Micro practice test 2
If a perfectly competitive firm produces an output level at which price is less than marginal cost, and the firm should
Reduce output to earn greater profits or smaller losses
When a pharmaceutical company introduces a new drug, it's research and development costs are ______, and the cost of the chemicals used in manufacturing the drug are ______.
Start up costs; variable costs
John is trying to decide how to divide his time between his job as a stocker, which pays $7 per hour for as many hours as he chooses to work, and cleaning windows downtown. He makes $2 for every window he cleans. What is the opportunity cost of cleaning windows for one hour?
$7
Refer to the accompanying table. As the firm increases the number of employees per each day from 1 to 2, output increases by
33 units
The short run is best defined as
A period of tine sufficiently short that at least one factor of production is fixed
A price ceiling that is set below the equilibrium price will result in
A shortage of the good
A pure monopoly exists when
A single firm produces a good with no close substitutes
A good is characterized by network economies if it
Becomes more valuable as more people own it
A firm whose production process exhibits constant returns to scale would find that if it doubled all its inputs, its output would
Double
As the market price of the service increases, more potential sellers will decide to perform that service because
More potential sellers will find at the market price exceeds their reservation price
Which of the following industries does not fit the natural monopoly model?
Fast food restaurants
A perfectly price discriminating monopolist's profit is ________ the profit of a monopolist who charges the same price to all of its customers
Higher than
If it is possible to make a change that will help some people without harming others, then the situation is
Inefficient
Which of the following is a characteristic of economic rent?
It can never be negative
Both the perfectly competitive firm and the monopolist find that:
It is best to expand production until the benefit and the cost of the last unit produced are equal
Cartel agreements are difficult to sustain because
It's a dominant strategy for each member to cheat on the cartel agreement
A firm is most likely to experience economies of scale is its start up costs are high and its marginal costs are
Low
Airlines that charge higher prices for seats in the first class cabin are
Not price discriminating because the product is not the same
Adam Smith coined the term "invisible hand" to describe the process by which the actions of independent, self-interested buyers and sellers will:
Often lead to the most efficient allocation of resources
The profit maximizing rule P=MC applies to
Perfectly competitive firms only
Free entry and exit of firms is a characteristic of
Perfectly competitive industries
Imperfect price discrimination occurs when a monopolist
Price discriminated but some buyers pay less than their reservation price
Because monopolist charge a price in excess of marginal cost, it must be the case that monopolists
Produce less than the socially optimal level of output
The role that prices play in distributing scarce goods and services to those consumers who value them the most highly is known as the ______ function of price.
Rationing
Subsidies are most likely to
Reduce total economic surplus
Refer to the accompanying figure. If the market for donuts is perfectly competitive, then assuming this firm can enough revenue to cover it's variable variable costs, it should produce
The quantity of donuts at which marginal cost equals the market price
According to the theory of the invisible hand, if buyers and sellers are free to pursue their own self-interest, the result often will be
An efficient allocation of resources
In an industry with free entry and exit, positive economic profit
Cannot be sustained indefinitely
Which of the following is NOT a characteristic of a perfectly competitive market
Each firm in the market sells a somewhat different variant of the good
According to the textbook, the most important nd enduring source of market power is
Economies of scale
For perfectly competitive firms, marginal revenue _______ price; for monopolists marginal revenue ______ price
Equals; is less than
Assume that all firms in this industry have identical cost curves, and that the market is perfectly competitive. The firm depicted in the graph on the right faces a demand curve that is
Horizontal at the market price
Given the demand curve it faces, if an imperfectly competitive firm wants to sell another unit of output, it must:
Lower its price
In general, when the price of a variable factor of production increases
Marginal cost increases
If a production process exhibits diminishing returns, then as output rises
Marginal cost will eventually increase
Explicit costs
Measure the payments made to the firm's factors of production
Game theory provides tools that are used to model:
Strategic interdependencies
If the firms in a market are earning an economic profit, then, in the long run, the market ______ curve will shift to the _______
Supply;right
Suppose farmers in a given market can either grow soybeans or corn on their land. In addition, suppose an increase in the demand for corn causes the price of corn to increase. All else equal, an increase in the price of corn creates an incentive for farmers to
Switch away from going soybeans and into growing corn
Suppose a firm produces the level of an output at which the marginal cost of the last unit produced equals the price of the food. Which of the following statements is always true?
The firm should shutdown if its total revenue is less than its variable cost
The statement "If a deal is too good to be true, then it probably is not true." is most closely related to which core economic principle?
The no-cash-on-the-table Principle
Which of the following is the most likely to be a variable factor of production at a university?
The number of librarians
A prisoners dilemma is a game in which
The player's payoffs are smaller when both play their dominant strategy compared to when play a dominated strategy
Which of the following is the most likely to be a fixed factor of production at a pizza restaurant?
The size of the seating area
Your neighbors have offered to pay you to look after their dog while they're on vacation. It will take you one hour per day to care for the dog which you can do before or after work. Your regular job pays $10 per hour, and you can work up to eight hours per day. The smallest amount of money you would accept to look after the dog each day is equal to
The value you place on one hour of leisure
Average total cost is defined as
Total cost divided by total output
Economic profit is equal to
Total revenue minus the sum of explicit and implicit costs
The sum of producer surplus and consumer surplus is
Total surplus
Individual supply curves generally slope _______ because _______
Upward; increasing opportunity costs
Even when a firm produces the level of output at which price equals marginal cost, it should shut down if its total revenue is less than its
Variable cost