Microeconomics Midterm #2
Marginal revenue and marginal cost
A competitive firm in the short run can determine the profit-maximizing (or loss-minimizing) output by equating:
faces a less elastic demand curve
Compared to a competitive firm, a monopolistically competitive firm:
The study of how people behave in strategic situations
Game theory:
150, 46, 196
Refer to the data. We can infer that, at 2 output, this firm's total fixed, total variable, and total costs are:
output is not at the intersection of marginal cost and average total cost
The monopolistically competitive firm illustrated in the diagram exhibits productive inefficiency because its profit maximizing:
Is using the least-cost combination of resources to produce its output but should use more of both
Assume a candle manufacturer is employing two resources L and C in such quantities that the MRPs are $30 and $25, respectively. The prices of the resources are $24 and $20, respectively. This firm:
area AFHC
Refer to the diagram. If this firm produces its profit-maximizing output, its potential profit is:
Monopolistic Competition
Suppose several firms in a purely competitive industry begin to experiment slightly with their product designs. This product differentiation allows them to modestly increase their prices and increase their short-run profits. The industry now more closely resembles:
The demand for the product or service that it helps produce
The demand for a resource depends primarily on:
competitors will follow a price cut but ignore a price increase
The kinked-demand curve of an oligopolist is based on the assumption that:
3 Associates
Use the data from the following table for the next question. A law firm has discovered the following relationship between the number of junior associates and its total revenue. Refer to the data. If the market pay for a junior associate is $1500, the law firm should hire:
Brand image
Which of the following is not a barrier to entry?
P4, 30
Which one of the following price-quantity combinations is not on this competitive firm's short-run supply curve?
100%
Which value (in percentage form) of the four-firm concentration ratio is most likely to indicate a monopolistically competitive market?
Average costs of producing any output are greater than the minimum possible average costs
X-inefficiency is said to occur when a firm's:
An economic profit that could be increased by producing less output
At a monopolist's current output, ATC = $13, P = $14, MC = $6 and MR = $5. This firm is realizing:
P3
At which of the following prices will the firm produce a positive amount but incur a loss?
Firms behave strategically
In an oligopolistic industry:
3800
A particular industry consists of three firms whose market shares are 50%, 30%, and 20%. The Herfindahl index for the industry is:
Price equals marginal cost
When a purely competitive firm is in long-run equilibrium:
Upsloping and equal to the portion of the marginal cost curve that lies above the average variable cost curve
A purely competitive firm's short-run supply curve is:
Tourism increases in popularity, increasing the demand for workers at tourist resorts
Which is an example of a change in product demand that increases labor demand?
P = MC = minimum ATC
Which of the following conditions is true for a purely competitive firm in long-run equilibrium?
innovate to lower operating costs and generate short-run economic profits
Entrepreneurs in purely competitive industries:
A purely competitive and imperfectly competitive producer will both hire less labor
If the wage rate increases, what will a purely competitive and an imperfectly competitive producer do?
There are many firms/ similar products/ businesses can change prices/ low barrier of entry
In a monopolistically competitive market:
Produce the output at which marginal revenue equals marginal cost
In long run equilibrium, both competitive firms and monopolistic firms that maximize profits:
Until economic profits are zero
In the long run, new firms will enter a monopolistically competitive industry:
P = ATC
In the short run, a purely competitive firm will earn a normal profit when:
Above Marginal Cost
In the short-run, a profit-maximizing monopolistically competitive firm sets it price:
Takers
Individual firms in purely competitive markets are price ______
12.5, 55, 67.5
Refer to the data. At 4 units of output, average fixed cost, average variable cost, and average total cost are:
Marginal productivity theory of income distribution
"Income receivers should be paid in accordance with the value of output each produces." This statement is consistent with the:
It is unclear what the firm should do without knowing marginal revenue
A monopolistically competitive firm in the short run is producing where price is $3.00 and marginal cost is $1.50. To maximize profits:
Input prices fall or technology improves as the industry expands
A decreasing-cost industry is one in which:
the process by which new firms and new products replace existing dominant firms and products
Creative destruction is:
Total revenue from the use of an additional unit of a resource
Marginal revenue product is the increase in:
Oligopoly
An industry whose Herfindahl index is 5300, producing a standardized product, is most likely an example of:
$2
Answer the next question on the basis of the following table showing the demand schedule facing a nondiscriminating monopolist. Refer to the data. The marginal revenue of the fourth unit of output is:
MC = MR (marginal cost equals marginal revenue)
Many people believe that monopolies charge any price they want to without affecting sales. Instead, the output level for a profit-maximizing monopoly is determined by:
advertising, product promotion, and changes in the real or perceived characteristics of a product
Nonprice competition refers to:
the selling of a given product at different prices that do not reflect cost differences
Price discrimination refers to:
P1 but the firm would incur a loss
Refer to the diagram. A regulatory commission that wished to establish a fair return output level for this firm would set price at: A regulatory commission that wished to establish a socially optimal output level for this firm would set price at:
Marginal revenue is zero
Refer to the diagram. At output q2, or q1, or q3:
M units at price A and make a profit
Refer to the diagram. This nondiscriminating monopolist will produce:
Gamma would prefer to switch to a low-price strategy
Refer to the matrix, which shows the profit payoffs to each of two oligopolistic firms of following either a high- or low-price policy. Gamma's payoffs are in the lower left corner of each cell; Delta's in the upper right. If Gamma uses a high-price strategy and Delta uses a low-price strategy:
$30 for both Gamma and Delta
Refer to the matrix, which shows the profit payoffs to each of two oligopolistic firms of following either a high- or low-price policy. Gamma's payoffs are in the lower left corner of each cell; Delta's in the upper right. If both firms make their decisions independently, the most likely outcome is:
The demand for resource X to be more elastic than the demand for resource Y
Resource Y has no close substitutes whereas resource X has many close substitutes. Other things equal, we would expect:
demand is more inelastic
Suppose a monopolist could segment its market into two distinct submarkets and prevent resale between them. Its profits would increase if it charged a higher price to the group whose:
$9.00
Suppose hiring an extra worker increases a firm's output from 90 to 100 units per hour. If the firm has to reduce its price from $1 to $.99 to sell the additional output, the marginal revenue product of the last worker is:
Price Leadership
Suppose only three airlines service a particular route. One of the airlines typically signals its price intentions through a daily posting on its internet site, which the other two quickly match. This best describes:
Increase the demand for computer design engineers
The "derived demand" concept suggests that an increase in the demand for computers will:
The ratio of output (sales) of the four largest firms in an industry relative to total industry sales (expressed as a percentage)
The 4-firm concentration ratio is calculated by:
is the sum of the squared percentage market shares of all firms in the industry
The Herfindahl index is:
Law of diminishing returns
The marginal revenue product of an input in a competitive market decreases as a firm increases the quantity of an input used because of the:
Economic profits earned by firms already in the industry
The primary force encouraging the entry of new firms into a purely competitive industry is:
A few firms producing either a differentiated product
The term oligopoly indicates:
The production of a good at the lowest average total cost
The term productive efficiency refers to: