Econ Final

When a firm becomes so large it is difficult to coordinate and control, it is most likely that

diseconomies of scale have begun

The fact that diamonds have a much higher price than water

does not violate the rules of utility maximization because water's marginal utility is low.

The demand curve for a monopoly is

downward sloping

The short run is the time frame

during which the quantities of some resources are fixed.

A firm's total revenue minus its total opportunity cost is called its

economic profit

When a perfectly competitive industry is taken over by a monopoly, some consumer surplus is transferred to the monopolist in the form of

economic profit

In the used car market, with a pooling equilibrium the price of a lemon is ___ the price of a good used car and with a seperating equilibrium the price of a lemon is __ the price of a good used car

equal to; less than

Screening

explains why insurance companies offer low-premium, high deductible policies and high-premium, low-deductible policies.

A perfectly competitive market is in equilibrium and then demand decreases. The decrease in demand means the market price will___ and eventually there will be ___

fall; exit by existing firms

Advertising is a ___ cost that is incurred by ___

fixed; monopolistically competitive firms

If you have found the percentage of the value of total revenue accounted for by the four largest firms in an industry, you have found the

four-firm concentration ratio

The main source of economics of scale is

greater specialization of both labor and capital

For a monopolistically competitive firm, the demand curve

has a negative slope

The good produced by a monopoly

has no close substitutes

As more of a good is consumed, total utility

increases

A consumption point inside the budget line

is possible to afford but has some unspent income

Assume someone organizes all farms int he nation into a monopoly. What is the monopoly's marginal cost curve?

it is the formerly competitive industry's supply curve.

If a monopolistically competitive sellers marginal cost is $3.56, the firm will increase its output if

its marginal revenue is more than $3.56

To produce more output in the short run, a firm must employ more of

its variable resources.

An industry with a large number of firms, differentiated products, and free entry and exit is called

monopolistic competition

Which of the following market types has the fewest number of firms?

monopoly

Suppose a consumer has $100 to spend on two goods, shoes and shirts. If the price of a pair of shoes is $20 per pair and the price of a shirt is $15 each, which of the following combinations is unaffordable to the consumer?

0 pairs of shoes and 7 shirts

Adverse selection is created by

private information

One of the major benefits to society of monopolistic competition is

product differentiation

Product differentiation allows a firm to compete with another firm on the basis of

quality, price, and marketing

A budget line shows the

quantities of goods a buyer can purchase with given income and prices.

In the market for auto insurance, in a separating equilibrium,

risky drivers pay a larger premium than do safe drivers for insurance.

If one of the products a consumer buys rises in price, the consumer's budget line will

rotate inward, closer to the origin.

Suppose Alice spends her budget on books and downloaded movies. If her budget does not change and the price of a book stays the same but the price of a downloaded movie falls, her budget line

rotates outward and its slope changes

A price-discriminating monopoly is a monopoly that

sells different units of a good or service at different prices.

Lauren runs a chili restaurant in San Francisco. Her total revenue last year was $110,000. The rent of her restaurant was $48000, her labor costs were $42000, and her materials, food and other variable costs were $24000. Lauren could have worked as a biologist and earned $50,000 per year. An economist calculates her implicit costs as

$50,000

For Jack, the total utility from three shirts is 50 units and the marginal utility of one more shirt is

55

Which of the following is FALSE?

Fixed costs increase in the long run

Which of the following is always true for a single-price monopolist?

P > MR

When a firm maximizes its profit, which of the following is correct for firms in monopolistic competition and perfect competition?

P=MR=MC for firms in perfect competition and P>MR=MC for firms in monopolistic competition.

Which of the following statements is correct?

The slope of the budget line shows the opportunity cost of the good measured along the x-axis

Your grade point average acts as ___ to potential employers?

a signal

When compared to a perfectly competitive market, a single-price monopoly with the same costs produces___ output and charges ___ price.

a smaller; a higher

Used cars buyers believe a car is good quality when the seller signals the car's quality by offering a warranty because

a warranty on a lemon is costly to the seller.

