Econ Test 2
_________ collusion can occur even when oligopolistic businesses do not directly communicate with each other.
Implicit
What word describes the goods and services that are used to produce outputs for a business?
Inputs
The goods or services purchased by a business for immediate use in the production process are known as
Intermediate inputs
Theodore can make 6 pizzas in one hour. If Theodore's labor has a diminishing marginal product, what must be true about the number of pizzas that Theodore can make in three hours?
It must be less than 18.
The total cost of production is determined by adding which of the following costs?
Labor, capital and land, intermediate inputs, and accumulating business know-how.
In a simple lawn-mowing business where you have a push mower and labor as input, by adding an additional input in the form of a gas self-propelled mower (capital), what would be the impact on output?
Output would increase
In the long run, monopolistic competition starts to look like
Perfect competition.
In perfect competition, P = MC means
Price equals marginal cost.
What is the economic process of turning inputs into outputs that a business will sell to customers?
Production
When a business expands production and increases sales, what generally happens to revenue?
Revenue rises because the business is selling more output.
The local department store used to be ___________ before technological change.
a monopoly
Outputs are always goods.
False
Perfect competition requires a nonstandard product.
False
The short-term cost function assumes that
Fixed costs can't be changed.
Think about a Starbucks coffee shop. Identify whether each of the following inputs is a fixed cost or a variable cost:
a) An espresso machine: Fixed Cost b) Electricity to run the machine: Variable cost c) The lease on the store: Fixed cost d) Workers: variable cost
An oligopoly occurs when there
are a few sellers in a market
Monopolies generally _____________ technology and globalization.
are reduced in number by
Inputs to production do NOT include
average product
Output divided by the number of hours worked or by the number of workers is called
average product
A __________ is anything that might make it more difficult for a competitor to enter a market.
barrier to entry
A ___________ makes it more difficult for a competitor to enter a market.
barrier to entry
If you add too many inputs, your business may experience
diminishing marginal product
Many times, technology is _____ in the equipment a company buys.
embodied
Businesses will generally shut down if they lose money for one or two years.
false
Marginal revenue is the additional revenue a business gets from producing or selling one more unit of input.
false
The marginal product is the extra amount of output a firm can generate by adding one more hour of labor (or one more worker).
false
When businesses have market power, they are able to charge a price higher than the price charged by a business in perfect competition. Thus the market power equilibrium on a diagram will be
higher and to the left of the perfect competition equilibrium
An example of variable costs is
hourly labor
One strategy for long-term profit maximization is
innovation
Inputs used by a business in the production process include
labor
The price of labor per unit times the amount of labor used is called
labor cost
Fixed costs are also known as __________ costs because they are much harder for a business to change.
long term
Which of the following is NOT an example of a barrier to entry?
lower costs
Compared to businesses with market power, businesses in perfect competition will charge __________ prices and sell __________ output.
lower; more
In perfect competition, a profit-maximizing business will expand until its _________ equals the market price.
marginal cost
_________ is the added cost to produce one more unit of output.
marginal cost
The added expense of producing one more unit of output is called the
marginal cost.
_____________ is the added revenue from producing and selling one more unit of output.
marginal revenue
A profit-maximizing business will increase production as long as
marginal revenue exceeds marginal cost
As the market price of a good rises, businesses will respond by producing more of that good because
marginal revenue exceeds marginal cost after the price increase.
All other things equal, a business making shirts would choose not to expand when
marginal revenue per shirt equals $7 and the marginal cost per shirt equals $10.
The additional money a business gets from producing and selling one more unit of output is
marginal revenue.
From World War II to the early 1970s, GM, Ford, and Chrysler enjoyed
market power
___________ is the ability to raise prices above the level perfect competition would produce by restricting the quantity supplied.
market power
Economists generally assume that the main goal of most businesses in the economy is to
maximize profits.
In general, as markets have
more competition, production rises and costs fall over the long run
A _______ monopoly is an industry in which it makes economic sense to have only one provider.
natural
A good example of monopolistic competition is
neighborhood restaurants.
Average product is not as reliable an indicator of how a business is doing as it used to be because of
outsourcing labor.
The four main types of market structure are
perfect competition, monopolistic competition, oligopoly, and monopoly.
If music was perfectly competitive, then all performers would
play the same music and charge the same price for concerts.
Economists think of a business as a machine, where you put inputs in one end and get outputs from the other end. This metaphor is called the
production function.
Companies will often spend considerable amounts of money to create a ____________ in regards to their brand name.
reputation effect
___________ is the amount of money a company receives for selling its product or service.
revenue
Marginal cost generally ________ quantity produced.
rises with
Variable costs are also known as
short term costs
In short-run profit maximization, businesses focus on the ______, holding fixed costs constant.
short-term cost function
If all of the restaurants in a small town colluded and agreed to raise dinner prices, this would lead to a loss to society because
some dinners that could be served are not.
A business with market power may
sometimes use high profits to research new technologies.
Natural monopolies have been slowly eroded by
technological change.
In perfect competition, higher-cost businesses
tend to go out of business if unable to adjust.
Market power is
the ability to raise prices above the prices that would exist under perfect competition.
______ shows the potential cost for each level of output.
the cost function
The easiest way to have a monopoly today is
to have the government protect you.
