question
Jessica Simpson has decided to open a small fast food place that specialized in Buffalo wings. To do so she must resign from her current full time position which pays her $40,000/year and take over a small store-front building which she already owns but currently rents to her brother, homer, for $6,000/year. Her annual expenses at the restaurant will be $50,000 for the food and $2,000 for gas and electricity. What are her explicit costs?
answer
$52,000
question
Jessica Simpson has decided to open a small fast food place that specialized in Buffalo wings. To do so she must resign from her current full time position which pays her $40,000/year and take over a small store-front building which she already owns but currently rents to her brother, homer, for $6,000/year. Her annual expenses at the restaurant will be $50,000 for the food and $2,000 for gas and electricity. What are her implicit cost?
answer
$46,000
question
Implicit costs are best described as:
answer
opportunity costs
question
During the course of one week, the local burger joint has enough time to hire or layoff workers, but it does not have enough time to expand the kitchen area or to add additional seating capacity in the restaurant. In this time frame, the burger join:
answer
is in the short run
question
Economies of scale exist when the long run average cost curve
answer
falls
question
in the long run, total fixed costs for a firm:
answer
does not exist because all costs are variable in the long run
question
A local portrait photographer currently employs 2 helpers for the busy fall season. With two helpers she can produce 450 packets of senior portrait proofs a month. She estimates that if she hires a third helper, she'll be able to produce 600 packets in the same amount of time. The marginal product for the third worker is:
answer
150 packets
question
After reviewing the Law of Diminishing Marginal Returns, an economist would correctly conclude that in the short run:
answer
the additional output of labor will eventually decrease as more workers are hired
question
A perfectly competitive firm will maximize profit or minimize losses in the short run by producing at the point where
answer
marginal revenue equals marginal cost if price is greater than the minimum of AVC
question
Given Fig. 3-2 above, if the product price is $40, the perfectly competitive firm should produce how many units
answer
80 units
question
An economist resigns her $100,000/year university teaching position to work fulltime in her own consulting business. In the first year she has total revenue of $250,000 and expenses of $100,000. Which of the following statements is correct?
i. Her accounting profit was $250,000
ii. Her accounting profit was $150,000
iii. Her economic profit was $50,000
iv. Her economic profit was $150,000
i. Her accounting profit was $250,000
ii. Her accounting profit was $150,000
iii. Her economic profit was $50,000
iv. Her economic profit was $150,000
answer
Only ii and iii are true
question
Accounting profit is defined as
answer
total revenue - explicit costs
question
When economic profit is zero, then
answer
the firm achieves normal profit
question
The monopolistic firm achieves profit maximization when
answer
marginal cost = marginal revenue at demand (above or at ATC)
question
Firms earning zero economic profit is
answer
earning normal profits because their returns on investment are equal to the opportunity costs of the time invested
question
Profit is defined as
answer
total revenue - total cost
question
Giver Figure 3-2 above, a firm in perfect competition should shut down in the short-run if price falls below:
answer
$15
question
If a firm in a perfectly competitive market shuts down in the short run, it will:
answer
lose money equal to its fixed costs
question
The widget industry has the following characteristics: over 600 producers with no one producer furnishing more than .5% of the industry's total output; widgets produced by different firms are identical and there are no brands or labels on the product; there are no significant barriers to entry to the widget market; there is no economic profit in the long run. The widget market is best described as what type of market?
answer
perfect competition
question
Under the conditions of perfect competition, firms are "price takers" because:
answer
setting a price higher than the market price results in zero sales
question
Compared to a perfectly competive industry, a monopolist with similar marginal cost and demand curves will charge:
answer
a higher price and produce less output
question
Given Fig. 3-3, what price will the monopolist charge in order to maximize its profits?
answer
$35/unit
question
Which of the following statements about the market structure of monopoly are correct?
I. a monopoly involves a market one or a few major firms.
ii. The monopolist can charge any price she wishes and still operate at maximum profit.
iii. The demand curve faced by the monopolist is the same as the total industry demand curve.
iv. the monopolist is a "price taker"
v. the monopoly is normally a huge firm such as Wal-mart
I. a monopoly involves a market one or a few major firms.
ii. The monopolist can charge any price she wishes and still operate at maximum profit.
iii. The demand curve faced by the monopolist is the same as the total industry demand curve.
iv. the monopolist is a "price taker"
v. the monopoly is normally a huge firm such as Wal-mart
answer
Statement iii is the only correct statement
question
An oligopoly is a market structure in which
answer
there are a few major firms selling a differentiated or identical product
question
Suppose that the vast majority of 3/4 ton pick-up trucks in American are produced by companies A,B,C and D and that they all sell for a similar price. If company A suddenly decides to reduce price substantially, what should company A expect?
answer
A very rapid and similar response by the other large firms in the industry
question
The gizmo industry has the following characteristics: over 600 producers with no one producer furnishing more then .5% of the industry's total output; gizmos produced by different firms carry unique brand names and labels; there are no significant barriers to entry to the gizmo market; there is no economic profit in the long run. The gizmo market is best described as what type of market?
answer
Monopolistic competition
question
Using Figure 3-4 shown above, which of the following statements are correct?
I. if both huggies and pampers charge a high price, each will earn $60 milling in profits.
ii. if huggies charges a low price and Pampers charges a high price, their combined profits will be $30 million
iii. if both firms charge a low price, each with earn $20 million in profits
iv. the Nash equilibrium in this case will be in cell D (southeast quadrant).
v. The firms have an incentive to collude and agree to both charge a high price
I. if both huggies and pampers charge a high price, each will earn $60 milling in profits.
ii. if huggies charges a low price and Pampers charges a high price, their combined profits will be $30 million
iii. if both firms charge a low price, each with earn $20 million in profits
iv. the Nash equilibrium in this case will be in cell D (southeast quadrant).
v. The firms have an incentive to collude and agree to both charge a high price
answer
All of the statements are true
question
Using game theory to understand oligiopolies is appropriate because:
Assume the following correctly shows the market shares of the five firms in the market?
Figure 3-5 Personal Computer Industry Market Shares?
Assume the following correctly shows the market shares of the five firms in the market?
Figure 3-5 Personal Computer Industry Market Shares?
answer
The firms tend to be mutual interdependent in pricing decisons
question
Why is the American automobile industry considered to be an oligopoly?
answer
All of the above are correct
question
Which of the following statements is correct about firms in monopolistically competitive market?
i.Firms produce output levels that correspond with the minimum on the ATC curve.
ii.The typical firm will earn no economic profit in the long run.
iii.The typical firm displays long-run economic and allocative efficiency.
iv.The marginal revenue of the firm is found below the demand line.
v.The typical firm operates with excess capacity in both the short and long-run.
i.Firms produce output levels that correspond with the minimum on the ATC curve.
ii.The typical firm will earn no economic profit in the long run.
iii.The typical firm displays long-run economic and allocative efficiency.
iv.The marginal revenue of the firm is found below the demand line.
v.The typical firm operates with excess capacity in both the short and long-run.
answer
Statements II, IV, and V are the only correct statements.
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