question
For a firm, the short-run is defined as being __________.
answer
A period of time in which at least one of the firm's inputs is unchangeable.
question
What is true about the long-run for a firm?
answer
All inputs can be changed.
question
Assume an additional waiter can increase the number of customers served in a restaurant by 100 customers per day. The waiter will cost the restaurant $50 per day. On the other hand, a new microwave oven will speed the cooking process and allow each customer to be served more quickly. The oven will allow 200 more customers to be served with no additional labor. The oven can be rented for $75 per day. What should the restaurant do?
answer
Rent a microwave, because the increase in output per dollar spent is greater than the increase in output per dollar spent from hiring another worker.
question
For the next three questions, the following abbreviations are used. MPL = marginal product of labor. MPK = marginal product of capital. W = wage rate (the cost of a unit of labor). R = rental rate (the cost of a unit of capital). Assume a firm is operating in the long-run. At the current level of output, MPL = 30 and MPK = 50. Also assume that in this industry, W = 5 and R = 10. Keeping output the same, how can this firm lower production costs?
answer
Use more L and less K because, In this case, (MPL/W) > (MPK/R). This means the firm is getting more output per dollar with labor. Thus, the firm should use more labor inputs and fewer capital inputs.
question
As a firm increases output, long-run average costs typically _________.
answer
Fall, hit a minimum, then rise
question
If the long-run average cost curve is horizontal, it implies that the firm is experiencing _________.
answer
Constant returns to scale (cost do not change if the line is horizontal)
question
Suppose a firm doubles its inputs (therefore doubling its total costs as well). If this firm is experiencing diseconomies of scale, then __________.
answer
Output will increase, but less than double
question
Assume a constant-cost industry in a competitive market. What are the short-term effects of the following change?
A decrease in variable costs in the short run will ______________ the equilibrium price and ______________ equilibrium quantity in the goods' market.
A decrease in variable costs in the short run will ______________ the equilibrium price and ______________ equilibrium quantity in the goods' market.
answer
Decrease; increase
question
Assume a constant-cost industry in a competitive market. What are the long-term effects of the following change?
A decrease in variable costs in the long run will cause the equilibrium price to ______________ and the equilibrium quantity in the market to ______________.
A decrease in variable costs in the long run will cause the equilibrium price to ______________ and the equilibrium quantity in the market to ______________.
answer
Decrease; increase by more than in the short run
question
A profit-maximizing monopoly will produce where which of the following is true?
answer
1. Marginal revenue is less than the price
2. Marginal revenue is equal to the marginal cost
3. Marginal revenue is positive
2. Marginal revenue is equal to the marginal cost
3. Marginal revenue is positive
question
If a monopoly faces a demand curve that is downward-sloping, then marginal revenue will be which of the following?
answer
Must be less than price
question
Compare the levels of economic profits in a long-run equilibrium for a perfectly competitive firm, a monopoly, a monopolistically competitive firm, and an oligopoly. Economic profits will most likely be:
answer
Zero in perfect competition and monopolistic competition, perhaps positive in a monopoly and perhaps positive in oligopoly
question
Rank each type of market on their prices from highest to lowest. Assume that there is a bit of competition among the oligopolies.
answer
1. Monopoly
2. Oligopoly
3. Monopolistic Competition
4. Perfect Competition
2. Oligopoly
3. Monopolistic Competition
4. Perfect Competition
question
Rank each type of market on their industry quantities from highest to lowest. Assume that there is a bit of competition among the oligopolies.
answer
1. Perfectly Competitive
2. Monopolistic Competition
3. Oligopoly
4. Monopoly
2. Monopolistic Competition
3. Oligopoly
4. Monopoly
question
Tony's Gas Station and Robert's Gas Station are the only two gas stations in a small town of Westville. If Tony and Robert collude to earn more profits, which of the following would be true?
answer
Each limit the amount of gasoline available and raise prices.
question
In the long run, a monopolistically competitive firm will produce where price _________.
answer
Equals average cost and is greater than the marginal cost
question
There are 100 competitive firms of the size represented by AC1, and AC2 represents the only firm if there were a monopoly. In the figure below, what quantity will the monopoly produce?
answer
20m
question
There are 100 competitive firms of the size represented by AC1, and AC2 represents the only firm if there were a monopoly. In the figure below, how much more will an unregulated monopoly charge compared to a perfectly competitive industry?
answer
$15
question
There are 100 competitive firms of the size represented by AC1, and AC2 represents the only firm if there were a monopoly. In the figure below, what price will the monopoly charge?
answer
$50
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