Economics

If marginal cost exceeds average total cost in the short run, then which is likely to be true? Average total cost is increasing. Average total cost is less than average variable cost. Average variable cost is decreasing. Marginal cost is less than average variable cost.

Average total cost is increasing

The ability of Intel to spread product development cost over a larger number of units of output arises from diseconomies of scale. minimum efficient scale. constant returns to scale. economies of scale.

economies of scale.

In which market model is there mutual interdependence? pure competition monopolistic competition pure monopoly oligopoly

oligopoly

Suppose that the market for corn is perfectly competitive. If corn farmers are currently generating losses, then we would expect that in the long run the market demand curve will shift to the left. supply curve will shift to the left. supply curve will shift to the right. demand curve will shift to the right.

supply curve will shift to the left.

Which of the following statements is correct? Both perfectly competitive and monopolistic firms are price takers. A perfectly competitive firm is a price maker, while a pure monopoly is a price taker. Both perfectly competitive and monopolistic firms are price makers. A perfectly competitive firm is a price taker, while a pure monopoly is a price maker.

A perfectly competitive firm is a price taker, while a pure monopoly is a price maker.

In the long run, the economic profits for a monopolistically competitive firm will be slightly more than the profits of a purely competitive firm. slightly less than the profits of a monopolist. the same as the profits for a monopolist. the same as the profits for a purely competitive firm.

the same as the profits for a purely competitive firm.

A business owner makes 50 items by hand in 40 hours. She could have earned $20 an hour working for someone else. Her total explicit costs are $200. If each item she makes sells for $15, her economic profit equals: Instructions: Enter your answer as a whole number. If you are entering a negative number be sure to include a negative sign (-) in front of that number.

$-250

If a monopolist is able to increase the amount of product she sells from 400 to 420 units by lowering the price of that product from $50 to $45, her marginal revenue is: $-55. $55. $-1,100. $1,100.

$-55

Suppose that a firm produces 200,000 units a year and sells them all for $10 each. The explicit costs of production are $1,500,000 and the implicit costs of production are $300,000. The firm earns an accounting profit of __________ and an economic profit of __________. $500,000; $200,000 $500,000; $1,700,000 $1,700,000; $500,000 $1,700,000; $200,000

$500,000; $200,000

Use the following information to answer the next question. Harvey quit his job at State University where he earned $45,000 a year. He figures his entrepreneurial talent or forgone entrepreneurial income to be $5,000 a year. To start the business, he cashed in $100,000 in bonds that earned 10% interest annually to buy a software company, Extreme Gaming. In the first year, the firm sold 11,000 units of software at $75 each. Of the $75, $55 goes for the costs of production, packaging, marketing, employee wages and benefits, and rent on a building. The explicit costs of Harvey's firm in the first year were $655,000. $825,000. $605,000. $150,000.

$605,000

The table below shows the demand and total revenue for a monopolist. Fill in the "Marginal Revenue" column for the various prices and quantities. Instructions: Enter your answers as a whole number. Demand and Revenues Price (dollars) Quantity Demanded Total Revenue(dollars) Marginal Revenue (dollars) $50 30 $1,500 — 49 31 1,519 $ 48 32 1,536 47 33 1,551 46 34 1,564 45 35 1,575 44 36 1,584

19 17 15 14 11 9

Which of the following suppliers is most likely to be a monopolist? A cereal producer A water company A lettuce farmer A shirt producer

A water company

Use the following graph to answer the next question. To maximize profits, the perfectly competitive firm should produce output at B. C. A. K.

C

Which of the following is a barrier to entry? Diminishing marginal returns Infrastructure costs Buyers' incomes Close substitutes

Infrastructure costs

If curve (2) represents ATC and line (3) represents demand, then curve (1) and line (4) would be TC and TR, respectively. MC and MR, respectively. MC and TR, respectively. AVC and MR, respectively

MC and MR, respectively.

