question
Properties of long-run competitive equilibrium with free entry include:
answer
All of these are properties of long-run competitive equilibrium.
question
If the import supply curve is upward-sloping:
answer
a tariff or quota can increase domestic aggregate surplus
question
Properties of long-run competitive equilibrium with free entry include:
answer
firms earning zero profits
question
The market demand function for ice cream is Qd = 10 - 2P and the market supply function for ice cream is Qs = 4P - 2, where both quantities are measured in millions of gallons per year. What is the aggregate surplus at the competitive market equilibrium?
answer
$13.5 million
question
Suppose the market demand for milk is Qd = 150 - 5P. Additionally, suppose that a dairy's variable costs are VC = 2Q2 (where Q is the number of gallons of milk produced each day), its marginal cost is MC = 4Q and there is an avoidable fixed cost of $50 per day. In the long run there is free entry into the market. Suppose the demand for milk doubles. What is the new long-run equilibrium price?
answer
$20 per unit
question
The market demand function for wheat is Qd = 10 - 2P and the market supply function is Qs = 4P - 2, both measured in billions of bushels per year. Suppose the government wants to increase the price of wheat to $3/bushel and they impose a price floor to achieve their goal. What is the size of the aggregate surplus?
answer
$12 billion
question
Suppose the domestic market demand function in a certain market where Q is measured in thousands of units is Qd = 20 - 2.5P, and the domestic market supply function is Qs = 2.5P - 7.5. Suppose further that the world price for the good in question is $3.40 per unit. Under conditions of free trade, how much consumer surplus will there be?
answer
$26,450
question
Suppose the domestic market demand function in a certain market where Q is measured in thousands of units is Qd = 20 - 2.5P, and the domestic market supply function is Qs = 2.5P - 7.5. Suppose further that the world price for the good in question is $3.40 per unit. Under conditions of free trade, how much producer surplus will there be?
answer
$200
question
Suppose Julia and Zach are the only consumers of milk. Julia's demand for milk is defined as QdJulia = 12 - 3P at prices below $4 and zero for prices above $4. Zach's demand for milk is defined as QdZach = 10 - 2P at prices below $5 and zero for prices above $5. Market demand when price is $4 is:
answer
QdMarket = 22 - 5P.
question
The market demand function for ice cream is Qd = 10 - 2P and the market supply function for ice cream is Qs = 4P - 2, where both quantities are measured in millions of gallons per year. What is the producer surplus at the competitive market equilibrium?
answer
$4.5 million
question
Milky Moo and Mega Cow are the only sellers of milk. Milky Moo's supply function is QsMMoo = 12P - 6 at prices above $0.50 and zero at prices below $0.50. Mega Cow's supply function is QsMCow = 9P - 3 at prices above $0.33 and zero at prices below $0.33. At a price of $0.45:
answer
Mega Cow is the only supplier of milk
question
Suppose the market demand for milk is Qd = 150 - 5P. Additionally, suppose that a dairy's variable costs are VC = 2Q2 (where Q is the number of gallons of milk produced each day), its marginal cost is MC = 4Q and there is an avoidable fixed cost of $50 per day. In the long run there is free entry into the market. Suppose the demand for milk doubles. What is the new long-run equilibrium quantity?
answer
100
question
The market demand function for wheat is Qd = 10 - 2P and the market supply function is Qs = 4P - 2, both measured in billions of bushels per year. Suppose the government wants to increase the price of wheat to $3/bushel and they impose a voluntary production reduction program to achieve their goal. What is the size of the producer surplus?
answer
$12.5 million
question
Suppose the market demand function for ice cream is Qd = 10 - 2P and the market supply function for ice cream is Qs = 4P - 2, both measured in millions of gallons of ice cream per year. Suppose the government imposes a $0.50 tax on each gallon of ice cream. The deadweight loss due to the tax is:
answer
$2.83 million
question
Suppose the market demand function for ice cream is Qd = 10 - 2P and the market supply function for ice cream is Qs = 4P - 2, both measured in millions of gallons of ice cream per year. Suppose the government imposes a $0.50 tax on each gallon of ice cream. The price paid by buyers with the tax is:
answer
$2.33
question
Any market that we are studying and the markets for the related inputs must all be in equilibrium at the same time. This leads to:
answer
general equilibrium effects
question
In a perfectly competitive market, an increase in demand will lead to a long-run increase in the product's price:
answer
if the increase in demand for inputs drives up the price of inputs
question
Suppose the domestic market demand function in a certain market where Q is measured in thousands of units is Qd = 20 - 2.5P, and the domestic market supply function is Qs = 2.5P - 7.5. Suppose further that the world price for the good in question is $3.40 per unit. If the government places a $1.20 tariff on imported units of this good, by how much is consumer surplus reduced?
answer
12,000
question
A voluntary production reduction program:
answer
offers firms incentives to reduce their production voluntarily.
question
In a perfectly competitive market, an increase in demand will lead to a long-run increase in the product's price:
answer
if the increase in demand for inputs drives up the price of inputs
question
The market demand function for wheat is Qd = 10 - 2P and the market supply function is Qs = 4P - 2, both measured in billions of bushels per year. Suppose the government wants to increase the price of wheat to $3/bushel and they impose a price floor to achieve their goal. What is the size of the producer surplus?
answer
$8 billion
question
Suppose a multi-product monopolist sells two complementary goods, A and B. Annual market demand for good A is QdA = 600 - 25PA - 12PB. Each time a consumer buys A, his demand for B is QdB = 4 - 0.4PB. The marginal cost of good A is a constant $4, and the marginal cost of good B is a constant $0.50. Suppose the price of good B is $5. If the monopolist considers the effect of additional sales of A on the sales of good B, how many units of good A will it produce?
answer
332.5
question
Suppose a monopoly firm has an annual demand function of Qd = 20,000 - 250P, annual variable costs of VC = 16Q + 0.002Q2 and marginal cost of MC = 16 + 0.004Q, where Q is the annual quantity of output. In addition, the firm has an avoidable fixed cost of $25,000 per year. If this firm maximizes its profit, what is the value of the deadweight loss caused by this monopoly?
answer
$30,250
question
A firm's markup:
answer
is the amount by which its price exceeds its marginal cost, expressed as a percentage of its price
question
Suppose Kate's Great Crete (KGC) has annual variable costs of VC = 30Q + 0.0025Q2 and marginal costs of MC = 30 + 0.005Q, where Q is the number of cubic yards of concrete it produces per year. In addition, it has an avoidable fixed cost of $50,000 per year. KGC's demand function is Qd = 20,000 - 400P. What is KGC's total revenue function?
answer
TR = 50Q - 0.0025Q^2
question
With a price floor:
answer
producer surplus will increase if profits increase
question
A tariff
answer
...
question
Suppose Julia and Zach are the only consumers of milk. Julia's demand for milk is defined as QdJulia = 12 - 3P at prices below $4 and zero for prices above $4. Zach's demand for milk is defined as QdZach = 10 - 2P at prices below $5 and zero for prices above $5. In this case, the market demand curve for milk is:
answer
kinked at a quantity of 2 units
question
Suppose a firm has a variable cost function VC = 20Q with avoidable fixed cost of $50,000. What kind of firm is this?
