SMC ECON 1 - Assignment Essays

question

The competitive firm will not sell at a price lower than the market price because they can sell all they want at the market price.

answer

true

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A competitive firm cannot sell at a price __________ the market price because __________ will sell at the market price and the original firm will not sell any of its product

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above; competition

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In competition, the firm is a

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price taker

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A firm is in a competitive market when

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A and B

unable to influence the price of product

firm takes as given the price of its product set by supply and demand in the market

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_________ is a type of industry characterized by having only one seller.

answer

monopoly

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Which of the following is not a barrier to entry for a market that exhibits market power?

answer

perfect competition

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Monopolistic competition is an industry structure in which

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each firm tries to gain market power by slightly diffrentiating a similar product.

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Under the kinked-demand curve model of oligopoly, you could predict that

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both b and c.

if a firm lowers price, other firms do the same

if a fimr raises its price, it acts alone

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For a perfectly competitive firm, marginal revenue is less than price.

answer

false

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Which of the following is not an assumption of perfectly competitive markets?

answer

barriers to entry

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Price-taking firms can charge whatever price they need in order to recover their costs and make a profit.

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false

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Situations of perfect competition possess the steepest possible demand curve.

answer

false

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Which of the following is an opportunity (implicit) cost?
S

answer

Tom, who could work for another business, works for himself.

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If explicit costs are $60,000, opportunity costs are $90,000, and accounting profit equals $46,000, then total revenue is _________and economic profit is___________.

answer

$106,000; $16,000

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Which statement is false?

answer

Monetary payment must be made before a cost is incurred.

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Jen runs her own plumbing business. Last year she earned $100,000 in total revenue and paid $65,000 to her employees and suppliers. Last year she received offers to work for other plumbers, the highest offer being $40,000 per year. What is Jen's accounting profit?

answer

$35,000

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Jen runs her own plumbing business. Last year she earned $100,000 in total revenue and paid $65,000 to her employees and suppliers. $15,000 of that amount was economic rent. Last year she received offers to work for other plumbers, the highest offer being $40,000 per year. What is Jen's economic profit?

answer

$10,000

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An unrecoverable cost that economists recommend that decision makers ignore in current or future decisions is called a(n) ______________ cost.

answer

sunk

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Accounting records almost always account for opportunity costs.

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false

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Suppose a firm builds a factory to produce cars. It then discovers that the market for cars has become poor because of new environmental regulations, heavy taxes on gasoline, and mass transit construction. The firm should

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abandon automobile manufacturing and find another product.

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Economic rent is how ___________ is disbursed.

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economic profit

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At point B, all of the following are true except

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P is less than MC.

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To produce at the profit-maximizing point, the marginal cost curve must be downward sloping at that point.

answer

false

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The slope of the total revenue curve for a competitive firm is equal to __________, which is equal to __________.

answer

marginal revenue; price

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The total revenue curve __________ at a __________ rate.

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rises; constant

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Using the graph, at which quantity will the firm maximize its profits?

answer

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Examine the graph below. At point A,

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The correct answer is B: marginal revenue is greater than marginal cost.

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At the output level at point d, if the firm wants to maximize its profits, it should increase its output.

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false

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The firm adjusts _______________ to the level that ___________________ by comparing marginal revenue and marginal cost.

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production, maximizes profit

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The fact that average revenue equals price is a characteristic of

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all profit-maximizing firms.

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To determine its profitability, a competitive firm must compare its average total cost to the product price.

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true

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Total profit for a firm is

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a and c

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A firm in a competitive industry will try to produce the output level for which

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marginal cost equals marginal revenue.

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What is profit?

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Profit is the difference between total cost (TC) and total revenue (TR).

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Which of the following statements is true in determining the level of output a firm should target to maximize profit (π )?

answer

Profit is maximum when marginal cost (MC) equals price and MC is increasing.

