question
How do firms' expenditures on economic resources affect households?
answer
These expenditures become income for the households that supply the resources
question
To firms, resource prices represent _____________
answer
costs
question
In a competitive resource market, a firm is a price ______
answer
taker
question
The derived demand for an input will rise when it is highly productive in ______
answer
Producing a highly valued commodity
Reducing the costs to produce a product
Reducing the costs to produce a product
question
Resource prices are a major factor in determining households' ______
answer
incomes
question
Because resource demand is derived from product demand, the strength of the demand for any resource will depend on the _____
answer
productivity of the resource in helping to create a good or service
demand for the good or service it helps produce
market value or price of the good or service it helps produce
demand for the good or service it helps produce
market value or price of the good or service it helps produce
question
In order to obtain the greatest profit, the firm must produce _______
answer
the profit-maximizing output with the least costly combination of resources
question
The derived demand for resources by producers for a product will be low when ______
answer
the product is selling poorly
question
What is it called when a firm in a purely competitive market is unable to influence the market price no matter how much output the firm produces?
answer
Price taker
question
The extra or additional output that is produced as a result of adding one more unit of labor or variable input is called the ______
answer
marginal product
question
The purchase of welding equipment at an auto factory to build cars describes what economists call _________ resource demand
answer
derived
question
Diminishing marginal returns imply that beyond a certain point ______
answer
the marginal product of labor declines
question
True or false: The level of derived demand for a good or service used in the production of other goods and services is based upon that input's level of productivity in helping reduce the cost of producing the finished product.
answer
True
question
The strength of the demand for any resource will depend on the _______ of the resource and the market _______of the good or service that the resource helps produce
answer
productivity; price/value
question
When a product is in high demand with customers based on its value (quality) or price, the demand for the resources to produce that product will be ______
answer
very high
question
What is the rule that guides profit-seeking firms when deciding to hire more labor or use more of a specific resource?
answer
Add additional units of the resource when each successive unit adds more to a firm's total revenue than it adds to its total cost
question
What is the marginal product?
answer
The additional output from using one more unit of labor
question
As one more additional variable input such as labor is applied to fixed capital such as plant and equipment, the marginal product, or additional output, will fall. This describes the law of _____
answer
diminishing returns
question
The ______ is the amount that each additional unit of a resource adds to the firm's total resource cost
answer
marginal resource cost
question
The derived demand for an input will rise when it is highly productive in ______
answer
producing a highly valued commodity
reducing the costs to produce a product
reducing the costs to produce a product
question
The MRP=MRC rule tells us that in pure competition a firm will hire workers ______
answer
up to the point at which the market wage rate (its MRC) is equal to its MRP
question
To maximize profit, a firm should add additional units of a specific resource as long as each successive unit adds more to the firm's total ________ than it adds to the firm's total _________
answer
revenue; cost
question
In a purely competitive labor market, market supply and market demand establish ______
answer
the wage rate
question
What is marginal resource cost?
answer
The amount that each additional unit of a resource adds to the firm's total resource cost.
question
The marginal revenue product (MRP) of the imperfectly competitive seller falls for two reasons, because ______
answer
MP diminishes and product price falls as output increases
question
The resource demand curve of a purely competitive seller is downward sloping because the marginal product of the resource ______, whereas the resource demand curve of an imperfectly competitive sellers is downward sloping because the marginal product diminishes and ______
answer
diminishes; product price falls as output is increased
question
In a competitive labor market, the MRC of labor is ______ the market wage rate
answer
equal
question
A firm's demand schedule for labor or any input to produce a good or service can also be known as its ______
answer
marginal revenue product schedule
question
True or false: The marginal revenue product (MRP) of the imperfectly competitive seller falls for two reasons, MP diminishes and product price falls as output decreases.
answer
False
question
Why is a purely competitive seller's resource demand curve more elastic than an imperfectly competitive seller operating in a monopoly, oligopoly, or monopolistic competition?