answer
This firm is a natural monopoly because as Q rises, AC falls
question
A monopsonist:
answer
faces an upward-sloping supply curve and by lowering the quantity he buys, he can pay less
question
With free entry:
answer
the long run market supply curve is horizontal at the market price
question
The market demand function for ice cream is Qd = 10 - 2P and the market supply function for ice cream is Qs = 4P - 2, where both quantities are measured in millions of gallons per year. What is the consumer surplus at the competitive market equilibrium?
answer
$9 million
question
The incidence of a tax:
answer
falls entirely on suppliers if demand is perfectly elastic.
question
Suppose the domestic market demand function in a certain market where Q is measured in thousands of units is Qd = 20 - 2.5P, and the domestic market supply function is Qs = 2.5P - 7.5. Suppose further that the world price for the good in question is $3.40 per unit. Under conditions of free trade, how much consumer surplus will there be?
answer
$26,450
question
Suppose the market demand for milk is Qd = 150 - 5P. Additionally, suppose that a dairy's variable costs are VC = 2Q2 (where Q is the number of gallons of milk produced each day), its marginal cost is MC = 4Q and there is an avoidable fixed cost of $50 per day. In the long run there is free entry into the market. What is the market equilibrium price?
answer
$20 per gallon
question
Suppose the market demand for milk is Qd = 150 - 5P. Additionally, suppose that a dairy's variable costs are VC = 2Q2 (where Q is the number of gallons of milk produced each day), its marginal cost is MC = 4Q and there is an avoidable fixed cost of $50 per day. In the long run there is free entry into the market. Suppose the demand for milk doubles. If in the short run the number of firms is fixed and their fixed costs are sunk, what is each of the active firms' profit per unit in the short run equilibrium?
answer
$3.67 per unit
question
A subsidy:
answer
reduces the amount that buyers pay and increases the amount that sellers receive for a good.
question
Graphically, market supply for a product
answer
is the horizontal sum of the individual supply curves
question
Suppose the market demand function for ice cream is Qd = 10 - 2P and the market supply function for ice cream is Qs = 4P - 2, both measured in millions of gallons of ice cream per year. Suppose the government imposes a $0.50 tax on each gallon of ice cream. The consumer surplus with the tax is
answer
$7.11 million
question
In a perfectly competitive market:
answer
firms produce the quantity for which marginal cost equals price.
question
Suppose that, in the long run, a dairy's variable costs are VC = 2Q2 (where Q is the number of gallons of milk produced each day), its marginal cost is MC = 4Q and there is an avoidable fixed cost of $50 per day. In the long run there is free entry into the market. What is the efficient scale of production?
answer
5 gallons per day
question
The market demand function for wheat is Qd = 10 - 2P and the market supply function is Qs = 4P - 2, both measured in billions of bushels per year. Suppose the government wants to increase the price of wheat to $3/bushel and they impose a voluntary production reduction program to achieve their goal. What is the size of the consumer surplus?
answer
$4 billion
question
Milky Moo and Mega Cow are the only sellers of milk. Milky Moo's supply function is QsMMoo = 12P - 6 at prices above $0.50 and zero at prices below $0.50. Mega Cow's supply function is QsMCow = 9P - 3 at prices above $0.33 and zero at prices below $0.33. In this case, the market supply curve for milk is:
answer
kinked at 1.5 units
question
The deadweight loss from a tax
answer
is zero when demand is perfectly inelastic.
question
Suppose that, in the long run, a dairy's variable costs are VC = 2Q2 (where Q is the number of gallons of milk produced each day), its marginal cost is MC = 4Q and there is an avoidable fixed cost of $50 per day. In the long run, there is free entry into the market. What is the dairy's total cost function?
answer
TC = 2Q^2 + 50
question
The market demand function for wheat is Qd = 10 - 2P and the market supply function is Qs = 4P - 2, both measured in billions of bushels per year. Suppose the government wants to increase the price of wheat to $3/bushel and they impose a price support program to achieve their goal. How much wheat must the government buy?
answer
6 billion bushels per year
question
Suppose the market demand for milk is Qd = 150 - 5P. Additionally, suppose that a dairy's variable costs are VC = 2Q2 (where Q is the number of gallons of milk produced each day), its marginal cost is MC = 4Q and there is an avoidable fixed cost of $50 per day. In the long run there is free entry into the market. Suppose the demand for milk doubles. If in the short run the number of firms is fixed and their fixed costs are sunk, what is the short run equilibrium price?
answer
$24 per unit
question
A sales tax is an example of:
answer
an ad valorem tax
question
The deadweight loss of taxation:
answer
is the lost aggregate surplus due to a tax.
question
In a perfectly competitive market, an increase in demand will lead to a long-run increase in the product's price:
answer
if the increase in demand for inputs drives up the price of inputs.
question
The short and long run market supply curves:
answer
may differ because the set of firms that are able to produce in a market may change
question
A price support program:
answer
raises the market price by making purchases of a good, thereby increasing demand.
question
Suppose Kate's Great Crete (KGC) has annual variable costs of VC = 30Q + 0.0025Q2 and marginal costs of MC = 30 + 0.005Q, where Q is the number of cubic yards of concrete it produces per year. In addition, it has an avoidable fixed cost of $50,000 per year. KGC's demand function is Qd = 20,000 - 400P. What is the profit maximizing sales price?
answer
$45
question
Suppose Kate's Great Crete (KGC) has annual variable costs of VC = 30Q + 0.0025Q2 and marginal costs of MC = 30 + 0.005Q, where Q is the number of cubic yards of concrete it produces per year. In addition, it has an avoidable fixed cost of $50,000 per year. KGC's demand function is Qd = 20,000 - 400P. What is the profit maximizing sales quantity?
answer
2,000
question
A market with two sellers is called a
answer
Duopoly
question
Under monopolistic competition, firms produce ________ products and have long-run profits that are ________ (net of fixed costs).
answer
differentiated; close to zero
question
Kate and Alice are small-town ready-mix concrete duopolists. The market demand function is Qd = 20,000 - 200P where P is the price of a cubic yard of concrete and Qd is the number of cubic yards demanded per year. Marginal cost is $80 per cubic yard. Suppose Kate enters the market first and chooses her output before Alice. What is the difference in Alice's profit when Kate enters the market first, compared to when they simultaneously select their outputs?
answer
When Kate enters the market first, Alice's profit is $3,888.89 lower.
question
Kate and Alice are small-town ready-mix concrete duopolists. The market demand function is Qd = 20,000 - 200P where P is the price of a cubic yard of concrete and Qd is the number of cubic yards demanded per year. Marginal cost is $80 per cubic yard. Suppose Kate enters the market first and chooses her output before Alice. What is the difference in Kate's profit when she enters the market first compared to when Kate and Alice choose their outputs simultaneously?
answer
When Kate enters the market first, her profit is $1,111.11 higher.
question
Suppose Kate's Great Crete (KGC) has annual variable costs of VC = 30Q + 0.0025Q2 and marginal costs of MC = 30 + 0.005Q, where Q is the number of cubic yards of concrete it produces per year. In addition, it has an avoidable fixed cost of $50,000 per year. KGC's demand function is Qd = 20,000 - 400P. What is KGC's total cost function?
