Microeconomics chapter 11-16

Which categories of goods are excludable

Which categories of goods are rivals in consumption

What is an example if a public good

What is an example of a common resource

Public goods are:
a. efficiently provided by market forces.
b. under-provided in the absence of government.
c. overused in the absence of government.
d. a type of natural monopoly.

Common resources are:
a. efficiently provided by market forces.
b. under-provided in the absence of government.
c. overused in the absence of government.
d. a type of natural monopoly.

Private security patrol with idle officers is a:
a. public good
b. club good
c. common resource
d. private good

Snow plowing of public streets provided by the city is a:
a. public good
b. club good
c. common resource
d. private good

Education in a congested classroom is a:
a. public good
b. club good
c. common resource
d. private good

Rural roads are a:
a. public good
b. club good
c. common resource
d. private good

Congested city streets are a:
a. public good
b. club good
c. common resource
d. private good

The externalities associated with public goods are generally ______________ (positive or negative). Because of this, the free-market quantity of public goods is generally ______________ (greater or less) than the efficient quantity.

The externalities associated with common resources are generally _____________ (positive or negative) . Because of this, the free-market quantity of common resources is generally ______________ (greater or less) than the efficient quantity.

A person who receives the benefit of a good but does not pay for it.

How can the government prevent a free rider from watching a show on a public television station?
a. The government can sponsor the show and pay for it with tax revenue collected from everyone.
b. The government can't solve this problem.
c. The government can tax people who watch the show.

A. Wireless, high-speed Internet is provided for free in the airport. In this case, the service is ______________ (excludable or not excludable) and ____________ (rival or not rival) in consumption , therefore it is a ______________ (public, club, common resource, private) good.

B. Eventually, as more people find out about the service and start using it, the speed of the connection begins to fall. Now the service is a ______________ (public, club, common resource, private).

Consumption by one individual decreases the amount that can be consumed by another individual

Those who are unwilling and unable to pay for the good do not obtain its benefits

If a good is both excludable and rival in consumption is a:
a. public good
b. club good
c. common resource
d. private good

People consume more of a common resource than society would desire.

Raj opens up a lemonade stand for two hours. He spends $10 for ingredients and sells $60 worth of lemonade. In the same two hours, he could have mowed his neighbor's lawn for $40. Raj has an accounting profit of ______ and an economic profit of ______.

The firm's total revenue minus only the firm's explicit costs

The firm's total revenue minus all the opportunity costs (explicit and implicit) of producing the goods and services sold.

Diminishing marginal product explains that: as a firm's output increases,
a. the production function and total cost curve both get steeper.
b. the production function and total cost curve both get flatter.
c.the production function gets steeper, while the total cost curve gets flatter.
d.the production function gets flatter, while the total cost curve gets steeper.

The fact that as the inputs to production increase, the marginal product declines, causing the production function to get flatter as output increases

A firm is producing 1,000 units at a total cost of $5,000.
If it were to increase production to 1,001 units, its total cost would rise to $5,008. What does this information tell you about the firm?
a. Marginal cost is $5, and average variable cost is $8.
b. Marginal cost is $8, and average variable cost is $5.
c. Marginal cost is $5, and average total cost is $8.
d. Marginal cost is $8, and average total cost is $5.

A firm is producing 20 units with an average total cost of $25 and marginal cost of $15.
If the firm were to increase production to 21 units, which of the following must occur?
a. Marginal cost would decrease.
b. Marginal cost would increase.
c. Average total cost would decrease.
d. Average total cost would increase.

The government imposes a $1,000 per year license fee on all pizza restaurants. Which cost curves shift as a result?
a. Average total cost and marginal cost.
b. Average total cost and average fixed cost.
c. Average variable cost and marginal cost.
d. Average variable cost and average fixed cost.

If a higher level of production allows workers to specialize in particular tasks, a firm will likely exhibit ________ of scale and ________ average total cost.
a. economies, falling
b. economies, rising
c. diseconomies, falling
d. diseconomies, rising

What you give up for taking some action

Falling when marginal cost is below it and rising when marginal cost is above it.

A cost that does not depend on the quantity produced

Profits equal total revenue minus ____________.

The cost of producing an extra unit of output

Costs that change as the firm alters the quantity of output produced

It would cost $500,000 per year to rent the location and buy the stock. In addition, you would have to quit your $50,000 per year job as an accountant. What is the opportunity cost?

change in TC / change in Q

Total cost / quantity

Total fix cost / quantity

Total variable cost / quantity

The quantity that minimizes average total cost

A perfectly competitive firm:
a. chooses its price to maximize profits.
b. sets its price to undercut other firms selling similar products.
c. takes its price as given by market conditions.
d. picks the price that yields the largest market share.

A competitive firm maximizes profit by choosing the quantity at which,
a. average total cost is at its minimum.
b. marginal cost equals the price.
c. average total cost equals the price.
d. marginal cost equals average total cost.

A competitive firm's short-run supply curve is its ________ cost curve above its ________ cost curve.
a. average total, marginal
b. average variable, marginal
c. marginal, average total
d. marginal, average variable

If a profit-maximizing, competitive firm is producing a quantity at which marginal cost is between average variable cost and average total cost, it will
a. keep producing in the short run but exit the market in the long run.
b. shut down in the short run but return to production in the long run.
c. shut down in the short run and exit the market in the long run.
d. keep producing both in the short run and in the long run.

