Microeconomics Exam 3 HW ?s - Assignment Essays

question

The marginal cost curve intersects the average cost curve:

answer

at its minimum point.

question

Price equals marginal revenue for a competitive firm because:

answer

the price does not change when the firm changes output.

question

The demand curve for oil from OPEC is:

answer

downward-sloping.

question

Price times quantity minus total cost equals:

answer

profit

question

Because only greater quantities of oil can be produced by using more expensive production methods, the industry is:

answer

an increasing cost industry.

question

Which of the following is TRUE?

answer

Profit equals (price minus average cost) times quantity.

question

When opportunity cost is positive, economic profit ______ accounting profit.

answer

is less than

question

Any industry that buys a large fraction of the output of an increasing cost industry:

answer

must be an increasing cost industry.

question

To maximize profits, a firm in a highly competitive industry should set its price:

answer

at the market price.

question

The supply curve for oil slopes upward because additional quantities of oil can only be produced at higher cost.

answer

True

question

Economic profits are:

answer

total revenue less total costs, including explicit and implicit costs.

question

Average cost is equal to total cost divided by quantity.

answer

True

question

If marginal cost is less than average cost, average cost is rising.

answer

False

question

Which of the following statements is FALSE?

answer

When marginal cost is below average cost, average cost is rising.

question

The electricity industry is an example of:

answer

an increasing cost industry.

question

In competitive markets, the demand curve faced by the individual firm is:

answer

perfectly elastic.

question

Julius builds dining chairs that he sells for $200 a chair. His fixed costs are $1,000 (for workshop equipment). Each chair costs him $50 in materials to produce plus an extra $25 for each previous chair made that day, which reflects Julius's increasing exhaustion. (Thus, the first chair cost $50, the second costs $75, the third cost $100, etc.) Assume time requirements in producing a chair are not a factor. How many chairs should Julius produce each day?

answer

question

An example of an implicit cost is:

answer

salary that could have been earned working for someone else.

question

What condition is necessary in a constant cost industry?

answer

Prices of the industry's inputs do not change as the industry expands.

question

The short run is the period after all exit and entry has occurred.

answer

False

question

The short run is defined as:

answer

the period before entry or exit can occur.

question

According to the elimination principle, above-normal profits will never occur.

answer

False

question

In a free market, if the profit rate in the car industry were higher than in the computer industry, this is a signal that:

answer

entrepreneurs should move resources from the computer industry to the car industry.

question

For a competitive firm, which of the following conditions describes the profit maximization condition?
I. P = MC
II. MR = MCI
II. TR = TC

answer

I and II only

question

Suppose that you own two farms on which to grow corn. In order to lower the cost of production, you determine to increase production on Farm 1 and reduce it on Farm 2. This implies that the marginal cost of production on Farm 1 is:

answer

less than the marginal cost of production on Farm 2.

question

Suppose that Sandy owns a farm in North Carolina and Pat owns a farm in Iowa, and Sandy's farm is generally more productive than Pat's. If both Sandy and Pat sell their corn in the same market, Sandy should produce the output at the marginal cost that is:

answer

equal to the marginal cost of Pat's production.

question

In the long run, firms will exit industries where price is:

answer

less than average cost.

question

There is a tendency for economic profit in all competitive industries to go to zero.

answer

True

question

A student trying to maximize her semester GPA already studies as many hours as possible but can perhaps use that time more efficiently. A marginal hour spent studying economics will raise her GPA by 0.05. A marginal hour spent studying literature will raise her GPA by 0.02. Should she reallocate her time?

answer

She should spend more time studying economics and less time studying literature.

question

Consider two farms. Farm 1 produces unlimited bushels for a cost of $5 each. Farm 2 produces unlimited bushels for a cost of $7 each. How should production be allocated between these two farms?

answer

Produce all bushels on Farm 1.

question

The following are marginal cost curves for selling chicken in a mom-and-pop (MCM) store and in a big-box retailer (MCB).
MCM = 2 + 2QM
MCB = 4 + QB
If there are 6 total chickens being sold, how many chickens does each firm sell?