answer
Sellers in imperfect competition must lower prices to sell more, thus expanding labor by a lower percentage than purely competitive sellers
question
In an imperfectly competitive market, a _________ price accompanying each increase in output (total product) applies not only to the marginal _________ of each successive worker but also to all prior output units that otherwise could have been sold at a(n) ________ price
answer
lower; product; higher
question
The imperfectly competitive seller produces ______ of a product and demands ______ resources than a purely competitive seller does when resource prices fall
answer
less; fewer
question
Under pure competition, product price is ______, therefore the downward slope of the demand curve is due solely to the decline in the resource's marginal product, or the law of ______.
answer
constant; diminishing returns
question
A MRP schedule (table) is also a firm's demand for labor because each point on the schedule or curve indicates the number of workers the firm would have to hire at each possible _________ rate
answer
wage
question
The total, or market, _________ curve for a specific resource shows the various total amounts of the resource that firms will purchase or hire at various resource prices, other things equal
answer
demand
question
Derived demand for a resource depends on ______
answer
the productivity of the resource used to create the good or service
the price or value received from the product it produces
the price or value received from the product it produces
question
The following statement is true about what type of market: the lower price accompanying each increase in output (total product) applies not only to the marginal product of each successive worker but also to all prior output units that otherwise could have been sold at a higher price
answer
An imperfectly competitive market
question
How do resource price cuts influence imperfectly and perfectly competitive sellers?
answer
Imperfectly competitive sellers are less responsive to resource price cuts
question
What type of market is described by a constant product price and a downward sloping resource demand curve caused by a decline in marginal product?
answer
pure competition
question
What curve shows the various total amounts of the resource that firms will purchase or hire at various resource prices?
answer
The total, or market demand curve for a specific resource
question
Resource pricing
answer
determines people's incomes
question
The factors determining resource demand differ from those determining product demand. This is because
answer
product demand depends on income and tastes, whereas resource demand is a derived demand
question
The demand for a resource is a derived demand. This is because
answer
if there were no demand for output, there would be no demand for input
question
Resource demand curves slope downward because
answer
of the diminishing marginal product of the resource
question
In 2018, General Motors (GM) announced that it would reduce employment by 14,000 workers.
a. What does this decision reveal about how GM viewed its marginal revenue product (MRP) and marginal resource cost (MRC)?
b. Why didn't GM reduce employment by more than 14,000 workers or by fewer than 14,000 workers?
a. What does this decision reveal about how GM viewed its marginal revenue product (MRP) and marginal resource cost (MRC)?
b. Why didn't GM reduce employment by more than 14,000 workers or by fewer than 14,000 workers?
answer
a.) The MRC of those 14,000 workers was greater than the MRP
b.) The company wanted to set the labor level where MRC equaled MRP to maximize profits
b.) The company wanted to set the labor level where MRC equaled MRP to maximize profits
question
a. What factors determine the elasticity of resource demand?
b. What effect will each of the following have on the elasticity or the location of the demand for resource C, which is being used to produce commodity X?
(i) An increase in the demand for product X.
(ii) An increase in the price of substitute resource D
(iii) An increase in the number of resources substitutable for C in producing X
(iv) A technological improvement in the capital equipment with which resource C is combined
(v) A fall in the price of complementary resource E
(vi) A decline in the elasticity of demand for product X due to a decline in the competitiveness of product market X
b. What effect will each of the following have on the elasticity or the location of the demand for resource C, which is being used to produce commodity X?
(i) An increase in the demand for product X.