In the long-run equilibrium of a competitive market with identical firms, what is the relationship between price (P) , marginal cost (MC), and average total cost (ATC)?

One day, the city starts imposing a $100 per month tax on each stand. How does this policy affect the number of pretzels consumed in the short run and the long run?
a. down in the short run, no change in the long run
b. up in the short run, no change in the long run
c. no change in the short run, down in the long run
d. no change in the short run, up in the long run

Bob's lawn-mowing service is a profit-maximizing, competitive firm. Bob mows lawns for $27 each. His total cost each day is $280, of which $30 is a fixed cost. He mows 10 lawns a day.
In the short run, Bob ____________ (should or should not) shut down. In the long run, Bob should (exit or not exit) the industry.

A firm in a competitive market receives $500 in total revenue and has marginal revenue of $10.
The firm's average revenue is $______ and _____ units were sold.

A profit-maximizing firm in a competitive market is currently producing 100 units of output. It has average revenue of $10, average total cost of $8, and fixed cost of $200. What is their profit, marginal cost and average variable cost?

A firm is a natural monopoly if it exhibits the following as its output increases:
a. decreasing marginal revenue.
b. increasing marginal cost.
c. decreasing average revenue.
d. decreasing average total cost.

A single firm can supply a good or service to an entire market at a lower cost than could two or more firms due to average total cost decreasing as output increases.

For a profit-maximizing monopoly that charges the same price to all consumers, what is the relationship between price (P), marginal revenue (MR , and marginal cost (MC)?

If a monopoly's fixed costs increase, its price will _____, and its profit will _____.
a. increase, decrease
b. decrease, increase
c. increase, stay the same
d. stay the same, decrease

Compared to the social optimum, a monopoly firm chooses
a. a quantity that is too low and a price that is too high.
b. a quantity that is too high and a price that is too low
c. a quantity and a price that are both too high.
d. a quantity and a price that are both too low.

The deadweight loss from monopoly arises because
a. the monopoly firm makes higher profits than a competitive firm would.
b. some potential consumers who forgo buying the good value it more than its marginal cost.
c. consumers who buy the good have to pay more than marginal cost, reducing their consumer surplus.
d. the monopoly firm chooses a quantity that fails to equate price and average revenue.

When a monopolist switches from charging a single price to perfect price discrimination, it reduces
a. the quantity produced.
b. the firm's profit.
c. consumer surplus.
d. total surplus.

A situation in which the monopolist knows exactly each customer's willingness to pay and can charge each customer a different price.

The total surplus in the economy is less than it would be if the market were competitive, because the monopolist produces less than the socially efficient level of output

The difference between a buyer's willingness to pay (what the item is worth to the buyer) and what the buyer actually pays.

The difference between a producer's willingness to sell (what the item costs the producer to make) and what the seller actually receives

Price x Quantity

Change in total revenue / change in quantity

Consider the relationship between monopoly pricing and price elasticity of demand. If demand is inelastic and a monopolist raises its price, total revenue would _____________ (increase or decrease) and total cost would _____________ (increase or decrease), causing profit to _____________ (increase or decrease). Therefore, a monopolist will _____________ (always, sometimes, never) produce a quantity at which the demand curve is inelastic.

Which of the following goods best fits the definition of monopolistic competition?
a. wheat
b. tap water
c. crude oil
d. soft drinks

A market structure in which there are many firms selling products that are similar but not identical

Each firm produces a product that is at least slightly different from those of other firms in a monopolistic competition

A monopolistically competitive firm will increase its production if
a. marginal revenue is greater than marginal cost.
b. marginal revenue is greater than average total cost.
c. price is greater than marginal cost
d. price is greater than average total cost.

What is true of a monopolistically competitive market in long-run equilibrium?
a. Price is greater than marginal cost.
b. Price is equal to marginal revenue.
c. Firms make positive economic profits.
d. Firms produce at the minimum of average total cost.

If advertising makes consumers more loyal to particular brands, it could ________ the elasticity of demand and ________ the markup of price over marginal cost.
a. increase, increase
b. increase, decrease
c. decrease, increase
d. decrease, decrease

Classify the market for each of the following drinks as either monopoly, oligopoly, monopolistic competition, or perfect competition:
1. tap water
2. bottled water
3. cola
4. beer

Classify the following markets as perfectly competitive, monopolistic, or monopolistically competitive:
1. Wooden no. 2 pencil
2. Copper
3. Local telephone service
4. Peanut butter
5. Lipstick

For each of the following characteristics, indicate whether it describes a perfectly competitive firm, a monopolistically competitive firm, both, or neither:
1. Sells a product differentiated from that of its competitors
2. Has marginal revenue less than price
3. Earns economic profit in the long run
4. Produces at the minimum of average total cost in the long run
5. Equates marginal revenue and marginal cost
6. Charges a price above marginal cost

For each of the following characteristics, say whether it describes a monopoly firm, a monopolistically competitive firm, both, or neither:
1. Faces a downward-sloping demand curve
2. Has marginal revenue less than price
3. Faces the entry of new firms selling similar products
4. Earns economic profit in the long run
5. Equates marginal revenue and marginal cost
6. Produces the socially efficient quantity of output