answer

mom-and-pop: 2; big-box: 4

question

A perfectly competitive firm with lower marginal costs will produce ______ a competitor with higher marginal costs.

answer

more units than

question

Outcomes that people neither intend nor design:

answer

can be desirable with the right institutions.

question

The greatest use of our limited resources occurs when:

answer

profits in every industry are the same.

question

Consider two farms. Farm 1 produces the first bushel for $5 each, but the marginal cost rises gradually as the quantity increases. Farm 2 produces the first bushel for $7, but marginal cost also rises gradually as the quantity increases. With a market price of $10 a bushel, how should production be allocated between these two farms?

answer

Produce on both farms until the marginal cost on each farm rises to $10.

question

High profits mean that inputs of high value produce outputs of low value.

answer

False

question

If a firm has revenues of $125, explicit costs of $25, and implicit costs of $50, then its economic profit is:

answer

$50.

question

If P > AC in a given industry, then:

answer

there are too few resources in that industry.

question

If P < AC in a given industry, then:

answer

there are too many resources in that industry.

question

What is the Invisible Hand Property 1?

answer

In a free market, the total costs of producing output are minimized because each firm produces up to the point where P = MC.

question

A free market can allocate production across two farms to minimize total costs even when an ideal central planner could not.

answer

True

question

When resources move from a low-profit industry into a high-profit industry:

answer

the profits of the low-profit industry rise and the profits of the high-profit industry fall.

question

Above-normal profits are eliminated by ______, and below-normal profits are eliminated by ______.

answer

entry; exit

question

"[I]n capitalist reality as distinguished from its textbook picture, it is not that kind of competition which counts but the competition from the new commodity, the new technology, the new source of supply, the new type of organization . . . competition which commands a decisive cost or quality advantage and which strikes not at the margins of the profits and the outputs of the existing firms but at their foundations and their very lives." This process is called:

answer

creative destruction.

question

Which of the following statements is TRUE?
I. A free market minimizes the total costs of producing output.
II. In a free market, P = MC1 = MC2 = . . . MCN.
III. Every firm faces the same price in a competitive market.

answer

I, II, and III

question

Which of the following statements is TRUE?
I. To maximize profit, a monopolist produces where P = MC.
II. Economies of scale are likely important for subways and cable TV.
III. Since producer surplus includes large monopoly profits, total surplus is higher in monopoly markets.

answer

II only

question

A firm with no competitors:

answer

still faces a downward-sloping demand curve.

question

One source of monopoly power is a patent granted by government.

answer

True

question

If a monopolist faces a straight-line negatively sloped demand curve, the price of the units it sells is always:

answer

greater than marginal revenue.

question

California deregulated:

answer

wholesale electricity prices in 1998.

question

Software development has high fixed costs and marginal costs that are close to zero. What would happen if software firms sold their product for marginal cost?

answer

They would not be able to afford their fixed costs and would go out of business.

question

When demand is relatively elastic, monopolists will charge:

answer

a lower markup.

question

For a monopoly, the entire consumer surplus is transferred to the monopolist as profit.

answer

False

question

Apple's iPod provides an example that market power may arise from:

answer

innovation

question

Competitive markets channel the self-interest of business leaders toward social prosperity, whereas poor institutions that limit competition channel the self-interest of business leaders toward social destruction.

answer

True

question

A monopoly is a firm:

answer

that sets price above marginal cost without concern that other firms will enter the industry.

question

The economic inefficiency of a monopolist can be measured by the:

answer

deadweight loss involved relative to a competitive firm.

question

A firm can sell 1 unit at $9 or 2 units at $8 or 3 units at $7, and so on. What is the marginal revenue from the sale of the fifth unit?

answer

question

Monopolies will have more market power when one firm owns an input that is difficult to duplicate and the:

answer

demand for the product is inelastic.

question

When a regulated monopolist maximizes consumer surplus, it produces at an optimal Q where:

answer

P = MC.

question

If the economies of scale are large enough, average cost for a natural monopoly can be:

answer

lower than the average cost under competition.

question

Other things being equal, the markup above marginal cost that a monopolist charges will be:

answer

lower when there are more substitutes for the monopolist's product.

