micro econ final
the market system's answer to the fundamental question "how will the goods and services be produced?" is essentially
"in ways that minimize the cost per unit of output"
refer to the data. the total cost of producing 4 units of output is
$124
the kinked demand curve model helps to explain price rigidity because
there is a gap in the marginal revenue curve within which changes in marginal cost will not affect output or price
in a purely competitive industry
there may be economic profits in the short run but not in the long run
what do the income effect, the substitution effect, and diminishing marginal utility have in common?
they all help explain the downsloping demand curve
in a competitive market economy, firms select the least cost production technique because
to do so will maximize the firms profits
suppose that as the price of Y falls from $2.00 to $1.90, the quantity of Y demanded increases from 110 to 118. then the absolute value of the price elasticity (midpoint method) is
1.37
refer to the diagram. the total utility yielded by 4 units of X is
17
refer to the diagram in which the downsloping lines are budget lines and I1, I2, I3 comprise an indifference map. the combinations of products M and N indicated by points 1, 3, and 5 are such that
3 implies a higher level of utility than does 1 or 5
refer to the short run data. the profit maximizing output for this firm is
320 units
refer to the data. suppose that firms in this industry split up such that there were 100 firms, each with a one percent market share. the four firm concentration ratio and herfindahl index respectively would be
4 percent and 100
the short run supply curve of a purely competitive producer is based primarily on its
MC curve
refer to the diagram. the firm's supply curve is the segment of the
MC curve above its intersection with the AVC curve
if a 10 percent wage increase in a particular labor market results in a 5 percent decline in employment in that market, labor demand is
inelastic
a pure monopolist should never produce in the
inelastic segment of its demand curve because it can increase total revenue and reduce total cost by increasing price
if there is a surplus of a product, its price
is above the equilibrium level
the vertical distance between the total cost and the total variable cost curves differs by an amount that
is constant as output changes
the price of product X is reduced from $100 to $90 and as a result the quantity demanded increases from 50 to 60 units. therefore demand for X in this price range
is elastic
in the short run, a purely competitive seller will shut down if product price
is less than AVC
refer to the diagram. the production of Q1 units of output at an average cost of a
is not possible, given present technology and resource prices
the use of money contributes to economic efficiency because
it promotes specialization by overcoming the problems with barter
which of the following statements applies to a purely competitive producer?
it will not advertise its product
if a purely competitive firm shuts down in the short run
it will realize a loss equal to its total fixed costs
refer to the table. over the $10-$8 price range, the elasticity coefficient of supply is
less than 1
which of the following is correct as it relates to cost curves?
marginal cost intersects average total cost at the latters minimum point
which of the following is correct??
marginal product rises faster than average product and also falls faster than average product
"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
a firm will find it profitable to hire workers up to the point at which their
marginal resource cost is equal to their MRP
in the long run, a pure monopolist will maximize profits by producing that output at which marginal cost is equal
marginal revenue
refer to the diagram. the quantitative difference between areas A and C for reducing the price from P1 to P2 measures
marginal revenue
if a purely competitive firm is producing at the P=MC output and realizing an economic profit, at that output
marginal revenue exceeds ATC
if a purely competitive firm is producing at some level less than profit maximizing output, then
marginal revenue exceeds marginal cost
assuming a competitive resource market, a firm is hiring resources in the profit maximizing amounts when the
marginal revenue product of each resource is equal to its price
to maximize utility, a consumer should allocate money income so that the
marginal utility obtained from the last dollar spent on each product is the same
in the long run equilibrium, purely competitive markets
maximize the sum of consumer surplus and producer surplus
in the short run, the price charged by a monopolistically competitive firm attempting to maximize profits
may be either equal to ATC, less than ATC, or more than ATC
concentration ratios
may understate the degree of competition because they ignore imported products
the restaurant, legal assistance, and clothing industries are each illustrations of
monopolistic competition
product variety is likely to be greater in
monopolistic competition than in pure competition
when a consumer shifts purchases from product X to product Y, the marginal utility of
X falls and marginal utility of Y rises
which of the following will not shift the demand curve for labor?
