micro exam 3

Entry to and exit from a(n) ________ market are ________.

perfectly contestable, costless

LoJacks convey ________ to third parties.

positive externalities

Refer to Figure 16.2. The marginal damage cost imposed as a result of producing automobiles is

$10.00 per car.

Refer to Figure 15.4. Assume The Hand Made Shirt Shop has fixed costs of $75 and is a monopolistically competitive firm. To maximize profits in the short run, this firm should produce ________ personalized sweatshirts.

0

Refer to Figure 16.5. The government decides to impose a tax on pollution emissions to cut total emissions in this industry in half, and based on this decision it has set the tax at $100 per ton of emissions. Following the implementation of this tax, Alpha will reduce its emissions to ________ tons.

25

To conduct a partial equilibrium analysis of a change in consumer preferences toward coffee and away from tea, you must consider

All of these

Refer to Table 14.1. Firm Aʹs optimal strategy is

dependent on what Firm B does.

Refer to Figure 13.11. Suppose a monopolist faces the demand and costs in the figure and is able to perfectly price discriminate. What is the societal loss from having a monopoly instead of a perfectly competitive industry supplying widgets?

$0

The marginal cost of producing 40 units of a public good is $200. There are two individuals in the society. Person A is willing to pay $80 for 40 units of the public good. If 40 units of the public good are provided, how much must Person B be willing to pay?

$120

Refer to Figure 15.1. If Dom's Barber Shop is maximizing profit, its total costs are

$240

Refer to Figure 16.2. What is the total damage imposed as a result of producing the efficient level of fertilizer?

$250

In ________ the United States Congress created the Federal Trade Commission.

1914

Refer to Figure 13.11. Suppose a monopolist faces the demand and costs in the figure and is able to perfectly price discriminate. How many widgets does the monopoly supply when they act so as to maximize their profits?

400

Refer to Table 14.4. The Nash equilibrium in the game is

Both (Raise Price, Don't Raise Price) and (Don't Raise Price, Raise Price) are correct.

When ________ for a monopolistically competitive firm, the firm is in long-run equilibrium.

MR = MC and P = ATC

A monopolistically competitive firm can minimize its losses by producing where ________ as long as ________.

MR = MC; P > AVC

Refer to Figure 15.2. In this monopolistically competitive industry, in the long run,

firms will enter until all firms earn a normal profit.

An example of a common resource is

public grazing land.

Freely functioning markets

all of the above

Refer to Figure 15.2. If We Do Hair is maximizing profit as a monopolistically competitive firm, it is earning a profit of

$320.

Refer to Table 16.4. Suppose the government wants to reduce the total amount of pollution from the current level of 10 to 4. To do this, the government caps each firm's emissions at 2 units and issues 2 permits to each firm. If firms are not allowed to trade permits, what is the total cost of the pollution reduction?

$92

Refer to Figure 15.2. From society's point of view, the efficient level of output is

50 perms.

Which of the following conditions are necessary for the Coase theorem to apply?

All of these

Refer to Table 16.4. Suppose the government wants to reduce the total amount of pollution from the current level of 10 to 4. To do this, the government caps each firm's emissions at 2 units and issues 2 permits to each firm. If firms are allowed to trade permits and all possible trades are made, Firm B will reduce its pollution by a total of ________ unit(s).

1

Refer to Figure 16.1. Absent government intervention, how much fertilizer will be produced?

60 bags

Refer to Table 16.3. Suppose the government wants to reduce the total amount of pollution from the current level of 10 to 4. To do this, the government caps each firm's emissions at 2 units and issues 2 permits to each firm. If firms are allowed to trade permits, how many permits will be traded between the two firms?

B will buy one permit from A.

If ________, then a profit-maximizing, monopolistically competitive firm earns positive economic profits.

P > ATC

Related to the Economics in Practice on page 316: A company selling iced tea discovers that as sugar is added to tea, customers' opinions of the taste of the tea rises for the first few grams of sugar and then drops. Even so, the company chooses not to add the amount sugar that would result in the best-tasting tea. Which of the following would explain why adding less sugar could be a wise decision?

Teas with less sugar are more likely to appeal to health-conscious consumers.

________ is a repeated game strategy in which a player responds in kind to an opponent's play.

Tit-for-tat

Which of the following questions is not answered by general equilibrium analysis?

What outcome is most desirable for the whole society?

An example of ________ is a power plant generating water pollution.

a negative production externality

Scientists find that eating corn three times a day will prolong life. This leads to a shift in preferences away from wheat and toward corn. As we move from one equilibrium to another, we can predict that

all input markets are affected.

Related to the Economics in Practice on page 290: The smart phone industry is best characterized as

an oligopoly.

As new firms enter a monopolistically competitive industry, the demand

and marginal revenue curves facing each firm begin to shift to the left.

Which of the following is not an example of price discrimination?

back-to-school sales

Antitrust cases against Eastman Kodak, International Harvester, United Shoe Machinery, and United States Steel resulted in the firms

being found not guilty of unreasonable conduct under the Sherman Act.

