question
The perfectly competitive firm exhibits resource allocative efficiency, but the single-price monopolist does not. What is the reason for the difference?
answer
The monopolist firm faces a downward-sloping demand curve, and the perfectly competitive firm faces a horizontal demand curve.
question
True or False: Because the monopolist is a single seller of a product with no close substitutes, it can obtain any price for its good that it wants
answer
False
question
Explain why the MRMR curve lies below the demand curve for a single-price monopolist.
-The monopolist faces a horizontal demand curve, so price stays constant as more units are sold. Marginal revenue is then below the price charged for the product.
-The monopolist faces a downward-sloping demand curve, so price must be raised in order to sell more units of its product. Marginal revenue is then below the price charged for the product.
-The monopolist faces a vertical demand curve, so price stays constant as more units are sold. Marginal revenue is then below the price charged for the product.
-The monopolist faces a downward-sloping demand curve, so price must be lowered in order to sell more units of its product. Marginal revenue is then below the price charged for the product.
-The monopolist faces a horizontal demand curve, so price stays constant as more units are sold. Marginal revenue is then below the price charged for the product.
-The monopolist faces a downward-sloping demand curve, so price must be raised in order to sell more units of its product. Marginal revenue is then below the price charged for the product.
-The monopolist faces a vertical demand curve, so price stays constant as more units are sold. Marginal revenue is then below the price charged for the product.
-The monopolist faces a downward-sloping demand curve, so price must be lowered in order to sell more units of its product. Marginal revenue is then below the price charged for the product.
answer
The monopolist faces a downward-sloping demand curve, so price must be lowered in order to sell more units of its product. Marginal revenue is then below the price charged for the product.
question
True or False: There is deadweight loss if a firm produces the quantity of output at which price equals marginal cost.
answer
False
question
Under what condition will a monopoly firm incur losses?
answer
ATC > P
question
A perfectly competitive firm will _________ produce output and charge a _________ (per unit) price than a single-price monopoly firm.
answer
more; lower
question
Why is rent seeking individually rational but socially wasteful?
answer
Rent-seeking activity reflects the actions of individuals who spend resources trying to influence public policy in the hope of redistributing income to themselves from others; it is simply a transfer activity, not a production activity.
question
Government monopolies __________ legally protected from competition, whereas market monopolies _________ legally protected. A __________ monopoly is formed by public franchises, patents, or licenses, while a _________ monopoly is formed by economies of scale or exclusive ownership of a resource.
answer
are; are not; government; market
question
In general, coupons are more common and easier to find for small-ticket items than for big-ticket items.
Which of the following explains why?
Which of the following explains why?
answer
This is because of price discrimination. Potential purchasers of small-ticket items vary more in their willingness to spend time trying to save money. Coupons help sellers determine which customers have a high willingness to spend time to save money and which customers do not.
question
A firm maximizes both profits and total revenue at the same time only under the condition that it has __________ variable costs (so marginal costs are zero). If this were not the case with the variable costs, then there would be a difference between maximizing revenue (MR=0MR=0) and maximizing profits (MR=MCMR=MC). Economists assume that firms try to maximize ____________.
answer
no; profits, not revenue
question
True or False: The perfectly competitive firm's entire marginal cost curve is its short-run supply curve.
answer
False
question
In the short run, a perfectly competitive firm will maximize profits (minimize losses) by producing the level of quantity at which ___________. The firm will only operate at the lowest per-unit cost of the firm is __________ and P=MR=MC=___________.
answer
MR=MC; breaking even; Minimum ATC
question
Firm A, one firm in a perfectly competitive industry, faces higher costs of production.
As a result, will consumers end up paying higher prices?
As a result, will consumers end up paying higher prices?
answer
No, because in a perfectly competitive industry, the more efficient firms with lower costs will drive firm A out of the market.
question
Suppose all firms in a perfectly competitive market structure are in long-run equilibrium. Then demand for the firms' product increases.
Complete the following sentence to describe the short-run adjustment.
