ECON 201 - Exam 2 - Assignment Essays

question

In economics, a firm that faces no competitors is referred to as ____

answer

monopoly

question

The term _____ is used to describe the additional cost of producing one more unit

answer

marginal cost

question

In microeconomics, the term _____ is synonymous with economies of scale

answer

increasing returns to scale

question

Whatever the firm's quantity of production, _____________ must exceed total costs if it is to earn a profit.

answer

total revenue

question

In order to calculate marginal cost, the change in ______ is divided by the amount of change in quantity.

answer

either total cost or variable cost

question

A fixed input is an input whose quantity _____

answer

cannot be changed as output changes in the short run

question

_____ help to explain why every economy, as it develops, has an increasing proportion of its population living in urban areas

answer

agglomeration factors

question

Which of the following should typically be ignored because spending has already been made and cannot be changed?

answer

sunk costs

question

T or F: Accounting profits and economic profits measure the same thing and are always equal

answer

False

question

For economists, the short run is a period of time in which _____

answer

at least one input is fixed

question

The term ______ is used to describe the additional cost of producing one more unit

answer

marginal cost

question

The term ______ describes a situation where the quantity of output rises, but the average cost of production falls

answer

economies of scale

question

In microeconomics, the term _____ is synonymous with decreasing returns of scale

answer

diseconomies of scale

question

According to the definition of profit, if a profit-maximizing firm will always attempt to produce its desired level of output at the lowest possible cost, then it will _____

answer

do so regardless of what type of competition exists in a market

question

Marcella operates a small, but very successful art gallery. All but one of the following can be classified as a variable cost arising from the physical inputs Marcella requires to operate her business. Which is it?

answer

physical space for the gallery

question

The table below sets out cost information for the production of volley balls. Some values are missing. Which of the following statements is correct?

answer

A = 42, E = 12

question

If the firm produces 5 units that it sells for $39.00 each, what will its profits or losses equal

answer

profits equal $30

question

I'MABigCorp. produces and sells kitchen wares. Last year, it produced 7,000 can openers and sold each one for $6. To produce the 7,000 can openers, the company incurred variable costs of $28,000 and a total cost of $45,000. I'MABIGCorp.'s average fixed cost to produce the 7,000 can openers was

answer

$2.43

question

The marginal cost curve is generally _____, because diminishing marginal returns implies that additional units are ______

answer

upward-sloping; more costly to produce

question

Whatever the firm's quantity of production, ______ must exceed total costs if it is to earn a profit

answer

total revenue

question

If a firm earns normal profit, then it has generated revenues

answer

equal to the sum of implicit and explicit costs

question

In the long run, if inputs are increased by 10 percent and output increases by 20 percent, then _____ are said to exist

answer

economies of scale

question

The term ____ refers to a firm operating in a perfectly competitive market that must take the prevailing market price for its product

answer

price taker

question

T or F: A perfectly competitive firm is a price taker

answer

true

question

The price charged by a perfectly competitive firm is determined by ______

answer

market demand and market supply, together

question

If a firm is a price taker, its demand curve is

answer

perfectly elastic

question

A "price taker" is a firm that

answer

does not have the ability to control the price of the product it sells

question

The market demand curve in a perfectly competitive market is

answer

downward sloping

question

T or F: Perfect competition is a market structure in which many firms provide an identical product

answer

True

question

Profits are positive if at the profit maximizing quantity,

answer

P > ATC

question

In the _____, the perfectly competitive firm will seek out _____

answer

short run, the quantity of output where profits are highest

question

_____ refers to the additional revenue gained from selling one more unit

answer

marginal revenue

question

If a firm's revenues do not cover its average variable costs, then that firm has reached its ________

answer

shutdown point

question

When a business adopts a strategy of reducing and/or discontinuing production in response to a sustained pattern of losses, it is _____

answer

preparing to exit operations

question

An _____ is calculated by subtracting the firm's costs from its total revenues, _____

answer

accounting profit, excluding opportunity cost

question

In a free market economy, firms operating in a perfectly competitive industry are said to have only one major choice to make. Which of the following correctly sets out that choice?

answer

what quantity to produce

question

In economic terms, a practical approach to maximizing profits requires an examination of how changes in production affect _____ and _____.

answer

marginal revenue, marginal cost

question

If the price that a firm charges is higher than its _____ cost of production for that quantity produced, then the firm will earn profits.

answer

average

question

Kate's 24-Hour Breakfast Diner menu offers one item, a $5.00 breakfast special. Kate's costs for servers, cooks, electricity, food, etc. average out to $3.95 per meal. Her costs for rent, insurance cleaning supplies and business license average out to $1.25 per meal. Since the market is highly competitive, Kate should

answer

keep the business open in the short run, but plan to go out of business in the long run

question

In order to produce 100 oatmeal cookies, GoodieCookieCo incurs an average total cost of $0.25 per cookie. The company's marginal cost is constant at $0.10 for all oatmeal cookies produced. The total cost to produce 50 oatmeal cookies is

answer

$20

question

T or F: In a long-run competitive equilibrium, no form has an incentive to change its plant size

answer

True

question

If MR > MC, then

answer

the firm can increase its profits (or minimize its losses) by increasing output

question

A constant-cost industry has a long-run (industry) supply curve that is _____

answer

horizontal

question

Intellectual property law is a body of law that includes _____

answer

copyright legislation, as well as all of the above (right of inventors to produce, right of inventors to sell, trademark/patent/trade)

question

In the United States, a pharmaceutical company's exclusive patent rights last for

answer

20 years

question

Which one of the following is the most accurate description of a monopolist?

answer

a sole producer of a product for which good substitutes are lacking in a market with high barriers to entry

question

T or F: Monopolists are guaranteed to earn a positive economic profit because they are the only seller in their industry

answer

False

question

Which of the following is an assumption of the theory of monopoly?

answer

There are extremely high barriers to entry

question

For the monopoly firm, its demand curve is

answer

the market demand curve

question

Marginal revenue is equal to _____ divided by _____

answer

the change in total revenue, the change in quantity of output

question

An assumption of a Monopoly includes

answer

a single seller of the good or service, a firm that sells a product with no close substitutes, high barriers to entry

question

Monopolies are inefficient because they result in

answer

a quantity lower than what is produced in a competitive market

question

One reason a Natural Monopoly can exist is _____

answer

the company controls a scarce physical resource

question

A _____ exists when the quantity demanded in the market is less than the quantity at the bottom of the long-run average cost curve

answer

natural monopoly

question

The use of sharp, temporary price cuts as a form of ______ would enable traditional US automakers to discourage new competition from smaller electric car manufacturers.

answer

predatory pricing

question

A firm that holds a monopoly position in the market place is _____

answer

a price maker

question

In the United States, a pharmaceutical company's exclusive patent rights last for

answer

20 years

question

Which of the following is the most accurate description of a monopolist?

answer

a sole producer of a product for which good substitutes are lacking in a market with high barriers to entry

question

The marginal revenue curve for a monopolist _____ the market demand curve

answer

always lies beneath

question

In the event that Only1Corp obtains control of all the natural gas producers in the US, it would most likely

answer

raise prices, cut production, and realize positive economic profits

question

_____ law implies ownership over an idea or concept or image

answer

intellectual property

question

T or F: Monopolists are guaranteed to earn a positive economic profit because they are the only seller in their industry

answer

False

question

T or F: The single-price monopolist produces the quantity of output at which marginal cost equals marginal revenue and charges a price that is greater than marginal revenue

answer

True

question

Which of the following is an example of a legal barrier to entry?

answer

a public franchise, a patent

question

In maximizing profits, a monopolist will charge a price that is

answer

greater than marginal cost

question

In order for a monopolist to be earning a profit, price must be greater than

answer

average cost

question

Compared to the perfectly competitive firm, the monopolist faces a demand curve that is ______ elastic because there are _____ substitutes for the product produced by the monopolist

answer

less, fewer

question

_____ occurs when circumstances have allowed several large firms to have all or most of the sales in an industry

answer

An oligopoly

question

The branch of mathematics that analyzes situations in which players must make decisions and then receive payoffs most often used by economists is

answer

game theory

question

What role can advertising play with respect to differentiated products?