answer
TC = 50,000 + 30Q + 0.0025Q2
question
The Solo Coal Mine is the only employer in the small town of Way out there. The market supply of coal miners is Qs = 0.02W - 200, where W is the annual wage of a coal miner and Q is the number of people who would accept employment as a coal miner. What is the coal mine's marginal expenditure function?
answer
ME = 100Q + 10,000
question
Kate and Alice are small-town ready-mix concrete duopolists. The market demand function is Qd = 20,000 - 200P, where P is the price of a cubic yard of concrete and Qd is the number of cubic yards demanded per year. Marginal cost is $80 per cubic yard. The Cournot model describes the competition in this market. Which of the following best represents Alice's inverse residual demand function?
answer
P(QA) = (100 - 0.005QK) - 0.005QA
question
Because the monopolist doesn't pay attention to the willingness to pay of inframarginal consumers:
answer
there can sometimes be a difference between what level of product quality is profitable for the monopolist and what level of product quality maximizes aggregate surplus
question
Suppose Kate's Great Crete (KGC) has annual variable costs of VC = 30Q + 0.0025Q2 and marginal costs of MC = 30 + 0.005Q, where Q is the number of cubic yards of concrete it produces per year. In addition, it has an avoidable fixed cost of $50,000 per year. KGC's demand function is Qd = 20,000 - 400P. What is KGC's average cost function?
answer
AC = (50,000/Q) + 30 + 0.0025Q
question
Kate and Alice are small-town ready-mix concrete duopolists. The market demand function is Qd = 20,000 - 200P, where P is the price of a cubic yard of concrete and Qd is the number of cubic yards demanded per year. Marginal cost is $80 per cubic yard. The Cournot model describes the competition in this market. Which of the following best represents Kate's inverse residual demand function?
answer
P(QK) = (100 - 0.005QA) - 0.005QK
question
Firms engage in tacit collusion when:
answer
they collude without communicating, sustaining a price above the noncooperative price that would arise in a single competitive interaction
question
Suppose a multi-product monopolist sells two complementary goods, A and B. Annual market demand for good A is QdA = 600 - 25PA - 12PB. Each time a consumer buys A, his demand for B is QdB = 4 - 0.4PB. The marginal cost of good A is a constant $4, and the marginal cost of good B is a constant $0.50. Suppose the price of good B is $5. If the monopolist ignores the effect of additional sales of A on the sales of good B, how many units of good A will it produce?
answer
220
question
The Solo Coal Mine is the only employer in the small town of Way out there. The market supply of coal miners is Qs = 0.02W - 200, where W is the annual wage of a coal miner and Q is the number of people who would accept employment as a coal miner. What is the inverse supply function for coal miners?
answer
W = 50Qs + 10,000
question
Kate and Alice are small-town ready-mix concrete duopolists. The market demand function is Qd = 20,000 - 200P where P is the price of a cubic yard of concrete and Qd is the number of cubic yards demanded per year. Marginal cost is $80 per cubic yard. Suppose Kate enters the market first and chooses her output before Alice. What is Kate's profit?
answer
$10,000
question
Suppose a monopoly firm has an annual demand function of Qd = 20,000 - 250P, annual variable costs of VC = 16Q + 0.002Q2 and marginal cost of MC = 16 + 0.004Q, where Q is the annual quantity of output. In addition, the firm has an avoidable fixed cost of $25,000 per year. If this firm maximizes its profit, what is the value of aggregate surplus?
answer
$217,000
question
The typical test applied for merger approval under U.S. antitrust law requires that
answer
prices not rise
question
Suppose the daily demand for Coke and Pepsi in a small city are given by QC = 90 - 100PC + 400(PP - PC) and QP = 90 - 100PP + 400(PC - PP), where QC and QP are the number of cans Coke and Pepsi sell, respectively, in thousands per day. PC and PP are the prices of a can of Coke and Pepsi, respectively, measured in dollars. The marginal cost is $0.45 per can for both Coke and Pepsi. What is Pepsi's best response function?
answer
PP = 0.315 + 0.4PC
question
A residual demand curve
answer
shows the relationship between a firm's output and the market price given the outputs of the firm's rivals.
question
Kate and Alice are small-town ready-mix concrete duopolists. The market demand function is Qd = 20,000 - 200P where P is the price of a cubic yard of concrete and Qd is the number of cubic yards demanded per year. Marginal cost is $80 per cubic yard. Suppose Kate enters the market first and chooses her output before Alice. What is Kate's profit maximizing output?
answer
2,000
question
A monopolist's profit maximizing price depends upon:
answer
the elasticity of demand
question
In a market for homogenous goods:
answer
firms sell identical products
question
Suppose the daily demand for Coke and Pepsi in a small city are given by QC = 90 - 100PC + 400(PP - PC) and QP = 90 - 100PP + 400(PC - PP), where QC and QP are the number of cans Coke and Pepsi sell, respectively, in thousands per day. PC and PP are the prices of a can of Coke and Pepsi, respectively, measured in dollars. The marginal cost is $0.45 per can for both Coke and Pepsi. If PP = $0.75, what is Coke's demand function?
answer
QC = 390 - 500PC
question
Kate and Alice are small-town ready-mix concrete duopolists. The market demand function is Qd = 20,000 - 200P, where P is the price of a cubic yard of concrete and Qd is the number of cubic yards demanded per year. Marginal cost is $80 per cubic yard. The Cournot model describes the competition in this market. What is the difference in the deadweight loss compared to a monopoly in this market?
answer
A monopoly would create $5,555.56 more deadweight loss
question
Suppose a firm has a variable cost function VC = 20Q with avoidable fixed cost of $50,000. For regulators, the first-best regulated price is ______; the second-best regulated price is ____.
answer
$80; $105
question
Kate and Alice are small-town ready-mix concrete duopolists. The market demand function is Qd = 20,000 - 200P, where P is the price of a cubic yard of concrete and Qd is the number of cubic yards demanded per year. Marginal cost is $80 per cubic yard. The Cournot model describes the competition in this market. If Alice produces 5,000 cubic yards per year, what is Kate's inverse demand function?
answer
P = 75 - 0.005QK
question
Suppose the daily demand for Coke and Pepsi in a small city are given by QC = 90 - 100PC + 400(PP - PC) and QP = 90 - 100PP + 400(PC - PP), where QC and QP are the number of cans Coke and Pepsi sell, respectively, in thousands per day. PC and PP are the prices of a can of Coke and Pepsi, respectively, measured in dollars. The marginal cost is $0.45 per can for both Coke and Pepsi. What is Pepsi's inverse demand function?
answer
PP = (0.18 + 0.8PC) - 0.002QP
question
A loss leader:
answer
is a product that is sold at a price below its direct marginal cost to encourage sales of a complementary good
question
As products become more differentiated:
answer
consumers are less willing to switch in response to price changes and competition becomes less intense.
question
Kate and Alice are small-town ready-mix concrete duopolists. The market demand function is Qd = 20,000 - 200P, where P is the price of a cubic yard of concrete and Qd is the number of cubic yards demanded per year. Marginal cost is $80 per cubic yard. The Cournot model describes the competition in this market. Which of the following gives Kate's best response function?
