Econ 303 test 3 - Assignment Essays

question

Under what conditions will a firm's long run producer surplus exceed their economic rents?

answer

The firm is operating in an imperfectly competitive market

question

Suppose state legislature imposes a state licensing fee of $100 per year to be paid by all firms that file state tax revenue reports. This new business tax:

answer

None of the above

question

Suppose a firm has an unavoidable FC of $500,000 a year, and it decides to shut down. What is the firm's producer surplus?

answer

PS=0

question

In many rural areas, electric generation and distribution utilities were initially set up as cooperatives in which the electricity customers were member-owners. Like most cooperatives, the objective of these firms was to:

answer

Operate at zero profit in order to provide low electricity prices for the member-owners.

question

I. Markets may be highly (but not perfectly) competitive even if there are few sellers.

II. There is not simple indicator that tells us when markets are highly competitive.

answer

I & II are true

question

Alcoa was effectively the sole seller of aluminum because the firm owned nearly all of the aluminum reserves in the world. This market was not perfectly competitive because the situation violated:

answer

Free entry assumption
&
Price-taking assumption

question

If price is between AVC and ATC, the best and most practical thing for a perfectly competitive firm to do is:

answer

Continue operating, but plan to go out of business.

question

When the price faced by a competitive firm was $5, the firm produced nothing in the short run.
However when the firm rose to $10, the firm produced 100 tons of output.
From this we can infer that:

answer

The minimum value of the firm's average variable cost lies between $5 and $10

question

In long-run competitive equilibrium, a firm that owns factors of production will have an:

answer

economic profit = $0 and accounting profit > $0

question

The benefit of a subsidy accrues mostly to consumers

answer

if Ed/Es is small

question

The burden of a tax per unit of output will fall heavily on consumers when demand is __________ and supply is relatively __________.

answer

Inelastic; elastic

question

Which of the following is unlikely to occur as a result of a price support program?

answer

A reduction in producer surplus

question

I. Employers are always hurt by minimum wage laws.

II. Workers always benefit from minimum wage laws

answer

I is true; II is false

question

The cartel of oil-producing nations (OPEC) once controlled about 80% of the world petroleum market, but OPEC's market share has declined to about half of its former level. This outcome is a good example of how firms may have:

answer

relatively high short-run monopoly power that declines in the long-run.

question

Which of the following is true of the antitrust laws in the United States? They are:

answer

designed to promote a competitive economy.

question

The monopolist has no supply curve because:

answer

the quantity supplied at any particular price depends on the monopolist's demand curve.

question

Suppose that the competitive market for rice in Japan was suddenly monopolized. The effect of such change would be:

answer

to decrease the consumer surplus of Japanese rice consumers.

question

Refer to Scenario 10.9 what is the max amount that Maui Macadamia would be willing to spend in order to maintain its monopoly through rent seeking?

answer

5,400

question

As the manager of a firm you calculate the marginal revenue is $152 and marginal cost is $200. You should:

answer

reduce output until marginal revenue equals marginal cost

question

The monopolist that maximizes profit:

answer

imposes a cost on society because the selling price is above marginal cost

question

Suppose a government sets the price for a natural monopoly at the competitive level such that P=MC. To keep the seller from taking a loss under this policy, the government could provide a lump-sum payment to the firm. How could we determine this payment?

answer

Multiply the competitive quantity by the difference between MC and AC.

question

Which of the following is not an important Antitrust law?

answer

The Consumer Protection Act of 1932

question

When a per unit tax is imposed on the sale of a product of a monopolist, the resulting price increase will:

answer

not always be less than the tax

question

DVDs can be produced at a constant marginal cost, and Roaring Lion Studios is releasing the DVDs for its last two major films. The DVD for Rambeau 17 is priced at $20 per disk, and the DVD for Schreck 10 is priced at $30 per disk. If the Lerner indices for Rambeau 17 divided by the Lerner index for Schreck 10 equals 0.5, what is the constant marginal cost of producing both DVDs?

answer

MC = $15

question

Roaring Lion Studios can produce DVDs at a constant marginal cost of $5 per disk, and the studio has just releasing the DVD for its latest hit film, Ernest Goes to the Hamptons. The retail price of the DVD is $25, and the elasticity of demand for this film is -2. Has the studio selected the profit-maximizing retail price for this DVD?

answer

No, the retail price is too high

question

Which of the following is an example of a homogeneous product?

answer

gasoline & copper

question

The textbook for class was not produced in a perfectly competitive because:

answer

-there are so few firms in the industry that market shares are not small, and firm's decisions have an impact on market price.
-it is not costless to enter or exit the textbook industry.
-upper-division microeconomics texts are not all alike.