Which of the following is true under conditions of perfect competition? There are differentiated products. Each individual firm has the ability to set its own price. The market demand curve is perfectly elastic. No single firm can influence the market price.

No single firm can influence the market price

Use the following graph showing the demand and marginal revenue curves faced by a pure monopoly to answer the next question. If the pure monopoly wants to sell quantity Q1, it should charge P1. 0. a price not labeled on the graph. P2.

P1.

Which of the following is not a necessary characteristic of a perfectly competitive industry? Consumers see no difference between the product of one firm and that of another. Firms can easily enter or exit the industry. The industry or market demand is highly elastic. There are so many firms that none can influence market price.

The industry or market demand is highly elastic.

Which of the following is an example of an oligopolistic market with a standardized product? The market for jewelry The market for automobiles The market for aluminum The market for breakfast cereal

The market for aluminum

If the long-run average total cost curve for a firm is horizontal in a relevant range of production, then it indicates that there isn't a minimum efficiency scale. are diseconomies of scale. are constant returns to scale. are economies of scale.

are constant returns to scale.

Assume that in a monopolistically competitive industry, firms are earning economic profit. This situation will reduce the excess capacity in the industry as firms expand production. attract other firms to enter the industry, causing the existing firms' profits to shrink. make the industry allocatively efficient as each firm seeks to maintain its profits. cause firms to standardize their product to limit the degree of competition.

attract other firms to enter the industry, causing the existing firms' profits to shrink.

Monopolistic competitive firms are productively inefficient because production occurs where price is greater than marginal revenue. marginal cost is not at its lowest. average total cost is not at its lowest. marginal cost is less than price.

average total cost is not at its lowest.

If monopolistically competitive firms in an industry are making an economic profit, then new firms will enter the industry and the product demand facing existing firms will become less elastic. decrease. increase. not be affected.

decrease.

A decrease in the long-run average total cost as output increases is due to a declining average fixed cost. the law of diminishing returns. externalities. economies of scale.

economies of scale.

Imagine that a firm expands the size of its plant, doubling its total cost of production but more than doubling its output. This situation is known as economies of scale. diseconomies of scale. constant returns to scale. a violation of the law of diminishing returns.

economies of scale.

In perfect competition, the demand faced by a single firm is perfectly elastic, because many other firms produce the same standardized product. inelastic, because many other firms produce the same standardized product. inelastic, because the firm produces a differentiated product. elastic, because the firm produces a differentiated product.

elastic, because many other firms produce the same standardized product.

In long-run equilibrium, a perfectly competitive firm will operate where price is equal to MR, MC, and the minimum ATC. greater than MR and MC, but equal to the minimum ATC. greater than MR but equal to MC and the minimum ATC. greater than MC and the minimum ATC, but equal to MR.

equal to MR, MC, and the minimum ATC.

In the long run, the representative firm in monopolistic competition tends to have a perfectly elastic demand curve. excess capacity. economic profits no product differentiation.

excess capacity.

To an economist, the economic costs associated with the use of resources include implicit, but not explicit, costs. explicit and implicit costs. explicit, but not implicit, costs. neither implicit nor explicit costs.

explicit and implicit costs.

A monopolistically competitive firm's marginal revenue curve is downward-sloping and lies below the demand curve. is downward-sloping and coincides with the demand curve. does not exist because the firm is a "price maker." coincides with the demand curve and is parallel to the horizontal axis

is downward-sloping and lies below the demand curve.

The marginal revenue curve faced by a perfectly competitive firm lies below the firm's demand curve. is downward sloping, because price must be reduced to sell more output. is horizontal at the market price. has all of these characteristics.

is horizontal at the market price.

A pure monopoly will find that marginal revenue _____. is less than price exceeds price is identical to price is sometimes greater and sometimes less than price

is less than price

An industry in which the firm's cost structures do not vary with changes in production will have a long-run supply curve that is perfectly inelastic. is perfectly elastic. slopes downward. slopes upward.

is perfectly elastic.