According to the Five Forces Model, there are five competitive forces that determine the level of ________ in an industry.

competition and profitability

Mama Lena's, a frozen food producer, is a monopolistically competitive firm. Mama Lena's is currently selling frozen lasagna at a price of $10. Mama Lena's marginal cost is $5 and marginal revenue is $5. This firm should ________ to maximize profits in the short run.

continue to produce the same output level

Refer to Figure 16.3. At 20 units of output there are external

cost of $ 2

If the government taxes a coal company by an amount equal to the damages of each marginal ton of coal, then the coal company's marginal social cost curve is the same as the marginal ________ curve.

cost???

The ________ is(are) empowered to impose a number of ________ if it(they) find(s) that antitrust law has been violated.

courts; remedies

In 1914, the United States Congress

created the Federal Trade Commission.

The Sherman Antitrust Act

declared monopoly and trade restraints illegal.

Refer to Figure 12.4. Assume consumer preference changes toward X and away from Y. Ceteris paribus, the likely change in capital flows in sectors X and Y will eventually________ in industry X and ________ in industry Y.

decrease the price to P0; increase the price to P0

Refer to Figure 12.4. Assume consumer preference changes toward X and away from Y. Ceteris paribus, the likely change in capital flow in sector Y will eventually

eliminate all losses.

Second hand cigarette smoke is an example of a(n)

externality.

Refer to Figure 15.3. In the long run, this monopolistic competitive firm should expect

firms to enter the industry until all economic profits are eliminated.

Refer to Figure 15.1. In this industry, in the long run,

firms will enter until all firms break even economically.

When a perfectly competitive firm weighs price and marginal cost and no externalities exist, it is weighing the ________ benefits to society of additional production against the ________ costs to society of that production.

full, full

In well-functioning markets, all of the following reflect the degree of product variety except

gains from network externalities.

Relating to the Economics in Practice on page 329: If a company that is responsible for an environmental disaster does not end up paying the entire cost of the damage it created, the marginal social cost will be ________ the sum of the marginal costs of production.

greater than

Refer to Figure 16.5. Suppose that instead of a tax, the government uses standards to achieve the emission reductions, requiring that each company cut its original emissions in half rather than allowing each company to choose emissions based on their costs. Compared to the situation under the tax, Alpha's emissions would ________ and Beta's emissions would ________.

increase by 25 tons; decrease by 25 tons

The case for advertising includes the fact that

it provides consumers with valuable information about product availability, quality, and price.

If a tax is placed on perfectly competitive firms that impose external costs on society, the firm's ________ curve will shift up and the industry ________ curve will shift to the left.

marginal cost; supply

A player chooses a ________ strategy to maximize the minimum gain the player can earn.

maximin

A profit‐maximizing firm in a monopolistically competitive market structure behaves much like a ________ in the short run.

monopolistic firm

If firms in a monopolistically competitive industry are earning economic profits, then in the long run,

new firms producing close substitutes will enter the industry and this entry will continue until economic profits are eliminated.

if, at a low cost, you cannot prevent a person from benefiting from the consumption of a good you produced, the good is

nonexcludable.

Public goods are

nonrival in consumption, and their benefits are nonexcludable.

Refer to Figure 12.4. Assume consumer preference changes toward X and away from Y. Ceteris paribus, a new general equilibrium will eventually be reached in sector Y with a price of ________ and a quantity of ________.

not P1; Q1 Po q0?

Refer to Table 16.4. Suppose the government wants to reduce the total amount of pollution from the current level of 10 to 4. To do this, the government caps each firm's emissions at 2 units and issues 2 permits to each firm. If firms are allowed to trade permits, what is the total cost of the pollution reduction

not $80

Refer to Figure 16.5. Before any tax on pollution is imposed, the total amount of pollution being emitted in this industry is ________ tons.

not 100

Refer to Table 16.4. Suppose the government wants to reduce the total amount of pollution from the current level of 10 to 4. To do this, the government caps each firm's emissions at 2 units and issues 2 permits to each firm. If firms are allowed to trade permits and all possible trades are made, Firm A will reduce its pollution by a total of ________ units.

not 2

SCENARIO 16.2: The marginal benefit for a particular food is described by MB = 60 - q, where q refers to the quantity of the food. The marginal cost of producing the food is described by MC = 3q. There is a negative externality associated with food production and the marginal social cost of food production is MSC = 5q. Refer to Scenario 16.2. The efficient output level is ________ and the efficient price is ________.

not 20 units of food; $40

There are 500 families in a neighborhood that are affected by air pollution from a local factory. The pollution is within legal limits, but could be reduced further if the company spent $10,000 on upgraded ventilators. The company agrees to install the ventilators if the affected families contribute the $10,000. A committee starts to collect donations to pay for the ventilators. Which of the following is most likely to occur?

not Because there are relatively few families involved and the individual contribution is so small, all families will voluntarily contribute. other bc???