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Is the following statement true or false? A firm that produces output at the level where marginal cost (MC) equals price and MC is increasing will be profitable (not operating at a loss).

answer

false

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In 2001, producing widgets cost the firm $100,000. The firm sold the widgets for $125,000. What was the firm's profit or loss?

answer

$25,000

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Walton's Widget Works, Ltd. produced 10,000 widgets at an average total cost of $5.50, and sold total production at $7.95 per widget. What was the firm's profit?

answer

24,500

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The competitive firm produces at the output at which the firm's marginal revenue (the product price) equals its marginal cost and at which its marginal cost is decreasing.

answer

false

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Examine the graph below. If the price for this firm's product is $40, and the firm is maximizing profits, what is the firm's total revenue? Assume that the firm is a price taker.

answer

6000

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Examine the graph below. If the price for this firm's product is $40, and the firm is maximizing profits, what are the firm's total costs? Assume that the firm is a price taker.

answer

4800

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Examine the graph below. If the price for this firm's product is $40, and the firm is maximizing profits, what is the firm's profit? Assume that the firm is a price taker.

answer

1200

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A firm has fixed costs of $50,000 per month. In January, the firm's variable costs to produce 1,000 widgets was $200 per widget; in February, its variable costs to produce 1,100 widgets was $202 per widget; and in March, its variable costs to produce 1,200 widgets was $205 per widget. The price for widgets was $275 per widget for the entire quarter. What was the firm's profit for the quarter?

answer

89,300

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A firm has $12,000 in fixed costs. Its average variable cost (AVC) to produce 10,000 widgets is $1.50. If the price of widgets is $3.95, what is the firm's profit?

answer

12,500

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As production increases, what happens to the average variable cost (AVC) curve and the average total cost (ATC) curve?

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The average variable cost (AVC) curve and the average total cost (ATC) curve approach each other asymptotically.

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On this graph, what area represents economic profit?

answer

question

Examine the graph below. If the product price is $40, the firm's fixed cost is

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1500

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Examine the graph below. If the product price is $20, the firm's loss is

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1500

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A profit-maximizing competitive firm sells its product for $9. Its average total cost of producing this product is $10. The firm's profit maximizing output level is 10 units. How much total profit does this firm earn?

answer

- $10

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When a firm is not making a profit, what should it do in the short run?

answer

The firm should remain open if the price at least covers average variable cost.

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A firm has fixed costs of $10,000, and its variable cost to produce 20,000 widgets is $30,000. If the price of widgets is $1.80, which of the following statements is true?

answer

The firm has a loss of $4,000.

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A firm produces 1,000 widgets. The firm's average variable costs are $5, and its average fixed costs are $2. If the price of widgets is $6, how much is the firm's profit or loss?

answer

$1,000 loss

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On this graph, which area represents fixed costs?

answer

s/t

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Many recreation parks shut down because in the off season

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off-season revenue cannot cover variable cost.

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If price is less than average variable cost, a firm, in the short run, will

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shut down

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Assume Joe has a coffee shop in a competitive market. Assume that weak demand has caused the price of coffee to fall below Joe's average variable cost. Joe shuts his business down, so his losses will be

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equal to fixed cost

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In the short run, if a firm shuts down, the firm's total revenue is equal to

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zero

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When a firm shuts down, it has no costs to cover.

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false

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When a firm is not making a profit, it should always shut down.

answer

false

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Which of the following statements about a firm's short-run supply (SS) curve is true?

answer

A firm's short-run supply (SS) curve is the same as the firm's marginal cost (MC) curve above the average variable cost (AVC) curve.

question

Producing 50,000 widgets costs the firm $250,000. The marginal cost of the 50,001st widget is $3. The price of widgets is $4. Should the firm shut down?

answer

There is not enough information given to answer the question.

question

A firm that makes widgets has $50,000 in fixed costs. The firm can produce 10,000 widgets at an average total cost of $15. The price of widgets is $12. Should the firm shut down?

answer

No, because continuing to produce (in the short run) allows the firm to minimize losses.

question

A firm that makes widgets has fixed costs of $20,000. If the firm's total cost to produce 1,000 widgets is $50,000, what is the minimum price that makes continuing to produce widgets (in the short run) an economically sound decision?

answer

$30

question

The portion of a firm's marginal cost curve that is above the average variable cost curve is

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the firm's short run supply curve.

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The short-run market supply curve is

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the summation of the short-run supply curves of of all firms in the market.

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The ____________ firms there are in the market, the ____________ the market supply curve.

answer

more; smoother

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If the price for a product falls below the lowest minimum marginal cost of all firms producing that product, which of the following statements is true?

answer

All firms producing that product will shut down.