In many large U.S. cities, taxicab companies operate as near monopolies because of_____. economies of scale strategic pricing licenses patents

licenses

If a firm is a price taker, then the demand curve for the firm's product is perfectly elastic. unit elastic. equal to the total revenue curve. perfectly inelastic.

perfectly elastic.

If a firm is a price taker, then the demand curve for the firm's product is perfectly inelastic. unit elastic. equal to the total revenue curve. perfectly elastic.

perfectly elastic.

Which idea is inconsistent with perfect competition? a large number of buyers and sellers price-taking behavior product differentiation freedom of entry or exit for firms

product differentiation

Which of the following is a characteristic of monopolistic competition? absence of nonprice competition relatively easy entry standardized product a relatively small number of firms

relatively easy entry

Suppose some firms exit an industry characterized by monopolistic competition. We would expect the demand curve of a firm already in the industry to remain the same since entering firms serve other customers in the market. shift to the right. shift to the left. become less elastic.

shift to the right.

In the long run, the economic profits for a monopolistically competitive firm will be slightly more than the profits of a purely competitive firm. slightly less than the profits of a monopolist. the same as the profits for a purely competitive firm. the same as the profits for a monopolist.

the same as the profits for a purely competitive firm.

A young Thomas Edison produces and sells 20 light bulbs a week in his dorm room. The parts for each light bulb cost $2.00. He sells each light bulb for $5.00. General Electric offers Thomas an executive job that pays $50.00 a week. Thomas's weekly economic profit from making light bulbs is equal to: Instructions: Enter your answer as a whole number.

$ 10 Correct Explanation Edison has explicit costs of $40 (20 × $2) for materials. In addition, there is an implicit cost since he cannot take the offer to work as an executive, so he forgoes income of $50. This is an implicit cost because it does not involve a payment now or in the future. Economic profit is the difference between revenue (20 × $5 = $100) and economic cost, which is the sum of explicit and implicit costs ($40 + $50 = $90). Edison makes an economic profit of $10 ($100 - $90).

Barney decides to quit his job as a corporate accountant, which pays $10,000 a month, and goes into business for himself as a certified public accountant. He runs his business from his converted garage apartment, which he could rent out for $300 a month if he wasn't using it as a home office. He must purchase office supplies worth $75 a month, and his monthly electricity bill has increased by $50 now that he is working out of his home office. After six months of working from home, Barney has earned an average of $12,000 per month. Instructions: Enter your answers as a whole number. a. What are Barney's average monthly accounting profits? b. What are Barney's average monthly economic profits?

$ 11,875 $ 1,575 Explanation a. Office supplies ($75) and electricity ($50) are considered explicit costs because they involve a payment. Therefore, explicit costs are $125 ($75 + $50). Accounting profit is the difference between revenue ($12,000) and explicit costs ($125). b. In addition, there are implicit costs. Barney works out of his garage apartment and cannot rent his garage apartment. He also does not have the time to work at his regular job. Therefore, he forgoes rent ($300) and income ($10,000). These are implicit costs because they do not involve a payment now or in the future ($300 + $10,000). Economic profit is the difference between revenue ($12,000) and economic cost, which is the sum of explicit and implicit costs ($10,425). Therefore, economic profit is $1,575 ($12,000 - $10,425).

he table below shows the marginal revenue and costs for a monopolist. Demand, Costs, and Revenues Price (dollars) Quantity Demanded Marginal Revenue (dollars) Marginal Cost (dollars)Average Total Cost (dollars)$130200$110$25$139.001203009032103.30110400704087.50100500505080.0090600306277.0080700107777.00 What is the monopolist's profit at the profit-maximizing level of output? $0 $50,000 $10,000 $80,000

$10000

Suppose that you could either prepare your own tax return in 15 hours or hire a tax specialist to prepare it for you in 2 hours. You value your time at $11 an hour; the tax specialist will charge you $55 an hour. The opportunity cost of preparing your own tax return is rev: 06_26_2018 Multiple Choice $55. $40. $110. $165.

