question
The typical result of a single-price monopoly is ________ prices and ________ output than we find in a competitive market.
answer
higher; lower
question
Both monopolies and competitive firms
answer
try to maximize profits
question
Perfect Price Discrimination (PPD) occurs when a firm is able
answer
charge each buyer the highest price that he or she is willing to pay for the good
question
In 1996, a department store shipped different catalogs to customers based on their buying habits. Frequent customers received catalogs with lower prices, whereas new customers received catalogs with higher prices for those same items. This department store was practicing
answer
price discrimination
question
If the price was less than average variable cost, then the profit-maximizing, monopolistically competitive firm would
answer
shut down to minimize losses in the short run
question
Ash is the preferred wood to be used in the production of baseball bats. If a company was to buy the rights to harvesting the ash trees out of all the forests in North America, which of the following barriers of entry has this company created?
answer
control of resources
question
What is a real-world example of an attempt to get close to perfect price discrimination?
answer
a car dealership selling an automobile
question
What is the lowest price point that a perfect price discriminating (PPD) firm will charge?
answer
The point where MC=Demand
question
(T/F) If a monopolist is producing a quantity where marginal revenue is equal to $16 and the marginal cost is equal to $17, the monopolist should increase production to maximize profits.
answer
FALSE
question
A big difference between a competitive firm and a monopolist is that a monopolist...
answer
does not charge a price equal to marginal revenue
question
(T/F) Price Discrimination allows businesses to make additional profits and allows markets to work more efficiently
answer
TRUE
question
Two government-created barriers to entry are...
answer
licensing and patent system/copyright law
question
(T/F) For a firm to be able to practice price discrimination, it must be a price taker
answer
FALSE
question
(T/F) Part of the rationale for advertising is to make demand for the firm's product more elastic
answer
FALSE
question
The demand curve for the product of a firm in a competitive market is ________, and the demand curve for the product of a monopolist is ________.
answer
perfectly elastic; downward sloping
question
If monopolistically competitive firms are earning positive profit, new firms would begin entering the industry_______________.
answer
decreasing demand for the existing firms' products, driving down the price, quantity, and profit of existing firms
question
(T/F) The short-run equilibrium for a monopolistically competitive firm is at price equals $29, average total cost equals $32, and marginal cost equals marginal revenue equals $18. In the long run, new firms will enter this industry.
answer
FALSE
question
If cartels are successful, jointly their quantity produced will be ______________ the quantity a monopolist would produce and their price will be ______________ the price a monopolist would charge.
answer
equal to; equal to
question
For a cartel to be successful, there must be ____________ substitutes for the good being produced and there must be a way to keep cartel members from __________________.
answer
no close; cheating on the cartel agreement by lowering price and increasing quantity
question
Price discrimination allows firms to make more money by partitioning their customers into at least two distinct groups, those who
answer
will get a discount and those who. are willing to pay more
question
Which market structure describes an industry in which all firms produce differentiated output and there are few barriers to entry?
answer
monopolistic competition
question
(T/F) Long run average cost is minimized in the long-run equilibrium of monopolistic competition
answer
FALSE
question
Oligopolistic industries are dominated by ________ firms, that have market power by virtue of their ___________.
answer
a few large; size alone
question
Kareem owns a bike store. His total costs are $1.2 million per year, his variable costs are $750,000, and his fixed costs are $450,000 per year. Last year, Kareem sold 1,200 bikes. His average total cost was ______ per bike
answer
$1,000
question
Hannah is the owner of a party store. Last year, her total revenue was $145,000, her rent was $12,000, her labor costs were $65,000, and and her supplies and misc. expenses were $15,000. If she could earn $53,000 working for another party store nearby, we know that her economic profit was...
answer
$0.00
question
What are the three main characteristics of a competitive market?
answer
1. many buyers and sellers
2. similar products
3. easy entry into the market
2. similar products
3. easy entry into the market
question
If a firm hires another worker and her marginal product of labor is positive, we know that the firm's total output is...
answer
increasing
question
Selene owns a craft store. Her costs are $1.2 million per year, and her variable costs are $750,000 per year. This means that her fixed costs are...
answer
$450,000
question
If an owner increases the size of his store and experiences constant returns to scale as a result, her long-run average total cost curve should be...
answer
horizontal
question
After a factory decides to expand its size, how would we know if it is experiencing constant returns to scale?
answer
The long run average cost of producing remains unchanged
question
If firms in a competitive market are incurring economic losses, we would expect firms to _____ the market, causing the _____ curve to shift to the _____.
answer
leave; supply; left
question
If Dunking Donuts is a perfectly competitive firm and is incurring economic losses of $500...
answer
firms will exit the market.
question
Should a firm always produce at the level of output where marginal cost is lowest?
answer
No. That might be the best choice, but it depends on the firm's profits.
question
Where the average total cost curve is at its minimum, we know that...
answer
the marginal cost curve intersects the average total cost curve
question
Where would we find a firm's minimum efficient scale of production?
answer
at the lowest point on its long-run average total cost curve
question
A perfectly competitive industry's short-run supply curve is...
answer
the horizontal summation of the supply curve for individual firms.
question
If the marginal product of an input is falling, then what must be true?
answer
Marginal cost must be rising.
question
When a firm hires another employee and, as a result, total output increases, this change in total output is also known as:
answer
marginal product
question
The perfectly competitive firm cannot influence the market price because
answer
the firm's production levels are too small to affect the market.
question
A firm's production function is similar to a recipe used to make a cake in the sense that the production function shows us the combination of _____ used to produce _____.
answer
inputs; output
question
Chuck's burgers has a minimum ATC of $3.75, and its minimum average variable cost (AVC) is $2.50. Chuck's Burgers is indifferent about staying open or shutting down if the price is equal to...
answer
$2.50
question
Pawkeepsie Groomers has MC and AVC curves crossing at $14. It also has an ATC at $22. The firm will make zero economic profit if the market price is...
answer
$22
question
At the current level of output, the following data exists:
Price: $20
MC: $6
AVC: $10
ATC: $13
What must be true at this level of output?