answer

shapes consumers intangible preferences

question

The demand curve as perceived by a monopolistic competitor is

answer

downward sloping

question

T or F: In the prisoner's dilemma, each prisoner would be better off if neither one confesses

answer

True

question

T or F: the profit-maximizing monopolistic competitive firm produces a level of output at which marginal revenue equals marginal cost

answer

True

question

T or F: Concentration ratios are often used to determine the degree of oligopoly in an industry

answer

True

question

In a monopolistic competitive industry, _____

answer

each firm in the industry produces a slightly differentiated product

question

A concentration ratio indicates the

answer

percentage of total sales accounted for by the (for example) four largest firms

question

The theory of oligopoly assumes

answer

a few sellers and many buyers, significant barriers to entry

question

In a monopolistic competitive industry, firms can try to differentiate their products by

answer

enhancing product's physical aspects, creating optimal perceptions, choosing optimal locations, enhancing the intangible aspects of the product

question

In a monopoly or a monopolistic competitor raises their prices, the quantity demanded

answer

will decline

question

Would raising the price for a product create a larger decline in quantity demanded for a monopolistic competitor's than it would for a monopoly?

answer

yes --> consumers will buy from competitors offering lower priced substitutes

question

If a monopolistic competitor raises its price, it _____ customers than a perfectly competitive firm, but _____ customers compared to the number that a monopoly that raised its prices would

answer

will lose fewer, it will lose more

question

If the firm is producing at a quantity of output where marginal revenue exceeds marginal costs, then

answer

the firm should keep expanding production

question

Monopolistic competitors can make a ______ in the short-run, but in the long-run, _____ will drive these firms toward ______

answer

profit or loss, entry and exit, a zero-profit outcome

question

Perfect competition displays _____ because the social benefits of additional production, as measured by the price that people are willing to pay, are in balance with the ____ to society of that production

answer

allocative efficiency, marginal costs

question

How can parties who find themselves in a prisoner's dilemma situation avoid the undesired outcome and cooperate with each other?

answer

find effective ways to penalize firms who do not cooperate

question

T or F: In long-run equilibrium, a monopolistic competitive firm will most likely produce a level of output for which price equals average total cost

answer

True

question

T or F: Cartels are easy to form and maintain

answer

False

question

Compared to a monopolistic competitor, a monopolist produces a good with _____ substitutes and so has a _____ elastic demand curve

answer

fewer, less

question

The excess capacity theorem states that a monopolistic competitor

answer

will produce an output level smaller than the one that would minimize its unit costs

question

In the long run equilibrium, the monopolistic competitor will most likely

answer

be earning zero economic profit

question

If you were to rank the four market structures in terms of lowest concentration ratio to highest concentration ratio, which of the following rankings would be correct?

answer

perfect competition, monopolistic competition, oligopoly, monopoly

question

The monopolistic competitive firm will most likely earn a normal profit in the long run because of

answer

easy entry and exit

question

In which market structure can the good being produced be either homogeneous or differentiated?

answer

oligopoly

question

_____ include all of the costs of production that increase with the quantity produced

answer

variable costs

question

In order to determine _____, the firm's total costs must be divided by the quantity of its output

answer

average cost

question

The term ______ describes a situation where the quantity of output rises, but the average cost of production fails

answer

economies of scale

question

Whatever the firm's quantity of production, _____ must exceed total costs if it is to earn a profit

answer

total revenue

question

In order to calculate marginal cost, the change in _____ is divided by the amount of change in quantity

answer

either total cost or variable cost

question

The economies-of-scale curve is a long-run average cost curve, because

answer

it allows all factors of production to change

question

A situation where the level of output, scale and average costs are all rising is called

answer

decreasing returns to scale

question

Which of the following cost curves is never U-shaped?

answer

the average fixed cost curve

question

economic profit can be derived from calculating total revenues minus all of the firm's costs, _____

answer

including its opportunity costs

question

Firms operating in a market situation that creates _____, sell their product in a market with other firms who produce identical or extremely similar products

answer

perfect competition

question

What happens in a perfectly competitive industry when economic profit is greater than zero?