answer
QK = 2,000 - 0.5QA
question
A firm's markup over its marginal cost is greater:
answer
the less elastic is the demand curve
question
As products become less differentiated:
answer
consumers are more willing to switch in response to price changes and competition becomes more intense.
question
A firm has market power:
answer
when it can profitably charge a price that is above its marginal cost.
question
Suppose a firm has a variable cost function VC = 20Q with avoidable fixed cost of $50,000. What is the firm's average cost function?
answer
AC = (50,000/Q) + 20
question
The Solo Coal Mine is the only employer in the small town of Way out there. The market supply of coal miners is Qs = 0.02W - 400 and Qd = 500 - 0.02W, where W is the annual wage of a coal miner and Q is the number of coal miners. What is the deadweight loss due to the monopsony in the coal miners market?
answer
$13,889
question
Suppose that a firm uses both labor (L) and capital (K) as inputs. The firm's long-run production function is Q = F(L,K) = 4√L√K. The firm has _____ units of capital. If the firm uses an efficient production method and hires _____ workers, it can produce _____ units of output.
answer
225; 225; 900
question
Suppose that a firm uses both labor (L) and capital (K) as inputs. The firm's long-run production function is Q = F(L,K) = 5√L√K. If the firm has 100 units of capital, what is its short-run production function?
answer
Q = F(L) = 50√L
question
Suppose that MPL = 100 and MPK = 80. If W = 25 and R = 20, then a firm
answer
is producing its output at the lowest possible cost.
question
The Cobb-Douglas production function F(L,K) = ALαKβ will exhibit decreasing returns to scale when:
answer
α + β < 1.
question
Suppose that a firm uses both labor (L) and capital (K) as inputs. The firm's long-run production function is Q = F(L,K) = 8√L√K. The firm has _____ units of capital. If the firm uses an efficient production method and hires _____ workers, it can produce _____ units of output.
answer
225; 100; 1,200
question
Refer to Figure 7.1. What is the marginal product of the 25th worker?
answer
2 units of output
question
A firm's ______ connects all the input combinations with the same price.
answer
isocost line
question
______ occur when a single firm can produce two or more products more cheaply than can two separate firms.
answer
Economies of scope
question
The cost associated with foregoing the opportunity to employ a resource in its best alternative use is called:
answer
an opportunity cost
question
Diseconomies of scope occur when
answer
producing two products in a single firm is more expensive than producing them in separate firms
question
The cost of using capital is equal to the market rental price as long as
answer
a well-functioning rental market for capital exists
question
Suppose a manager is deciding how to allocate workers between two plants. The marginal product of labor in plant 1 is 10 units of output. The marginal product of labor in plant 2 is 14 units of labor. What should the manager do?
answer
Reallocate workers from plant 1 to plant 2, because MPL is greater in plant 2 than in plant 1
question
_____ are resources that are fully used up in the production process.
answer
materials
question
Suppose a firm has a Cobb-Douglas weekly production function Q = F(L, K) = 25L0.5K0.5, where L is the number of workers and K is units of capital. The wage rate is $900 per week, and a unit of capital costs $400 per week. Assuming no fixed costs, what is the firm's total cost of production if it uses least-cost input combination to produce 675 units of output?
answer
$32,400
question
From 1970 to 1984, the productivity of the Lockeed Company increased as the company produced more airplanes. According to the text, Lockeed's experience can best be described as:
answer
learning-by-doing
question
Suppose a firm has a weekly cost function of C(Q) = 8Q + (Q2/100) and a marginal cost function of MC = 8 + (Q/50). Suppose the firm also has an avoidable fixed cost of $225. What is the efficient scale of production, and what is the minimum average cost?
answer
Qe = 106; AC = $10.95
question
______ identifies all of the input combinations that efficiently produce a given amount of output.
answer
isoquant
question
A firm that experiences economies of scale has a ______ average cost curve.
answer
negatively-sloped
question
If the least-cost input combination doesn't include all inputs, it's called:
answer
a boundary solution
question
Refer to Table 8.1. Assume the wage rate is $10 and the firm has $1,000 in unavoidable fixed cost. What is the average cost of producing 65 units of output?
answer
$16
question
Suppose a firm uses 200 units of capital and 1,000 workers to produce 10,000 units of output. When the firm employs 3,000 workers and uses 600 units of capital, output increases to 45,000 units. This firm exhibits:
answer
increasing returns to scale.
question
Isocost lines associated with ______ total cost lie ______ the origin.
answer
higher; farther from
question
In the short run:
answer
at least one input is fixed.
question
Refer to Figure 7.2. Which of the following statements is true?
answer
The curve labeled A represents the MPL.
question
Refer to Figure 7.7. A technological improvement is best represented by:
answer
a movement from point a to point b.
question
Suppose that MPL = 50 and MPK = 30. If W = 25 and R = 10, then a firm:
answer
could reduce costs by employing more capital and less labor.
question
Which of the following is a short-run decision?
answer
Because of an increase in enrollment, the economics department hires two new professors.
question
Refer to Table 7.1. Diminishing returns set in with the ______ worker.
answer
5th
question
Suppose a firm's short-run production function is given by Q = F(L) = 4L. If the wage rate is $12 and the firm has sunk costs of $300, then the firm's variable cost function is:
answer
VC(Q) = $3Q.
question
The marginal product of labor is defined as:
answer
the additional output produced by the last ∆L units of labor hired.
question
Which of the following statements is true?
answer
Competitive firms will respond more to changes in output prices over the long run than they will over the short run because short-run marginal cost is lower than long-run marginal cost.
question
Consider the Cobb-Douglas production function F(L,K)=ALαKβFL,K=ALαKβ. Which of the following statements is true?
answer
Increases in α increase labor's productivity and raise MRTSLK.
question
Isoquants are the ______ created by the ______.
answer
contour lines; production function
question
Refer to Figure 8.6, which shows just three of a firm's various possible short-run average cost curves. Suppose the firm increases its output from 130 units to 160 units. Which of the following statements is
answer
The average cost of producing the 160 units would be $80 if the firm expected the increase in production to be permanent.
question
A firm has increasing returns to scale if:
answer
a proportional change in the use of all inputs produces a more than proportional change in output.
question
When the price of an input _____, a firm's least-cost production method never uses ______ of that input and usually employs _____.
answer
decreases; less; more
question
If marginal cost is ______ average cost, then average cost will _____.
answer
greater than; increase
question
If technological change is factor neutral, then the firm's isoquants:
answer
do not change in appearance.
question
With ______ returns to scale, production is most efficient if there is ______
answer
increasing; a single producer
question
Which of the following is the formula for the marginal product of labor?
answer
[F(L) - F(L - ∆L)]/∆L
question
According to the Law of Diminishing Marginal Returns, as additional units of one input are employed as all other inputs are held constant, total output will eventually ______.
answer
increase at a decreasing rate
question
The strategy whereby a firm makes most of its own inputs is called:
answer
vertical integration
question
Suppose the marginal rate of technical substitution for labor with capital is 5, the marginal product of labor is 8, and the marginal product of capital is 4. Assuming the law of diminishing marginal product applies to both labor and capital, this firm:
answer
could reduce costs by using fewer workers and more capital
question
A firm's ______ cost is equal to the sum of the ______ costs of the individual units it produces.