a change in the wage rate
if producers must obtain higher prices than before to produce a given level of output then the following has occurred
a decrease in supply
for a firm selling its product in a purely competitive market, the marginal revenue product of labor can be found by
multiplying marginal product by product price
mary says "you would have to pay me $50 to attend that pro wrestling event" for mary, the marginal utility of the event is
negative
we would expect the cross elasticity of demand between dress shirts and ties to be
negative, indicating complementary goods
refer to the payoff matrix. bob's burgers and sam's sandwiches are competing restaurants in a small town. both are considering adding pizza to their line of products. if this is a one time simultaneous game
neither firm has a dominant strategy
refer to the diagram. at output level Q1
neither productive nor allocative efficiency is achieved
the invisible hand refers to the
notion that, under competition decisions motivated by self interest promote social interest
a positive statement is one that is
objective and is based on facts
innovations that lower production costs or create new products
often generate short run economic profits that do not last into the long run
suppose that a university decides to spend $1 million to upgrade personal computers and scientific equipment for faculty rather than spend $1 million to expand parking for students. this example illustrates
opportunity costs
the conclusion that oligopoly is inefficient relative to the competitive ideal must be qualified because
over time oligopolistic industries may promote more rapid product development and greater improvement of production techniques than if they were purely competitive
refer to the diagram for a monopolistically competitive producer. the firm is
realizing a normal profit in the long run
noncash gifts
reduce recipient utility relative to a cash gift because noncash gifts often fail to match recipient preferences
production costs to an economist
reflect opportunity costs
the law of diminishing returns describes the
relationship between resource inputs and product outputs in the short run
if price and total revenue vary in opposite directions, demand is
relatively elastic
the supply curve of antique reproductions is
relatively elastic
gigantic state university raises tuition for the purpose of increasing its revenue so that more faculty can be hired. GSU is assuming that the demand for education at GSU is
relatively inelastic
the demand for a necessity whose cost is a small portion of one's total income is
relatively price inelastic
refer to the diagram. line 2 reflects a situation where resource prices
remain constant as industry output expands
which of the following is not a possible source of natural monopoly?
rent seeking behavior
in a market system
a firm's employees and suppliers are largely shielded from risk
refer to the diagram. a price of $60 in this market will result in
a surplus of 100 units
a surplus of a product will arise when price is
above equilibrium, with the result that quantity supplied exceeds quantity demanded
which of the following is a consequence of rent controls established to keep housing affordable for the poor?
all of these are consequences of rent controls
for a purely competitive seller, price equals
all of these these
refer to the diagram, in which S1 and D1 represent the original supply and demand curves and S2 and D2 the new curves. in this market
an increase in demand has been more than offset by an increase in supply
when the percentage change in price is greater than the resulting percentage change in quantity demanded
an increase in price will increase total revenue
if two resources are highly substitutable for one another
an increase in the price of one will increase the demand for the other
refer to the diagram. line 1 reflects the long run supply curve for
an increasing cost industry
suppose losses cause industry X to contract and as a result the prices of relevant inputs decline. industry X is
an increasing cost industry
economists would describe the US automobile industry as
an oligopoly
because of higher gasoline prices, firms using gasoline intensively in the production or distribution of their goods have experienced
an upward shift in their MC, AVC, and ATC curves
the MR=MC rule
applies both to pure monopoly and pure competition
barriers to entering an industry
are the basis for monopoly
the basic difference between the short run and the long run is that
at least one resource is fixed in the short run, while all resources are variable in the long run
which of the following is an example of creative destruction?
automobile production causes the wagon industry to shut down
other things equal, if the fixed costs of a firm were to increase by $100,000 per year, which of the following would happen?