Which of the following statements about price discrimination is false?

all forms of price discrimination are illegal

The utility-maximizing rule rays that consumers must

allocate the entire available budget and make the marginal utility per dollar the same for all goods.

A cost paid in money is

an explicit cost and an opportunity cost

A firm in monopolistic competition is similar to a firm in perfect competition because they both

can make only zero economic profit in the long run.

A differentiated product has

close but not perfect subsititues

In a month, Samantha consumes the quantity of lobster dinners so that her marginal utility from a lobster dinner is 500 units. The price of a lobster dinner is $25. She also is consuming the quantity of spaghetti dinners so that its marginal utility is 300 units, while its price is $15. Samantha is allocating her entire budget. What should she do to maximize her total utility?

consume the current combination of lobster and spaghetti dinners

A single-price monopoly transfers

consumer surplus to producers

If a perfectly competitive seller is maximizing profit and is making zero economic profit, which of the following will this seller do?

continue at the current output, making zero economic profit

If Melissa owns a software company that incurs no fixed costs, then

her total cost equals her total variable cost

A safe drive is likely to prefer an auto insurance policy that has a ___ deductible and ___ premium

high;low

Technology reduces the average cost of production, so in the long run.

i, ii, iii i. perfectly competitive firms produce at a lower average cost. ii. the market price of the goods falls. iii. firms with older plants either exit the market or adopt the new technology.

If a perfectly competitive firm is maximizing its profit and is making an economic profit, which of the following is correct?

i, ii, iii i. price equals marginal revenue ii. marginal revenue equals marginal cost iii. price is greater than average total cost

Which of the following is a legal barrier to entry?

i., ii, iii, i. public franchise ii. government license iii. patent

What is the difference between perfect competition and monopolistic competition?

in perfect competition, firms produce identical goods, while in monopolistic competition, firms produce slightly different goods.

In the long run, perfectly competitive firms will exit the market if the price is

less than average total cost

Which of the following firms is most likely to be a monopoly?

local distributor of natural gas

The long run is a time period that is

long enough to change the size of the firm's plant and all other inputs.

The change in cost that results from a one-unit increase in output is called the

marginal cost

For a perfectly competitive syrup producer whose average total cost curve does not change, an economic profit could turn into an economic loss if the

market demand for syrup decreases

A firm in monopolistic compeition

might be selling a brand name product

In the long run, advertising by all firms in a monopolistically competitive industry

might increase or decrease the firms' prices.

Which of the following market types has only a few competing firms?

oligopoly

Private information is a situation in which

one party to an exchange has information that is not available to the other.

When an economist uses the term "cost" referring to a firm, the economist refers to the

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

Suppose that there are only two types of used cars, peaches and lemons. Peaches are worth $10,000 and lemons are worth $4,000. Without effective signals such as warranties, the owners of peaches cannot sell their cars for $10,000 because the

owners of peaches cannot convince buyers that their cars are worth $10,000.

Adverse selection is the tendency for people who accept contracts to be those who

plan to use private information to the disadvantage of the less well-informed party

When new firms enter the perfectly competitive Miami bagel market, the market

supply curve shifts rightward

A natural barrier to entry is defined as a barrier that arises because of

technology that allows one firm to meet the entire market demand at lower average total cost than could two or more firms.

The idea of an insurance company "pooling" the risk means that

the risk is spread over a large population

The price charged by a perfectly competitive firm is

the same as the market price

The market supply in the short run for the perfectly competitive industry is

the sum of the supply schedules of all firms

In monopolistic competition, each firm supplies a small part of the market. This occurs because

there are a large number of firms.

A single- price monopoly faces a linear demand curve. if the marginal revenue for the second unit is $20, then the marginal revenue for the

third unit is less than $20

In the market for automobile insurance, moral hazard implies that

those who are insured might take greater risks.

Moral hazard is

when one of the parties to an agreement has an incentive after the agreement is made to act in a manner that brings additional benefits to himself or herself at the expense of the other party.

If a consumer has allocated his or her budget and found the combination of goods where all marginal utilities divided by price are equal, what would happen if the consumer were forced to consume some other combination of goods? The consumer

will definitely have lower total utility.