$165.

If you know that total fixed cost is $200, total variable cost is $600, and total product is 4 units, then average total cost must be $200. $800. $3,200. $250.

$200

If you know that total fixed cost is $200, total variable cost is $600, and total product is 4 units, then average total cost must be $200. $800. $250. $3,200.

$200

Use the following information to answer the next question. Harvey quit his job at State University where he earned $45,000 a year. He figures his entrepreneurial talent or forgone entrepreneurial income to be $5,000 a year. To start the business, he cashed in $100,000 in bonds that earned 10% interest annually to buy a software company, Extreme Gaming. In the first year, the firm sold 11,000 units of software at $75 each. Of the $75, $55 goes for the costs of production, packaging, marketing, employee wages and benefits, and rent on a building. What is the accounting profit generated by Extreme Gaming in the first year? $220,000 $160,000 $5,000 $780,000

$220,000

If you know that when a firm produces 8 units of output, average fixed cost is $12.50 and average variable cost is $81.25, then the average total cost associated with this output level is $750.00. $97.78. $93.75. $880.00

$750.00.

Answer the next question on the basis of the following data. OutputTotal Cost 0 $10 1 20 2 28 3 38 4 53 5 73 6 98 The average variable cost of producing 3 units of output is $10.00. $38.00. $9.33. $12.67.

$9.33

Use the following table to answer the next question. Output Plant 1 Plant 2 Plant 3 Plant 4 1,500 $10 $15 $20 $30 2,000 8 12 17 25 2,500 9 10 15 20 3,000 12 8 13 18 3,500 15 6 11 16 4,000 18 10 9 14 4,500 20 12 7 12 5,000 24 15 11 10 5,500 29 19 13 8 6,000 35 25 15 9 Plant sizes get larger as you move from Plant 1 to Plant 4. In the long run, the firm should use Plant 3's size for what level of output? 4,000 to 4,500 units Less than 3,000 units 3,000 to 3,500 units 5,000 to 5,500 units

4,000 to 4,500 units

Marginal revenue and marginal cost intersect at point d. a. b. c.

A

At the profit-maximizing level of output, the profit earned by the perfectly competitive firm is given by the area ABGH. ACFH. 0AHE. BCFG.

ABGH

Which of the following best represents the pricing behavior of firms in an oligopolistic market? Looking Over Your Shoulder Handbag Co. chooses the price it charges by estimating what its rivals are most likely to do and then taking their responses into consideration. Teen Angle Hardware looks for a niche to sell its hardware products to teens but finds it difficult to earn anything more than normal profits due to other hardware stores also looking for niches. Stay*Put Clothespins takes the market price of clothespins as given and produces the amount of clothespins where marginal revenue equals marginal cost. Unykdrugs, Inc. produces where its marginal revenue is equal to its marginal cost and prices on its downward-sloping demand curve such that the market for its product clears, knowing it will not face competition due to patents it holds on its products.

Looking Over Your Shoulder Handbag Co. chooses the price it charges by estimating what its rivals are most likely to do and then taking their responses into consideration.

Which of the following markets is most likely to be perfectly competitive? The market for touring motorcycles The market for mushrooms The market for Three Musketeers candy bars The market for Saturday matinees at the movie theater

The market for mushrooms

One feature of pure monopoly is that the firm is _____. a producer of products with close substitutes a price taker a price maker one of several producers of a product

a price maker

A nondiscriminating pure monopoly must decrease the price on all units of a product to sell more units. This explains why _____. there are barriers to entry in pure monopoly total revenues are greater than total costs at the profit maximizing level of output a pure monopoly's marginal revenue curve is below its demand curve a pure monopoly has a perfectly elastic demand curve

a pure monopoly's marginal revenue curve is below its demand curve

Pure monopoly refers to_____. a standardized product being produced by many firms any market in which the demand curve to the firm is downward sloping a large number of firms producing a differentiated product a single firm producing a product for which there are no close substitutes