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Which of the following is not an assumption of the short-run market supply (SS) curve in a competitve market?

answer

There are very few firms producing the product.

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Which of the following statements about the short-run market supply (SS) curve is not true?

answer

The short run market supply (SS) curve is applicable only to monopolistic firms.

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When will the short-run market supply (SS) curve not exist?

answer

The short-run market supply (SS) curve will not exist when the price of the product falls below the lowest minimum marginal cost of all of the firms.

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If a firm in a competitive market sees an increase in market demand and makes a short-run profit, it responds to the the profit by increasing output.

answer

true

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Examine the graph below. If the market price for this firm's product increases from $20 to $40, the firm will produce

answer

150 units

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Examine the graph below. If the price falls from $40 to $30, the firm has an incentive to

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decrease prod to 125 units

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In a perfectly competitive marketplace, the firm determines the price it charges for its product.

answer

false

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How do firms respond to changes in price?

answer

all of the above

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If the demand for a product increases, what happens to the price?

answer

price increases

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What will firms do when demand for a product increases?

answer

Firms will hire additional workers, even if the additional workers result in a decrease in productivity

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Which of the following statements about economic profit is true?

answer

Opportunity costs are included in economic profit.

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Using the graph, the long run supply curve is identified as

answer

question

Using the graph, which curve represents the long run supply?

answer

question

Examine the graph, what type of industry is this?

answer

constant cost

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Using the graph, what type of industry is this?

answer

increasing cost

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Firms produce efficiently in the long run by

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producing at the minimum of LRAC.

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In the long run, a firm in a competive market will operate at

answer

at its point of efficient scale.Explanation

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When firms in a competitive industry earn accounting profits, other firms will enter that industry, in the long run.

answer

false

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Use the graph to answer this question. Suppose the price of the product increases to p1. In the short run, the firm will produce quantity

answer

question

In the graph, area abcd represents a perfectly competitive firm's

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long-run total revenue.

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Use the graph to answer the question. Point c represents the

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all of the above.

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Examine the graph below. After a price increase to p1, the firm would like to increase output to

answer

question

A natural monopoly arises because of the interaction between the __________ of the market and the __________ scale of operation of a single firm.

answer

size; efficient

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Market power exists when a firm is

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all of the above

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A monopoly is a single seller of a good or service.

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true

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All of the following are examples of how monopolies are created except

answer

profitability

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Which of the following is a a good example of a monopoly?

answer

a local electric power company

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If one company is a single seller of a good and is earning economic profits, what prevents other firms from entering the market and competing with the firm?

answer

high barriers to entry

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A natural monopoly exists when

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economies of scale are so large that only one firm can survive and achieve low unit cost.

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Monopolists always require government protection to maintain their monopoly position.

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false

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For a profit-maximizing monopoly, when total revenue is maximized, marginal revenue is zero.

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true

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Marginal revenue is equal to the

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change in total revenue ÷change in quantity sold.

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Marginal revenue is always less than price for a competitive firm.

answer

false

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Examine the graph of a monopolist's market. The __________ curve is always downward sloping because price and quantity are _____________ related.

answer

demand; inversely

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Which of the following statements about marginal revenue is true?

answer

Marginal revenue (MR) is always less than the price.

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For a firm with market power, marginal revenue (MR) equals price.

answer

false

question

A monopolist can sell 20 widgets at $25 each. In order to sell 21 widgets, the firm must lower the price to $23. What happens to marginal revenue?

answer

The marginal revenue (MR) would be −$17.

question

Which of the statements concerning a monopolist's revenue is not always true?

answer

Total revenue increases with each additional unit of output.

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If the total revenue (TR) that a monopolist earns for 50 widgets is $20,000 and the marginal revenue (MR) for selling 51 widgets is $145, what is the average revenue (AR) for 51 widgets?

answer

395

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What is the profit maximizing point for both firms in competition and in a monopoly?

answer

mr = mc

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A monopolist is constrained by marginal revenue in setting price.

answer

question

To maximize revenue, a monopolist prices its product at the point where ___________ is equal to zero.

answer

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For a monopolist, maximizing revenue is the same as maximizing profit.

answer

question

Examine the graph below. This monopolist is maximizing profits at

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Q1 and charging a price of P1.

