Econ Homework 4 - Assignment Essays

question

When a firm is making a profit-maximizing production decision, which of the following principles of economics is likely to be most important to the firm's decision?

answer

The cost of something is what you give up to get it

question

Total revenue equals

answer

price x quantity

question

Profit is defined as

answer

total revenue minus total cost

question

A difference between explicit and implicit costs is that

answer

implicit costs do not require a direct monetary outlay by the firm, whereas explicit costs do

question

Economic profit

answer

will never exceed accounting profit

question

The marginal product of labor is equal to the

answer

increase in output obtained from a one unit increase in labor

question

When the marginal product of an input declines as the quantity of that input increases, the production function exhibits

answer

diminishing marginal product

question

Fixed costs can be defined as costs that

answer

are incurred even if nothing is produced

question

Total cost can be divided into two types of costs:

answer

fixed costs and variable costs

question

Average total cost is equal to

answer

total cost/output

question

Average total cost equals

answer

(fixed costs + variable costs) divided by quantity produced

question

The long-run average total cost curve is always

answer

flatter than the short-run average total cost curve, but not necessarily horizontal

question

When comparing short-run average total cost with long-run average total cost at a given level of output,

answer

short-run average total cost is typically above long-run average total cost

question

Economies of scale occur when a firm's

answer

long-run average total costs are decreasing as output increases

question

Constant returns to scale occur when the firm's long-run

answer

average total costs are constant as output increases

question

When a firm experiences diseconomies of scale

answer

long-run average total cost increases as output increases

question

For any competitive market, the supply curve is closely related to the

answer

firms' costs of production in that market

question

Which of the following is a characteristic of a competitive market?

answer

Buyers and sellers are price takers

question

Who is a price taker in a competitive market?

answer

both buyers and sellers

question

Competitive markets are characterized by

answer

free entry and exit by firms

question

A seller in a competitive market

answer

All of the above

question

If a competitive firm is currently producing a level of output at which marginal cost exceeds marginal revenue, then

answer

a one-unit decrease in output will increase the firm's profit

question

Comparing marginal revenue to marginal cost
(i) reveals the contribution of the last unit of production to total profit.
(ii) is helpful in making profit-maximizing production decisions.
(iii) tells a firm whether its fixed costs are too high.

answer

(i) and (ii) only

question

At the profit-maximizing level of output

answer

marginal revenue equals marginal cost

question

When profit-maximizing firms in competitive markets are earning profits,

answer

new firms will enter the market

question

If marginal cost exceeds marginal revenue, the firm

answer

may still be earning a positive accounting profit

question

In order to maximize profits in the short run, a firm should produce where

answer

marginal cost equals marginal revenue

question

When price is greater than marginal cost for a firm in a competitive market,

answer

there are opportunities to increase profit by increasing production

question

A competitive firm is currently producing a quantity of output at which marginal revenue exceeds marginal cost. In order to increase its profit, the firm should

answer

increase its quantity of output

question

We can measure the profits earned by a firm in a competitive industry as

answer

(P - ATC) × Q

question

The competitive firm's short-run supply curve is that portion of the

answer

marginal cost curve that lies above average variable cost

question

When price exceeds average variable cost in the short run, a competitive firm's marginal cost curve is regarded as its supply curve because

answer

the marginal cost curve determines the quantity of output the firm is willing to supply at any price

question

Competitive firms that earn a loss in the short run should

answer

shut down if P < AVC.

question

In the short-run, a firm's supply curve is equal to the

answer

marginal cost curve above its average variable cost curve

question

In a competitive market with identical firms,

answer

free entry and exit into the market requires that firms earn zero economic profit in the long run even though they may be able to earn positive economic profit in the short run

question

In a perfectly competitive market, the process of entry and exit will end when firms face

answer

marginal revenue equal to long-run average total cost

question

In the long run, each firm in a competitive industry earns

answer

zero economic profits

question

When firms are neither entering nor exiting a perfectly competitive market,

answer

Both a and b are correct

question

Consider a competitive market with a large number of identical firms. The firms in this market do not use any resources that are available only in limited quantities. In long-run equilibrium, market price is determined by

answer

the minimum point on the firms' average total cost curve

question

The long-run supply curve for a competitive industry may be upward sloping if

answer

some resources are available only in limited quantities

question

A competitive firm

answer

is a price taker, whereas a monopolist is a price maker

question

A monopoly

answer

can set the price it charges for its output but faces a downward-sloping demand curve so it cannot earn unlimited profits

question

The fundamental source of monopoly power is

answer

barriers to entry

question

Patents, copyrights, and trademarks

answer

All of the above

question

The market demand curve for a monopolist is typically

answer

downward sloping

question

In order to sell more of its product, a monopolist must

answer

lower its price

question

A monopoly firm is a price

answer

maker and has no supply curve

question

Competitive firms differ from monopolies in which of the following ways?
(i) Competitive firms do not have to worry about the price effect lowering their total revenue.
(ii) Marginal revenue for a competitive firm equals price, while marginal revenue for a monopoly is less than the price it is able to charge.
(iii) Monopolies must lower their price in order to sell more of their product, while competitive firms do not.

