Final Econ 1 CH 10, 11, 12, 13, 14, and 16.

Individual firms in purely competitive markets are price ______

price takers

The 4-firm concentration ratio is calculated by:

the fraction of an industry's sales accounted for by the four largest firms.

A particular industry consists of three firms whose market shares are 50%, 30%, and 20%. The Herfindahl index for the industry is:

3800: (50^2+30^2+20^2) = 3800

The "derived demand" concept suggests that an increase in the demand for computers will:

Derived demand is the notion that the demand for a resource depends on the demand for the good or service that the resource helps to produce.

Suppose hiring an extra worker increases a firm's output from 90 to 100 units per hour. If the firm has to reduce its price from $1 to $.99 to sell the additional output, the marginal revenue product of the last worker is:

Initially, the firm's revenue is $90—$1 times 90. Upon hiring an additional worker, revenue rises to $99—$.99 times 100. Marginal revenue product is simply the increase in total revenue from the additional worker, or $9.00 in this example.

Answer the question on the basis of the following cost data for a purely competitive Refer to the data. At 4 units of output, average fixed cost, average variable cost, and average total cost are:

Marginal cost and average variable cost are equal at the minimum point of the latter. Average variable cost reaches its minimum point in this example at an output of 3.

"Income receivers should be paid in accordance with the value of output each produces." This statement is consistent with the:

Marginal productivity theory of income distribution

Suppose several firms in a purely competitive industry begin to experiment slightly with their product designs. This product differentiation allows them to modestly increase their prices and increase their short-run profits. The industry now more closely resembles:

Monopolistic competition

Which is an example of a change in product demand that increases labor demand?

Tourism increases in popularity, increasing the demand for workers at tourist resorts example of a change in product demand that increases labor demand

In the long run, new firms will enter a monopolistically competitive industry:

Until economic profits are zero.

The term oligopoly indicates:

a few firms producing either a differentiated product

In the short-run, a profit-maximizing monopolistically competitive firm sets it price:

above marginal cost

In an oligopolistic industry:

can earn positive economic profit in the LR due to the existence of barriers to entry like economies of scale

Suppose a monopolist could segment its market into two distinct submarkets and prevent resale between them. Its profits would increase if it charged a higher price to the group whose:

demand is more elastic

The primary force encouraging the entry of new firms into a purely competitive industry is:

economic profits earned by firms already in the industry.

A competitive firm in the short run can determine the profit-maximizing (or loss-minimizing) output by equating:

marginal revenue and marginal cost.

In long run equilibrium, both competitive firms and monopolistic firms that maximize profits

produce the output at which marginal revenue equals marginal cost

Use the following diagram to answer the next question Refer to the diagram. A regulatory commission that wished to establish a fair return output level for this firm would set price at: A regulatory commission that wished to establish a socially optimal output level for this firm would set price at:

P1 but the firm would incur a loss

Use the data from the following table for the next question. A law firm has discovered the following relationship between the number of junior associates and its total revenue.

The third associate adds $1600 to total revenue, which adds $100 to the firm's profit. The fourth associate adds only $1400 to total revenue, $100 less than the associate's pay.

The demand for a resource depends primarily on

the demand for the product or service that it helps produc

The term productive efficiency refers to:

the production of a good at the lowest average total cost.

Game theory:

the rules of the game include matters beyond a firm's control, a strategy is a firms actions to achieve a goal, and the payoffs are profits

A decreasing-cost industry is one in which

input prices fall or technology improves as the industry expands

In a monopolistically competitive market:

is small relative to the entire market for its general product

Nonprice competition refers to:

advertising, product promotion, and changes in the real or perceived characteristics of a product

Price discrimination refers to:

the selling of a given product at different prices that do not reflect cost differences

Entrepreneurs in purely competitive industries:

innovate to lower operating costs and generate short-run economic profits

Creative destruction is:

Creation of new products and methods may destroy the old products and methods --result of Competition and innovation

Compared to a competitive firm, a monopolistically competitive firm:

Faces a less elastic demand curve

Use the following diagram to answer the next question. The monopolistically competitive firm illustrated in the diagram exhibits productive inefficiency because its profit maximizing:

Output is not at the intersection of marginal cost and average total cost.