question

Marginal revenue, graphically is:

answer

the slope of the total revenue curve at a given point.

question

At the profit-maximizing level of output, what is the relationship between the total revenue (TR) and the total cost (TC) curves?

answer

they must have the same slope

question

At the profit-maximizing level of output, marginal profit:

answer

is zero

question

The demand curve facing a perfectly competitive firm is:

answer

the same as its average revenue curve and its marginal revenue curve

question

If the market price for a competitive firm's output doubles then:

answer

the marginal revenue doubles

question

An improvement in technology would result in:

answer

downward shift of MC and increases in output.

question

If a competitive firm has a U-shaped marginal cost curve then:

answer

the profit maximizing output is found where MC = MR and MC is increasing.

question

I. The firm's decision to produce zero output when the price is less than the average variable cost of production is known as the shutdown rule.

II. The firm's supply decision is to generate zero output for all prices below the minimum AVC.

answer

I and II are true

question

Why would a firm that incurs losses chose to produce rather than shut down?
In a perfectly competitive industry, if a firm is incurring losses, then it might choose to produce in the short run because:

answer

revenue is greater than variable costs, resulting in smaller losses than would result from shutting down.

question

Suppose a technological innovation shifts the marginal cost curve downward. Which one of the following cost curves does NOT shift?

answer

Average fixed cost curve

question

I. Under perfect competition, an upward shift in the marginal cost curve (perhaps due to a higher price for a variable input) also shifts the average variable cost curve upward.

II. Under perfect competition, an upward shift in the marginal cost curve (perhaps due to a higher price for a variable input) reduces firm output but may increase firm profits.

answer

I is true & II is false.

question

The shutdown decision can be restated in terms of producer surplus by saying that a firm should produce in the short run as long as

answer

producer surplus is positive

question

Because industry X is characterized by perfect competition, every firm in the industry is earning zero economic profit. If the product price falls, no firm can survive. Do you agree or disagree?

answer

Incorrect because firms will exit the industry in the long run, reducing supply until the price rises to the lowest point in the long-run average cost curve.

question

I. increases in the demand for a good, which is produced by a competitive industry, will raise the short-run market price

II. increases in the demand for a good, which is produced by a competitive industry, will raise the long-run market price

answer

I is true, II is false

question

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

answer

-Firms may move along their LRAC
-There may be pressure on prices to fall
-New firms may enter the industry
-Existing firms may get larger

question

In an increasing-cost industry, expansion of output:

answer

causes input prices to rise as demand for them grows.

question

The long-run supply curve in a constant-cost industry is linear and

answer

horizontal

question

True/False: A firm should always produce at an output at which long-run average cost is minimized.

answer

False, because in the short run this may not be possible with fixed fact

question

In 1970s the federal government imposed price controls on natural gas. Which of the following statements is true?

answer

Consumers gained from the price controls, because consumer surplus was larger than it would have been under free market equilibrium.

question

Government intervention can increase total welfare when

answer

there are costs or benefits that are external to the market
&
consumers do not have perfect information about product quality.

question

Suppose the market supply curve is upward-sloping and market demand is perfectly inelastic. If the market price is held above the equilibrium level, which of the following statements about the resulting outcome is NOT true?

answer

Quantity demanded will decline.

question

Economic efficiency is achieved when

answer

aggregate consumer and producer surplus is maximized

question

One way to remove the excess labor supply problem from a minimum wage policy is to have the government hire all unemployed workers at the minimum wage.
What is the key drawback of this version of a minimum wage policy?

answer

The deadweight loss may increase substantially
&
The cost to the government may be very large

question

Consider a good whose own price elasticity of demand is 0 and price elasticity of supply is 1. The fraction of a specific tax that will be passed through to consumers is:

answer

question

Which of the following conditions must hold in the equilibrium of a competitive market where the government puts a specific tax on consumers?

answer

-The quantity demanded must equal the quantity supplied
-The quantity sold and the price paid by the buyer must lie on the demand curve
-The quantity sold and the seller's price must lie on the supply curve
-The difference between the price the buyer pays and the price the seller receives must equal the specific tax

question

I. it is impossible to shift taxes from producers to consumers without hurting the latter

II. Only polluters pay (through production taxes) for the environment damage they cause

answer

I and II are false

question

The Clinton administration has recommended an increase in the tax on yachts to help pay for government programs.
Which of the following is true?

answer

The sales of yachts will decrease.

question

When the government imposes a specific tax per unit on a product, changes in consumer surplus are ___________ and changes in producer surplus are ___________.