average fixed costs and average total costs would rise
the labor demand curve of an imperfectly competitive seller is downsloping
because of both diminishing returns and the necessity to lower price to sell more output
a firms supply curve is upsloping because
beyond some point the production costs of additional units of output will rise
under pure competition in the long run
both allocative efficiency and productive efficiency are achieved
refer to the diagram, by producing at output level Q
both productive and allocative efficiency are achieved
the MRP curve is the resource demand curve for
both the purely competitive and imperfectly competitive seller
"consumer sovereignty" means that
buyers determine what will be produced based on their "dollar votes" for the goods and services offered by sellers
an effective price floor on wheat will
result in a surplus of wheat
refer to the information. for a purely competitive firm, marginal revenue graphs as a
straight line, parallel to the horizontal axis
use your basic knowledge and your understanding of market structures to answer this question. which of the following companies most closely approximates a monopolistic competitor?
subway sandwiches
the profit maximizing and the least cost combination of inputs are
such that the maximization of profits always entails the least cost combination of inputs
since their introduction, prices of Blu-ray players have fallen and the quantity purchased has increased. this statement
suggests that the supply of Blu-ray players has increased
total utility may be determined by
summing the marginal utilities of each unit consumed
any point inside the production possibilities curve indicates
that more output could be produced with the available resources
when LCD televisions first came on the market, they sold for at least $1,000 and some for much more. now many units can be purchased for under $400. these facts imply that
the LCD television industry is a decreasing cost industry
which of the following is not a precondition for price discrimination?
the commodity involved must be a durable good
if the output of product X is such that marginal benefit equals marginal cost
the correct amount of resources is being allocated to X's production
the demand for airline pilots results from the demand for air travel. this fact is an example of
the derived demand for labor
refer to the diagrams, which pertain to a purely competitive firm producing output q and the industry in which it operates. which of the following is correct?
the diagrams portray short run equilibrium but not the long run equilibrium
if a regulatory commission imposes upon a nondiscriminating natural monopoly a price that is equal to marginal cost and below average total cost at the resulting output then
the firm must be subsidized or it will go bankrupt
if a purely competitive firm is producing where price exceeds marginal cost, then
the firm will fail to maximize profit and resources will be underallocated to the product
if someone produced too much of a good this would suggest that
the good was produced past the point where its marginal cost exceeded its marginal benefit
the movement from line A to line A' represents a change in
the intercept only
if a rational consumer is in equilibrium, which of the following conditions will hold true?
the marginal utility of the last dollar spent on each good purchased will be the same
the lowest point on a purely competitive firm's short run supply curve corresponds to
the minimum point on its MC curve
refer to the diagram. this production possibilities curve is constructed so that
the opportunity costs of both bread and tractors increase as more of each is produced
if a nondiscriminating pure monopolist decide to sell one more unit of output, the marginal revenue associated with that unit will be
the price at which that unit is sold less the price reductions that apply to all other units of output
if there is a shortage of product X, and the price is free to change
the price of the product will rise
in moving along a given budget line
the prices of both products and money income are assumed to be constant
a dilemma of regulation is that
the regulated price that achieves allocative efficiency is also likely to result in losses
refer to the graph. a decrease in fixed costs is shown by
the shift of the short run average total cost curve from ATC2 to ATC1
the firm represented by the diagram would maximize profits where
the vertical distance between curves 3 and 4 is the greatest
monopolistically competitive and purely competitive industries are similar in that
there are few, if any barriers to entry
refer to the data. the four firm concentration ratio for the industry is
80 percent
refer to the diagrams. with the industry structures represented by diagram
A there will be only a normal profit in the long run, while in B an economic profit can persist
refer to the diagram. at output level Q total fixed cost is
BCDE
refer to the diagrams. the case of complementary goods is represented by figure
C
which of the diagrams illustrates the effect of an increase in automobile worker wages on the market for automobiles?