answer

existing firms may expand their operations, new firms may enter the industry, there may be pressure on the market price to fall

question

T or F: For a perfectly competitive firm. the demand curve it faces is horizontal at the price determined in the market

answer

True

question

Why must profits be zero in long-run competitive equilibrium?

answer

if profits are not zero, firms will enter or exit the industry

question

Which of the following is a characteristic of perfect competition?

answer

buyers and sellers having all relevant information

question

If profits are positive if at the profit maximizing quantity then it must be true that at that quantity

answer

P > ATC

question

Which of the following is most unlikely to present a barrier to entry into a market?

answer

deregulation

question

A firm that holds a monopoly position in the market place is

answer

a price maker

question

Following the assumption that firms maximize profits, how will the price and output policy of an unregulated monopolist compare with ideal market efficiency?

answer

output will be too small and its price too high

question

The marginal revenue curve for a monopolist _______ the market demand curve

answer

always lies beneath

question

Once IMAPharmaCo has received confirmation of the registration for its latest drug patent application, it will have created a monopoly for that product by restricting

answer

entry into the market

question

T or F: Monopolists are guaranteed to earn a positive economic profit because they are the only seller in the industry

answer

False

question

A natural monopoly exists when

answer

economies of scale are so large that only one firm can survive and achieve low unit costs

question

For a monopolist, if price is above the average cost, the monopolist is

answer

earning an economic profit

question

"Rent seeking" is socially wasteful because

answer

resources devoted to transferring rents are not used to produce goods

question

Compared to the perfectly competitive firm, the monopolist faces a demand curve that is _____ elastic because there are ______ substitutes for the product produced by the monopolist.

answer

less, fewer

question

A ____ refers to a group of firms colluding with one another to produce at the monopoly output and sell at the monopoly price

answer

cartel

question

If the CEO of IMABigBank is playing prisoner's dilemma then, from his perspective, the gains to be had from cooperation are

answer

larger than the rewards from pursuing self-interest

question

Monopolistic competitors in the food industry will often include a recyclable symbol on packaging used for their product as a means to

answer

differentiate their product

question

If a perfectly competitive firm raises its price, the quantity demanded of its product ____

answer

falls to zero

question

If the firm is producing at a quantity of output where marginal revenue exceeds marginal cost, then,

answer

the firm should keep expanding production

question

A monopolistically competitive firms may earn abnormally high profits in the

answer

short term, but the process of entry will drive those profits to zero in the long run

question

Does the monopolistic competitive firm exhibit resource-allocative efficiency?

answer

No, because at its chosen quantity of output, price is greater than marginal cost

question

A firm in a monopolistic competitive market will produce a level of output at which

answer

P > MR

1 of 126

question

In economics, a firm that faces no competitors is referred to as ____

answer

monopoly

question

The term _____ is used to describe the additional cost of producing one more unit

answer

marginal cost

question

In microeconomics, the term _____ is synonymous with economies of scale

answer

increasing returns to scale

question

Whatever the firm's quantity of production, _____________ must exceed total costs if it is to earn a profit.

answer

total revenue

question

In order to calculate marginal cost, the change in ______ is divided by the amount of change in quantity.

answer

either total cost or variable cost

question

A fixed input is an input whose quantity _____

answer

cannot be changed as output changes in the short run

question

_____ help to explain why every economy, as it develops, has an increasing proportion of its population living in urban areas

answer

agglomeration factors

question

Which of the following should typically be ignored because spending has already been made and cannot be changed?

answer

sunk costs

question

T or F: Accounting profits and economic profits measure the same thing and are always equal

answer

False

question

For economists, the short run is a period of time in which _____

answer

at least one input is fixed

question

The term ______ is used to describe the additional cost of producing one more unit

answer

marginal cost

question

The term ______ describes a situation where the quantity of output rises, but the average cost of production falls

answer

economies of scale

question

In microeconomics, the term _____ is synonymous with decreasing returns of scale

answer

diseconomies of scale

question

According to the definition of profit, if a profit-maximizing firm will always attempt to produce its desired level of output at the lowest possible cost, then it will _____

answer

do so regardless of what type of competition exists in a market

question

answer

physical space for the gallery

question

The table below sets out cost information for the production of volley balls. Some values are missing. Which of the following statements is correct?