A business can escape perfect competition by building a better, more innovative product.
true
A production function tells you, given the inputs, what the output will be.
true
Businesses have two types of cost: fixed and variable.
true
In a market with perfect competition, given enough time and no barriers to entry, profits will tend toward zero in the long run
true
In perfect competition, a profit-maximizing business will expand until its marginal cost equals the market price.
true
In perfect competition, if there are no barriers to entry, only the lowest-cost businesses survive over the long run.
true
Inputs for a business are the goods and services that it sells to its customers.
true
Marginal cost is the added expense of producing one more unit of output.
true
Marshall Field's and Sterns Department Stores are examples of low-cost producers in a perfect competition market.
true
Under the right circumstances, competition could be a win-win proposition for companies and consumers.
true
In the process of long-term profit maximization, the business makes decisions under the assumption that it can
vary all the inputs.
Which of the following is most likely to be sold in a perfectly competitive market?
wheat
Refer to Table 5.1, which gives Farmer McColl's marginal cost function for barley. If Farmer McColl is currently producing 20 bushels of barley, which of the following is the market price for a bushel of barley?
$0.60
Refer to Table 5.1, which gives Farmer McColl's marginal cost function for barley. If Farmer McColl is currently producing 25 bushels of barley, which of the following could be the market price for a bushel of barley?
$0.75
A business has revenues of $4 million per month and costs of $3 million per month. It's annual profits are
$12 Million
A business has revenues of $6 million per month and costs of $5 million per month. It's annual profits are
$12 million
If a local car dealership can sell 8 cars per day at a price of $25,000 each, but must reduce the price to $24,000 to sell one more car, what is the marginal revenue of the 9th car?
$16,000
If a local diner can sell 50 burgers per day at a price of $5 each, but must reduce the menu price to $4.95 to sell one more burger, what is the marginal revenue of the 51st burger?
$2.45
If Sara can produce 25 muffins for a total cost of $15, but her production process is subject to increasing marginal costs, which of the following could be the total cost of producing 100 muffins?
$80
What is the average labor productivity of AEP (in megawatt-hours per worker)?
10842.1
Refer to Table 5.1, which gives Farmer McColl's marginal cost function for barley. Suppose Farmer McColl is one of 20 farmers in the barley market, and all of the farmers have identical marginal cost functions. If the market price of barley is $1.00 per bushel, which of the following could be the total amount of barley produced in the market?
700
Which of the following is an example of a profit-maximizing business?
An accountant who makes her living preparing tax returns for other people.
Refer to Table 5.1, which gives Farmer McColl's marginal cost function for barley. If the current market price for barley is $1.00 per bushel, how much barley should Farmer McColl produce?
Between 30 and 40 bushels.
If June can earn $1,500 in revenue from painting two houses, how much can she earn in revenue from painting three houses? (Assume she is just one housepainter in a large market of housepainters, and that she can easily find a third customer.)
Exactly $2,250
Revenue is the money that customers pay for the output of a business.
True
Complete the following statements with the correct answer.
a) Standardized products are easy to compare. b) Markets with one or two sellers are less likely to be perfectly competitive. c) Buyers and sellers in a perfectly competitive market need information about prices so they can find the current market price.
In 2008 the cost of oil soared, and so did the cost of jet fuel. In response, American Airlines announced in May of that year that it was cutting some routes and reducing the frequency of flights on other routes.
a) a fixed cost for a flight that will fly b) lower fuel costs c) partially filled flights because these have a higher average cost d) increase the number of flights because the marginal cost of adding a flight would be lower
a) Fill in the table with the appropriate marginal product and average product for each level of hiring. b) Graph the production function. c) Suppose the office buys a new type of MRI machine that scans faster. The production function will
a)Marginal Product = number of scans - number of technicians / number of technicians Average product = number of scans / number of technicians c)shift upward
You are running a restaurant under conditions of monopolistic competition. Explain how each of the following affects the demand schedule you face.
a)demand shifts left b)demand shifts right c)demand shiftsrright
a) Clearly Google is the choice of many people for searching. If Google started charging for searches, the demand for its services would b) Does Google have market power in the market for searches, as defined in this chapter? c) Google does charge advertisers for placing their ads next to related searches. For example, if you search for "Toyota," you will see car-related ads. Does Google have market power in the market for advertising? d) Suppose Google had 100 percent of the online search market (perhaps by buying up Microsoft and Yahoo!). Would Google be able to raise the price it charges advertisers?
a)go down, but by how much is indeterminate. b)No, because they have not raised to the price to provide the needed evidence. c)No, because there are many other advertising outlets. d)Yes, because any firm wanted this type of advertising would have to use Google.
a) Apples in the grocery store b)Plane tickets from New York to Seattle c)Tickets to a professional football game in your town d)Passenger train service
a)many sellers b)many sellers c)few sellers d)few sellers
a) If one of the hair salons goes out of business, in the short run the market supply curve will b) The price of haircuts sold will c) The number of haircuts sold will
a)shift to the left b)increase c)decrease
Someone wants to open a new restaurant in town. Identify which of the following would be a barrier to entry.
a)would b)would not c)would d)would not e)would
An example of an oligopoly is the
airline industry
If two or more oligopolistic companies work together to keep their prices high and split the market between them, this is called
collusion.
What word describes the money that a business pays for its inputs?
cost