question

A profit-maximizing monopolist chooses the output level where MR = MC and chooses the corresponding price from the marginal revenue curve.

answer

False

question

If the monopolist's demand is given by P = 100 - Q, marginal revenue is given by:

answer

MR = 100 - 2Q.

question

One of the great lessons of economics is that:

answer

good institutions channel self-interest toward social prosperity, whereas poor institutions channel self-interest toward social destruction.

question

When a monopolist faces downward-sloping demand, marginal revenue is less than the price.

answer

True

question

Saudi Arabia has market power in the world's oil markets because:

answer

it controls a significant fraction of the world's oil supply.

question

Which of the following statements is TRUE?

answer

Monopolies create incentives for additional research and development.

question

If the demand curve for a firm is a straight line with negative slope, which of the following is the shortcut to finding the MR?

answer

The marginal revenue curve starts at the same point as the demand curve and has twice the slope of the demand curve.

question

If these were monopolistic markets, which one would clearly have a greater markup than a monopolized banana industry?

answer

organic bananas

question

Counterfeit brands carry labels from companies that did not actually make the product in question (e.g., a purse not made by Gucci but carrying a Gucci label). With what kind of monopoly are the makers of these items trying to compete?

answer

one with hard-to-duplicate products

question

To determine the production level, the monopolist sets marginal cost equal to price.

answer

False

question

Graphically, a firm's marginal revenue curve is:

answer

downward-sloping, but with twice the slope of the market demand curve.

question

Today anything beyond the most basic tier cable service is predominantly free of regulation, and cable companies are free to charge a market rate for their services. As a result:

answer

prices have risen since deregulation, but so have the number of channels and the quality of programming.

question

For a linear demand curve, the marginal revenue curve has:

answer

twice the slope.

question

In which of the following scenarios will automobile prices be the lowest?

answer

A competitive automobile company buys its steel from a competitive steel producer.

question

Which of the following statements about monopoly power is correct?

answer

Monopoly power is the power to raise prices above average cost without facing new entry of firms.

question

Deadweight loss occurs because some consumers are willing to pay at least the marginal cost for the good, even if they are not willing to pay the monopolist's price. If monopolies were able to charge these consumers a lower price without lowering prices to consumers willing to pay more, deadweight loss would ______, some consumers would be ______ off, and the monopolist would be ______ off.

answer

decrease; better; better

question

When a monopolist decreases the price of its good, consumers:

answer

buy more

question

To maximize profit, the monopolist increases output:

answer

until marginal cost is equal to marginal revenue.

question

Which of the following statements is TRUE?

answer

Monopolized economies tend to have more poverty and less economic growth.

question

Deregulation of cable TV rates led to:

answer

higher prices for cable TV.

question

With health insurance, medical treatments are often paid by someone other than the patient, which will make consumers with serious diseases relatively:

answer

insensitive to the price of pharmaceuticals.

question

When goods produced in monopolistic markets become inputs to produce other goods,

answer

prices rise by more than if the input was competitively priced.

question

A monopoly is a firm with market power, and market power may arise from economies of scale, patent protection, and innovation.

answer

True

question

Which of the following statements is TRUE?
I. Government ownership is a potential solution to the natural monopoly problem, but it stifles innovation.
II. Regulated monopolies have little incentive to reduce costs, as they simply pass the higher costs on to consumers.
III. Government ownership of utilities worked well for several decades.

answer

I, II, and III

question

The "you can't take it with you" and "other people's money" effects give rise to an inelastic demand for pharmaceutical drugs.

answer

True

question

In a purely monopolized environment where each monopolist succeeds at raising its price, the result is:

answer

higher prices spread throughout the economy.