(ii) An increase in the price of substitute resource D
(iii) An increase in the number of resources substitutable for C in producing X
(iv) A technological improvement in the capital equipment with which resource C is combined
(v) A fall in the price of complementary resource E
(vi) A decline in the elasticity of demand for product X due to a decline in the competitiveness of product market X
answer
a.) Ease of resource substitutability, elasticity of product demand, and the ratio of resource costs to total costs
(i) increase in demand
(ii) uncertainty as to the outcome
(iii) increase in elasticity
(iv) increase in demand
(v) increase in demand
(vi) decrease in elasticity
(i) increase in demand
(ii) uncertainty as to the outcome
(iii) increase in elasticity
(iv) increase in demand
(v) increase in demand
(vi) decrease in elasticity
question
In each of the following four cases, MRPL and MRPC refer to the marginal revenue products of labor and capital, respectively, and PL and PC refer to their prices. Indicate whether each of the following is consistent with maximum profits for the firm. If not, state which resource(s) should be used in larger amounts and which resource(s) should be used in smaller amounts.
- These conditions are consistent with maximum profits for the firm:
- Which resource should be used in larger and/or smaller amounts:
a.) MRPL = $8; PL = $4; MRPC = $8; PC = $4.
b.) MRPL = $10; PL = $12; MRPC = $14; PC = $9
c.) MRPL = $6; PL = $6; MRPC = $12; PC = $12
d.) MRPL = $22; PL = $26; MRPC = $16; PC = $19
- These conditions are consistent with maximum profits for the firm:
- Which resource should be used in larger and/or smaller amounts:
a.) MRPL = $8; PL = $4; MRPC = $8; PC = $4.
b.) MRPL = $10; PL = $12; MRPC = $14; PC = $9
c.) MRPL = $6; PL = $6; MRPC = $12; PC = $12
d.) MRPL = $22; PL = $26; MRPC = $16; PC = $19
answer
a.) false, use more of both
b.) false, use less labor and more capital
c.) true, conditions are already consistent
d.) false, use less of both
b.) false, use less labor and more capital
c.) true, conditions are already consistent
d.) false, use less of both
question
Florida citrus growers say that the recent crackdown on illegal immigration is increasing the market wage rates necessary to get their oranges picked. Some are turning to $100,000 to $300,000 mechanical harvesters known as "trunk, shake, and catch" pickers, which vigorously shake oranges from trees.
If widely adopted, this will
If widely adopted, this will
answer
decrease the demand for human orange pickers, implying the substitution effect is greater than the output effect.
question
To save money, some fast-food chains now have their customers place their orders at computer kiosks. Will the kiosks necessarily reduce the total number of workers employed in the fast-food industry?
answer
Yes
question
Cindy is a baker and runs a large cupcake shop. She has already hired 11 employees and is thinking of hiring a 12th. Cindy estimates that a 12th worker would cost her $100 per day in wages and benefits while increasing her total revenue from $2,600 per day to $2,750 per day. Should Cindy hire a 12th worker?
answer
Yes
question
The following labor demand table is for a firm that is hiring labor competitively and selling its product in a competitive market.
a. Now determine the firm's demand curve for labor, assuming that it is selling in an imperfectly competitive market and that, although it can sell 17 units at $2.20 per unit, it must lower product price by 5 cents in order to sell the marginal product of each successive labor unit.
b. Compare this demand curve with the one derived in a competitive market. Which curve is more elastic?
a. Now determine the firm's demand curve for labor, assuming that it is selling in an imperfectly competitive market and that, although it can sell 17 units at $2.20 per unit, it must lower product price by 5 cents in order to sell the marginal product of each successive labor unit.
b. Compare this demand curve with the one derived in a competitive market. Which curve is more elastic?
answer
a.
0 0 — $2.25 $0 —
1 17 (17 - 0)/(1 - 0) = 17 2.20 (17 × 2.20) = 37.40 (37.40 - 0)/(1 - 0) = $37.40
2 31 (31 - 17)/(2 - 1) = 14 2.15 (31 × 2.15) = 66.65 (66.65 - 37.40)/(2 - 1) = 29.25
3 43 12 2.10 90.30 23.65
4 53 10 2.05 108.65 18.35
5 60 7 2.00 120.00 11.35
6 65 5 1.95 126.75 6.75
b. Competitive market
0 0 — $2.25 $0 —
1 17 (17 - 0)/(1 - 0) = 17 2.20 (17 × 2.20) = 37.40 (37.40 - 0)/(1 - 0) = $37.40
2 31 (31 - 17)/(2 - 1) = 14 2.15 (31 × 2.15) = 66.65 (66.65 - 37.40)/(2 - 1) = 29.25
3 43 12 2.10 90.30 23.65
4 53 10 2.05 108.65 18.35
5 60 7 2.00 120.00 11.35
6 65 5 1.95 126.75 6.75
b. Competitive market
question
Alice runs a shoemaking factory that uses both labor and capital to make shoes. Which of the following would shift the factory's demand for capital?