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For a monopolist, marginal revenue is

answer

less than the product's price.

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The demand curve facing a monopolist is the same as the one facing every other firm in the industry.

answer

question

By following the profit maximizing rule, a monopolist

answer

maximizes its profit (or minimizes its losses).

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At which level of output would a monopolist produce to maximize profit?

answer

The monopolist maximizes profit by producing at the level of output where marginal revenue (MR) equals marginal cost (MC).

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For a monopolist, which of the following statements about marginal revenue is true?

answer

For a monopolist, marginal revenue depends on the elasticity of the demand curve.

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A monopolist maximizes profit by maximizing price.

answer

question

For a monopolist, profit maximization occurs at the output where marginal revenue is equal to marginal cost.

answer

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In a competitive market, a change in the price of the product

answer

will cause movement along the short run MC curve.

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In a competitive market, if firms are required to put safety latches on tool boxes to meet government regulations, their costs increase. It is likely that

answer

the market supply curve shifts to the left.

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If a firm's marginal product of of labor increases, its marginal cost must also increase.

answer

question

Examine the graph below. The firm's profit is

answer

750

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A monopolist calculates its profit by multiplying the quantity of output by average revenue minus average cost.

answer

question

If a monopolist sells 100 units for $10 per unit and has an average cost of $8 per unit, what is the firm's total cost?

answer

800

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If a monopolist sells 100 units for $10 per unit and has an average cost of $8 per unit, what is the firm's total revenue?

answer

1000

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Is the following statement true or false? A monopolist will always be able to operate at a profit.

answer

question

Which of these statements about the marginal cost (MC) curve and average total cost (ATC) curve is true?

answer

For a monopolist, the average total cost (ATC) curve is decreasing when it is above the marginal cost (MC) curve and is increasing when it is below the marginal cost (MC) curve.

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If a monopolist firm has an inelastic demand curve, it can increase its price and expect a more than proportionate increase in revenue.

answer

question

Examine the demand curve for a monopolist below. If the monopolist decreases the price of the product from P2 to P1, the area ______________ represents the firm's additional revenue.

answer

ABFG

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Examine the graph below. If the firm decreases the product price from P2 to P1, area ____________ represents the firm's lost revenue.

answer

EDCB

question

Which of the following statements about elasticity is true?

answer

Elasticity changes as the quantity demanded changes.

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If reducing the price of a product from $20 to $18 results in an increase in sales from 100 units to 106 units, what is the product's elasticity of demand?

answer

0.6

question

A firm with market power faces a demand curve with constant elasticity.

answer

question

Which of these statements is true about a firm with market power?

answer

If a firm with market power faces an elastic demand curve, a small change in price results in positive marginal revenue.

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All of the following are reasons some monopolies are legal in the U.S. except

answer

increasing availability of jobs.

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Which of the following effects is not created by a monopoly?

answer

an increase in innovation

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A monopolist's price is _______ and output is ______ than perfect competition.

answer

greater; less

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A monopolist is not as good for society as a perfectly competitive firm because

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output is lower and price is higher than under competition.

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Monopolies create a social cost because consumers who may be willing to pay for the product up to its marginal cost are not served.

answer

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Monopoly pricing blocks some trades from taking place. These trades would have taken place if the industry were perfectly competitive. These unrealized trades are

answer

a deadweight loss to society.

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The main problem with monopolies is their ability to

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restrict output to level below the socially efficient level.

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Monopolists set the price of their products on the demand curve at the output level where the supply curve intersects the marginal revenue curve.

answer

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Use the graph to answer the question. If the graph is a market for a monopoly, which area represents the consumer surplus?

answer

question

Use the graph to answer the question. Which area represents the deadweight loss in a monopoly?

answer

question

Deadweight loss compares

answer

monopoly surplus to competitive surplus.

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Use the graph to answer the question. Which letter represents the profit-maximizing output in a monopoly?

answer

question

Examine the graph below. The areas of deadweight loss are

answer

e/f

question

The following are all examples of rent-seeking practices except

answer

increasing the monthly rental rate for tenants in a building.

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Average cost pricing

answer

allows the monopolist to cover per-unit costs.