answer

A = 42, E = 12

question

If the firm produces 5 units that it sells for $39.00 each, what will its profits or losses equal

answer

profits equal $30

question

answer

$2.43

question

The marginal cost curve is generally _____, because diminishing marginal returns implies that additional units are ______

answer

upward-sloping; more costly to produce

question

Whatever the firm's quantity of production, ______ must exceed total costs if it is to earn a profit

answer

total revenue

question

If a firm earns normal profit, then it has generated revenues

answer

equal to the sum of implicit and explicit costs

question

In the long run, if inputs are increased by 10 percent and output increases by 20 percent, then _____ are said to exist

answer

economies of scale

question

The term ____ refers to a firm operating in a perfectly competitive market that must take the prevailing market price for its product

answer

price taker

question

T or F: A perfectly competitive firm is a price taker

answer

true

question

The price charged by a perfectly competitive firm is determined by ______

answer

market demand and market supply, together

question

If a firm is a price taker, its demand curve is

answer

perfectly elastic

question

A "price taker" is a firm that

answer

does not have the ability to control the price of the product it sells

question

The market demand curve in a perfectly competitive market is

answer

downward sloping

question

T or F: Perfect competition is a market structure in which many firms provide an identical product

answer

True

question

Profits are positive if at the profit maximizing quantity,

answer

P > ATC

question

In the _____, the perfectly competitive firm will seek out _____

answer

short run, the quantity of output where profits are highest

question

_____ refers to the additional revenue gained from selling one more unit

answer

marginal revenue

question

If a firm's revenues do not cover its average variable costs, then that firm has reached its ________

answer

shutdown point

question

When a business adopts a strategy of reducing and/or discontinuing production in response to a sustained pattern of losses, it is _____

answer

preparing to exit operations

question

An _____ is calculated by subtracting the firm's costs from its total revenues, _____

answer

accounting profit, excluding opportunity cost

question

In a free market economy, firms operating in a perfectly competitive industry are said to have only one major choice to make. Which of the following correctly sets out that choice?

answer

what quantity to produce

question

In economic terms, a practical approach to maximizing profits requires an examination of how changes in production affect _____ and _____.

answer

marginal revenue, marginal cost

question

If the price that a firm charges is higher than its _____ cost of production for that quantity produced, then the firm will earn profits.

answer

average

question

answer

keep the business open in the short run, but plan to go out of business in the long run

question

answer

$20

question

T or F: In a long-run competitive equilibrium, no form has an incentive to change its plant size

answer

True

question

If MR > MC, then

answer

the firm can increase its profits (or minimize its losses) by increasing output

question

A constant-cost industry has a long-run (industry) supply curve that is _____

answer

horizontal

question

Intellectual property law is a body of law that includes _____

answer

copyright legislation, as well as all of the above (right of inventors to produce, right of inventors to sell, trademark/patent/trade)

question

In the United States, a pharmaceutical company's exclusive patent rights last for

answer

20 years

question

Which one of the following is the most accurate description of a monopolist?

answer

a sole producer of a product for which good substitutes are lacking in a market with high barriers to entry

question

T or F: Monopolists are guaranteed to earn a positive economic profit because they are the only seller in their industry

answer

False

question

Which of the following is an assumption of the theory of monopoly?

answer

There are extremely high barriers to entry

question

For the monopoly firm, its demand curve is

answer

the market demand curve

question

Marginal revenue is equal to _____ divided by _____

answer

the change in total revenue, the change in quantity of output

question

An assumption of a Monopoly includes

answer

a single seller of the good or service, a firm that sells a product with no close substitutes, high barriers to entry

question

Monopolies are inefficient because they result in

answer

a quantity lower than what is produced in a competitive market

question

One reason a Natural Monopoly can exist is _____

answer

the company controls a scarce physical resource

question

A _____ exists when the quantity demanded in the market is less than the quantity at the bottom of the long-run average cost curve

answer

natural monopoly

question

The use of sharp, temporary price cuts as a form of ______ would enable traditional US automakers to discourage new competition from smaller electric car manufacturers.