answer
/ Many consumers decide to walk barefoot all the time. checked
/ New shoemaking machines are twice as efficient as older machines. checked
/ The wages that the factory has to pay its workers rise due to an economy-wide labor shortage. checked
/ New shoemaking machines are twice as efficient as older machines. checked
/ The wages that the factory has to pay its workers rise due to an economy-wide labor shortage. checked
question
Suppose the productivity of capital and labor are as shown in the table below. The output of these resources sells in a purely competitive market for $1 per unit. Both capital and labor are hired under purely competitive conditions at $3 and $1, respectively.
answer
a. Labor = 4 Capital = 2
b. Labor = 7 Capital = 7
What is the resulting level of output? 142
What is the economic profit? 114
Is this the least costly way of producing the profit-maximizing output? Yes, this is the least costly way
b. Labor = 7 Capital = 7
What is the resulting level of output? 142
What is the economic profit? 114
Is this the least costly way of producing the profit-maximizing output? Yes, this is the least costly way
question
A software company in Silicon Valley uses programmers (labor) and computers (capital) to produce apps for mobile devices. The firm estimates that when it comes to labor, MPL = 5 apps per month while PL = $1,000 per month. And when it comes to capital, MPC = 8 apps per month while PC = $1,000 per month. If the company wants to maximize its profits, it should:
answer
decrease labor while increasing capital.
question
A delivery company is considering adding another vehicle to its delivery fleet; each vehicle is rented for $100 per day. Assume that the additional vehicle would be capable of delivering 1,500 packages per day and that each package that is delivered brings in $0.10 in revenue. Also assume that adding the delivery vehicle would not affect any other costs.
a. What is the MRP? What is the MRC?
- MRP = $
- MRC = $
Should the firm add this delivery vehicle:
b. Now suppose that the cost of renting a vehicle doubles to $200 per day. What are the MRP and MRC?
- MRP = $
- MRC = $
Should the firm add a delivery vehicle under these circumstances:
c. Next suppose that the cost of renting a vehicle falls back down to $100 per day but, due to extremely congested freeways, an additional vehicle would only be able to deliver 750 packages per day. What are the MRP and MRC in this situation?
Would adding a vehicle under these circumstances increase the firm's profits:
a. What is the MRP? What is the MRC?
- MRP = $
- MRC = $
Should the firm add this delivery vehicle:
b. Now suppose that the cost of renting a vehicle doubles to $200 per day. What are the MRP and MRC?
- MRP = $
- MRC = $
Should the firm add a delivery vehicle under these circumstances:
c. Next suppose that the cost of renting a vehicle falls back down to $100 per day but, due to extremely congested freeways, an additional vehicle would only be able to deliver 750 packages per day. What are the MRP and MRC in this situation?
Would adding a vehicle under these circumstances increase the firm's profits:
answer
a. 150, 100, yes
b. 150, 200, no
c. 75, 100, no
b. 150, 200, no
c. 75, 100, no
question
An economist's use of the term "rent" differs from everyday usage. From an economist's perspective, economic rent
answer
is the price paid for the use of land and other natural resources that are completely fixed in total supply
question
Evaluate the statement: "Though rent need not be paid by society to make land available, rental payments are useful in guiding land into the most productive uses."