Price: $20
MC: $6
AVC: $10
ATC: $13
What must be true at this level of output?
answer
The firm should increase output.
question
Total revenue minus total cost is equal to...
answer
profit
question
Vanessa owns a horse ranch. Her total costs are $550,000 per year, and her fixed costs are $205,000 per year. This means that her variable costs are...
answer
$345,000
question
When marginal revenue equals marginal cost...
answer
firms are maximizing profits, so they should continue at the production level.
question
All firms, no matter what type of firm structure they are producing in, make their production decision points based on the point where their...
answer
marginal revenue equals marginal cost
question
What condition will result in the firm making positive economic profit?
answer
P > ATC
question
When talking about economic profits in a perfectly competitive market, the difference between the long-run and the short-run is that in the short-run, firms...
answer
can earn positive or negative profits, but in the long-run, firms have zero economic profit.
question
A firm will shutdown in the short run
answer
when price is below average variable cost at all levels of output
question
(T/F) For economic analysis, the short-run is considered less than one year.
answer
FALSE
question
Accounting profit is equal to...
answer
total revenue minus explicit costs
question
Suppose you estimate income elasticity of demand for a product to be 0.5. This indicates
answer
The good is a necessity
question
The statement, "Increasing the minimum wage in Texas to $10/hour would reduce the poverty rate by 5 percent," is a _______ statement. The statement, "Texas should increase the minimum wage to $10/hour," is a ______ statement.
answer
positive; normative
question
The city of San Dimas, California, has already spent $10 million on a project to build a new community college. As is common with construction projects, several unexpected problems have come up in recent months, and it will cost the city $40 million to finish the project. At this point, as the city is trying to decide whether to continue the project, the city's chief economist tell the city council that the $10 million...
answer
The $10 million should be irrelevant in the decision because it is a sunk cost.
question
Suppose the market for tea is initially in equilibrium. Then, the price of coffee (a substitute in consumption for tea) decreases. At the same time, the government places a tax on the producers of tea. After the market adjusts to these shocks, the equilibrium price of tea will ______ and the equilibrium quantity of tea will
answer
1. either increase, decrease, or remain the same
2. decrease
2. decrease
question
(T/F) Your friend recently bought a car and began driving for Uber...He is really enjoying it, so you are contemplating the idea of driving for Uber too. Luckily, since you already own a car, there would be no opportunity cost to using your car to drive for Uber
answer
FALSE
question
What are the four ways that non-price rationing occurs?
answer
1. queue (first come, first served)
2. favored customers
3. lottery
4. ration coupons
2. favored customers
3. lottery
4. ration coupons
question
Suppose a $10 tax per unit causes a loss in consumer and producer surplus of $500,000 and causes deadweight loss of $200,000. The tax revenue generated by this policy is...
answer
$300,000
question
(T/F) The incidence of tax reflects who pays out of pocket.
answer
FALSE
question
An increase in a price floor will result in a larger surplus if...
answer
The new price floor is above the original equilibrium price.
question
(T/F) By definition, public goods are provided by the government.
answer
FALSE
question
For Coasian bargaining to work,
answer
1. property rights must by clearly established
2. no more than 2-3 parties can be involved.
3. There can be no significant barriers to bargaining
2. no more than 2-3 parties can be involved.
3. There can be no significant barriers to bargaining
question
You decide not to contribute to you local National Public Radio Station because your contribution be very small relative to the overall budget of the station. This is an example of the ________ problem associated with public goods.
answer
drop-in-the-bucket problem
question
If you decided not to contribute to a radio station because you will get to enjoy the station's programs whether or not you decide to contribute anything. This is an example of the ______ problem associated with public goods.
answer
free-rider
question
The original equilibrium price of a good is $20/unit. Then a $4/unit tax is imposed on the good, and the price that is paid by buyers increases by $1. The price that is received by the sellers decreases by $3. From this information, we know that the incidence of tax on the buyers is ____%. The incidence of tax on the sellers is ____%.
answer
25%, 75%
question
Over time, the size of the shortage or surplus created by a binding control will...
answer
increase as demand and supply become more elastic.
question
Pure public goods are _____ goods, meaning that no-one can be prevented from enjoying the benefits of the good once it's been produced.
answer
...
question
Assume that demand is downward-sloping and supply is upward-sloping (as usual). The incidence of tax on buyers will be larger than the incidence of the tax on the sellers if
answer
supply is more elastic than demand
question
Sam plays video games, keeping Bailey awake at night. Although dorm residents are allowed to stay up as late as they want, and there are no restrictions on late-night noise, the two roommates are trying to come to a private solution. Two solutions exist: Sam could use a video game headset that costs $100 or Bailey could use noise cancelling earplugs that cost $85. What is an example of Coasian bargaining solution?
answer
Bailey could pay $85 to purchase earplugs for use while sleeping
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