answer
variable; marginal
question
The slope of an isocost line is equal to:
answer
-(wage rate/rental rate of capital)
question
The typical test applied for merger approval under U.S. antitrust law requires that:
answer
prices not rise
question
Kate and Alice are small-town ready-mix concrete duopolists. The market demand function is Qd = 20,000 - 200P, where P is the price of a cubic yard of concrete and Qd is the number of cubic yards demanded per year. Marginal cost is $80 per cubic yard. The Cournot model describes the competition in this market. If Kate produces 10,000 cubic yards per year, what is Alice's inverse demand function?
answer
P = 50 - 0.005QA
question
Monopolistic competition occurs in a market with free entry:
when there are only a few firms, each producing a unique product, prices above marginal cost and earns zero profit net of fixed costs.
when there is a large number of firms, each producing an identical product, prices above marginal cost and earns zero profit net of its fixed costs.
when there is a large number of firms, each of which produces a unique product, prices above marginal cost and earns zero profit net of its fixed costs.
when there is a large number of firms, each of which produces a unique product, prices above marginal cost and earns a positive profit net of its fixed costs.
when there are only a few firms, each producing a unique product, prices above marginal cost and earns zero profit net of fixed costs.
when there is a large number of firms, each producing an identical product, prices above marginal cost and earns zero profit net of its fixed costs.
when there is a large number of firms, each of which produces a unique product, prices above marginal cost and earns zero profit net of its fixed costs.
when there is a large number of firms, each of which produces a unique product, prices above marginal cost and earns a positive profit net of its fixed costs.
answer
when there is a large number of firms, each of which produces a unique product, prices above marginal cost and earns zero profit net of its fixed costs.
question
An individual firm's best response:
answer
is the firm's most profitable choice given the actions of its rivals
question
The more elastic is the demand for a product:
answer
the closer is marginal revenue to the price
question
The difference between a monopsonist's marginal expenditure and that of a price taker is:
answer
the price increase effect
question
Suppose the demand in a certain duopoly market with homogenous goods is Qd = 8,000 - 100P. The two firms in the market are firm V and firm W, and the marginal cost of producing the goods in question is equal to $25. Which of the following describes the Nash equilibrium in this market?
answer
One of the firms charges a price higher than $25, and one of the firms charges a price lower than $25
question
Kate and Alice are small-town ready-mix concrete duopolists. The market demand function is Qd = 20,000 - 200P, where P is the price of a cubic yard of concrete and Qd is the number of cubic yards demanded per year. Marginal cost is $80 per cubic yard. The Cournot model describes the competition in this market. How much does Kate produce in the Nash equilibrium?
answer
1,333.33
question
Kate and Alice are small-town ready-mix concrete duopolists. The market demand function is Qd = 20,000 - 200P, where P is the price of a cubic yard of concrete and Qd is the number of cubic yards demanded per year. Marginal cost is $80 per cubic yard. The Cournot model describes the competition in this market. What is Kate's marginal revenue function?
answer
MR = 100 - 0.005QA - 0.01QK
question
Which of the following is NOT a reason why collusion may be hard to sustain?
The potential profits from collusion can be so high as to create an incentive not to undercut.
Firms observe their rivals' prices only imperfectly.
Marginal costs, and therefore agreed-upon prices, may differ among firms or products.
Prices wars in practice may not conform to the predictions of the Bertrand model.
The potential profits from collusion can be so high as to create an incentive not to undercut.
Firms observe their rivals' prices only imperfectly.
Marginal costs, and therefore agreed-upon prices, may differ among firms or products.
Prices wars in practice may not conform to the predictions of the Bertrand model.
answer
Firms observe their rivals' prices only imperfectly.
question
The Solo Coal Mine is the only employer in the small town of Way out there. The market supply of coal miners is Qs = 0.02W - 400 and Qd = 500 - 0.02W, where W is the annual wage of a coal miner and Q is the number of coal miners. What is the profit maximizing number of coal miners for the coal mine to hire?
answer
33.33
question
At the Nash equilibrium of an oligopoly market:
answer
each firm is making a profit-maximizing choice given the choices of its rivals
question
When a monopolist maximizes its profit by selling a positive amount:
answer
its marginal revenue must equal its marginal cost at that quantity
question
All else equal, in which oligopolistic market below would one expect the markup to be the smallest?
answer
An oligopolistic market with inelastic demand and a greater number of firms
question
Kate and Alice are small-town ready-mix concrete duopolists. The market demand function is Qd = 20,000 - 200P, where P is the price of a cubic yard of concrete and Qd is the number of cubic yards demanded per year. Marginal cost is $80 per cubic yard. The Cournot model describes the competition in this market. How much profit does each producer earn in the Nash equilibrium?
answer
$8,888.89
question
A firm's Lerner Index:
is the amount by which its average cost exceeds its marginal cost.
is the value of its profit.
is the amount by which its price exceeds its marginal cost, expressed as a percentage of its price.
is the amount by which its marginal cost exceeds its average cost.
is the amount by which its average cost exceeds its marginal cost.
is the value of its profit.
is the amount by which its price exceeds its marginal cost, expressed as a percentage of its price.
is the amount by which its marginal cost exceeds its average cost.
answer
is the amount by which its price exceeds its marginal cost, expressed as a percentage of its price
question
The deadweight loss from monopoly pricing is:
answer
the amount by which aggregate surplus falls short of its maximum possible value, which is attained in a perfectly competitive market.
question
The ________ consumers make decisions about whether to purchase that ________ affected by small changes in price or quality, therefore a quality improvement for these consumers is not profitable.
answer
inframarginal; are not
question
A residual demand curve:
answer
shows the relationship between a firm's output and the market price given the outputs of the firm's rivals.
question
In the infinitely-repeated Bertrand model:
answer
firms play the Bertrand pricing game over and over, with no definite end.
question
The Solo Coal Mine is the only employer in the small town of Way out there. The market supply of coal miners is Qs = 0.02W - 400, where W is the annual wage of a coal miner and Q is the number of people who would accept employment as a coal miner. What is the coal mine's marginal expenditure when it hires 100 coal miners?
answer
$30,000
question
Under monopolistic competition, firms have prices ________ marginal cost and long-run profits that are ________ (net of fixed costs).
answer
above; close to zero
question
Which of the following is NOT a reason why collusion may be hard to sustain?
answer
Firms observe their rivals' prices only imperfectly.
question
Kate and Alice are small-town ready-mix concrete duopolists. The market demand function is Qd = 20,000 - 200P, where P is the price of a cubic yard of concrete and Qd is the number of cubic yards demanded per year. Marginal cost is $80 per cubic yard. The Cournot model describes the competition in this market. How much does Alice produce in the Nash equilibrium?
answer
1,333.33
question
The Solo Coal Mine is the only employer in the small town of Way out there. The market supply of coal miners is Qs = 0.02W - 200 and Qd = 500 - 0.02W, where W is the annual wage of a coal miner and Q is the number of coal miners. What is the inverse demand function for coal miners?