This statement recognizes that
This statement recognizes that
answer
it makes sense to pay more for land that has a more profitable use
question
Economic rent is a surplus payment when viewed by the economy as a whole but a cost of production from the standpoint of individual firms and industries. This is because
answer
the supply of land does not respond to changes in rent, but in order to use the land profitably, revenue must cover the rental payments
question
Evaluate: "Land rent performs no 'incentive function' for the overall economy." This statement is
answer
true, because changes in land rent do not change the supply of land
question
If money is not an economic resource, interest is paid and received for its use because
answer
money is necessary to acquire productive resources in markets
question
Interest rates differ greatly on various types of loans due to
answer
risk, maturity, loan size, and taxability
question
What kind of interest rate can you expect on the following?
i. A 10-year $1,000 government bond.
ii. A $20 pawnshop loan.
iii. A 30-year mortgage loan on a $225,000 house.
iv. A 24-month $18,000 commercial bank loan to finance the purchase of an automobile.
v. A 60-day $100 loan from a personal finance company.
i. A 10-year $1,000 government bond.
ii. A $20 pawnshop loan.
iii. A 30-year mortgage loan on a $225,000 house.
iv. A 24-month $18,000 commercial bank loan to finance the purchase of an automobile.
v. A 60-day $100 loan from a personal finance company.
answer
i. low rate of interest because it is risk-free
ii. high rate of interest because it's a small loan
iii. Low rate of interest because it is large and collateralized
iv. Low rate of interest because it is large and collateralized
v. High rate of interest because it is a small, risky loan
ii. high rate of interest because it's a small loan
iii. Low rate of interest because it is large and collateralized
iv. Low rate of interest because it is large and collateralized
v. High rate of interest because it is a small, risky loan
question
The supply of loanable funds slopes upward because
answer
savers will make more funds available at higher interest rates
question
The demand for loanable funds slopes downward because
answer
few investment projects yield a high rate of return
question
The equilibrium interest rate is determined where the interest rate is equal to
answer
the expected rate of return
question
The major economic functions of the interest rate are
answer
to influence investment and domestic output and to allocate money capital to its most productive uses
question
Many businesses finance their investment activities internally. Should internal financing affect the efficiency with which the interest rate performs its functions?
answer
No, investment is profitable if the expected rate of return is greater than the rate of interest regardless of the source of funds
question
The nominal interest rate is the
answer
interest rate stated in dollars of current value
question
The interest rate that is more relevant in making investment and R&D decisions is the
answer
real interest rate, because it reflects the true cost of borrowing money
question
If the nominal interest rate is 12 percent and the inflation rate is 8 percent, what is the real rate of interest?
answer
4 percent
question
Economic profit is
answer
smaller than accounting profit, because economic cost is larger than accounting cost
question
Which of the following is not one of the three basic sources of economic profit?
answer
establishing political allies
question
Which of the following is an example of profit from creating a popular new product?
answer
A firm's profit from developing and patenting a new medication that greatly reduces cholesterol and thus diminishes the likelihood of heart disease and stroke
question
Which of the following is an example of profit from creating and maintaining a profitable monopoly?
answer
A restaurant's profit that results from the completion of a new highway past its door
question
Which of the following is an example of profit from reducing production costs below rivals' costs?
answer
The profit received by a firm due to an unanticipated fall in local input costs
question
The distinction between insurable and uninsurable risks is significant for the theory of profit because
answer
an insurable risk does not fatally affect the profit and loss of a firm
question
Evaluate: "All economic profit can be traced to either uncertainty or the desire to avoid it." This suggests that
answer
demand and supply conditions are always unknown
question
One of the major functions of economic profit is
answer
providing an incentive for entrepreneurial initiative in combining resources to produce a good or service.
question
The difference between monopolistic competition and pure competition is that compared to pure competition, monopolistic competition has
answer
fewer firms, product differentiation, some price control, and relatively easy but not barrier-free entry
question
The difference between monopolistic competition and pure monopoly is that compared to monopolistic competition, pure monopoly has
answer
one firm, a unique product, price control, and entry barriers
question
Product differentiation
answer
provides an advantage in the market
question
Firms will enter a monopolistically competitive industry when there are
answer
economic profits. This will shift demand to the left, reducing the firm's market share and its economic profit
question
a. Compare the elasticity of a monopolistic competitor’s demand with that of a pure competitor and a pure monopolist.
