Micro 6-10

From society's standpoint, positional arms races lead to outcomes that are ______.

inefficient

When one's performance is judged relative to others' performance and not by an absolute standard:

players will over invest in performance enhancements.

A benefit of an activity received by people not participating in the activity is called a(n):

positive externality.

The optimal quantity of a negative externality is zero if:

the marginal cost of reducing the externality is zero.

The three elements of a game are:

the players, the strategies, and the payoffs

If there is excess demand in a market, then this suggests that:

there is an opportunity for mutually beneficial trades.

In the Nash equilibrium of a prisoner's dilemma

there is unrealized opportunity for both to gain.

When a perfectly competitive firm sells additional units of output, ______, and when a monopolist sells additional units of output, ______.

total revenue always rises; total revenue could rise, fall, or remain unchanged

Accounting profit is equal to

total revenue minus explicit costs.

Individual supply curves generally slope ______ because ______.

upward; of increasing opportunity costs

A rational seller will sell another unit of output:

if the cost of making another unit is less than the revenue gained from selling another unit.

A credible threat is:

in the threatener's interest to carry out.

Which of the following statements is true?

Accounting profit is greater than or equal to economic profit.

Which of the following would be considered a factor of production in the provision of bus service?

Bus Driver

the following are an example of a good with network economies?

Cell phone, internet service and Facebook

Consider an industry with two firms producing similar products. Each firm's total cost (in dollars) is given below. Mega Corp: TC = 5,000 + 100Q. Big Inc: TC = 4,000 + 200Q. ______ has a higher fixed cost and ______ has a higher marginal cost.

Mega Corp; Big Inc

Picture In the graph above, the average variable cost curve is labeled _____, the average total cost curve is labeled _____, and the marginal cost curve is labeled ______.

The marginal cost curve must intersect both the average variable cost and average total cost at their respective minimum points. Average total cost is the sum of all payments made to a firm's fixed and variable factors of production divided by total output.

Which of the following would not be included in the calculation of accounting profit?

The salary the owner could have earned working elsewhere.

.....

The socially optimal level of output occurs where the marginal benefit of an additional unit of output equals the marginal cost of an additional unit of output. The marginal benefit of an additional unit of output is the amount people are willing to pay for it, which is given by the demand curve.

Average total cost is defined as:

Total cost divided by total output

Average variable cost is defined as

Variable cost divided by total output

The existence of a negative externality will result in

a greater than optimal level of production.

A pure monopoly exists when

a single firm produces a good with no close substitutes.

Suppose the game above is repeated every day, and both firms adopt the following strategy: cooperate on the first day, then if the other firm cheats, cheat the next day, and if the other firm abides, abide the next day. This type of strategy is known as: ______.

a tit-for-tat strategy

The profit maximizing rule MR = MC applies to

all firms.

The allocative function of price cannot operate unless there is:

both free entry and free exit.

According to the textbook, social norms:

can help curtail positional arms races.

Emotions like guilt and sympathy:

can solve commitment problems.

A coalition of firms who agree to restrict output for the purpose of earning an economic profit is called a(n):

cartel.

Something that changes incentives so as to make otherwise empty threats or promises credible is called a:

commitment device.

The allocative function of price is to

direct resources away from markets that are overcrowded and toward markets that are underserved.

Accounting profit minus implicit costs equals:

economic profit

In the long run, in a perfectly competitive industry

economic profit and loss are driven to zero by entry and exit.

A cost-saving innovation in a perfectly competitive industry will lead to:

economic profits for a few firms for a short time.

Commitment devices are necessary when

following through on a threat or promise is not in a player's best interest.

A variable factor of production

is variable in both the short run and the long run.

If a firm's production process exhibits increasing returns to scale, then doubling all the firm's inputs will lead output to _____.

more than double

A price ceiling that is set above the equilibrium price will result in:

no change in total economic surplus.

A situation is efficient if it is:

not possible to find a transaction that will make at least one person better off without harming others.

Adam Smith believed that the individual pursuit of self-interest:

often promotes the broader interests of society.

The essential cause of the tragedy of the commons is the fact that:

one person's use of a commonly held resource imposes an external cost on others.

Suppose a firm's total revenue is $100 when it sells 10 units, and $110 when it sells 11 units. The firm, therefore, is a(n):

perfect competitor.

The cumulative difference between the price producers actually receive for a good and the lowest price for which they would have been willing to sell it is called:

producer surplus

If a perfectly competitive firm produces an output level at which price is less than marginal costs, then the firm should:

reduce output to earn greater profits or smaller losses.

Monopolists use the hurdle method of price discrimination in order to:

separate consumers on the basis of their reservation prices.

A monopolistically competitive firm:

sometimes distinguishes its output from that of its competitors by locating in a more convenient place.

Once a firm has determined the quantity of output it wishes to sell, the maximum price it can charge for each unit is determined by:

the demand curve facing the firm.

If a firm is earning zero economic profit, then

the firm's accounting profit is equal to the firm's implicit costs.