micro final
At an output of 1,000 units per year, a firm's fixed costs are $5,000 and its average variable costs are $6. Its total costs per year are
$11,000
The representative firm in a purely competitive industry
will earn zero economic profit in the long run.
A fall in the price of milk, used in the production of ice cream, will
increase the supply of ice cream.
One feature of pure monopoly is that the demand curve
slopes downward
If a nation is initially on its production possibilities curve, then it can increase its production of one good only by
decreasing the production of the other good
If X is a normal good, a rise in money income will shift the
demand curve for X to the right.
If products A and B are complements and the price of B decreases, the
demand for A will increase and the quantity of B demanded will increase.
An important similarity between a monopolistically competitive firm and a purely competitive firm is that
economic profit tends toward zero for both
Which of the following industries most closely approximates pure competition?
agriculture
In pure competition, the demand for the product of a single firm is perfectly
elastic because many other firms produce the same product
Economic profits are
equal to the difference between accounting profits and implicit costs
A price floor means that
government is imposing a minimum legal price that is typically above the equilibrium price.
If you owned a small farm, which of the following would most likely be a fixed cost?
hail insurance
Allocative efficiency occurs whenever
it is impossible to produce a net benefit for society by changing the combination of goods and services produced.
A significant difference between a monopolistically competitive firm and a purely competitive firm is that the
latter's demand curve is perfectly elastic.
A natural monopoly occurs when
long-run average costs decline continuously through the range of demand
Assume for a competitive firm that MC = AVC at $12, MC = ATC at $20, and MC = MR at $16. This firm will
minimize its losses by producing in the short run
In the long run, a firm will choose a plant size that has the
minimum average total cost of producing the target level of output.
Assume that a decline in consumer demand occurs in a purely competitive industry that is initially in long-run equilibrium. We can
not compare the original and the new prices without knowing what cost conditions exist in the industry.
Implicit costs are
opportunity costs of self-employed resources
A demand curve that is parallel to the horizontal axis is
perfectly elastic
"Economics is concerned with how individuals, institutions, and society make optimal choices under conditions of scarcity." This statement is
positive and correct.
The law of supply suggests that the price-elasticity of supply is
positive.
A decrease in the demand for recreational fishing boats might be caused by an increase in the
price of outboard motors.
Allocative efficiency is concerned with
producing the combination of goods most desired by society.
A monopolistically competitive industry combines elements of both competition and monopoly. The monopoly element results from
product differentiation.
In which one of the following market models is X-inefficiency most likely to be the greatest?
pure monopoly
Local electric or gas utility companies mostly operate in which market structure?
pure monopoly
Any point inside the production possibilities curve indicates
that more output could be produced with the available resources.
Marginal product is
the change in total output attributable to the employment of one more worker.
A study of mass-transit systems in American cities revealed that in the long run, revenues generally decline after substantial fare increases. This would suggest that
the demand for mass transit is price-elastic in the long run.
A black market could arise as a result of
the imposition of a legal price ceiling below the equilibrium price
The term productive efficiency refers to
the production of a good at the lowest average total cost.
Normal profit is
the return to the entrepreneur when economic profits are zero.
Harvey quit his job at State University, where he earned $45,000 a year. He figures his entrepreneurial talent or forgone entrepreneurial income to be $5,000 a year. To start the business, he cashed in $100,000 in bonds that earned 10 percent interest annually to buy a software company, Extreme Gaming. In the first year, the firm sold 11,000 units of software at $75 for each unit. Of the $75 per unit, $55 goes for the costs of production, packaging, marketing, employee wages and benefits, and rent on a building. The economic profits of Harvey's firm in the first year were
$160,000
Harvey quit his job at State University, where he earned $45,000 a year. He figures his entrepreneurial talent or forgone entrepreneurial income to be $5,000 a year. To start the business, he cashed in $100,000 in bonds that earned 10 percent interest annually to buy a software company, Extreme Gaming. In the first year, the firm sold 11,000 units of software at $75 for each unit. Of the $75 per unit, $55 goes for the costs of production, packaging, marketing, employee wages and benefits, and rent on a building. The implicit costs of Harvey's firm in the first year were
$60,000
At an output of 1,000 units per year, a firm's variable costs are $5,000 and its average fixed costs are $3. Its total costs per year are
$8,000
Harvey quit his job at State University, where he earned $45,000 a year. He figures his entrepreneurial talent or forgone entrepreneurial income to be $5,000 a year. To start the business, he cashed in $100,000 in bonds that earned 10 percent interest annually to buy a software company, Extreme Gaming. In the first year, the firm sold 11,000 units of software at $75 for each unit. Of the $75 per unit, $55 goes for the costs of production, packaging, marketing, employee wages and benefits, and rent on a building. The total revenues of Harvey's firm in the first year were
$825,000
A monopolist is free to charge whatever price it wishes, to sell a certain level of output
False
A monopolist, being the sole seller in a market, is assured of positive economic profits.
False
In monopolistic competition, short-run positive economic profits of firms in the market will cause the market demand to expand.
False
Monopolistically competitive firms will achieve the most efficient allocation of society's resources because there are no significant barriers to entry into the industry.
False
Which of the following is true under conditions of pure competition?
No single firm can influence the market price by changing its production level.
In the short run, a profit-maximizing monopolistically competitive firm sets it price
above marginal cost.
In the short run, which of the following statements is correct?
Total cost will exceed variable cost.
A monopolist can use its pricing strategy as a barrier to entry by other firms.
True
As firms exit from a monopolistically competitive industry in the long run, the remaining firms' profits will begin to rise.
True
Brand names and packaging are forms of product differentiation under monopolistic competition.
True
The long-run supply curve for a purely competitive industry would be horizontal when
a decrease in product demand causes no effect in resource prices.
Suppose losses cause industry X to contract and, as a result, the prices of relevant inputs decline. Industry X is
an increasing-cost industry.
Monopolists are said to be allocatively inefficient because
at the profit-maximizing output, the marginal benefit of the product to society exceeds its marginal cost.
In long-run equilibrium under pure competition, all firms will produce at minimum
average total cost.
If marginal cost is below average variable cost,
both average total cost and average variable cost are decreasing.
A market for a product reaches equilibrium when
buyers intend to buy a quantity equal to the quantity that sellers intend to sell.
Marginal revenue is the
change in total revenue associated with the sale of one more unit of output
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.
A firm sells a product in a purely competitive market. The marginal cost of the product at the current output of 1,000 units is $2.50. The minimum possible average variable cost is $2.00. The market price of the product is $2.50. To maximize profits or minimize losses, the firm should
continue producing 1,000 units.
Suppose the market for corn is a purely competitive, constant-cost industry that is in long-run equilibrium. Now assume that an increase in consumer demand occurs. After all resulting adjustments have been completed, the new equilibrium price will be
the same as the initial equilibrium price, but the new industry output will be greater than the original output.
One argument for having the government regulate natural monopolies is that without regulation,
these monopolies produce at a level where marginal benefit is greater than marginal cost.