- A monopolistic competitor's demand curve is __________ elastic than that of a pure competitor.
- A monopolistic competitor's demand curve is __________ elastic than that of a pure monopolist.
b. Using the diagram above, identify the demand curve for each of the following:
- Monopolist:
- Monopolistically competitive firm:
- Perfectly competitive firm:
c. Assuming identical long-run costs, as shown in the diagram, identify graphically the price and output that would result in the long run under monopolistic competition.
- The long-run price and output for a monopolistically competitive firm is represented by:
d. Contrast the two market structures in terms of productive and allocative efficiency.
Allocative Efficiency Productive Efficiency
Pure competition
Monopolistic
competition
answer
a. less, more
b. D3, D2, D1
c. point B
d. P = MC P = Minimum ATC
Efficient Efficient
P > MC P > Minimum ATC
Inefficient Inefficient
b. D3, D2, D1
c. point B
d. P = MC P = Minimum ATC
Efficient Efficient
P > MC P > Minimum ATC
Inefficient Inefficient
question
"Monopolistic competition is monopolistic up to the point at which consumers become willing to buy close substitute products and competitive beyond that point."
This statement recognizes that the products of monopolistically competitive firms
This statement recognizes that the products of monopolistically competitive firms
answer
may give them some monopoly power, given strong consumer preferences for their product, but consumers will substitute away if prices become too high relative to similar products offered in the market
question
a. "Competition in quality and service may be just as effective as price competition in giving buyers more for their money."
This statement is true if
b. Monopolistically competitive firms frequently prefer nonprice competition to price competition because
This statement is true if
b. Monopolistically competitive firms frequently prefer nonprice competition to price competition because
answer
a. consumers value quality and service more than a lower price
b. price competition can lead to lower economic profits or even loss
b. price competition can lead to lower economic profits or even loss
question
a. Compared to pure monopoly and pure competition, monopolistically competitive industries
b. True or False. In the long run, monopolistic competition leads to a monopolistic price but not to monopolistic profits
answer
a. may earn economic profits, but profits will diminish as competitors enter. There will be productive inefficiency
b. True, since P > MC, but the availability of close substitutes pushes the price of the average firm down until it equals ATC
b. True, since P > MC, but the availability of close substitutes pushes the price of the average firm down until it equals ATC
question
There are 10 firms in an industry, and each firm has a market share of 10 percent.
The industry's Herfindahl index is:
The industry's Herfindahl index is:
answer
1,000
question
In the small town of Geneva, five firms make watches. The firms' respective output levels are 30 watches per year, 20 watches per year, 20 watches per year, 20 watches per year, and 10 watches per year.
The four-firm concentration ratio for the town's watch-making industry is ____ percent.
The four-firm concentration ratio for the town's watch-making industry is ____ percent.
answer
90
question
Which of the following best describes the efficiency of monopolistically competitive firms?
answer
Neither allocatively efficient nor productively efficient
question
Suppose that a small town has seven burger shops whose respective shares of the local hamburger market are (as percentages of all hamburgers sold): 23 percent, 22 percent, 18 percent, 12 percent, 11 percent, 8 percent, and 6 percent.
a. What is the four-firm concentration ratio of the hamburger industry in this town?
b. What is the Herfindahl index for the hamburger industry in this town?
c. If the top three sellers combine to form a single firm, what would happen to the four-firm concentration ratio and to the Herfindahl index?
Four-firm concentration ratio =
Herfindahl index =
a. What is the four-firm concentration ratio of the hamburger industry in this town?
b. What is the Herfindahl index for the hamburger industry in this town?
c. If the top three sellers combine to form a single firm, what would happen to the four-firm concentration ratio and to the Herfindahl index?