answer

(i), (ii), and (iii)

question

For a monopoly,

answer

average revenue exceeds marginal revenue

question

What is the shape of the monopolist's marginal revenue curve?

answer

a downward-sloping line that lies below the demand curve

question

For a monopolist, when the price effect is greater than the output effect, marginal revenue is

answer

negative

question

For a profit-maximizing monopolist,

answer

P > MR = MC

question

When a monopolist chooses the output that maximizes profits, we know that MR = MC and also that P > MR. This is inefficient because

answer

the monopolist fails to make transactions where the marginal benefit is greater than the marginal cost

question

If a monopoly market were to be transformed into a competitive market, the result would be that

answer

All of the above

question

In an oligopoly, each firm knows that its profits

answer

depend on both how much output it produces and how much output its rival firms produce

question

Game theory is necessary to understand which kinds of markets?

answer

oligopoly

question

As the number of firms in an oligopoly increases, the

answer

price approaches marginal cost, and the quantity approaches the socially efficient level.

question

As the number of sellers in an oligopoly becomes very large,

answer

All of the above

question

Assume that two firms in an oligopoly market are unable to collude. Once the Nash Equilibrium is reached

answer

neither firm is able to improve its outcome on its own

question

Whenever a cartel in a duopoly breaks down,

answer

total output in the market will rise

question

The prisoners' dilemma is an important game to study because

answer

it identifies the fundamental difficulty in maintaining cooperative agreements

question

In a game, a dominant strategy is

answer

the best strategy for a player to follow, regardless of the strategies followed by other players

question

Much of the research on game theory in recent decades was driven by attempts to analyze actions of players during

answer

the Cold War between the United States and the Soviet Union

question

Consider a game of the "Jack and Jill" type in which a market is a duopoly and each firm decides to produce either a "high" quantity of output or a "low" quantity of output. If the two firms successfully reach and maintain the cooperative outcome of the game, then

answer

the combined profit of the firms is maximized but total surplus is not maximized

question

The prisoners' dilemma game

answer

has a Nash equilibrium, but the Nash equilibrium outcome is not the outcome the players would agree to if they could cooperate with each other

1 of 65

question

When a firm is making a profit-maximizing production decision, which of the following principles of economics is likely to be most important to the firm's decision?

answer

The cost of something is what you give up to get it

question

Total revenue equals

answer

price x quantity

question

Profit is defined as

answer

total revenue minus total cost

question

A difference between explicit and implicit costs is that

answer

implicit costs do not require a direct monetary outlay by the firm, whereas explicit costs do

question

Economic profit

answer

will never exceed accounting profit

question

The marginal product of labor is equal to the

answer

increase in output obtained from a one unit increase in labor

question

When the marginal product of an input declines as the quantity of that input increases, the production function exhibits

answer

diminishing marginal product

question

Fixed costs can be defined as costs that

answer

are incurred even if nothing is produced

question

Total cost can be divided into two types of costs:

answer

fixed costs and variable costs

question

Average total cost is equal to

answer

total cost/output

question

Average total cost equals

answer

(fixed costs + variable costs) divided by quantity produced

question

The long-run average total cost curve is always

answer

flatter than the short-run average total cost curve, but not necessarily horizontal

question

When comparing short-run average total cost with long-run average total cost at a given level of output,

answer

short-run average total cost is typically above long-run average total cost

question

Economies of scale occur when a firm's

answer

long-run average total costs are decreasing as output increases

question

Constant returns to scale occur when the firm's long-run

answer

average total costs are constant as output increases

question

When a firm experiences diseconomies of scale

answer

long-run average total cost increases as output increases

question

For any competitive market, the supply curve is closely related to the

answer

firms' costs of production in that market

question

Which of the following is a characteristic of a competitive market?

answer

Buyers and sellers are price takers

question

Who is a price taker in a competitive market?

