces 3,000 units of a good at a total cost of $36,000. The price of each good is $10. Calculate the firm's short-run profit or loss.
Loss of $6,000
The price of a seller's product in perfect competition is determined by
Market demand and market supply.
Is a monopolistically competitive firm allocatively efficient?
No, because price is greater than marginal cost.
Red Stone Creamery currently hires 5 workers. When it added a 6th worker, its output actually fell. Which of the following statements is true?
The marginal product of the sixth worker must be negative
Which of these is NOT an example of price discrimination?
a novel printed in paperback that sells for more than the same book in an electronic format
If average total cost is rising, then marginal cost must be __________ average total cost and marginal cost must be __________:
above; rising
The explicit cost of production is also called
accounting cost
Which of the following is an implicit cost of production?
amount that could have been earned elsewhere from the firm's financial capital
Which of these is the BEST example of a natural monopoly?
an electric utility company
An asset is
anything of value owned by a person or a firm.
If total utility increases at a decreasing rate as a consumer consumes more coffee, then marginal utility must
decrease
When the producer of Doritos tortilla chips spends money for television commercials, it intends to shift the:
demand curve to the right and make demand less elastic.
Monopolistically competitive markets and perfectly competitive markets do NOT share which characteristic?
differentiated products
Marginal utility is the
extra satisfaction received from consuming one more unit of a product.
If a firm faces a downward-sloping demand curve,
it must reduce its price to sell more units.
The price of a mango is $2 and a farmer sells 2,000 mangos. However, the costs to the farmer are $400 for labor, $1,600 for rent, and $2,000 for advertising. Based on the above information, the farmer:
makes $4,000 in total revenue
All of these are examples of implicit costs, EXCEPT:
office rent expenses.
Firms in _____ markets have a more difficult time applying the profit-maximization rule than firms in other markets because _____.
oligopoly; the firm's demand curve depends on the decisions of rival firms
If a producer is not able to expand its plant capacity immediately, it is
operating in the short run
Which of the following is a fixed cost?
payment to hire a security worker to guard the gate to the factory around the clock
The machines workers have to work with are considered
physical capital
If a competitive firm can sell steel for $500 a ton, has an average variable cost of $400 a ton, and a marginal cost of $600 a ton, the firm should:
reduce output.
A corporation is owned by its
stockholders
The marginal product of labor is defined as
the additional output that results when one more worker is hired, holding all other resources constant.
If a consumer always buys goods rationally, then
the marginal utility per dollar spent on all goods will be equal.
Who controls a partnership
the owners
If marginal utility is negative, what must be true about total utility?
Total utility decreases with additional consumption.
The top eight firms in an industry control, respectively, 15%, 10%, 9%, 8%, 7%, 6%, 5%, and 4% of the industry. What is the four-firm concentration ratio?
42
If a consumer receives 20 units of utility from consuming two candy bars, and 25 units of utility from consuming three candy bars, the marginal utility of the third candy bar is
5 utility units.
Which of the following is not true for a monopoly?
It is a price taker
Jiro and his wife Mariko are both employed. When Jiro loses his job, what happens to the household's budget line?
It shifts inward to a new line that is parallel to the original budget line.
Since a monopoly has market power,
Its marginal revenue curve is below its demand curve
Which of these shows characteristics of a perfectly competitive firm?
JorDawn cannot tell which farm the peaches he purchased came from because all the peaches look alike.
Knoxville Utilities Board (KUB) is responsible for electricity distribution in Knoxville. Which of the following statements is true
KUB is a monopoly due to economies of scale.
If Callum is consuming his utility maximizing bundle and the price of one good rises, what happens to the marginal utility per dollar spent on this good (MU/P), and what should Callum do?
MU/P has decreased and Callum should buy less of this good
Ian owned his own dry cleaning shop, but he later sold it to his cousin Norman. Norman incorporated the business and is the only stockholder. Which of these is the MOST likely reason for the incorporation?
Norman wanted to have limited liability.
Assume there is a budget line with bagels on the vertical y-axis and bananas on the horizontal x-axis. What happens to the budget line when the price of bagels rises and the price of bananas falls?
The budget line rotates to have a flatter slope.
Which of these is NOT true about the demand curve of a monopolist?
The demand curve is perfectly elastic.
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?
The equilibrium price is likely to decrease and profits are likely to decrease.
Suppose a perfectly competitive firm is in the following situation: P = $8, output = 4,000, ATC = $8, AVC = $6, and MC = $8. Which statement accurately describes the firm's and the market's situation?
The firm incurs a normal profit; the market is in a long-run equilibrium
Suppose a perfectly competitive firm faces the following situation: P = $8, output = 2,000, ATC = $6.50, and MC = $8. Which statement is an accurate description of the firm's situation?
The firm is maximizing profits.
Assume that a monopolistically competitive firm faces the following situation: P = $16, output = 9,000 units, MC = $11, ATC = $10, AVC = $7, and MR = $14. Which statement is correct regarding profit maximization?
The firm would earn more profits by increasing output.
A very large number of small sellers who sell identical products imply
The inability of one seller to influence price.
Competition in a market results in:
The optimal mix of goods and services being produced
Which of the following is not a characteristic of a perfectly competitive market structure?
There are restrictions on exit of firms.
If a perfectly competitive firm produces and sells more output, its will definitely increase.
Total revenue
The average total cost of production
equals total cost of production divided by the level of output.
Productive efficiency is achieved when
firms produce goods and services at the lowest cost
Although the owners of a theme park want to sell tickets for $80, they announce a general admission price of $100 per day. However, the owners of the theme park make available tickets that have a $20 discount on tickets available online, in grocery stores, and in banks. Thus, very few people pay the full general admission price. The field of behavioral economics would call this pricing an effort to sell more due to
framing bias
If a cartel member is considering cheating in order to earn profits, it should:
increase the quantity it sells at the quota price.
Two different markets each have many buyers and many sellers, none of which have market power. Which of these would be MOST helpful in determining whether each market is monopolistically competitive or perfectly competitive?
information on the degree of product differentiation in each market
A characteristic found only in oligopolies is
interdependence of firms.