answer
W = 25,000 - 50Q
question
Kate's Great Crete (KGC) is a local monopolist of ready-mix concrete. Its annual demand function is Q = 20,000 - 400P, where P is the price, in dollars, of a cubic yard of concrete and Q is the number of cubic yards sold per year. What is KGC's marginal revenue when it sells 5,000 cubic years of concrete per year?
answer
$25
question
The Solo Coal Mine is the only employer in the small town of Way out there. The market supply of coal miners is Qs = 0.02W - 400, where W is the annual wage of a coal miner and Q is the number of people who would accept employment as a coal miner. What is the coal mine's marginal expenditure when it hires 150 coal miners?
answer
$35,000
question
Suppose the daily demand for Coke and Pepsi in a small city are given by QC = 90 - 100PC + 400(PP - PC) and QP = 90 - 100PP + 400(PC - PP), where QC and QP are the number of cans Coke and Pepsi sell, respectively, in thousands per day. PC and PP are the prices of a can of Coke and Pepsi, respectively, measured in dollars. The marginal cost is $0.45 per can for both Coke and Pepsi. If PC = $0.60, what is Pepsi's demand function?
answer
QP = 330 - 500PP
question
Kate and Alice are small-town ready-mix concrete duopolists. The market demand function is Qd = 20,000 - 200P, where P is the price of a cubic yard of concrete and Qd is the number of cubic yards demanded per year. Marginal cost is $80 per cubic yard. The Cournot model describes the competition in this market. How much more profit would a monopolist earn compared to the combined profit earned by the two duopoly firms together in the Nash equilibrium?
answer
$2,222.22
question
A strategic pre-commitment occurs when a firm:
answer
commits to some actions before rivals take theirs, with the aim of increasing its future competitive profit.
question
The Solo Coal Mine is the only employer in the small town of Way out there. The market supply of coal miners is Qs = 0.02W - 200, where W is the annual wage of a coal miner and Q is the number of people who would accept employment as a coal miner. What is the coal mine's marginal expenditure when it hires 100 coal miners?
answer
$20,000
question
A firm has market power:
answer
when it can profitably charge a price that is above its marginal cost
question
Kate and Alice are small-town ready-mix concrete duopolists. The market demand function is Qd = 20,000 - 200P, where P is the price of a cubic yard of concrete and Qd is the number of cubic yards demanded per year. Marginal cost is $80 per cubic yard. The Cournot model describes the competition in this market. What is the market price in the Nash equilibrium?
answer
$86.67
question
Kate and Alice are small-town ready-mix concrete duopolists. The market demand function is Qd = 20,000 - 200P, where P is the price of a cubic yard of concrete and Qd is the number of cubic yards demanded per year. Marginal cost is $80 per cubic yard. The Cournot model describes the competition in this market. What is the amount of the deadweight loss?
answer
$4,444.44
question
The Solo Coal Mine is the only employer in the small town of Way out there. The market supply of coal miners is Qs = 0.02W - 200, where W is the annual wage of a coal miner and Q is the number of people who would accept employment as a coal miner. What is the coal mine's marginal expenditure when it hires 150 coal miners?
answer
$25,000
question
An oligopoly market is:
answer
a market with a few sellers
question
Suppose Kate's Great Crete (KGC) has annual variable costs of VC = 30Q + 0.0025Q2 and marginal costs of MC = 30 + 0.005Q, where Q is the number of cubic yards of concrete it produces per year. In addition, it has an avoidable fixed cost of $50,000 per year. KGC's demand function is Qd = 20,000 - 400P. What is KGC's profit at the profit maximizing sales price?
answer
- $30,000
question
One of the most notable features of the main provisions of the Sherman Act is that they are:
answer
vague
question
Kate and Alice are small-town ready-mix concrete duopolists. The market demand function is Qd = 20,000 - 200P, where P is the price of a cubic yard of concrete and Qd is the number of cubic yards demanded per year. Marginal cost is $80 per cubic yard. The Cournot model describes the competition in this market. Which of the following gives Alice's best response function?
answer
QA = 2,000 - 0.5QK
question
A firm's price-cost margin:
answer
is the amount by which its price exceeds its marginal cost, expressed as a percentage of its price
question
Suppose the daily demand for Coke and Pepsi in a small city are given by QC = 90 - 100PC + 400(PP - PC) and QP = 90 - 100PP + 400(PC - PP), where QC and QP are the number of cans Coke and Pepsi sell, respectively, in thousands per day. PC and PP are the prices of a can of Coke and Pepsi, respectively, measured in dollars. The marginal cost is $0.45 per can for both Coke and Pepsi. What is the Nash equilibrium price for Coke?
answer
$0.53
question
The Solo Coal Mine is the only employer in the small town of Way out there. The market supply of miners is Qs = 0.02W - 200 and Qd = 500 - 0.02W, where W is the annual wage of a coal miner and Q is the number of coal miners. What is the profit maximizing number of coal miners for the coal mine to hire?
answer
100
question
Suppose the market demand function in a certain market where Q is measured in thousands of units is Qd = 20 - 2.5P, and the market supply function is Qs = 2.5P - 7.5. How much deadweight loss would there be in this market if the quantity bought and sold was 5,000 units?
answer
$62.50
question
Suppose the domestic market demand function in a certain market where Q is measured in thousands of units is Qd = 20 - 2.5P, and the domestic market supply function is Qs = 2.5P - 7.5. Suppose further that the world price for the good in question is $3.40 per unit. If the government places a $1.20 tariff on imported units of this good, how much revenue does the tariff generate?
answer
$5,400
question
Aggregate surplus:
answer
is the sum of consumer and producer surpluses.
question
Suppose the market demand function for ice cream is Qd = 10 - 2P and the market supply function for ice cream is Qs = 4P - 2, both measured in millions of gallons of ice cream per year. Suppose the government imposes a $0.50 tax on each gallon of ice cream. The producer surplus after the tax is:
answer
$3.56 million.
question
Suppose the market demand function for ice cream is Qd = 10 - 2P and the market supply function for ice cream is Qs = 4P - 2, both measured in millions of gallons of ice cream per year. Suppose the government imposes a $0.50 tax on each gallon of ice cream. The government revenue raised by the tax is:
answer
$2.67 million.
question
Milky Moo and Mega Cow are the only sellers of milk. Milky Moo's supply function is QsMMoo = 12P - 6 at prices above $0.50 and zero at prices below $0.50. Mega Cow's supply function is QsMCow = 9P - 3 at prices above $0.33 and zero at prices below $0.33. At a price of $2.00, the market supply of milk is:
answer
QsMarket = 21P - 9
question
Milky Moo and Mega Cow are the only sellers of milk. Milky Moo's supply function is QsMMoo = 12P - 6 at prices above $0.50 and zero at prices below $0.50. Mega Cow's supply function is QsMCow = 9P - 3 at prices above $0.33 and zero at prices below $0.33. At a price of $2.00:
answer
the market supply of milk is 33 units
question
Suppose the market demand function in a certain market where Q is measured in thousands of units is Qd = 20 - 2.5P, and the market supply function is Qs = 2.5P - 7.5. How much deadweight loss would there be in this market if the quantity bought and sold was 8,500 units?