answer

predatory pricing

question

A firm that holds a monopoly position in the market place is _____

answer

a price maker

question

In the United States, a pharmaceutical company's exclusive patent rights last for

answer

20 years

question

Which of the following is the most accurate description of a monopolist?

answer

a sole producer of a product for which good substitutes are lacking in a market with high barriers to entry

question

The marginal revenue curve for a monopolist _____ the market demand curve

answer

always lies beneath

question

In the event that Only1Corp obtains control of all the natural gas producers in the US, it would most likely

answer

raise prices, cut production, and realize positive economic profits

question

_____ law implies ownership over an idea or concept or image

answer

intellectual property

question

T or F: Monopolists are guaranteed to earn a positive economic profit because they are the only seller in their industry

answer

False

question

T or F: The single-price monopolist produces the quantity of output at which marginal cost equals marginal revenue and charges a price that is greater than marginal revenue

answer

True

question

Which of the following is an example of a legal barrier to entry?

answer

a public franchise, a patent

question

In maximizing profits, a monopolist will charge a price that is

answer

greater than marginal cost

question

In order for a monopolist to be earning a profit, price must be greater than

answer

average cost

question

Compared to the perfectly competitive firm, the monopolist faces a demand curve that is ______ elastic because there are _____ substitutes for the product produced by the monopolist

answer

less, fewer

question

_____ occurs when circumstances have allowed several large firms to have all or most of the sales in an industry

answer

An oligopoly

question

The branch of mathematics that analyzes situations in which players must make decisions and then receive payoffs most often used by economists is

answer

game theory

question

What role can advertising play with respect to differentiated products?

answer

shapes consumers intangible preferences

question

The demand curve as perceived by a monopolistic competitor is

answer

downward sloping

question

T or F: In the prisoner's dilemma, each prisoner would be better off if neither one confesses

answer

True

question

T or F: the profit-maximizing monopolistic competitive firm produces a level of output at which marginal revenue equals marginal cost

answer

True

question

T or F: Concentration ratios are often used to determine the degree of oligopoly in an industry

answer

True

question

In a monopolistic competitive industry, _____

answer

each firm in the industry produces a slightly differentiated product

question

A concentration ratio indicates the

answer

percentage of total sales accounted for by the (for example) four largest firms

question

The theory of oligopoly assumes

answer

a few sellers and many buyers, significant barriers to entry

question

In a monopolistic competitive industry, firms can try to differentiate their products by

answer

enhancing product's physical aspects, creating optimal perceptions, choosing optimal locations, enhancing the intangible aspects of the product

question

In a monopoly or a monopolistic competitor raises their prices, the quantity demanded

answer

will decline

question

Would raising the price for a product create a larger decline in quantity demanded for a monopolistic competitor's than it would for a monopoly?

answer

yes --> consumers will buy from competitors offering lower priced substitutes

question

If a monopolistic competitor raises its price, it _____ customers than a perfectly competitive firm, but _____ customers compared to the number that a monopoly that raised its prices would

answer

will lose fewer, it will lose more

question

If the firm is producing at a quantity of output where marginal revenue exceeds marginal costs, then

answer

the firm should keep expanding production

question

Monopolistic competitors can make a ______ in the short-run, but in the long-run, _____ will drive these firms toward ______

answer

profit or loss, entry and exit, a zero-profit outcome

question

answer

allocative efficiency, marginal costs

question

How can parties who find themselves in a prisoner's dilemma situation avoid the undesired outcome and cooperate with each other?

answer

find effective ways to penalize firms who do not cooperate

question

T or F: In long-run equilibrium, a monopolistic competitive firm will most likely produce a level of output for which price equals average total cost

answer

True

question

T or F: Cartels are easy to form and maintain

answer

False

question

Compared to a monopolistic competitor, a monopolist produces a good with _____ substitutes and so has a _____ elastic demand curve

answer

fewer, less

question

The excess capacity theorem states that a monopolistic competitor

answer

will produce an output level smaller than the one that would minimize its unit costs

question

In the long run equilibrium, the monopolistic competitor will most likely

answer

be earning zero economic profit

question

If you were to rank the four market structures in terms of lowest concentration ratio to highest concentration ratio, which of the following rankings would be correct?