Initially, in the short run, price and economic profits will _______ .
Complete the following sentence to describe the short-run adjustment.
Initially, in the short run, price and economic profits will _______ .
answer
rise
question
Soon afterward, the government decides to tax most (but not all) of the economic profits, arguing that the firms in the industry did not earn the profits. Rather, the profits were simply the result of an increase in demand.
Complete the following sentences to describe the effect of the tax on the long-run adjustment.
New firms ___________ have as great an incentive to enter the industry as they would without the tax. Consequently, the industry supply curve ___________ shift by as much as it would without the tax, and the new price ___________ be as low as it would have been without the tax.
Complete the following sentences to describe the effect of the tax on the long-run adjustment.
New firms ___________ have as great an incentive to enter the industry as they would without the tax. Consequently, the industry supply curve ___________ shift by as much as it would without the tax, and the new price ___________ be as low as it would have been without the tax.
answer
will not; will not; will not
question
Complete the following sentences to describe the relationship between profit maximization and resource allocative efficiency for the perfectly competitive firm.
For a perfectly competitive firm, profit is maximized at an output level where___________ . Further, for a perfectly competitive firm, __________ . Therefore ____________ , which ensures that resource allocative efficiency ________ achieved.
For a perfectly competitive firm, profit is maximized at an output level where___________ . Further, for a perfectly competitive firm, __________ . Therefore ____________ , which ensures that resource allocative efficiency ________ achieved.
answer
...
question
The perfectly competitive firm does not increase its quantity of output without limit even though it can sell all it wants at the going price.
Regardless of the limitless demand, the perfectly competitive firm _______ take its own cost curves into account. Therefore, it will only sell up to the quantity where __________ because to go beyond that point would cause the firm's profits to __________ .
Regardless of the limitless demand, the perfectly competitive firm _______ take its own cost curves into account. Therefore, it will only sell up to the quantity where __________ because to go beyond that point would cause the firm's profits to __________ .
answer
will; P=MC; decrease
question
You read in a business magazine that computer firms are reaping high profits. With the theory of perfect competition in mind, what do you expect to happen over time?
Complete the following sentences to describe the long-run adjustment.
The number of computer firms in the market will _________ .
The number of computers in the market will _________.
Computer prices will ______.
The profits of computer firms will __________.
Complete the following sentences to describe the long-run adjustment.
The number of computer firms in the market will _________ .
The number of computers in the market will _________.
Computer prices will ______.
The profits of computer firms will __________.
answer
increase; increase; fall; fall
question
The term price taker can apply to buyers as well as sellers. A price-taking buyer is one who cannot influence price by changing the amount he or she buys.
In which of the following scenarios would you most likely be a price taker? Check all that apply.
-A can of soda costs $1 at the store.
-A used car costs $10,000, but you can negotiate with the car salesperson.
-A smartphone costs $200 regardless of the service plan you purchase with it.
0A house costs $500,000, but the price is subject to bidding and negotiation.
In which of the following scenarios would you most likely be a price taker? Check all that apply.
-A can of soda costs $1 at the store.
-A used car costs $10,000, but you can negotiate with the car salesperson.
-A smartphone costs $200 regardless of the service plan you purchase with it.
0A house costs $500,000, but the price is subject to bidding and negotiation.
answer
A can of soda costs $1 at the store.
A smartphone costs $200 regardless of the service plan you purchase with it.
A smartphone costs $200 regardless of the service plan you purchase with it.
question
In the short run, a perfectly competitive firm should continue to produce as long as it can cover its variable costs. Which of the following conditions describes this rule?
answer
P > AVC
question
The demand curve is the same as the marginal revenue curve for a perfectly competitive firm because:
answer
Price is equal to marginal revenue
question
Many plumbers charge the same price if they come to your house to fix a kitchen sink.
Is this enough to prove that plumbers are colluding to keep prices high?
