question
Joe is a shrimp fisherman who could earn $5,000 as a fishing tour guide. Instead, he is a full-time shrimp fisherman. In calculating the economic profit of his shrimp business, the $5,000 that Joe gave up is counted as part of the shrimp business's
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implicit costs
question
Gwen has decided to start her own photography studio. To purchase the necessary equipment, Gwen withdrew $2,000 from her savings account, which was earning 1% interest, and borrowed an additional $4,000 from the bank at an interest rate of 10%. What is Gwen's annual opportunity cost of the financial capital that has been invested in the business?
answer
$420
question
Sarah prepares tax returns and does bookkeeping. Last year her revenues from the tax and bookkeeping business were $150,000, and her expenses for the business were $15,000. When she started her tax and bookkeeping business, Sarah gave up her supplemental job doing in-home pet sitting. She used to earn $10,000 per year from pet sitting. Assume that she incurred no costs for her pet sitting business.
Sarah's economic profits are
Sarah's economic profits are
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$125,000
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For a firm, the production function represents the relationship between
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quantity of inputs and quantity of output.
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If Farmer Green plants no seeds on his farm, he gets no harvest. If he plants 1 bag of seeds, he gets 5 bushels of wheat. If he plants 2 bags, he gets 9 bushels. If he plants 3 bags, he gets 12 bushels. A bag of seeds costs $120, and seeds are his only cost.
Farmer Green's production function exhibits
Farmer Green's production function exhibits
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diminishing marginal product.
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If long-run average total cost decreases as the quantity of output increases, the firm is experiencing
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economies of scale.
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A seller in a competitive market
can sell all he wants at the going price, so he has little reason to charge less.
considers the market price to be a "take it or leave it" price.
will lose all his customers to other sellers if he raises his price.
can sell all he wants at the going price, so he has little reason to charge less.
considers the market price to be a "take it or leave it" price.
will lose all his customers to other sellers if he raises his price.
answer
All of the above
question
Land of Many Lakes (LML) sells butter to a broker in Albert Lea, Minnesota. Because the market for butter is generally considered to be competitive, LML
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can choose quantity of butter that it produces but not the price at which it sells its butter
question
Suppose that a firm operating in perfectly competitive market sells 300 units of output at a price of $3 each. Which of the following statements is correct?
(i) Marginal revenue equals $3.
(ii) Average revenue equals $3.
(iii) Total revenue equals $900.
(i) Marginal revenue equals $3.
(ii) Average revenue equals $3.
(iii) Total revenue equals $900.
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all of the above
question
Which of the following industries is least likely to exhibit the characteristic of free entry?
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municipal water and sewer
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A profit-maximizing firm will shut down in the short run when
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price is less than average variable cost
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A competitive market is in long-run equilibrium. If demand increases, we can be certain that price will
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rise in the short run. Some firms will enter the industry. Price will then fall to reach the new long-run equilibrium.
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Suppose that firms in a competitive industry are earning positive economic profits. All else equal, in the long run, we would expect the number of firms in the industry to
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Increase
question
Granting a pharmaceutical company a patent for a new medicine will lead to
(i) a product that is priced higher than it would be without the exclusive rights.
(ii) incentives for pharmaceutical companies to invest in research and development.
(iii) higher quantities of output for the new medicine than without the patent.
(i) a product that is priced higher than it would be without the exclusive rights.
(ii) incentives for pharmaceutical companies to invest in research and development.
(iii) higher quantities of output for the new medicine than without the patent.
answer
i and ii only
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A firm that is a natural monopoly
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is not likely to be concerned about new entrants eroding its monopoly power.
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Which of the following is not an example of a barrier to entry?
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John Jr. owns the best seafood restaurant in a popular resort area. He charges high prices because the quality of the food is so good.
question
Which of the following statements is true?
(i) When a competitive firm sells an additional unit of output, its revenue increases by an amount less than the price.
(ii) When a monopoly firm sells an additional unit of output, its revenue increases by an amount less than the price.
(iii) Average revenue is the same as price for both competitive and monopoly firms.
(i) When a competitive firm sells an additional unit of output, its revenue increases by an amount less than the price.
(ii) When a monopoly firm sells an additional unit of output, its revenue increases by an amount less than the price.
(iii) Average revenue is the same as price for both competitive and monopoly firms.
answer
ii and iii only
question
A monopolist produces
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less than the socially efficient quantity of output but at a higher price than in a competitive market
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The concert promoters of a heavy-metal band, WeR2Loud, know that there are two types of concert-goers: die-hard fans and casual fans. For a particular WeR2Loud concert, there are 1,000 die-hard fans who will pay $150 for a ticket and 500 casual fans who will pay $50 for a ticket. There are 1,500 seats available at the concert venue. Suppose the cost of putting on the concert is $50,000, which includes the cost of the band, lighting, security, etc.
How much additional profit can the concert promoters earn by charging each customer their willingness to pay relative to charging a flat price of $150 per ticket?
How much additional profit can the concert promoters earn by charging each customer their willingness to pay relative to charging a flat price of $150 per ticket?
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$25,000
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Which of the following is not an example of price discrimination by a firm?
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a natural gas company charging customers a higher rate in the winter than in the summer
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A perfectly price-discriminating monopolist is able to
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maximize profit and produce a socially-optimal level of output
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A monopolistically competitive industry is characterized by
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many firms, differentiated products, and free entry.
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A firm operating in a monopolistically competitive market can earn economic profits in
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the short run but not in the long run.
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Suppose that for a particular firm the only variable input into the production process is labor and that output equals zero when no workers are hired. In addition, suppose that the average total cost when 5 units of output are produced is $30, and the marginal cost of the sixth unit of output is $60. What is the average total cost when six units are produced?
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$35
question
Bob's Butcher Shop is the only place within 100 miles that sells bison burgers. Assuming that Bob is a monopolist and maximizing profit, which of the following statements is true?
answer
The price of Bob's bison burgers will exceed Bob's marginal cost.
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