answer

perfect competition, monopolistic competition, oligopoly, monopoly

question

The monopolistic competitive firm will most likely earn a normal profit in the long run because of

answer

easy entry and exit

question

In which market structure can the good being produced be either homogeneous or differentiated?

answer

oligopoly

question

_____ include all of the costs of production that increase with the quantity produced

answer

variable costs

question

In order to determine _____, the firm's total costs must be divided by the quantity of its output

answer

average cost

question

The term ______ describes a situation where the quantity of output rises, but the average cost of production fails

answer

economies of scale

question

Whatever the firm's quantity of production, _____ must exceed total costs if it is to earn a profit

answer

total revenue

question

In order to calculate marginal cost, the change in _____ is divided by the amount of change in quantity

answer

either total cost or variable cost

question

The economies-of-scale curve is a long-run average cost curve, because

answer

it allows all factors of production to change

question

A situation where the level of output, scale and average costs are all rising is called

answer

decreasing returns to scale

question

Which of the following cost curves is never U-shaped?

answer

the average fixed cost curve

question

economic profit can be derived from calculating total revenues minus all of the firm's costs, _____

answer

including its opportunity costs

question

Firms operating in a market situation that creates _____, sell their product in a market with other firms who produce identical or extremely similar products

answer

perfect competition

question

What happens in a perfectly competitive industry when economic profit is greater than zero?

answer

existing firms may expand their operations, new firms may enter the industry, there may be pressure on the market price to fall

question

T or F: For a perfectly competitive firm. the demand curve it faces is horizontal at the price determined in the market

answer

True

question

Why must profits be zero in long-run competitive equilibrium?

answer

if profits are not zero, firms will enter or exit the industry

question

Which of the following is a characteristic of perfect competition?

answer

buyers and sellers having all relevant information

question

If profits are positive if at the profit maximizing quantity then it must be true that at that quantity

answer

P > ATC

question

Which of the following is most unlikely to present a barrier to entry into a market?

answer

deregulation

question

A firm that holds a monopoly position in the market place is

answer

a price maker

question

Following the assumption that firms maximize profits, how will the price and output policy of an unregulated monopolist compare with ideal market efficiency?

answer

output will be too small and its price too high

question

The marginal revenue curve for a monopolist _______ the market demand curve

answer

always lies beneath

question

Once IMAPharmaCo has received confirmation of the registration for its latest drug patent application, it will have created a monopoly for that product by restricting

answer

entry into the market

question

T or F: Monopolists are guaranteed to earn a positive economic profit because they are the only seller in the industry

answer

False

question

A natural monopoly exists when

answer

economies of scale are so large that only one firm can survive and achieve low unit costs

question

For a monopolist, if price is above the average cost, the monopolist is

answer

earning an economic profit

question

"Rent seeking" is socially wasteful because

answer

resources devoted to transferring rents are not used to produce goods

question

Compared to the perfectly competitive firm, the monopolist faces a demand curve that is _____ elastic because there are ______ substitutes for the product produced by the monopolist.

answer

less, fewer

question

A ____ refers to a group of firms colluding with one another to produce at the monopoly output and sell at the monopoly price

answer

cartel

question

If the CEO of IMABigBank is playing prisoner's dilemma then, from his perspective, the gains to be had from cooperation are

answer

larger than the rewards from pursuing self-interest

question

Monopolistic competitors in the food industry will often include a recyclable symbol on packaging used for their product as a means to

answer

differentiate their product

question

If a perfectly competitive firm raises its price, the quantity demanded of its product ____

answer

falls to zero

question

If the firm is producing at a quantity of output where marginal revenue exceeds marginal cost, then,

answer

the firm should keep expanding production

question

A monopolistically competitive firms may earn abnormally high profits in the

answer

short term, but the process of entry will drive those profits to zero in the long run

question

Does the monopolistic competitive firm exhibit resource-allocative efficiency?

answer

No, because at its chosen quantity of output, price is greater than marginal cost

question

A firm in a monopolistic competitive market will produce a level of output at which

answer

P > MR

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ECON 201 – Exam 2

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