Is this enough to prove that plumbers are colluding to keep prices high?
answer
No. It is possible that plumbing is close to a perfectly competitive industry, and the current price us the equilibrium price resulting from competition.
question
Do firms in a perfectly competitive market exhibit productive efficiency?
answer
Productive efficiency, when P=Minimum ATCP=Minimum ATC, is guaranteed in the long run. It is possible that a firm will produce its output at a unit cost higher than the lowest unit cost possible in the short run.
question
Profit serves as an incentive for individuals to produce, prompting or encouraging certain behavior.
Profit also serves as a signal by identifying where:
Profit also serves as a signal by identifying where:
answer
Resources can be most productively employed in producing goods and services that consumers want
question
Which of the following statements is true?
-Market coordination and managerial coordination both exist, and in the long run, there is no difference between the two.
-The manager guides individuals away from the production of one good and toward the production of another so that suppliers and demanders achieve mutual satisfaction in equilibrium.
-The visible hand of the market guides individuals in a market setting, whereas the invisible hand of the manager guides individuals in a firm.
-The market guides and coordinates individuals' actions in an impersonal way through the forces of supply and demand. Managerial coordination is more personal; someone tells someone else what to do.
-Market coordination and managerial coordination both exist, and in the long run, there is no difference between the two.
-The manager guides individuals away from the production of one good and toward the production of another so that suppliers and demanders achieve mutual satisfaction in equilibrium.
-The visible hand of the market guides individuals in a market setting, whereas the invisible hand of the manager guides individuals in a firm.
-The market guides and coordinates individuals' actions in an impersonal way through the forces of supply and demand. Managerial coordination is more personal; someone tells someone else what to do.
answer
The market guides and coordinates individuals' actions in an impersonal way through the forces of supply and demand. Managerial coordination is more personal; someone tells someone else what to do.
question
An economist would expect even conscientious workers to shirk more when the cost of shirking _______ because economists assume that everyone ______________ .
answer
falls; maximizes utility
question
Which of the following scenarios illustrate the average-marginal rule in a noncost setting? Check all that apply.
-Your cumulative GPA is 3.5. This semester you get perfect grades in all classes (4.0 GPA), and your cumulative GPA rises as a result.
-You find $20 on the ground. As a result, the total amount of cash you have in your wallet increases.
-A professional basketball player averages 20 points per game. In the next game, she scores 30 points, and her average points per game rises as a result.
-Steve consumes a fifth cookie. The fifth cookie has a positive marginal utility, and his total utility goes up as a result.
-Your cumulative GPA is 3.5. This semester you get perfect grades in all classes (4.0 GPA), and your cumulative GPA rises as a result.
-You find $20 on the ground. As a result, the total amount of cash you have in your wallet increases.
-A professional basketball player averages 20 points per game. In the next game, she scores 30 points, and her average points per game rises as a result.
-Steve consumes a fifth cookie. The fifth cookie has a positive marginal utility, and his total utility goes up as a result.
answer
Your cumulative GPA is 3.5. This semester you get perfect grades in all classes (4.0 GPA), and your cumulative GPA rises as a result.
A professional basketball player averages 20 points per game. In the next game, she scores 30 points, and her average points per game rises as a result.
A professional basketball player averages 20 points per game. In the next game, she scores 30 points, and her average points per game rises as a result.
question
A firm that is making normal profit is covering ________ explicit and implicit costs and is earning _______ economic profits.
answer
both explicit and implicit costs; zero
question
Average total cost is equal to the sum of average variable cost and average fixed cost.
As output increases, average fixed cost __________ ; therefore, as output increases, ________________ makes up a larger portion of average total cost. It follows that the average total cost curve and average variable cost curve would _____________ each other as output increases.
As output increases, average fixed cost __________ ; therefore, as output increases, ________________ makes up a larger portion of average total cost. It follows that the average total cost curve and average variable cost curve would _____________ each other as output increases.
answer
decreases; average variable cost; get closer to
question
Zero economic profit is not as bad as it sounds because when the firm earns zero economic profit:
answer
It earns enough revenue to cover both its explicit and implicit costs
question
The average fixed cost curve continually declines (as output rises) because:
answer
Total fixed cost is constant as output rises
question
Complete the sentence to describe the difference between the law of diminishing marginal returns and diseconomies of scale.
