question
Since the marginal product of labor equals the change in the quantity of output divided by the change in the quantity of labor, it stands to reason that:
answer
a firm would never operate in the range where marginal product is negative.
question
Daisy incurs $7,200 per month in fixed costs operating her floral shop. She pays her employees $9.00 per hour and has three assistants, each working 120 hours per month. Her other variable costs are $800 per month. What are Daisy's total variable costs and total costs each month?
answer
Total variable costs are $4,040; total costs are $11,240
question
A firm produces children's bicycles in the short run using two inputs, capital and labor. The quantity of capital is fixed and generates a monthly cost of $6,000. The quantity of labor can be varied, and the wage rate per hour of labor is $20. If 400 hours of labor are hired for the month, and 140 bicycles units of output are produced, what is the firm's average total cost for the month?
answer
100
question
In what way does the spreading effect change the average total cost as output rises?
answer
The spreading effect reduces ATC, because a given fixed cost is spread across more units of output.
question
The argument in the book called The Mythical Man-Month is that:
answer
there are constant returns to scale in computer programming no matter how much labor is used.
Wrong
*labor applied to computer programming is subject to such diminishing returns that the marginal product will eventually turn negative.
The book asserts that a programming project that 1 worker could complete in 12 months will take longer than 1 month to complete if 12 workers are assigned to the project. Section: From the Production Function to Cost Curves
Wrong
*labor applied to computer programming is subject to such diminishing returns that the marginal product will eventually turn negative.
The book asserts that a programming project that 1 worker could complete in 12 months will take longer than 1 month to complete if 12 workers are assigned to the project. Section: From the Production Function to Cost Curves
question
Samir owns a coffee shop that has monthly variable costs equal to $8,560. If Samir sells 11,000 cups of coffee each month, what is the average variable cost per cup?
answer
0.78
question
Which cost curve is continually falling as output increases?
answer
the average fixed cost curve
question
Which cost curve is continually upward sloping?
answer
the average total cost curve
question
The minimum-cost output is the quantity corresponding to the minimum point of the
answer
average total cost curve.
question
A firm produces 200 pop-up speakers at an average total cost of $27 and an average variable cost of $24. What is the firm's level of total fixed cost?
answer
600
question
Which of the following statements is true?
Whenever marginal cost is below average total cost, marginal cost is decreasing.
Whenever marginal cost is above average total cost, marginal cost is decreasing.
Whenever marginal cost is above average total cost, average total cost is increasing.
When marginal cost equals average total cost, marginal cost is minimized
Whenever marginal cost is below average total cost, marginal cost is decreasing.
Whenever marginal cost is above average total cost, marginal cost is decreasing.
Whenever marginal cost is above average total cost, average total cost is increasing.
When marginal cost equals average total cost, marginal cost is minimized
answer
When marginal cost equals average total cost, marginal cost is minimized
Incorrect!
Think about how average costs are affected when a new cost higher than the current average is added to costs. Suppose your GPA, an average value, is 3.5. If your grade in an additional course (marginal value) is a 4.0, it will increase your GPA. Section: Marginal Cost
Incorrect!
Think about how average costs are affected when a new cost higher than the current average is added to costs. Suppose your GPA, an average value, is 3.5. If your grade in an additional course (marginal value) is a 4.0, it will increase your GPA. Section: Marginal Cost
question
How long is the long run?
long enough that all costs can become variable
long enough that all costs can become fixed
long enough for the firm to make a profit.
long enough for diminishing returns to set in
long enough that all costs can become variable
long enough that all costs can become fixed
long enough for the firm to make a profit.
long enough for diminishing returns to set in
answer
long enough for diminishing returns to set in
*long enough that all costs can become variable
Incorrect! In the long run, the firm can adjust its scale of operations to any plant size, and the fixed costs associated with any one plant size become variable. Section: Short-Run Versus Long-Run Costs
*long enough that all costs can become variable
Incorrect! In the long run, the firm can adjust its scale of operations to any plant size, and the fixed costs associated with any one plant size become variable. Section: Short-Run Versus Long-Run Costs
question
All of the following curves are U-shaped, except the:
answer
average fixed cost.
question
The marginal product is the slope of the:
answer
total product curve.
question
The marginal cost is the slope of the:
answer
marginal product curve.
question
What is on the horizontal axis when we draw a total product curve?