1 of 88

question

The marginal cost curve intersects the average cost curve:

answer

at its minimum point.

question

Price equals marginal revenue for a competitive firm because:

answer

the price does not change when the firm changes output.

question

The demand curve for oil from OPEC is:

answer

downward-sloping.

question

Price times quantity minus total cost equals:

answer

profit

question

Because only greater quantities of oil can be produced by using more expensive production methods, the industry is:

answer

an increasing cost industry.

question

Which of the following is TRUE?

answer

Profit equals (price minus average cost) times quantity.

question

When opportunity cost is positive, economic profit ______ accounting profit.

answer

is less than

question

Any industry that buys a large fraction of the output of an increasing cost industry:

answer

must be an increasing cost industry.

question

To maximize profits, a firm in a highly competitive industry should set its price:

answer

at the market price.

question

The supply curve for oil slopes upward because additional quantities of oil can only be produced at higher cost.

answer

True

question

Economic profits are:

answer

total revenue less total costs, including explicit and implicit costs.

question

Average cost is equal to total cost divided by quantity.

answer

True

question

If marginal cost is less than average cost, average cost is rising.

answer

False

question

Which of the following statements is FALSE?

answer

When marginal cost is below average cost, average cost is rising.

question

The electricity industry is an example of:

answer

an increasing cost industry.

question

In competitive markets, the demand curve faced by the individual firm is:

answer

perfectly elastic.

question

answer

question

An example of an implicit cost is:

answer

salary that could have been earned working for someone else.

question

What condition is necessary in a constant cost industry?

answer

Prices of the industry's inputs do not change as the industry expands.

question

The short run is the period after all exit and entry has occurred.

answer

False

question

The short run is defined as:

answer

the period before entry or exit can occur.

question

According to the elimination principle, above-normal profits will never occur.

answer

False

question

In a free market, if the profit rate in the car industry were higher than in the computer industry, this is a signal that:

answer

entrepreneurs should move resources from the computer industry to the car industry.

question

For a competitive firm, which of the following conditions describes the profit maximization condition?
I. P = MC
II. MR = MCI
II. TR = TC

answer

I and II only

question

answer

less than the marginal cost of production on Farm 2.

question

answer

equal to the marginal cost of Pat's production.

question

In the long run, firms will exit industries where price is:

answer

less than average cost.

question

There is a tendency for economic profit in all competitive industries to go to zero.

answer

True

question

answer

She should spend more time studying economics and less time studying literature.

question

Consider two farms. Farm 1 produces unlimited bushels for a cost of $5 each. Farm 2 produces unlimited bushels for a cost of $7 each. How should production be allocated between these two farms?

answer

Produce all bushels on Farm 1.

question

answer

mom-and-pop: 2; big-box: 4

question

A perfectly competitive firm with lower marginal costs will produce ______ a competitor with higher marginal costs.

answer

more units than

question

Outcomes that people neither intend nor design:

answer

can be desirable with the right institutions.

question

The greatest use of our limited resources occurs when:

answer

profits in every industry are the same.

question

answer

Produce on both farms until the marginal cost on each farm rises to $10.

question

High profits mean that inputs of high value produce outputs of low value.

answer

False

question

If a firm has revenues of $125, explicit costs of $25, and implicit costs of $50, then its economic profit is:

answer

$50.

question

If P > AC in a given industry, then:

answer

there are too few resources in that industry.

question

If P < AC in a given industry, then:

answer

there are too many resources in that industry.

question

What is the Invisible Hand Property 1?

answer

In a free market, the total costs of producing output are minimized because each firm produces up to the point where P = MC.

question

A free market can allocate production across two farms to minimize total costs even when an ideal central planner could not.

answer

True

question

When resources move from a low-profit industry into a high-profit industry:

answer

the profits of the low-profit industry rise and the profits of the high-profit industry fall.

question

Above-normal profits are eliminated by ______, and below-normal profits are eliminated by ______.

answer

entry; exit

question

answer

creative destruction.

question

answer

I, II, and III

question

answer

II only

question

A firm with no competitors:

answer

still faces a downward-sloping demand curve.

question

One source of monopoly power is a patent granted by government.

answer

True

question

If a monopolist faces a straight-line negatively sloped demand curve, the price of the units it sells is always:

answer

greater than marginal revenue.

question

California deregulated:

answer

wholesale electricity prices in 1998.

question

Software development has high fixed costs and marginal costs that are close to zero. What would happen if software firms sold their product for marginal cost?