D onlyS -decrease in supply from S1 to S2
in the short run, a purely competitive firm will always make an economic profit if
P > ATC
refer to the diagram for a pure monopolist. suppose a regulatory commission is created to determine a legal price for the monopoly. if the commission seeks to provide the monopolist with a "fair return" it will set price at
P1
refer to the diagram. this firm will earn only a normal profit if product price is
P3
refer to the budget line shown in the diagram. the absolute value of the slope of the budget line is
PC|PD
if a monopolist engages in price discrimination, it will
charge a higher price where individual demand is inelastic and a lower price where individual demand is elastic
the regulatory mechanism of the market system is
competition
which of the following outcomes is consistent with a purely competitive market in long run equilibrium?
consumer and producer surplus will be maximized
the advent of DVDs has virtually demolished the market for videocassettes. this is an example of
creative destruction
the marginal rate of substitution
declines as one moves southeast along an indifference curve
average fixed cost
declines continually as output increases
private property
encourages owners to maintain or improve their property so as to preserve or enhance value
diminishing marginal utility explains why
demand curves are downsloping
the state legislature has cut gigantic state university's appropriations. GSU's board of regents decides to increase tuition and fees to compensate for the loss of revenue. the board is assuming that the
demand for education at GSU is inelastic
if the price of hand calculators falls from $10 to $9 and, as a result, the quantity demanded increases from 100 to 125 then
demand is elastic
the automobile, household appliance, and automobile tire industries are all illustrations of
differentiated oligopoly
the price elasticity of a monopolistically competitive firm's demand curve varies
directly with the number of competitors but inversely with the degree of product differentiation
the total revenue test for elasticity
does not apply to supply because price and total revenue always move together
the MR=MC rule can be restated for a purely competitive seller as P=MC because
each additional unit of output adds exactly its price to total revenue
if a competitive industry is neither expanding nor contracting, we would expect
economic profits to be zero
if a firm doubles its output in the long run and its unit costs of production decline, we can conclude that
economies of scale are being realized
if production is occurring where marginal costs exceed price, the purely competitive firm will
fail to maximize profit and resources will be overallocated to the product
a market system tends to restrict business risk to owners and investors. this results in which of the following benefits?
firms focus attention on prudent risk management as it is profitable to manage risk
a significant difference between a monopolistically competitive firm and a purely competitive firm is that the
former sells similar, although not identical products
the less elastic a monopolistic competitor's long run demand curve, the
greater its excess capacity
the larger the positive cross elasticity coefficient of demand between products X and Y, the
greater their substitutability
assume a purely competitive increasing cost industry is initially in long run equilibrium and that an increase in consumer demand occurs. after all economic adjustments have been completed, product price will be
higher and total output will be larger than originally
an increasing cost industry is the result of
higher resource prices that occur when the industry expands
the copper, aluminum, cement, and industrial alcohol industries are examples of
homogenous oligopoly
"consumer sovereignty" refers to the
idea that the decisions of producers must ultimately conform to consumer demands
the MR=MC rule applies
in both the short run and the long run
interindustry competition means that
in some markets the producers of a particular product might face competition from products produced by other industries
to economists, the main differences between the short run and the long run is that
in the long run all resources are variable, while in the short run at least one resource is fixed
which of the following is true concerning purely competitive industries?
in the short run, firms may incur economic losses or earn economic profits, but in the long run they earn normal profits
refer to the diagram. if price is reduced from P1 to P2, total revenue will
increase by C - A
suppose capital and labor are used in fixed proportions so that each machine requires only one worker. if a decline in the price of capital occurs, then the demand for labor will
increase solely because of the output effect
a decline in the price of resource A will
increase the demand for complementary resource B
refer to the diagram. total utility
increases at a diminishing rate, reaches maximum, and then declines
the invisible hand promotes society's interests because
individuals pursuing their self interest will try to produce goods and services that people in society want and are willing to purchase
a firm can sell as much as it wants at a constant price. demand is thus
perfectly elastic
if quantity demanded is completely unresponsive to price changes, demand is
perfectly inelastic
the supply curve of a one of a kind original painting is
perfectly inelastic
the supply of known monet paintings is
perfectly inelastic
which of the following goods (with their respective income elasticity coefficients in parentheses) will most likely suffer a decline in demand during a recession?