answer

Negative; negative

question

The deadweight loss of a specific tax will be a small share of the tax revenue collected if:

answer

supply and demand are both inelastic

question

When the demand curve is downward sloping, marginal revenue is

answer

less than the price

question

Which of the following is NOT true regarding monopoly?

answer

Monopolist can charge as high a price as it likes.

question

Monopoly power results from the ability to:

answer

set price above marginal cost.

question

Compared to the equilibrium price and quantity sold in a competitive market, a monopolist will charge a __________ price and sell a ____________ quantity.

answer

higher; smaller

question

A monopolist has determined that at the current level of output the price elasticity of demand is -0.15.
Which of the following statements is true?

answer

The firm should cut output

question

The __________ elastic a firm's demand curve, the greater its ___________.

answer

less; monopoly power

question

What is the value of the Lerner index under perfect competition?

answer

question

I. A firm can exert monopoly power if and only if it is the sole producer of a good.

II. The degree of monopoly power a firm can be measured using the Lerner Index:
L=(P-AC)/AC

answer

I and II are false.

question

Under which of the following scenarios is it most likely that monopoly power will be exhibited by firms?

answer

When there are firms in the market and the demand curve faced by each firm is relatively inelastic.

question

If a monopolist's profits were taxed away and redistributed to its consumers,

answer

inefficiency would remain because output would be lower than under competitive conditions.

1 of 66

question

Under what conditions will a firm's long run producer surplus exceed their economic rents?

answer

The firm is operating in an imperfectly competitive market

question

Suppose state legislature imposes a state licensing fee of $100 per year to be paid by all firms that file state tax revenue reports. This new business tax:

answer

None of the above

question

Suppose a firm has an unavoidable FC of $500,000 a year, and it decides to shut down. What is the firm's producer surplus?

answer

PS=0

question

answer

Operate at zero profit in order to provide low electricity prices for the member-owners.

question

I. Markets may be highly (but not perfectly) competitive even if there are few sellers.

II. There is not simple indicator that tells us when markets are highly competitive.

answer

I & II are true

question

Alcoa was effectively the sole seller of aluminum because the firm owned nearly all of the aluminum reserves in the world. This market was not perfectly competitive because the situation violated:

answer

Free entry assumption
&
Price-taking assumption

question

If price is between AVC and ATC, the best and most practical thing for a perfectly competitive firm to do is:

answer

Continue operating, but plan to go out of business.

question

When the price faced by a competitive firm was $5, the firm produced nothing in the short run.
However when the firm rose to $10, the firm produced 100 tons of output.
From this we can infer that:

answer

The minimum value of the firm's average variable cost lies between $5 and $10

question

In long-run competitive equilibrium, a firm that owns factors of production will have an:

answer

economic profit = $0 and accounting profit > $0

question

The benefit of a subsidy accrues mostly to consumers

answer

if Ed/Es is small

question

The burden of a tax per unit of output will fall heavily on consumers when demand is __________ and supply is relatively __________.

answer

Inelastic; elastic

question

Which of the following is unlikely to occur as a result of a price support program?

answer

A reduction in producer surplus

question

I. Employers are always hurt by minimum wage laws.

II. Workers always benefit from minimum wage laws

answer

I is true; II is false

question

answer

relatively high short-run monopoly power that declines in the long-run.

question

Which of the following is true of the antitrust laws in the United States? They are:

answer

designed to promote a competitive economy.

question

The monopolist has no supply curve because:

answer

the quantity supplied at any particular price depends on the monopolist's demand curve.

question

Suppose that the competitive market for rice in Japan was suddenly monopolized. The effect of such change would be:

answer

to decrease the consumer surplus of Japanese rice consumers.

question

Refer to Scenario 10.9 what is the max amount that Maui Macadamia would be willing to spend in order to maintain its monopoly through rent seeking?

answer

5,400

question

As the manager of a firm you calculate the marginal revenue is $152 and marginal cost is $200. You should:

answer

reduce output until marginal revenue equals marginal cost

question

The monopolist that maximizes profit:

answer

imposes a cost on society because the selling price is above marginal cost

question

answer

Multiply the competitive quantity by the difference between MC and AC.

question

Which of the following is not an important Antitrust law?

answer

The Consumer Protection Act of 1932

question

When a per unit tax is imposed on the sale of a product of a monopolist, the resulting price increase will:

answer

not always be less than the tax

question

answer

MC = $15

question

answer

No, the retail price is too high

question

Which of the following is an example of a homogeneous product?