Four-firm concentration ratio =
Herfindahl index =
answer
a. 75% (= 23 percent + 22 percent + 18 percent + 12 percent)
b. 1,702 (= 232 + 222 + 182 + 122 + 112 + 82 + 62 = 529 + 484 + 324 + 144 + 121 + 64 + 36)
c. 63% (= 23 percent + 22 percent + 18 percent)
94% (= 632 + 122 + 112 + 82 + 62 = 3,969 + 144 + 121 + 64 + 36)
b. 1,702 (= 232 + 222 + 182 + 122 + 112 + 82 + 62 = 529 + 484 + 324 + 144 + 121 + 64 + 36)
c. 63% (= 23 percent + 22 percent + 18 percent)
94% (= 632 + 122 + 112 + 82 + 62 = 3,969 + 144 + 121 + 64 + 36)
question
Suppose that the most popular car dealer in your area sells 10 percent of all vehicles.
a. If all other car dealers sell either the same number of vehicles or fewer, what is the largest value that the Herfindahl index could possibly take for car dealers in your area?
b. In that same situation, what would the four-firm concentration ratio be?
a. If all other car dealers sell either the same number of vehicles or fewer, what is the largest value that the Herfindahl index could possibly take for car dealers in your area?
b. In that same situation, what would the four-firm concentration ratio be?
answer
a. 1,000
b. 40%
b. 40%
question
Suppose that a monopolistically competitive restaurant is currently serving 230 meals per day (the output where MR = MC). At that output level, ATC per meal is $10 and consumers are willing to pay $12 per meal.
a. What is this firm's profit or loss?
b. Will there be entry or exit?
Will this restaurant's demand curve shift left or right?
In long-run equilibrium, suppose that this restaurant charges $11 per meal for 180 meals and that the marginal cost of the 180th meal is $8. Suppose that the allocatively efficient output level in long-run equilibrium is 200 meals.
c. What is the firm's economic profit?
d. Is the deadweight loss greater than or less than $60?
a. What is this firm's profit or loss?
b. Will there be entry or exit?
Will this restaurant's demand curve shift left or right?
In long-run equilibrium, suppose that this restaurant charges $11 per meal for 180 meals and that the marginal cost of the 180th meal is $8. Suppose that the allocatively efficient output level in long-run equilibrium is 200 meals.
c. What is the firm's economic profit?
d. Is the deadweight loss greater than or less than $60?
answer
a. $460
b. entry; left
c. $0
d. less than
b. entry; left
c. $0
d. less than
question
Suppose that the top six firms in an industry have total annual sales of $70 billion, $40 billion, $30 billion, $30 billion, $20 billion, and $10 billion, respectively.
a. What is the four-firm concentration ratio for this industry?
b. What is the Herfindahl index for this industry? Hint: To find the Herfindahl index, you will need to compute the percentage market share for each firm in the industry.
c. Suppose another industry has a Herfindahl index of 4,000. Are firms in this industry likely to have more or less market power?
answer
a. 85%
b. 2,200
c. more
b. 2,200
c. more
question
a. The most common reason that oligopolies exist is
b. Which of the following are products or services of oligopolists that you own or regularly purchase?
c. Oligopoly differs from monopolistic competition in that
b. Which of the following are products or services of oligopolists that you own or regularly purchase?
c. Oligopoly differs from monopolistic competition in that
answer
a. economies of scale
b. Automobiles, personal computers, and gasoline
c. oligopoly has few firms, whereas monopolistic competition has many firms
b. Automobiles, personal computers, and gasoline
c. oligopoly has few firms, whereas monopolistic competition has many firms
question
What is the meaning of the following four-firm concentration ratios?