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

Barney decides to quit his job as a corporate accountant, which pays $10,000 a month, and goes into business for himself as a certified public accountant. He runs his business from his converted garage apartment, which he could rent out for $300 a month if he wasn't using it as a home office. He must purchase office supplies worth $75 a month, and his monthly electricity bill has increased by $50 now that he is working out of his home office. After six months of working from home, Barney has earned an average of $12,000 per month. Instructions: Enter your answers as a whole number. a. What are Barney's monthly explicit costs? b. What are Barney's monthly implicit costs? c. What are Barney's monthly economic costs?

a. $125 b. $10300 c. $10425

The table below shows Ali's monthly costs of producing wheat. Suppose the current market price of wheat is $56.00 per bushel. Ali's Wheat Production Costs Quantity (bushels)AVC (dollars)ATC (dollars)MC (dollars) 0———500$40.00$240.00$40.001,00035.0085.0030.001,50030.0063.3320.002,00030.0055.0030.002,50031.0051.0035.003,00032.6749.3341.003,50034.8649.1548.004,00037.5050.0056.004,50040.5751.6765.005,00044.0054.0075.00 Instructions: Enter your answers as a whole number. If you are entering any negative numbers be sure to include a negative sign (-) in front of those numbers. a. If the market price is $56.00 per bushel of wheat, and Ali chooses to produce wheat, how much will he produce per month to maximize his profits in the short run? bushels per month b. Calculate Ali's monthly profits (express a loss as a negative number) if he chooses to produce the profit-maximizing quantity of wheat at a price of $56.00. $ c. Assume that the market price of wheat falls to $35.00 per bushel. How much wheat will Ali choose to produce per month in order to maximize his profits in the short run? bushels per month d. Calculate Ali's monthly profits (express a loss as a negative number) if he chooses to produce the profit-maximizing quantity of wheat at a price of $35.00. $ e. If the market price of wheat instead falls to $20.00 per bushel, how much wheat will Ali choose to produce per month in order to maximize his profits in the short run? bushels per month

a. 4000 b. $24000 c. 2500 d. $-40000 e. 0

Monopolistic competitive firms are productively inefficient because production occurs where marginal cost is not at its lowest. average total cost is not at its lowest. marginal cost is less than price. price is greater than marginal revenue.

average total cost is not at its lowest.

Fixed costs of production in the short run cannot be reduced by producing less output. increase as the firm produces more output. are low in proportion to variable costs in the short run. are a function of the level of variable costs.

cannot be reduced by producing less output.

If all resources used in the production of a product are increased by 20% and total output increases by 20%, then the firm must be experiencing constant returns to scale. economies of scale. increasing average total costs. diseconomies of scale.

constant returns to scale.

An industry in which its firms' cost structures do not vary with changes in production is referred to as a price-controlled industry. price-taking industry. constant-cost industry. fixed-price industry

constant-cost industry.

Variable costs are sunk costs. the change in total cost associated with the production of an additional unit of output. costs that change every day. costs that change with the amount of output a firm produces.

costs that change with the amount of output a firm produces.

Monetary payments a firm makes to pay for resources are called opportunity costs. normal profit. explicit costs. implicit costs.

explicit costs.

A firm encountering economies of scale over some range of output will have a constant long-run average cost curve. falling long-run average total cost curve. rising, then falling, then rising long-run average total cost curve. rising long-run average total cost curve.

falling long-run average total cost curve.

The figure below shows the average and marginal cost curves for producing cheeseburgers per hour. a. At a quantity of 25 cheeseburgers per hour, the average total cost of production is falling and the marginal cost of cheeseburger production is rising Correct. b. At a quantity of 35 cheeseburgers per hour, the average variable cost of production is rising and the average total cost of cheeseburger production is at a minimum.

falling; rising rising; at a minimum

In an oligopolistic market there are few sellers. many buyers. few buyers. many sellers.

few sellers.

A monopolistically competitive firm has a highly inelastic demand curve. perfectly inelastic demand curve. highly elastic demand curve. perfectly elastic demand curve.

highly elastic demand curve.