answer

gasoline & copper

question

The textbook for class was not produced in a perfectly competitive because:

answer

question

Marginal revenue, graphically is:

answer

the slope of the total revenue curve at a given point.

question

At the profit-maximizing level of output, what is the relationship between the total revenue (TR) and the total cost (TC) curves?

answer

they must have the same slope

question

At the profit-maximizing level of output, marginal profit:

answer

is zero

question

The demand curve facing a perfectly competitive firm is:

answer

the same as its average revenue curve and its marginal revenue curve

question

If the market price for a competitive firm's output doubles then:

answer

the marginal revenue doubles

question

An improvement in technology would result in:

answer

downward shift of MC and increases in output.

question

If a competitive firm has a U-shaped marginal cost curve then:

answer

the profit maximizing output is found where MC = MR and MC is increasing.

question

answer

I and II are true

question

answer

revenue is greater than variable costs, resulting in smaller losses than would result from shutting down.

question

Suppose a technological innovation shifts the marginal cost curve downward. Which one of the following cost curves does NOT shift?

answer

Average fixed cost curve

question

answer

I is true & II is false.

question

The shutdown decision can be restated in terms of producer surplus by saying that a firm should produce in the short run as long as

answer

producer surplus is positive

question

Because industry X is characterized by perfect competition, every firm in the industry is earning zero economic profit. If the product price falls, no firm can survive. Do you agree or disagree?

answer

Incorrect because firms will exit the industry in the long run, reducing supply until the price rises to the lowest point in the long-run average cost curve.

question

answer

I is true, II is false

question

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

answer

-Firms may move along their LRAC
-There may be pressure on prices to fall
-New firms may enter the industry
-Existing firms may get larger

question

In an increasing-cost industry, expansion of output:

answer

causes input prices to rise as demand for them grows.

question

The long-run supply curve in a constant-cost industry is linear and

answer

horizontal

question

True/False: A firm should always produce at an output at which long-run average cost is minimized.

answer

False, because in the short run this may not be possible with fixed fact

question

In 1970s the federal government imposed price controls on natural gas. Which of the following statements is true?

answer

Consumers gained from the price controls, because consumer surplus was larger than it would have been under free market equilibrium.

question

Government intervention can increase total welfare when

answer

there are costs or benefits that are external to the market
&
consumers do not have perfect information about product quality.

question

answer

Quantity demanded will decline.

question

Economic efficiency is achieved when

answer

aggregate consumer and producer surplus is maximized

question

answer

The deadweight loss may increase substantially
&
The cost to the government may be very large

question

Consider a good whose own price elasticity of demand is 0 and price elasticity of supply is 1. The fraction of a specific tax that will be passed through to consumers is:

answer

question

Which of the following conditions must hold in the equilibrium of a competitive market where the government puts a specific tax on consumers?

answer

question

I. it is impossible to shift taxes from producers to consumers without hurting the latter

II. Only polluters pay (through production taxes) for the environment damage they cause

answer

I and II are false

question

The Clinton administration has recommended an increase in the tax on yachts to help pay for government programs.
Which of the following is true?

answer

The sales of yachts will decrease.

question

When the government imposes a specific tax per unit on a product, changes in consumer surplus are ___________ and changes in producer surplus are ___________.

answer

Negative; negative

question

The deadweight loss of a specific tax will be a small share of the tax revenue collected if:

answer

supply and demand are both inelastic

question

When the demand curve is downward sloping, marginal revenue is

answer

less than the price

question

Which of the following is NOT true regarding monopoly?

answer

Monopolist can charge as high a price as it likes.

question

Monopoly power results from the ability to:

answer

set price above marginal cost.

question

Compared to the equilibrium price and quantity sold in a competitive market, a monopolist will charge a __________ price and sell a ____________ quantity.

answer

higher; smaller

question

A monopolist has determined that at the current level of output the price elasticity of demand is -0.15.
Which of the following statements is true?

answer

The firm should cut output

question

The __________ elastic a firm's demand curve, the greater its ___________.

answer

less; monopoly power

question

What is the value of the Lerner index under perfect competition?

answer

question

I. A firm can exert monopoly power if and only if it is the sole producer of a good.

II. The degree of monopoly power a firm can be measured using the Lerner Index:
L=(P-AC)/AC

answer

I and II are false.

question

Under which of the following scenarios is it most likely that monopoly power will be exhibited by firms?

answer

When there are firms in the market and the demand curve faced by each firm is relatively inelastic.

question

If a monopolist's profits were taxed away and redistributed to its consumers,

answer

inefficiency would remain because output would be lower than under competitive conditions.

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