answer
$2025
question
Suppose the domestic market demand function in a certain market where Q is measured in thousands of units is Qd = 20 - 2.5P, and the domestic market supply function is Qs = 2.5P - 7.5. Suppose further that the world price for the good in question is $3.40 per unit. How much deadweight loss would be caused by a $1.20 tariff on imported units of this good
answer
$3,600
question
The market demand function for wheat is Qd = 10 - 2P and the market supply function is Qs = 4P - 2, both measured in billions of bushels per year. Suppose the government wants to increase the price of wheat to $3/bushel and they impose a voluntary production reduction program to achieve their goal. What is the size of the deadweight loss from the program?
answer
$1.5 billion
question
A voluntary production reduction program
answer
offers firms incentives to reduce their production voluntarily
question
Suppose the market demand function for ice cream is Qd = 10 - 2P and the market supply function for ice cream is Qs = 4P - 2, both measured in millions of gallons of ice cream per year. Suppose the government imposes a $0.50 tax on each gallon of ice cream. The aggregate surplus with the tax is:
answer
$13.50 million
question
Characteristics of a perfectly competitive market include:
product homogeneity
the absence of transaction costs
many sellers, each with a very small market share
All of these are characteristics of a perfectly competitive market
product homogeneity
the absence of transaction costs
many sellers, each with a very small market share
All of these are characteristics of a perfectly competitive market
answer
All of these are characteristics of a perfectly competitive market
question
Suppose Julia and Zach are the only consumers of milk. Julia's demand for milk is defined as QdJulia = 12 - 3P at prices below $4 and zero for prices above $4. Zach's demand for milk is defined as QdZach = 10 - 2P at prices below $5 and zero for prices above $5. If the market price for milk is $4.50, market demand is
answer
1 units of milk
question
When the government implements a price support program:
it may end up buying a lot of the good, for which it has little or no use.
the goal is to increase the market price of the good.
the deadweight loss created can be larger than that created by a price floor.
All of these occur as a result of a price support program.
it may end up buying a lot of the good, for which it has little or no use.
the goal is to increase the market price of the good.
the deadweight loss created can be larger than that created by a price floor.
All of these occur as a result of a price support program.
answer
All of these occur as a result of a price support program
question
All of the following statements are true regarding voluntary production reduction programs EXCEPT
answer
they are an attempt to protect consumers from high prices
question
Each of the following is implied if we say that transactions costs are absent EXCEPT:
answer
sellers do not charge a markup over marginal cost
question
The market demand function for wheat is Qd = 10 - 2P and the market supply function is Qs = 4P - 2, both measured in billions of bushels per year. Suppose the government wants to increase the price of wheat to $3/bushel and they impose a price floor to achieve their goal. How much wheat goes to waste under the program?
answer
6 billion bushels per year
question
Milky Moo and Mega Cow are the only sellers of milk. Milky Moo's supply function is QsMMoo = 12P - 6 at prices above $0.50 and zero at prices below $0.50. Mega Cow's supply function is QsMCow = 9P - 3 at prices above $0.33 and zero at prices below $0.33. At a price of $0.45:
answer
the market supply of milk is between 1 and 2 units
question
Suppose that, in the long run, a dairy's variable costs are VC = 2Q2 (where Q is the number of gallons of milk produced each day), its marginal cost is MC = 4Q and there is an avoidable fixed cost of $50 per day. In the long run there is free entry into the market. The long run market supply curve is:
answer
horizontal at $20 per gallon
question
The market supply curve for a product:
answer
will lie to the right of all of the individual supply curves for a product
question
Milky Moo and Mega Cow are the only sellers of milk. Milky Moo's supply function is QsMMoo = 12P - 6 at prices above $0.50 and zero at prices below $0.50. Mega Cow's supply function is QsMCow = 9P - 3 at prices above $0.33 and zero at prices below $0.33. In this case, the market supply curve for milk is
answer
kinked at a price of $0.50
question
Characteristics of a perfectly competitive market include:
answer
many sellers, each with a small market share
question
The deadweight loss from a tax:
answer
is zero when demand is perfectly inelastic.
question
Graphically, market demand for a product:
answer
is the horizontal sum of the individual demand curves
question
Suppose the domestic market demand function in a certain market where Q is measured in thousands of units is Qd = 20 - 2.5P, and the domestic market supply function is Qs = 2.5P - 7.5. Suppose further that the world price for the good in question is $3.40 per unit. If the government places a $1.20 tariff on imported units of this good, by how much is producer surplus increased?
answer
$3000
question
When the government implements a price support program:
the deadweight loss created can be larger than that created by a price floor.
the goal is to increase the market price of the good.
All of these occur as a result of a price support program.
it may end up buying a lot of the good, for which it has little or no use.
the deadweight loss created can be larger than that created by a price floor.
the goal is to increase the market price of the good.
All of these occur as a result of a price support program.
it may end up buying a lot of the good, for which it has little or no use.
answer
All of these occur as a result of a price support program.
question
Suppose the domestic market demand function in a certain market where Q is measured in thousands of units is Qd = 20 - 2.5P, and the domestic market supply function is Qs = 2.5P - 7.5. Suppose further that the world price for the good in question is $3.40 per unit. How much deadweight loss would be caused by a $1.20 tariff on imported units of this good?
answer
$3,600
question
The market demand function for wheat is Qd = 10 - 2P and the market supply function is Qs = 4P - 2, both measured in billions of bushels per year. Suppose the government wants to increase the price of wheat to $3/bushel and they impose a voluntary production reduction program to achieve their goal. How much would the government have to pay farmers?
answer
$4.5 billion
question
A production quota program:
answer
is a way to raise prices without causing the overproduction that occurs under a price support program.
question
Some causes for deadweight loss are:
preferences
taxation
government subsidies
consumption
sunk costs
elasticity of demand
price floors
income
preferences
taxation
government subsidies
consumption
sunk costs
elasticity of demand
price floors
income
answer
taxation
government subsidies
price floors
government subsidies
price floors
question
Deadweight loss is:
answer
a cost to society due to an inefficient allocation of resources
question
Avoidable fixed costs:
answer
affect whether the firm chooses to produce q=0
because...the general rule is that Sunk costs and Unavoidable fixed costs do not affect any decision making. The reason is that there is nothing you can do to avoid paying them. The only kind of fixed cost where there is a possibility that it may not have to be paid, is the Avoidable fixed cost, and it is not paid only when you choose to produce q=0.
In this instance the cost that we are considering is Avoidable fixed costs and so the right answer is affect whether the firm chooses to produce q=0.
because...the general rule is that Sunk costs and Unavoidable fixed costs do not affect any decision making. The reason is that there is nothing you can do to avoid paying them. The only kind of fixed cost where there is a possibility that it may not have to be paid, is the Avoidable fixed cost, and it is not paid only when you choose to produce q=0.
