Microeconomics

Refer to the table to the right which shows cost data for Lotus​ Lanterns, a producer of whimsical night lights. What is the average total cost of production when the firm produces 120​ lanterns?

$14

Eco Energy is a monopolistically competitive producer of a sports beverage called Power On. The table to the right shows the​ firm's demand and cost schedules. What is Eco​ Energy's profit?

$145

Why does a monopoly cause a deadweight​ loss?

because it does not produce some output for which marginal benefit exceeds marginal cost

If the marginal cost curve is below the average variable cost​ curve, then

average variable cost is decreasing

Consumers benefit from monopolistic competition by

being able to choose from products more closely suited to their tastes.

A monopolistically competitive industry that earns economic profits in the short run will

experience the entry of new rival firms into the industry in the long run.

Average fixed costs of production

falls as long as output is increased

Collusion between two firms occurs when

firms explicitly or implicitly agree to adopt a uniform business strategy.

An oligopolistic industry is characterized by all of the following except

firms pursuing aggressive business​ strategies, independent of​ rivals' strategies.

The study of how people make decisions in situations where attaining their goals depends on their interactions with others is called

game theory.

A patent or copyright is a barrier to entry based on

government action to protect a producer

A profit maximizing​ monopoly's price is

greater than the price that would prevail if the industry is perfectly competitive.

A monopolistically competitive firm will

have some control over its price because its product is differentiated.

A merger between the Ford Motor Company and General Motors would be an example of a

horizontal merger.

Oligopolies are difficult to analyze because

how firms respond to a price change by a rival is uncertain.

Suppose OPEC has only two​ producers, Saudi Arabia and Nigeria. Saudi Arabia has far more oil reserves and is the lower cost producer compared to Nigeria. The payoff matrix in the table to the right shows the profits earned per day by each country.​ "Low output" corresponds to producing the OPEC assigned quota and​ "high output" corresponds to producing the maximum capacity beyond the assigned quota. What is the Nash equilibrium in this​ game?

in the nash equilibrium saudi arabia produces a low output and earns a profit of 80 million and nigeria produces a high output and 30 million respectively

A public franchise

is a government designation that a private firm is the only legal producer of a good or service.

A firm that has the ability to control to some degree the price of the product it sells

is a price maker

A merger between firms at different stages of production of a good

is a vertical merger.

A dominant strategy

is one that is the best for a​ firm, no matter what strategies other firms use.

A firm has successfully adopted a positive technological change when

it can produce more output using the same inputs

Which of the following is not a source of technological advancement for a​ producer?

outsourcing some aspect of production.

Refer to the diagram to the right. The average product of the 4th worker

17

Refer to the diagram to the right which shows the demand and cost curves for a monopolist. What is the amount of the​ monopoly's total cost of​ production?

$17700

Refer to the diagram to the right which shows the demand and cost curves for a monopolist. What is the amount of the​ monopoly's total​ revenue?

$20,400

Vipsana's Gyros House sells gyros. The cost of ingredients​ (pita, meat,​ spices, etc.) to make a gyro is​ $2.00. Vipsana pays her employees​ $60 per day. She also incurs a fixed cost of​ $120 per day. Calculate​ Vipsana's total cost per day when she produces 50 gyros using two​ workers?

$340

What is the marginal revenue of the sixth unit of​ output?

$4

Golda Rush quit her job as a manager for Home Depot to start her own hair dressing​ salon, Goldilocks. She gave up a salary of​ $40,000 per​ year, invested her savings of​ $30,000 (which was earning 5 percent​ interest) and borrowed​ $10,000 from a close​ friend, agreeing to pay 5 percent interest per year. In her first​ year, Golda spent​ $18,000 to rent a​ salon, hired a​ part-time assistant for​ $12,000 and incurred another​ $15,000 on equipment and hairdressing material. Based on this​ information, what is the amount of her implicit​ costs?.