In the short run, a purely competitive firm will earn a normal profit when:

P = ATC

Which of the following conditions is true for a purely competitive firm in long-run equilibrium?

P = MC = minimum ATC.

At a monopolist's current output, ATC = $13, P = $14, MC = $6 and MR = $5. This firm is realizing:

an economic profit that could be increased by producing less output

Use the following diagram to answer the next question: Refer to the diagram. If this firm produces its profit-maximizing output, its potential profit is:

area AFGB

Use the following payoff matrix to answer the next question. Refer to the matrix, which shows the profit payoffs to each of two oligopolistic firms of following either a high- or low-price policy. Gamma's payoffs are in the lower left corner of each cell; Delta's in the upper right. If both firms make their decisions independently, the most likely outcome is:

Gamma would prefer to switch to a low price strategy

Use the following diagram to answer the next question. Refer to the diagram. At output q2, or q1, or q3:

Q2

An industry whose Herfindahl index is 5300, producing a standardized product, is most likely an example of:

oligopoly

When a purely competitive firm is in long-run equilibrium:

price equals marginal cost.

Which value (in percentage form) of the four-firm concentration ratio is most likely to indicate a monopolistically competitive market?

100%

If the wage rate increases, what will a purely competitive and an imperfectly competitive producer do?

hire less labor.

Answer the question on the basis of the following cost data for a firm that is selling in a purely competitive market. Refer to the data. We can infer that, at zero output, this firm's total fixed, total variable, and total costs are:

$150, zero, and $150, respectively.

At which of the following prices will the firm produce a positive amount but incur a loss?

At a price of P3, the firm will produce a positive amount because price exceeds average variable cost. The firm will lose money because P3 is less than average total cost, but it would lose a greater amount (equal to its fixed cost) if it shut down.

Which one of the following price-quantity combinations is not on this competitive firm's short-run supply curve?

At a price of P4, the firm cannot earn enough revenue to cover its variable costs and will minimize losses by shutting down.

X-inefficiency is said to occur when a firm's:

Average costs of producing any output are greater than the minimum possible average costs

Refer to the matrix, which shows the profit payoffs to each of two oligopolistic firms of following either a high- or low-price policy. Gamma's payoffs are in the lower left corner of each cell; Delta's in the upper right. If Gamma uses a high-price strategy and Delta uses a low- price strategy:

Gamma would prefer to switch to a low-price strategy

Assume a candle manufacturer is employing two resources L and C in such quantities that the MRPs are $30 and $25, respectively. The prices of the resources are $24 and $20, respectively. This firm:

Is using the least-cost combination of resources to produce its output but should use more of both.

A monopolistically competitive firm in the short run is producing where price is $3.00 and marginal cost is $1.50. To maximize profits:

It is unclear what the firm should do without knowing marginal revenue

The marginal revenue product of an input in a competitive market decreases as a firm increases the quantity of an input used because of the:

Law of diminishing returns

Suppose only three airlines service a particular route. One of the airlines typically signals its price intentions through a daily posting on its internet site, which the other two quickly match. This best describes:

Price leadership

Marginal revenue product is the increase in:

The change in revenue that results from the addition of one extra unit when all other factors are kept equal.

Which of the following is not a barrier to entry?

The market price of the product is too high.

Resource Y has no close substitutes whereas resource X has many close substitutes. Other things equal, we would expect:

the demand for resource X to be more elastic than the demand for resource Y.

A purely competitive firm's short-run supply curve is:

upsloping and equal to the portion of the marginal cost curve that lies above the average variable cost curve.

Many people believe that monopolies charge any price they want to without affecting sales. Instead, the output level for a profit-maximizing monopoly is determined by

MC = MR (marginal cost equals marginal revenue)

The kinked-demand curve of an oligopolist is based on the assumption that:

competitors will follow a price cut but ignore a price increase

The Herfindahl index is:

the lower the HI, the more competitive the industry. The Herfindahl Index is another measure of industry concentration and it is the sum of the squared percentage of market shares of all firms in the industry. Generally speaking, the lower the Herfindahl, the lower the industry concentration.