answer

They would not be able to afford their fixed costs and would go out of business.

question

When demand is relatively elastic, monopolists will charge:

answer

a lower markup.

question

For a monopoly, the entire consumer surplus is transferred to the monopolist as profit.

answer

False

question

Apple's iPod provides an example that market power may arise from:

answer

innovation

question

answer

True

question

A monopoly is a firm:

answer

that sets price above marginal cost without concern that other firms will enter the industry.

question

The economic inefficiency of a monopolist can be measured by the:

answer

deadweight loss involved relative to a competitive firm.

question

A firm can sell 1 unit at $9 or 2 units at $8 or 3 units at $7, and so on. What is the marginal revenue from the sale of the fifth unit?

answer

question

Monopolies will have more market power when one firm owns an input that is difficult to duplicate and the:

answer

demand for the product is inelastic.

question

When a regulated monopolist maximizes consumer surplus, it produces at an optimal Q where:

answer

P = MC.

question

If the economies of scale are large enough, average cost for a natural monopoly can be:

answer

lower than the average cost under competition.

question

Other things being equal, the markup above marginal cost that a monopolist charges will be:

answer

lower when there are more substitutes for the monopolist's product.

question

A profit-maximizing monopolist chooses the output level where MR = MC and chooses the corresponding price from the marginal revenue curve.

answer

False

question

If the monopolist's demand is given by P = 100 - Q, marginal revenue is given by:

answer

MR = 100 - 2Q.

question

One of the great lessons of economics is that:

answer

good institutions channel self-interest toward social prosperity, whereas poor institutions channel self-interest toward social destruction.

question

When a monopolist faces downward-sloping demand, marginal revenue is less than the price.

answer

True

question

Saudi Arabia has market power in the world's oil markets because:

answer

it controls a significant fraction of the world's oil supply.

question

Which of the following statements is TRUE?

answer

Monopolies create incentives for additional research and development.

question

If the demand curve for a firm is a straight line with negative slope, which of the following is the shortcut to finding the MR?

answer

The marginal revenue curve starts at the same point as the demand curve and has twice the slope of the demand curve.

question

If these were monopolistic markets, which one would clearly have a greater markup than a monopolized banana industry?

answer

organic bananas

question

answer

one with hard-to-duplicate products

question

To determine the production level, the monopolist sets marginal cost equal to price.

answer

False

question

Graphically, a firm's marginal revenue curve is:

answer

downward-sloping, but with twice the slope of the market demand curve.

question

Today anything beyond the most basic tier cable service is predominantly free of regulation, and cable companies are free to charge a market rate for their services. As a result:

answer

prices have risen since deregulation, but so have the number of channels and the quality of programming.

question

For a linear demand curve, the marginal revenue curve has:

answer

twice the slope.

question

In which of the following scenarios will automobile prices be the lowest?

answer

A competitive automobile company buys its steel from a competitive steel producer.

question

Which of the following statements about monopoly power is correct?

answer

Monopoly power is the power to raise prices above average cost without facing new entry of firms.

question

answer

decrease; better; better

question

When a monopolist decreases the price of its good, consumers:

answer

buy more

question

To maximize profit, the monopolist increases output:

answer

until marginal cost is equal to marginal revenue.

question

Which of the following statements is TRUE?

answer

Monopolized economies tend to have more poverty and less economic growth.

question

Deregulation of cable TV rates led to:

answer

higher prices for cable TV.

question

With health insurance, medical treatments are often paid by someone other than the patient, which will make consumers with serious diseases relatively:

answer

insensitive to the price of pharmaceuticals.

question

When goods produced in monopolistic markets become inputs to produce other goods,

answer

prices rise by more than if the input was competitively priced.

question

A monopoly is a firm with market power, and market power may arise from economies of scale, patent protection, and innovation.

answer

True

question

answer

I, II, and III

question

The "you can't take it with you" and "other people's money" effects give rise to an inelastic demand for pharmaceutical drugs.

answer

True

question

In a purely monopolized environment where each monopolist succeeds at raising its price, the result is:

answer

higher prices spread throughout the economy.

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