___________________ applies to the short run, when at least one input is fixed, whereas ________________ when all inputs are variable and is therefore a long-run concept.
___________________ applies to the short run, when at least one input is fixed, whereas ________________ when all inputs are variable and is therefore a long-run concept.
answer
The law of diminishing marginal returns; diseconomies of scale occur
question
Total costs equal total variable costs when:
answer
There are no fixed costs
question
Complete the following statement to describe why studying for an economics exam is subject to the law of diminishing marginal returns.
At any given point in time, the ________ input is time remaining until the exam. The _________ inputs are time spent studying, access to study materials, attention, and retention.
At any given point in time, the ________ input is time remaining until the exam. The _________ inputs are time spent studying, access to study materials, attention, and retention.
answer
fixed; variable
question
Tomas buys a hamburger that doesn't taste very good. He can't return the hamburger and get his money back. Tomas decides to eat the hamburger even though it doesn't taste very good because he doesn't want to "lose the money" he paid for the hamburger. Which of the following statements are true about this situation? Check all that apply.
-By deciding to eat the hamburger, Tomas is committing the sunk cost fallacy.
-Tomas cannot get back the money he paid for the hamburger, and so eating the hamburger doesn't really prevent him from losing the money he paid for the hamburger.
-Tomas may end up making himself worse off by eating the hamburger than by not eating the hamburger.
-By deciding to eat the hamburger, Tomas is committing the sunk cost fallacy.
-Tomas cannot get back the money he paid for the hamburger, and so eating the hamburger doesn't really prevent him from losing the money he paid for the hamburger.
-Tomas may end up making himself worse off by eating the hamburger than by not eating the hamburger.
answer
By deciding to eat the hamburger, Tomas is committing the sunk cost fallacy.
Tomas cannot get back the money he paid for the hamburger, and so eating the hamburger doesn't really prevent him from losing the money he paid for the hamburger.
Tomas may end up making himself worse off by eating the hamburger than by not eating the hamburger.
Tomas cannot get back the money he paid for the hamburger, and so eating the hamburger doesn't really prevent him from losing the money he paid for the hamburger.
Tomas may end up making himself worse off by eating the hamburger than by not eating the hamburger.
question
As long as the marginal benefit of producing each successive unit is greater than the marginal cost, a firm will increase its total profits by _________ its production. So, even after marginal cost begins to rise (as diminishing returns set in), producers are likely to ___________ producing until the marginal cost equals the marginal benefit from selling the good.
answer
increasing; continue
question
People often argue that large firms in an industry have cost advantages over small firms in the same industry. For example, they might assert that a big oil company must have a cost advantage over a small oil company.
For this to be true, what condition must exist?
For this to be true, what condition must exist?
answer
There are economies of scale, and the large firm is operating at an output level at which economies of scale exist.
question
The government says that firm X must pay $1,000 in taxes simply because it is in the business of producing a good.
Which of the firm's cost curves will be affected by this lump-sum tax? Check all that apply.
Which of the firm's cost curves will be affected by this lump-sum tax? Check all that apply.
answer
Total fixed cost; average total cost; average fixed cost; total cost
question
A billionaire producer, Ms. Bigbucks, is earning zero economic profit but is still wealthy. This must mean that she has generated enough total revenue to exactly cover:
answer
Both explicit and implicit costs
question
Complete the following sentences to give a numerical example that illustrates total utility rising as marginal utility declines.
Maria gets $2 of utility from eating one donut and gets _____ of utility from eating a second donut in the same period. Her total utility rises from $2 to _____ as she eats the second donut, although her marginal utility falls.