answer
quantity of a variable input
question
If a firm experiences economies of scale as it expands production, then:
answer
its long-run average total cost curve will be downward sloping in that range.
question
A firm experiencing constant returns to scale operates on the horizontal part of the:
answer
long-run average total cost curve.
question
For cities that provide snow removal, which of the following is a fixed cost?
answer
purchase of snow removal equipment
question
A firm is producing 100 racing bicycles at a total cost of $84,000. The firm's fixed cost is $24,000. What is the average variable cost?
answer
600
question
Gabriel operates a tree-trimming business in Maine. He charges the perfectly competitive price of $47 per hour. The marginal cost of working the 36th hour each week is $42; the marginal cost of working the 37th hour is $44; the 38th hour is $46; and the 39th hour is $48. How many hours should he work each week?
answer
He should work 38 hours per week, because this is the workload that maximizes his net gain.
question
Nadia operates a frame shop and charges the perfectly competitive price of $65 for custom framing of a standard size picture. She is a price-taking producer. To maximize her profit, Nadia will:
answer
accept framing orders up until the point where the marginal cost of doing so is $65
question
Which of the following is NOT a characteristic of a perfectly competitive industry?
answer
Each firm seeks to undercut the price of its competitors
question
For the perfectly competitive firm, economic profit equals:
answer
(price - average total cost) x quantity.
question
Tara sells her organic carrots in a perfectly competitive market for a price that is just higher than her minimum average variable cost of production, but lower than her minimum average total cost of production. Which of the following statements is then true?
answer
She is incurring a loss, because price is less than ATC.
question
Luis operates a cherry orchard in Northern Oregon and sells the cherries in a perfectly competitive market at a price of $1.70 per pound. Last month Luis sold 2,000 pounds of cherries. His fixed cost of production was $800 and his average variable cost was $1.00 per pound. What was his profit?
answer
$600
question
In maximizing net gains, the perfectly competitive firm will seek to:
answer
maximize profit.
question
The existence of profit in a perfectly competitive industry means that:
answer
new producers will seek to enter the industry.
question
A perfectly competitive firm earns an economic profit when:
answer
price is above average total cost.
question
A firm will choose to shut down in the short run when:
answer
is below the minimum point of AVC.
question
The short-run individual supply curve of the perfectly competitive firm is:
answer
its marginal cost curve above average variable cost.
question
The quantity supplied by a perfectly competitive firm at a given market price is determined by the:
answer
firm's marginal cost curve.
question
A perfectly competitive firm charges the market price of $18 to sell its product. The firm produces and sells the profit-maximizing quantity of 50 units at this price. Its average total cost is $17 and its average variable cost is $15. Which of the following statements is then true?
answer
The firm is earning an economic profit of $50.
question
Suppose that the long-run industry supply in the production of synthetic fabrics is perfectly elastic. Which of the following statements is then true?
answer
The long-run industry supply for synthetics is horizontal.
question
How does the long run differ from the short run in perfect competition?
answer
The long run is long enough to allow for the entry of new firms into the industry.
question
Which of the following is not a characteristic of the long-run equilibrium in perfect competition
answer
Each firm produces at the minimum point on the MC curve.
question
Why does economic theory predict that a perfectly competitive firm will produce at the point where price equals marginal cost?
answer
This point maximizes profit for the firm.
question
How does the long-run industry supply curve compare to the short-run industry supply curve?
answer
he long-run curve is always flatter than the short-run curve.
question
Suppose that firms in the perfectly competitive potato-growing industry are earning economic profits. According to economic theory, what is likely to happen?
answer
More firms will enter the market, thereby increasing the industry supply and lowering the market price.
question
A perfectly competitive ebook publishing firm currently sells its ebook at the market price of $6. Its average total cost is $5.50. In this case:
answer
the firm has positive economic profits.
question
The U.S. beer industry is characterized by market power for only a few firms, with the largest firm enjoying a 50% market share. One reason for this is economies of scale. Economies of scale means that:
answer
...
question
The U.S. beer industry is characterized by market power for only a few firms, with the largest firm enjoying a 50% market share. One reason for this is economies of scale. Economies of scale means that:
answer
as beer production increases, the average total cost of production falls.
question
Which of the following is not an example of a barrier to entry?