There are 1,000 families in a neighborhood that is affected by noise pollution from a local factory. The noise level is within legal limits, but could be reduced further if the company spent $5,000 on technological improvements. The company agrees to make these improvements if the affected families contribute the $5,000. A committee starts to collect donations to pay for the improvements. Which of the following is most likely to occur?

not Because there are relatively few families involved and the individual contribution is so small, all families will voluntarily contribute. other bc????

Relating to the Economics in Practice on page 339: Europe has a carbon tax, and electricity producers are among the largest of the carbon producing firms. The carbon tax increases the costs of the electricity producers, which will shift the ________ curve in the electricity market to the ________.

not demand; left

Refer to Figure 15.4. Assume The Hand Made Shirt Shop has fixed costs of $150 and is a monopolistically competitive firm. If the firm produces the profit-maximizing level of output and sells it at the profit-maximizing price, the firm ________ of $100.

not earns profit

The case for advertising includes the idea that

not it adds to society's scarce resources.

Relating to the Economics in Practice on page 329: By not factoring in the external costs on society resulting from an environmental disaster caused by a specific firm, the firm will most likely ________ its product, and at equilibrium, the marginal social costs of production will be ________ the price.

not overproduce; less than

Empirically measuring the marginal social benefit of pollution is ________ and empirically measuring the marginal social cost of pollution is ________.

not relatively easy; difficult oppo of ^ ?

In 2000 Microsoft was

ordered by a judge to split into two companies.

There are 10 families in a neighborhood that are affected by noise pollution from a local factory. The noise could be reduced if the company spent $5,000 on technological improvements. The company agrees to make these improvements if the affected families contribute the $5,000. Since there are no legal restrictions governing the factory's noise the negotiations fail. This outcome is an example of the

problem that arises when property rights are not defined.

The Specialty Cake Store, a monopolistically competitive firm, is producing 200 decorated cakes per day and selling each cake for $12. At that production level ATC is $20, AVC is $15, AFC is $5, and both MR and MC are $8. This firm should

produce zero cakes and just pay fixed costs.

Pie-Oh-My, a monopolistically competitive firm, is producing 80 gourmet pies per day and selling each pie for $32. At that production level ATC is $40, AVC is $30, AFC is $10, and both MR and MC are $16. In the short run, this firm should

produce zero pies and pay fixed costs

Tit-for-tat is a ________ game strategy in which a player ________ an opponent's play.

repeated; responds in kind to

Referring to the Economics in Practice on page 318: In recent years, some companies have concentrated on increasing their reputation for environmental stewardship, including spending money on green advertising to attract consumers who value this activity. A successful green advertising campaign will most likely shift the demand curve for their products to the ________, resulting in ________ in the equilibrium price of these items.

right; an increase

Private goods are

rival in consumption, and their benefits are excludable.

According to the Five Forces Model, ________ are the five competitive forces that determine the level of competition and profitability in an industry.

rivals, buyers, suppliers, substitutes, and potential entrants

refer to Figure 15.3. Gwen's Country Curtains is currently manufacturing 1,000 pairs of curtains per month. This firm

should continue to produce 1,000 pairs of curtains; it is already maximizing profits.

Refer to Figure 15.5. Assume The Custom Sweater Shop has fixed costs of $500 and is a monopolistically competitive firm. At the profit-maximizing output in the short run, the firm ________ of $46.

should set a price

Refer to Figure 15.4. In the long run, in this monopolistically competitive industry,

some firms will leave the industry until the remaining firms earn a normal profit.

If the production of a good generates external benefits, the government could increase efficiency by

subsidizing production of the good to increase the amount produced.

Behavioral economics

suggests that consumers purchase health club memberships instead of paying per visit in an attempt to commit themselves to an exercise regime.

Governments often ________ activities that generate external ________.

tax; costs

If the government wishes to encourage firms to internalize externalities, they should ________ activities resulting in negative externalities and ________ activities resulting in positive externalities

tax; subsidize

In which of the following ways has the Internet has had a significant influence on advertising?

the Internet has improved firms' ability to target specific markets.

According to ________, an efficient mix of public goods is produced when local land/housing prices and taxes reflect consumer preferences.

the Tiebout hypothesis

Efficiency occurs when

the economy is producing what people want at least possible cost.

Refer to Figure 12.4. Assume consumer preference changes toward X and away from Y. Ceteris paribus, sector X will likely see ________ and sector Y will likely see ________.

the entrance of new firms; the exit of existing firms

Resources are allocated efficiently when

the market produces what people want & production occurs at least cost not output is fairly distributed.

The Coase theorem will apply only if

the number of people involved is small.

The prisoners' dilemma game presented in the text involves ________ players each with ________ strategies.

two; two

If a tax is placed on perfectly competitive firms that impose external costs on society, the firm's marginal cost curve will shift ________ and the industry supply curve will shift to the ________.

up, left

The free-rider problem arises

when people realize they will still receive the benefits of a good whether they pay for it or not