Maria gets $2 of utility from eating one donut and gets _____ of utility from eating a second donut in the same period. Her total utility rises from $2 to _____ as she eats the second donut, although her marginal utility falls.
answer
$1; $3
question
Which of the following describes the law of diminishing marginal utility?
-The law of diminishing marginal utility is consistent with the law of supply.
-The number of utils given by producing the first unit of a good is greater than the number of utils given by producing the second, and so on.
-The marginal utility gained by consuming equal successive units of a good declines as the amount consumed increases.
-The law of diminishing marginal utility implies that total utility cannot increase as marginal utility decreases.
-The law of diminishing marginal utility is consistent with the law of supply.
-The number of utils given by producing the first unit of a good is greater than the number of utils given by producing the second, and so on.
-The marginal utility gained by consuming equal successive units of a good declines as the amount consumed increases.
-The law of diminishing marginal utility implies that total utility cannot increase as marginal utility decreases.
answer
The marginal utility gained by consuming equal successive units of a good declines as the amount consumed increases.
question
True or False: It is possible to consume so much of a good that it turns into a bad, and the marginal utility becomes negative.
answer
True
question
True or False: If a person consumes fewer units of a good, the marginal utility of the good increases as total utility decreases (as long as the marginal utility of units of the good no longer consumed is not negative).
answer
True
question
Assume the marginal utility of good A is 4 utils, and its price is $2, while the marginal utility of good B is 6 utils, and its price is $1.
Complete the following sentences to describe how the consumer should maximize her utility.
The individual consumer _______ maximizing (total) utility if she spends a total of $3 buying one unit of each good. She should purchase _______ units of _______ and fewer units of ________ to increase her total utility.
Complete the following sentences to describe how the consumer should maximize her utility.
The individual consumer _______ maximizing (total) utility if she spends a total of $3 buying one unit of each good. She should purchase _______ units of _______ and fewer units of ________ to increase her total utility.
answer
is not; more; good B; good A
question
Individuals who buy second homes usually spend less for them than they do for their first homes.
Which economic law explains this result?
Which economic law explains this result?
answer
The law of diminishing marginal utility
question
"Martin likes hamburgers more than Joe does," says Jill. Jill is making:
answer
An interpersonal utility comparison
question
Is there a logical link between the law of demand and the assumption that individuals seek to maximize utility?
answer
Yes. Utility maximization is consistent with the law of demand. Consumers will buy more of a good only if the price of the good reflects their diminishing marginal utility.
question
Why does the diamond-water paradox support the theory that prices reflect marginal utility, not total utility?
answer
Total utility of water is high because water is useful. The total utility of diamonds is comparatively low because diamonds are not as useful as water. The marginal utility of water is low because water is so plentiful that people consume it at low marginal utility. The marginal utility of diamonds is high because diamonds are so scarce that people consume them at high marginal utility. Price reflects low marginal utility.
question
The endowment effect:
answer
Is the notion that people seem to place a higher value on something simply because they own it
question
Suppose that there are two cities that are similar in all ways except that the weather is much better in one city, Good-Weather City (GWC), than it is in the other city, Bad-Weather City (BWC). Assume further that the price of a house (PHPH) is currently the same in both cities.
If MUGWCPH>MUBWCPHMUGWCPH>MUBWCPH, then people will be inclined to move from ________ to ________ , which will push the price of housing in Good-Weather City ________, and the price of housing in Bad-Weather City will _____ .
If MUGWCPH>MUBWCPHMUGWCPH>MUBWCPH, then people will be inclined to move from ________ to ________ , which will push the price of housing in Good-Weather City ________, and the price of housing in Bad-Weather City will _____ .
answer
Bad-Weather City; Good-Weather City; upward; fall
question
In economics, framing is the manner in which a problem is presented. Can framing influence the choices individuals make?
answer
Yes. Even when there is no difference between options or the choices a person makes, how the options or choices are framed matters to the outcome; framing matters to how people choose.
Order an Essay Now & Get These Features For Free:
Turnitin Report
Formatting
Title Page
Citation
Outline