$41,500

Golda Rush quit her job as a manager for Home Depot to start her own hair dressing​ salon, Goldilocks. She gave up a salary of​ $40,000 per​ year, invested her savings of​ $30,000 (which was earning 5 percent​ interest) and borrowed​ $10,000 from a close​ friend, agreeing to pay 5 percent interest per year. In her first​ year, Golda spent​ $18,000 to rent a​ salon, hired a​ part-time assistant for​ $12,000 and incurred another​ $15,000 on equipment and hairdressing material. Based on this​ information, what is the amount of her explicit​ costs?

$45500

Refer to the diagram to the right which shows the demand and cost curves facing a monopolist. Suppose the monopolist represented in the diagram to the right produces positive output. What is the price charged at the profitminus ​maximizing/lossminusminimizing output​ level?

$68

The figure to the right shows the cost structure for a firm. When the output level is 100 units average fixed cost is

$8

Refer to the diagram to the right which shows short run cost and demand curves for a monopolistically competitive firm in the market for designer watches. If the firm represented in the diagram is currently producing and selling Qa ​units, what is the price​ charged?

$P2

Refer to the diagram to the right which shows short run cost and demand curves for a monopolistically competitive firm in the market for designer watches. What is the area that represents the total revenue made by the​ firm?

0P2cQa

Refer to the table to the right which shows the technology of production at the​ Matsuko's Mushroom Farm for the month of May. What is the average product of labor when the farm hires 5​ workers?

10.8 ponuds

Refer to the table to the right which shows cost data for Lotus​ Lanterns, a producer of whimsical night lights. What is the total variable cost of production when the firm produces 115​ lanterns?

1157

Refer to the diagram to the right. The marginal product of the 3rd worker is

15

A United States government patent lasts

20 years

The figure to the right shows the cost structure for a firm. When output level is​ 100, what is the total cost of​ production?

2000

Refer to the table to the right which shows cost data for Lotus​ Lanterns, a producer of whimsical night lights. What is the marginal cost per unit of production when the firm produces 100​ lanterns?

32

Refer to the table to the right which shows the technology of production at the​ Matsuko's Mushroom Farm for the month of May. Diminishing marginal returns sets in when the​ ________ worker is hired.

3rd

Refer to the table to the right which shows the technology of production at the​ Matsuko's Mushroom Farm for the month of May. What is the marginal product of the 4th​ worker?

5 pounds

If 11 workers can produce a total of 54 units of a product and a 12th worker has a marginal product of 6​ units, then the average product of 12 workers is

5 units

Refer to the diagram to the right which shows the demand and cost curves facing a monopolist. Suppose the monopolist represented in the diagram to the right produces positive output. What is the profit ​maximizing/lossminus minimizing output​ level?

630 units

Assume a hypothetical case where an industry begins as perfectly competitive and then becomes a monopoly. Which of the following statements comparing the conditions in the industry under both market structures is true​?

A monopoly will produce less and charge a higher price than would a perfectly competitive industry producing the same good.

Figure to the right shows the cost and demand curves for a monopolist. If the firm maximizes its​ profits, the deadweight loss to society due to this monopoly is equal to the area

ACE

Which of the following equations is​ correct?

AFC​ + AVC​ = ATC

Refer to the diagram to the right which shows the demand and cost curves for a monopolist. What is likely to happen to this monopoly in the long​ run?

As long as there are entry​ barriers, this firm will continue to enjoy economic profits.

Which of the following is a reason why a firm would experience diseconomies of​ scale?

As the size of the firm increases it becomes more difficult to coordinate the operations of its manufacturing plants.

What type of protection does U.S. law grant the creator of a​ book, film or piece of​ music?

A​ copyright, which grants the exclusive right to use the creation during the​ author's lifetime and to his or her heirs for 70 years after the​ author's death.

Refer to the diagram to the right. Identify the curves in the diagram.

E ​= marginal cost​ curve; F ​= average total cost​ curve; G ​= average variable cost​ curve; H​ = average fixed cost curve.

Which of the following explains why the marginal cost curve has a U​ shape?

Initially, the marginal product of labor​ rises, then falls

Which of the following statements best describes the economic short​ run?