answer

both buyers and sellers

question

Competitive markets are characterized by

answer

free entry and exit by firms

question

A seller in a competitive market

answer

All of the above

question

If a competitive firm is currently producing a level of output at which marginal cost exceeds marginal revenue, then

answer

a one-unit decrease in output will increase the firm's profit

question

answer

(i) and (ii) only

question

At the profit-maximizing level of output

answer

marginal revenue equals marginal cost

question

When profit-maximizing firms in competitive markets are earning profits,

answer

new firms will enter the market

question

If marginal cost exceeds marginal revenue, the firm

answer

may still be earning a positive accounting profit

question

In order to maximize profits in the short run, a firm should produce where

answer

marginal cost equals marginal revenue

question

When price is greater than marginal cost for a firm in a competitive market,

answer

there are opportunities to increase profit by increasing production

question

A competitive firm is currently producing a quantity of output at which marginal revenue exceeds marginal cost. In order to increase its profit, the firm should

answer

increase its quantity of output

question

We can measure the profits earned by a firm in a competitive industry as

answer

(P - ATC) × Q

question

The competitive firm's short-run supply curve is that portion of the

answer

marginal cost curve that lies above average variable cost

question

When price exceeds average variable cost in the short run, a competitive firm's marginal cost curve is regarded as its supply curve because

answer

the marginal cost curve determines the quantity of output the firm is willing to supply at any price

question

Competitive firms that earn a loss in the short run should

answer

shut down if P < AVC.

question

In the short-run, a firm's supply curve is equal to the

answer

marginal cost curve above its average variable cost curve

question

In a competitive market with identical firms,

answer

free entry and exit into the market requires that firms earn zero economic profit in the long run even though they may be able to earn positive economic profit in the short run

question

In a perfectly competitive market, the process of entry and exit will end when firms face

answer

marginal revenue equal to long-run average total cost

question

In the long run, each firm in a competitive industry earns

answer

zero economic profits

question

When firms are neither entering nor exiting a perfectly competitive market,

answer

Both a and b are correct

question

answer

the minimum point on the firms' average total cost curve

question

The long-run supply curve for a competitive industry may be upward sloping if

answer

some resources are available only in limited quantities

question

A competitive firm

answer

is a price taker, whereas a monopolist is a price maker

question

A monopoly

answer

can set the price it charges for its output but faces a downward-sloping demand curve so it cannot earn unlimited profits

question

The fundamental source of monopoly power is

answer

barriers to entry

question

Patents, copyrights, and trademarks

answer

All of the above

question

The market demand curve for a monopolist is typically

answer

downward sloping

question

In order to sell more of its product, a monopolist must

answer

lower its price

question

A monopoly firm is a price

answer

maker and has no supply curve

question

answer

(i), (ii), and (iii)

question

For a monopoly,

answer

average revenue exceeds marginal revenue

question

What is the shape of the monopolist's marginal revenue curve?

answer

a downward-sloping line that lies below the demand curve

question

For a monopolist, when the price effect is greater than the output effect, marginal revenue is

answer

negative

question

For a profit-maximizing monopolist,

answer

P > MR = MC

question

When a monopolist chooses the output that maximizes profits, we know that MR = MC and also that P > MR. This is inefficient because

answer

the monopolist fails to make transactions where the marginal benefit is greater than the marginal cost

question

If a monopoly market were to be transformed into a competitive market, the result would be that

answer

All of the above

question

In an oligopoly, each firm knows that its profits

answer

depend on both how much output it produces and how much output its rival firms produce

question

Game theory is necessary to understand which kinds of markets?

answer

oligopoly

question

As the number of firms in an oligopoly increases, the

answer

price approaches marginal cost, and the quantity approaches the socially efficient level.

question

As the number of sellers in an oligopoly becomes very large,

answer

All of the above

question

Assume that two firms in an oligopoly market are unable to collude. Once the Nash Equilibrium is reached

answer

neither firm is able to improve its outcome on its own

question

Whenever a cartel in a duopoly breaks down,

answer

total output in the market will rise

question

The prisoners' dilemma is an important game to study because

answer

it identifies the fundamental difficulty in maintaining cooperative agreements

question

In a game, a dominant strategy is

answer

the best strategy for a player to follow, regardless of the strategies followed by other players

question

Much of the research on game theory in recent decades was driven by attempts to analyze actions of players during

answer

the Cold War between the United States and the Soviet Union

question

answer

the combined profit of the firms is maximized but total surplus is not maximized

question

The prisoners' dilemma game

answer

has a Nash equilibrium, but the Nash equilibrium outcome is not the outcome the players would agree to if they could cooperate with each other

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