Economics Final Study Guide

Consider the following numbers at which a monopolist is producing, where MR=MC: Quantity=20; Price =$9; Average Total Cost =$6. What is the total revenue and profit?

$180; $60

The Fish Shack is the only seafood restaurant in a remote village. It charges $15 for a bowl of fish soup and sells 10 bowls of it a day. In order to increase sales to 11 bowls a day, it must reduce the price to $14. What is the marginal revenue of the eleventh bowl?

$4

A firm in a perfectly competitive industry would exhibit which characteristic?

An ability to produce as much output as the firm desires at the market price

Union membership in the United States rose significantly during the _________.

1940s

Suppose there are six firms in a market, with market shares shown in the table. If Firms 3 and 4 merge, how would the Herfindahl-Hirschman Index HHI in this market change?

HHI increases by 240

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.

The graph represents a firm that produces the profit-maximizing quantity in the short run. What will happen in the long run?

Market supply will increase, pushing the prices lower.

Figure: Nail Polish Externalities - Based on the figure, Sp (MPC) represents the private supply curve of a particular type of nail polish, the manufacture of which is associated with the release of toxic chemicals into the atmosphere,Ss (MSC) includes the cost of that toxicity borne by others. What is the socially optimal quantity of this nail polish?

Q2

If the average total cost is $10 and the price is $8 at the profit-maximizing quantity, what will happen in the long run in a perfectly competitive market?

Some firms will exit the market, pushing the market price higher.

Assume that a monopolistically competitive firm faces the following situation: P=$14,, output = 9,000 units, MC = $11, ATC = $16, AVC = $7, and MR = $11, Which statement is correct regarding profit maximization?

The firm is minimizing its losses.

In a segmented labor market as shown in the graph, the wage gap between the two markets is represented as:

W1 - W2

According to the rate of return approach, present value is equal to:

[EXn/(1 - i)n] - C

A monopoly firm exhibits all of the following characteristics EXCEPT:

a marginal revenue curve that equals price at all quantities

The perfectly competitive market structure assumes all of these EXCEPT:

a small number of buyers and sellers

A monopolitically competitive firm will produce its product as long as the marginal revenue is:

above marginal costs

Which product is least likely to be produced in a perfectly competitive market?

airline jet fuel

Which of these would NOT be categorized as "land" as a factor of production?

an axe used to cut down trees in a forest

Alex pays Dale to fix his roof. Alex's neighbor Chris works at night and cannot sleep during the day because of the noise from the roof repairs. This situation is an example of

an externality

Interdependence is a key characteristic of:

an oligopoly

The market for air travel from Dallas to Chicago is:

an oligopoly

The Coase theorem states that, under certain conditions, the efficient allocation of resources among parties can be attained through:

bargaining

In economics, the term "land" refers to:

both a physical area of the Earth's surface and natural resources

The price of land is primarily determined by shifts in:

demand

When the produce of Doritos tortilla chips spends money for television commercials, it intends to shift the:

demand curve to the right and make demand less elastic

Market failures can arise when:

externalities exist.

When a bond's rating goes from AAA to C, this means that the price of the bonds already issued will likely _____, which will _____ its yield.

fall; increase

Which of these is a characteristic of a natural monopoly?

high economies of scale

The kinked demand curve model assumes that if a firm raises its price, then its rivals will ________ the price increase, but if a firm lowers its prices, its rivals will _______ the price decrease.

ignore; match

When an individual labor supply curve bends backward, this means that the:

income effect is stronger than the substitution effect

Applegate University announces that its employees can now take college courses free of charge. This change will eventually lead to a(n):

increase in labor supply.

Unions tend to ________ wage differentials between a union and non-union sector by _________ entry into union-sector jobs.

increase; restricting

Which of these is NOT a potential benefit provided by monopolies?

increased consumer surplus as a result of a smaller scale of operations

You have recently earned an hourly pay raise. As your wages increase, the opportunity cost of going to the beach rather than working:

increases.

If an oligopolistic firm believes that its competitiors would mtach a price decrease, but not match a price increase, its demand curve is

kinked, being steeper below the current price

Which item is NOT an example of a negative externality?

landscaping

The income effect for labor supply states that people work:

less as wages rise because their ability to purchase goods increases.

Compared with a competitive market, a cartel as a whole will produce:

less output in order to increase prices

The substitution effect for labor supply states that people work:

more as wages rise because the opportunity cost of leisure increases.

Each oligopolistic firm recognizes that it must take into account the behavior of its competitors when it makes pricing decisions. This recognition is called:

mutual interdependence

Which of these is a characteristic of an oligopoly market structure?

mutual interdependent

Free health insurance offered by an employer is referred to as a(n):

non-wage benefit.

Externalities are the impacts:

on third parties.

Which characteristic is NOT typical of monopolistic competition?

one seller

Which labor supply curves will bend backward at high wages?

only the individual labor supply curve

Which sequence of market structures ranks the barriers to entry from the fewest to the most?

perfect competition; oligopoly; monopoly

With a kinked demand curve model, the discontinuity of the marginal revenue curve suggests that:

prices will be stable

An important tradeoff that entrepreneurs face in their decision making is ________ versus __________________.

profit; risk

A form of regulation that controls a firm's prices and profits based on its costs and capital investments is called:

rate of return regulation

When a theme park sells a 1-day adult pass for $110 and a 2-day adult pass for $180, and a 1-day child pass for $90 and a 2-day child pass for $150, the theme park is engaging in:

second and third degree price discrimination

In which situation does a free rider problem occur?

someone benefits from a good but does not have to pay for it.

When people choose leisure over work as wages rise, they are indicating that:

the income effect is stronger than the substitution effect.

Which of these is NOT an example of an intellectual property right?

the name of a famous basketball player

When firms in a market offer to "match any lower price offered by an competitor, : but do not match price increases, then:

this indicates that firms in this market may face kinked demand curves.

An example of a negative externality created in the market system would be:

water pollution.

When after a game ends and one participant's gains have come at the expense of the other participants, it is described as a:

zero-sum game.