It is a period during which at least one of the​ firm's inputs is fixed

Refer to the diagram to the right which shows short run cost and demand curves for a monopolistically competitive firm in the market for designer watches. What is the area that represents the total fixed cost of​ production?

P1bdP3

Refer to the diagram to the right which shows the demand and cost curves facing a monopolist. The​ firm's profit maximizing price is

P3.

Which of the following is true for a monopolistically competitive firm in long run ​equilibrium?

P=ATC and MR=MC

Refer to the diagram to the right. Identify the minimum efficient scale of production

Qb

The first important federal law passed to regulate monopolies in the United States was the

Sherman Act.

Refer to the diagram to the right. The average product of labor declines after L2 because

The marginal product of labor is below the average product of labor

The marginal revenue from one additional unit sold is the sum of the gain in revenue from selling the additional unit and the loss in revenue from having to charge a lower price to sell the additional unit. Based on the diagram in the​ figure,

Y represents the gain​ (output effect) and X the loss​ (price effect).

Refer to the diagram to the right which shows short run cost and demand curves for a monopolistically competitive firm in the market for designer watches. Should the firm represented in the diagram continue to stay in business despite its​ losses?

Yes, its total revenue covers its variable cost.

Suppose OPEC has only two​ producers, Saudi Arabia and Nigeria. Saudi Arabia has far more oil reserves and is the lower cost producer compared to Nigeria. The payoff matrix in the table to the right shows the profits earned per day by each country.​ "Low output" corresponds to producing the OPEC assigned quota and​ "high output" corresponds to producing the maximum capacity beyond the assigned quota. Is there a dominant strategy for Saudi Arabia​ and, if​ so, what is​ it?

Yes, the dominant strategy is to produce a low output.

A set of actions that a firm takes to achieve a​ goal, such as maximizing​ profits, is called

a business strategy

A monopolist faces

a downward sloping demand curve.

What is a​ prisoners' dilemma?

a game in which players act in​ rational, selfminus interested ways that leave everyone worse off

A cartel is

a group of firms that enter into a formal agreement to fix prices to maximize joint profits.

A monopolistically competitive market is described as one in which there are

a large number of firms selling​ similar, but not​ identical, products.

Marginal cost is the

additional cost of producing an additional unit of output

Which of the following is an example of a way in which a firm in oligopoly can escape the​ prisoners' dilemma?

advertising that it will match its​ rival's price

Refer to the diagram to the right. Diminishing returns to labor set in

after L1

To maintain a​ monopoly, a firm must have

an insurmountable barrier to entry.

The Clayton Act prohibited

any merger if its effect was to substantially lessen competition or create a monopoly

Refer to the diagram to the right. The vertical difference between curves F and G measures

average fixed cost

If production displays economies of​ scale, the long run average cost curve is

downward-sloping

Economic cost of production differ from accounting costs in that

economic cost adds the opportunity cost of a firm using its own resources while accounting cost does not.

A local electricityminus generating company has a monopoly that is protected by an entry barrier that takes the form of

economies of scale.

​If, when a firm doubles all its​ inputs, its average cost of production​ decreases, then production displays

economies of scale.

The average total cost of production

equals total cost of production divided by the level of output

If a firm faces a downward sloping demand​ curve

it must reduce its price to sell more units.

Refer to the diagram to the right which shows the demand and cost curves facing a monopolist. Suppose the monopolist represented in the diagram to the right produces positive output. What is the​ profit/loss per​ unit?

loss of​ $7 per unit

Refer to the diagram to the right which shows the demand and cost curves facing a monopolist. If the​ firm's average total cost curve is ATC1​, the firm will

make a profit

Refer to the diagram to the right. The firm represented in the diagram makes

makes zero economic profit. This is the correct answer.

One reason​ why, in the last four​ decades, the number of new auto makers in the world has been very small compared to the past is that

new producers cannot match the economies of scale of existing auto makers

In an oligopoly market

one​ firm's pricing decision affects all the other firms.