A perfectly competitive firm does not try to sell more of its product by lowering its price below the market price because it can sell all it wants to at the market price. its competitors would not permit it. its demand curve is inelastic, so total revenue will decline. this would be considered unethical price chiseling.

it can sell all it wants to at the market price.

A perfectly competitive firm's output is currently such that its marginal revenue is $5 and marginal cost is $4. Assuming profit maximization, the firm should raise price and decrease output. leave price unchanged and decrease output. cut price and increase output. leave price unchanged and increase output.

leave price unchanged and increase output.

Many people believe that pure monopolies charge any price they want to without affecting sales. Instead, the output level for a profit-maximizing pure monopoly occurs where ____. marginal revenue equals average cost marginal revenue equals marginal cost marginal cost equals average revenue average total cost equals average revenue

marginal revenue equals marginal cost

Under monopolistic competition, entry to the industry is blocked. more difficult than under pure competition but not nearly as difficult as under pure monopoly. more difficult than under pure monopoly. completely free of barriers.

more difficult than under pure competition but not nearly as difficult as under pure monopoly.

Oligopolies are considered to be: both allocatively efficient, but not productively efficient. both productively efficient, but not allocatively efficient. both allocatively and productively efficient. neither allocatively nor productively efficient.

neither allocatively nor productively efficient

A nondiscriminating pure monopoly is generally viewed as being _____. both productively and allocatively efficient allocatively efficient, but not productively efficient neither productively nor allocatively efficient productively efficient, but not allocatively efficient

neither productively nor allocatively efficient

Use the following graphs for a perfectly competitive market in the short run to answer the next question. The graphs suggest that in the long run, assuming no changes in the given information, buyers will leave the industry. more buyers will come to the market. some firms will exit from this industry. new firms will enter the industry.

new firms will enter the industry.

One major barrier to entry under pure monopoly arises from _____. diseconomies of scale. the cost of the infrastructure needed to produce. the price taking ability of the monopoly. the availability of close substitutes for a product.

the cost of the infrastructure needed to produce.

A constant-cost industry is one in which the long-run supply curve is upward sloping. the long-run supply curve is perfectly inelastic. the long-run supply curve is perfectly elastic. the long-run supply curve is downward sloping.

the long-run supply curve is perfectly elastic.

A perfectly competitive firm will be willing to produce even at a loss in the short run, as long as the loss is smaller than its marginal costs. the loss is smaller than its total variable costs. price exceeds marginal costs. the loss is smaller than its total fixed costs.

the loss is smaller than its total fixed costs.

The demand curve faced by a nondiscriminating pure monopoly is _____. derived by vertically summing the buyers' individual demand curves the same as the industry's demand curve horizontal more elastic than the demand curve faced by a perfectly competitive firm

the same as the industry's demand curve

Marginal cost can be defined as the change in average variable cost resulting from the production of an additional unit of output. total cost resulting from the production of an additional unit of output. average total cost resulting from the production of an additional unit of output. total fixed cost resulting from the production of an additional unit of output.

total cost resulting from the production of an additional unit of output.

A pure monopoly will generate an economic profit whenever ____. total revenue is equal to total cost total revenue is less than total cost total revenue is greater than total cost price is greater than average variable cost

total revenue is greater than total cost

Assume a perfectly competitive constant-cost industry is initially at long-run equilibrium. Now suppose that a decrease in market demand occurs. After all the long-run adjustments have been completed, the new equilibrium price and industry output will be less than the initial price and output. will be the same as the initial price, and the output will be less. will be greater than the initial price, but the new output will be less. will be less than the initial price, but the new output will be greater.

will be the same as the initial price, and the output will be less.

The representative firm in a perfectly competitive industry will always earn an economic profit in the short run. may earn either an economic profit or a loss in the long run. will earn a normal profit in the long run. will always earn an economic profit in the long run.

will earn a normal profit in the long run.