plasma screen and LCD tv (+4.2)
when total product is increasing at an increasing rate, marginal product is
positive and increasing
if a firm is confronted with economic losses in the short run, it will decide whether or not to produce by comparing
price and minimum average variable cost
which of the following statements is true about price ceilings?
price ceilings cause goods to be rationed by some other means than legally determined market prices
refer to the budget line shown in the diagram. if the consumer's money income is $20, the
price for C is $4 and the price of D is $2
resources are efficiently allocated when production occurs where
price is equal to marginal cost
assume that society places higher value on the last unit of X produced than the value of the resources used to produce that unit. with no spillovers, this information means that
price is greater than marginal cost
for a monopolistically competitive firm in long run equilibrium
price will equal average total cost
the fact that a purely competitive firm's total revenue curve is linear and upsloping to the right implies that
product price is constant at all levels of output
suppose for a regulated monopoly that price equals minimum ATC but price exceeds MC. this means that
productive efficiency is being achieved, but not allocative efficiency
if the several oligopolistic firms that comprise an industry behave collusively, the resulting price and output will most likely resemble those of
pure monopoly
if the long run supply curve of a purely competitive industry slopes upward, this implies that the prices of relevant resources
rise as the industry expands
a product has utility if it
satisfies consumer wants
according to the concept of the "invisible hand" if Susie opens and operates a profitable childcare center then
she has served society's interests by providing a desired good or service
refer to the diagram. a decrease in demand is depicted by a
shift from D2 to D1
if the price of product L increases, the demand curve for close substitute product J will
shift to the right
other things equal an increase in a consumer's money income
shifts the individual's budget line rightward because she can now purchase more of both products
refer to the diagram. a price of $20 in this market will result in a
shortage of 100 units
suppose a firm in a purely competitive market discovers that the price of its product is above its minimum AVC point but everywhere below ATC. given this the firm
should continue producing in the short run but leave the industry in the long run if the situation persists
the labor demand curve of a purely competitive seller
slopes downward because of diminishing marginal productivity
which of the following statements is true? other things equal, the demand for labor will be less elastic the
smaller the ratio of labor costs to total costs
a single price monopoly is economically inefficient because at the profit maximizing output
society values additional units of the monopolized product more highly than it does the alternative products those resources could otherwise produce
a leftward shift of a product supply curve might be caused by
some firms leaving an industry
which of the following goods will least likely suffer a decline in demand during a recession?
toothpaste
curve 3 in the diagram is a purely competitive firm's
total revenue curve
refer to the diagram, which pertains to a purely competitive firm. curve A represents
total revenue only
at each point on an indifference curve
total utility is the same
which of the following most closely relates to the idea of opportunity costs?
trade offs
which of the following is most likely to be an inferior good?
used clothing
which of the following is correct?
when MP is rising MC is falling, and when MP is falling MC is rising
for a pure monopolist, marginal revenue is less than price because
when a monopolist lowers price to sell more output, the lower price applies to all units sold
a product market is in equilibrium
where the demand and supply curves intersect
which of the following is not correct?
where total product is at a maximum, average product is also at a maximum
in the short run, a purely competitive firm that seeks to maximize profit will produce
where total revenue exceeds total cost by the maximum amount
the kinked demand curve model of oligopoly is useful in explaining
why oligopolistic prices might change only infrequently
economies and diseconomies of scale explain
why the firm's long run average total cost curve is U-shaped
if a firm in a purely competitive industry is confronted with an equilibrium price of $5, its marginal revenue
will also be $5
if a nondiscriminating imperfectly competitive firm is selling its 100th unit of output for $35, its marginal revenue
will be less than $35
a pure monopolist's short run profit maximizing or loss minimizing is such that price
will vertically intersect demand where MR=MC
creative destruction is least beneficial to
workers in the destroyed industries
the incentive problem under communist central planning refers to the idea that
workers, managers, and entrepreneurs could not personally gain by responding to shortages or surpluses or by introducing new and improved products