When a monopolistically competitive firm cuts its price to increase its​ sales, it experiences a gain in revenue due to the

output effect.

Which of the following firms is patent protection of vital importance​ to?

pharmaceutical firms

A Nash equilibrium is

reached when each player chooses the best strategy for​ himself, given the strategies chosen by the other players in the group.

Which of the following is an implicit cost of​ production?

rent that could have been earned on a building owned and used by the firm

Governments grant patents to encourage

research and development on new products.

Merger guidelines developed by the U.S. Department of Justice and the Federal Trade Commission use the Herfindahlminus Hirschman Index as a measure of concentration. This index measures concentration in an industry by

squaring the market shares of each firm in an industry and then adding up the values of the squares.

Refer to the diagram to the right which shows the demand and cost curves facing a monopolist. If the​ firm's average total cost curve is ATC3​, the firm will

suffer a loss.

The law of diminishing marginal returns states

that at some​ point, adding more of a variable input to a given amount of a fixed​ input, will cause the marginal product of the variable input to decline.

Refer to the diagram to the right. Diminishing marginal productivity sets in after

the 2nd worker is hired

The marginal product of labor is defined as

the additional output that results when one more worker is​ hired, holding all other resources constant.

Refer to the diagram to the right which shows short run cost and demand curves for a monopolistically competitive firm in the market for designer watches. What is the area that represents the loss made by the​ firm?

the area P2cdP3

Refer to the diagram to the right. The curve labeled ​"E" is

the marginal product curve

The demand curve for the​ monopoly's product is

the market demand for the product

The production function shows

the maximum output that can be produced from each possible quantity of inputs.

Because a​ monopoly's demand curve is the same as the market demand curve for its​ product

the monopoly must lower its price to sell more of its product

Which of the following is the best example of an oligopolistic​ industry?

the pharmaceutical industry

Suppose we want to use game theory to analyze how an oligopolist selects its optimal price. The cells of the payoff matrix show

the profit that each producer can expect to earn from every combination of strategies by the firms in the market.

A monopoly is characterized by all of the following except

there are only a few sellers each selling a unique product.

What is the incentive for a firm to join a​ cartel?

to be able earn larger profits than if it was not part of the cartel.

What is the profit maximizing rule for a monopolistically competitive​ firm?

to produce a quantity such that marginal revenue equals marginal cost

The basic activity of a firm is .

to use inputs to produce outputs of goods and services.

A​ monopolist's profit maximizing price and output correspond to the point on a graph

where marginal revenue equals marginal cost and charging the price on the market demand curve for that output

When a firm produces​ 50,000 units of​ output, its total cost equals​ $6.5 million. When it increases its production to​ 70,000 units of​ output, its total cost increased to​ $9.4 million. Within this​ range, the marginal cost of an additional unit of output is

​$145.

Refer to the diagram to the right which shows the demand and cost curves for a monopolist. What is the amount of the​ monopoly's profit?

​$2,700

Eco Energy is a monopolistically competitive producer of a sports beverage called Power On. The table to the right shows the​ firm's demand and cost schedules. What is the most output​ (Q) that Eco Energy can produce that will maximize profit and what is the price​ (P) charged?

​P=$50; Q=6 cases

Suppose OPEC has only two​ producers, Saudi Arabia and Nigeria. Saudi Arabia has far more oil reserves and is the lower cost producer compared to Nigeria. The payoff matrix in the table to the right shows the profits earned per day by each country.​ "Low output" corresponds to producing the OPEC assigned quota and​ "high output" corresponds to producing the maximum capacity beyond the assigned quota. Is there a dominant strategy for Nigeria​ and, if​ so, what is​ it?

​Yes, the dominant strategy is to produce a high output.

The table to the right shows the payoff matrix for Wal Mart and Target from every combination of pricing strategies for the popular PlayStation 3. At the start of the game each firm charges a low price and each earns a profit of​ $7,000. For each​ firm, is there a better outcome than the current situation in which each firm charges the low price and earns a profit of​ $7,000?

​Yes, the firms can implicitly collude and agree to charge a higher price.