answer
an innovative product
question
In today's U.S. economy, which of the following industries has firms that have acted as a monopoly for an extended period?
answer
pharmaceuticals
question
The monopolist's marginal revenue curve is downward sloping because:
answer
the monopolist must lower its price in order to sell more.
question
Suppose an industry initially had been perfectly competitive and then became a monopoly. Which of the following would occur?
answer
Consumer surplus would decrease.
question
Suppose a monopoly firm has a constant marginal cost equal to $8. Its demand and marginal revenue curves are given, respectively, by the equations P = 40 - 2Q and MR = 40 - 4Q. For this firm, the profit-maximizing price and output levels are:
answer
P = $24; Q = 8
question
If the regulated price for a natural monopoly is set equal to the marginal cost:
answer
the firm will not cover all of its costs.
question
Often natural monopolies are regulated by:
answer
setting the price equal to average total cost, so as to maximize consumer surplus and allow the firm to break even.
question
If a monopoly practices perfect price discrimination, it will:
answer
eliminate consumer surplus.
question
Which of the following statements about monopoly is not correct?
answer
A monopolist can sell as much as it wants at whatever price it chooses.
question
If an airline chooses to practice price discrimination to increase profit, it will:
answer
charge higher fares to those with a less elastic demand.
question
One difference between monopoly and perfect competition is that:
answer
the marginal revenue curve for a monopolist is downward sloping; for a perfect competitor; it is horizontal.
question
Monopoly is a type of:
answer
market structure
question
A monopoly arises when there
answer
are barriers to the entry of other firms in the industry.
question
Price discrimination is
answer
when firms charge different prices to different customers based on their willingness to pay.
question
If a monopolist engages in price discrimination, it is with the goal of:
answer
increasing profit.
question
Public ownership of a natural monopoly is intended to do all of the following EXCEPT to:
answer
increase demand for the good.
question
A price ceiling imposed on a monopoly:
answer
can enhance the market power of the monopolist.
WRONG
*always creates a shortage?
WRONG
*always creates a shortage?
question
To persist, a monopoly must:
answer
be protected by a barrier against the entry of other firms.
question
Which of the following statements about oligopolies is not correct?
answer
Oligopolistic firms are always large.
question
The U.S. baseball glove industry is an oligopoly. This means that glove suppliers face a ________________ than a monopoly glove supplier would:
answer
smaller price effect
question
In the classic prisoners' dilemma with two accomplices in crime, the Nash equilibrium outcome is:
answer
both individuals confess
question
In the classic prisoners' dilemma with two accomplices in crime, the dominant strategy for each individual is to:
answer
confess.
question
In using a prisoners' dilemma game to model the behavior of firms within an oligopoly, we are assuming that:
answer
each firm seeks to act in its best interest.
question
For competing firms, a(n) ____________________ strategy is the strategy that is in a firm's best interest, ________________ the action taken by the other firm:
answer
dominant; regardless
question
The 1890 Sherman Antitrust Act makes it illegal for firms to:
answer
behave together like a monopolist.
question
When firms engage in tacit collusion, they:
answer
limit production in a way that enhances industry profits.
question
A firm that engages in strategic behavior:
answer
may attempt to influence the behavior of other firms.
question
For the members of OPEC, it is in their combined interests to:
answer
restrict yearly output and keep prices high.
question
The model in which one firm sets its price first, and others in the industry charge the same price is known as:
answer
price leadership.
question
Game theory is the:
answer
study of behavior in situations of interdependence.
question
The reason why game theory is NOT applied to perfect competition is that:
answer
the behavior of one perfectly competitive firm does not affect the behavior of its rivals.
question
A price war is evidence of a:
answer
collapse of tacit collusion.
question
Which of the following is not true?
answer
Tacit collusion in oligopoly leads to perfectly competitive pricing.
question
The outcome in a Nash equilibrium:
answer
means that each player is happy with his decision, given the decisions of the other players
question
Which word best characterizes the interaction among firms in any oligopoly?
answer
interdependence
question
Successful tacit collusion is most likely to arise among oligopolistic firms when they:
answer
each play the tit for tat strategy.
question
Antitrust policy is designed to:
answer
prevent firms from exercising monopoly power.
question
Why is collusion more likely in cases of oligopoly than in perfect competition?
answer
There are too many firms in perfect competition to allow for collusion.
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