a. A four-firm concentration ratio of 60 percent means the largest four firms in the industry account for _____ percent of sales
b. A four-firm concentration ratio of 90 percent means the largest four firms in the industry account for _____ percent of sales
a. A four-firm concentration ratio of 60 percent means the largest four firms in the industry account for _____ percent of sales
b. A four-firm concentration ratio of 90 percent means the largest four firms in the industry account for _____ percent of sales
answer
a. 60
b. 90
b. 90
question
a. The kinked-demand curve for oligopolists assumes that rivals will
b. There is a gap in the oligopolist's marginal-revenue curve because
c. The kinked-demand curve explains price rigidity in oligopoly because
b. There is a gap in the oligopolist's marginal-revenue curve because
c. The kinked-demand curve explains price rigidity in oligopoly because
answer
a. match price cuts, but ignore price increases
b. the slope of the demand curve changes abruptly
c. firms expect any change in price will lower revenue and profits.
b. the slope of the demand curve changes abruptly
c. firms expect any change in price will lower revenue and profits.
question
a. Price collusion might occur in oligopolistic industries because
b. Assess the economic desirability of collusive pricing
c. Price leadership is legal in the United States, whereas price-fixing is not. This is because
b. Assess the economic desirability of collusive pricing
c. Price leadership is legal in the United States, whereas price-fixing is not. This is because
answer
a. price competition can lower revenue for all firms
b. Collusive pricing is economically desirable from the oligopoly's viewpoint because it results in monopoly profits
c. price leadership is not an agreement, whereas price-fixing is
b. Collusive pricing is economically desirable from the oligopoly's viewpoint because it results in monopoly profits
c. price leadership is not an agreement, whereas price-fixing is
question
a. There is so much advertising in monopolistic competition and oligopoly because
b. Advertising helps consumers and promotes efficiency by
c. Which of the following statements is true?
b. Advertising helps consumers and promotes efficiency by
c. Which of the following statements is true?
answer
a. brand distinction encourages consumer loyalty, which increases profits
b. providing information about new products, increasing sales and output, and lowering average total cost
c. When advertising either leads to increased monopoly power or is self-canceling, economic inefficiency results
b. providing information about new products, increasing sales and output, and lowering average total cost
c. When advertising either leads to increased monopoly power or is self-canceling, economic inefficiency results
question
Facepalm, Instarant, and Snaphat are rival firms in an oligopoly industry. If kinked-demand theory applies to these three firms, Facepalm's demand curve will be:
answer
more elastic above the current price than below it
question
Consider an oligopoly industry whose firms have identical demand and cost conditions. If the firms decide to collude, then they will want to collectively produce the amount of output that would be produced by:
answer
a pure monopolist
question
Collusive agreements can be established and maintained by:
answer
credible threats
question
Identify the definition for each term from the following list.
1. Payoff-matrix format.
2. Game-tree format.
3. A junction on a game tree.
4. One of the final outcomes of a game tree.
5. Divides the overall game tree into nested subgames before working backward from right to left.
6. A mini-game within the overall game.
7. The process of backward induction that relies on both firms having perfect information about the decisions made in each subgame.
8. A statement of coercion that is not believable by the threatened firm.
9. A statement of coercion (a threat!) that is believable by the other firm.
10. Allows a firm to preempt major rivals, or greatly slow their entry into an industry.
11. Both rivals see their current strategy as optimal given the other firm's strategic choice.
1. Payoff-matrix format.
2. Game-tree format.
3. A junction on a game tree.
4. One of the final outcomes of a game tree.
5. Divides the overall game tree into nested subgames before working backward from right to left.
6. A mini-game within the overall game.
7. The process of backward induction that relies on both firms having perfect information about the decisions made in each subgame.
8. A statement of coercion that is not believable by the threatened firm.
9. A statement of coercion (a threat!) that is believable by the other firm.
10. Allows a firm to preempt major rivals, or greatly slow their entry into an industry.
11. Both rivals see their current strategy as optimal given the other firm's strategic choice.
answer
a. Subgame perfect Nash equilibrium: 7
b. Empty threat: 8
c. Nash equilibrium: 11
b. Empty threat: 8
c. Nash equilibrium: 11
question
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answer
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