In this instance the cost that we are considering is Avoidable fixed costs and so the right answer is affect whether the firm chooses to produce q=0.
question
Kate and Alice are small-town ready-mix concrete duopolists. The market demand function is Qd = 20,000 - 200P where P is the price of a cubic yard of concrete and Qd is the number of cubic yards demanded per year. Marginal cost is $80 per cubic yard. Suppose Kate enters the market first and chooses her output before Alice. What is Alice's profit?
answer
$5,000
question
In the Cournot model of oligopoly:
answer
firms choose how much to produce simultaneously and the price clears the market given the total quantity produced
question
Which of the following is NOT a reason why a monopoly might be regulated?
answer
To reduce the inefficiency associated with profits
question
The Solo Coal Mine is the only employer in the small town of Way out there. The market supply of coal miners is Qs = 0.02W - 400 and Qd = 500 - 0.02W, where W is the annual wage of a coal miner and Q is the number of coal miners. What wage must be paid at the profit maximizing quantity of coal miners?
answer
$21,667
question
Kate and Alice are small-town ready-mix concrete duopolists. The market demand function is Qd = 20,000 - 200P where P is the price of a cubic yard of concrete and Qd is the number of cubic yards demanded per year. Marginal cost is $80 per cubic yard. Suppose Kate enters the market first and chooses her output before Alice. Given market demand, what is the market price per cubic yard?
answer
$85
question
In a Bertrand model of oligopoly:
answer
firms produce homogenous products and set their prices simultaneously
question
The Solo Coal Mine is the only employer in the small town of Way out there. The market supply of coal miners is Qs = 0.02W - 400, where W is the annual wage of a coal miner and Q is the number of people who would accept employment as a coal miner. What is the coal mine's marginal expenditure function?
answer
ME = 100Q + 20,000
question
Which of the following is not one of the laws that provides the foundation for antitrust policy in the U.S.?
answer
The Cargill Act
question
Significant market power exists in:
answer
monopoly markets and oligopoly markets
question
Kate's Great Crete (KGC) is a local monopolist of ready-mix concrete. Its annual demand function is Q = 20,000 - 400P, where P is the price, in dollars, of a cubic yard of concrete and Q is the number of cubic yards sold per year. What price does KGC charge per unit when it sells 5,000 cubic years of concrete per year?
answer
$37.50
question
As products become more differentiated
answer
consumers are less willing to switch in response to price changes and competition becomes less intense
question
The Solo Coal Mine is the only employer in the small town of Way out there. The market supply of coal miners is Qs = 0.02W - 200 and Qd = 500 - 0.02W, where W is the annual wage of a coal miner and Q is the number of coal miners. What is the deadweight loss in the market for coal miners due to the monopsony?
answer
$125,000
question
Kate's Great Crete (KGC) is a local monopolist of ready-mix concrete. Its annual demand function is Q = 20,000 - 400P, where P is the price, in dollars, of a cubic yard of concrete and Q is the number of cubic yards sold per year. What is KGC's marginal revenue function?
answer
MR = 50 - 0.005Q
question
Firms engage in explicit collusion when:
answer
they communicate to reach an agreement about the prices they will charge
question
For the Cobb-Douglas production function F(L,K) = ALαKβ, a technical change that increases the productivity of capital would be represented by:
answer
an increase in the value of β
question
Returns to scale is a ______ concept because ______
answer
long-run; it refers to changes in all of the firm's inputs
question
When the marginal product of an input is ______ than the average product, the marginal units of the input _____ the average product
answer
larger; raise
question
Refer to Figure 7.5. Which diagram represents isoquants for inputs that are perfect substitutes?
answer
C (Diagonal straight lines)
question
Refer to Figure 8.7. Which of the following statements is true?
answer
The technology represented in graph C will cause the firm to experience diseconomies of scale
question
Refer to Figure 8.5. If the wage rate is $5 and the rental rate of capital is $10, what is the lowest cost of producing 30 units of output?
answer
$345
question
Diseconomies of scope occur when:
answer
producing two products in a single firm is more expensive than producing them in separate firms
question
Refer to Figure 8.7. Which graph illustrates a firm that experiences economies of scale?
answer
A
question
A firm's ______ shows the least-cost input combinations at all possible levels of output for fixed input prices
answer
output expansion path
question
Two inputs ______ when they must be combined in a fixed ratio
answer
are perfect complements
question
Refer to Figure 8.1. Which graph best represents a total cost function?
answer
A
question
For the Cobb-Douglas production function F(L,K) = ALαKβ, a factor-neutral technical change would be represented by:
answer
an increase in the value of A
question
When the price of an input _____, a firm's least-cost production method never uses ______ of that input and usually employs _____
answer
decreases; less; more
question
Refer to Figure 7.5. Which diagram represents isoquants for fixed-proportions technology?
answer
D (right angle lines)
question
Suppose a firm's current total cost of production is $50,000 per week, the wage rate is $1,000 per week and the cost of capital is $2,500. Which of the following gives the general equation for the firm's isocost lines for total cost C?
answer
K = (C/2,500) - 0.4L
question
A firm's _______ summarizes all of its possible methods of producing its output
answer
production technology
question
Whenever a firm uses input X but not input Y, then at the chosen input combination:
answer
MRTSXY ≥ PX/PY
question
A firm's ______ cost is equal to the sum of the ______ costs of the individual units it produces
answer
variable; marginal
question
Refer to Figure 7.4. This isoquant exhibits:
answer
declining MRTSLK as we move to the southeast along the isoquant
question
A firm's ______ shows the least-cost input combinations at all possible levels of output for fixed input prices.
answer
output expansion path
question
The cost of using capital is equal to the market rental price as long as:
answer
a well-functioning rental market for capital exists
question
Isocost lines associated with ______ total cost lie ______ the origin
answer
higher; farther from
question
Suppose that the marginal product of a firm's labor is 10 units of output per hour. Also assume that the marginal product of the firm's capital is 30 units of output per hour. In this case, the marginal rate of technical substitution for labor with capital is:
answer
1/3
question
Which of the following is NOT a property of isoquants?
Isoquants may slope upward or downward.
Isoquants for the same technology never cross.
Isoquants curves are thin.
Higher-level isoquants lie farther from the origin.
Isoquants may slope upward or downward.
Isoquants for the same technology never cross.
Isoquants curves are thin.
Higher-level isoquants lie farther from the origin.
answer
Isoquants may slope upward or downward
question
Suppose a firm has a Cobb-Douglas weekly production function Q = F(L, K) = 25L0.5K0.5, where L is the number of workers and K is units of capital. The wage rate is $900 per week, and a unit of capital costs $400 per week. What is the least-cost input combination for producing 675 units of output?
answer
L = 18; K = 40.5
question
Isoquants are the ______ created by the ______
answer
contour lines; production function
question
Refer to Figure 7.2. With which worker does diminishing marginal returns set in?
answer
30th worker
question
The productivity changes resulting from research and development would be best represented by:
answer
an upward shift of a firm's production function
question
Refer to Table 7.1. What is the marginal product of the 6th worker?
answer
1 unit of output
question
Suppose a firm has a production function given by Q = 2(2L)0.5K0.5. If the rental rate of capital is $100 per unit, the wage rate is $1,400 per week and the firm initially has 25 units of capital, what is the firm's short-run cost function?
answer
C(Q) = 2,500 + 7Q2
question
Suppose that MPL = 100 and MPK = 80. If W = 25 and R = 20, then a firm:
answer
is producing its output at the lowest possible cost
question
The marginal cost curve:
answer
intersects the average cost curve from below at the efficient scale of production
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