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The economic problem with a monopoly is

answer

price high qty low

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Which of the following is a serious problem associated with breaking up a monopoly?

answer

Economies of scale may be disrupted.

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All of the following may be methods of regulating a monopoly, except

answer

restricting quantity sold.

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Governments sometimes force monopolies to set their price at their average cost. The main problem with this regulatory pricing method is that

answer

there is no incentive for a monopolist to lower its costs.

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One method of government regulation of monopolies is to require the firm to price the product at its marginal cost and produce at the competitive output level. The problem with this scheme is

answer

the monopolist may have economic losses and exit the industry.

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For natural monopolies, average total cost falls continuously and never begins to increase. Therefore, marginal cost

answer

is always less than average total cost.

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If a regulated monopolist has a loss when the government forces it to price at its marginal cost,

answer

the government should subsidize the firm.

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When regulators consider ways to regulate monopolies, they should choose to set price and output where marginal cost equals demand, thus maximizing social value.

answer

question

One of the paradoxes of game theory is that the players' "dominant strategy"

answer

is not necessarily the most efficient outcome

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What do oligopolies and perfectly competitive firms have in common?

answer

the rule of profit maximization

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An oligopoly assumes

answer

each firm will react to its competitor's price decreases.

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An outcome of the prisoner's dilemma in which each player does the best that he / she can do, given what the other players are doing is known as a

answer

nash equilibrium

question

The prisoner's dilemma game does not explain _____________________ markets, but is useful in explaining behavior in ________________ markets.

answer

competitive, oligopoly

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One of the main characteristics of an oligopoly is firms' complete independence from one another.

answer

question

Which of the following would hinder the success of a cartel?

answer

low barriers to entry

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Which of the following is not a problem associated with cartels?

answer

higher production costs

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A cartel is different from a monopoly

answer

because a cartel is made up of multiple firms.

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Oil producing countries can operate as a cartel in all of the following ways except

answer

each country sets its profit maximizing price and quantity.

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Cartels are

answer

illegal in the U.S. for restraining free trade.

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When firms have either an explicit or implicit agreement among themselves to restrict the quantity of product and regulate its price, the arrangement is called a

answer

cartel

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A Nash equilibrium means that in an oligopoly market,

answer

firms choose their own best pricing strategy, given the behavior of other firms in the industry.

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In the kinked-demand curve model, the kink means that

answer

other firms in the industry match all price decreases below the kink.

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In a kinked-demand curve model, the demand curve at prices greater than the kink is _______________, but the curve below the kink is______________.

answer

elastic; inelastic

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The main criticism of the kinked-demand curve model is that it does not explain how firms reach the original price / output at the kink.

answer

question

What would be the result for a firm if its marginal cost curve shifted up within the gap on the marginal revenue curve?

answer

The firm would not change either price or output.

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Which of the following would not be an example of product differentiation?

answer

All of the above are methods of differentiation.

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Advertising by monopolistically competitive firms assumes that

answer

people will pay more for a product they consider superior.

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Which of the following characteristics can be used to differentiate products in a specific market?

answer

advertising

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Product differentiation matters because it is the method by which monopolistically competitive firms

answer

can have some control over their share of the market.

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In the market for pants, there are many sellers. These sellers distinguish themselves from one another and thus

answer

face downward sloping demand curves.

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Product differentiation is a type of

answer

nonprice competition.

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Which of the following is an example of a monopolistically competitive industry?

answer

fast-food hamburger restaurants

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Which of the following is probably not a method of product differentiation.

answer

small number of sellers

question

A monopolistically competitive firm is characterized by high barriers to entry.

answer

question

Product differentiation leads to some degree of market power.

answer

question

Use the graph to answer the question. If this firm is behaving as a firm with some market power, it is experiencing

answer

a loss

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Which of the following will be true of the monopolistic competitor in the long run?

answer

The firm will not make an economic profit because low barriers to entry permit other firms to enter.Explanation:

question

A monopolistically competitive firm behaves somewhat like

answer

monopoly due to their market power.

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For a monopolistically competitive firm, when price equals average total cost, the price must lie above marginal cost.

answer

question

Monopolistically competitive markets are like competitive markets in that they have

answer

many sellers

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In the short run, a monopolistically competitive firm chooses

answer

the quantity to produce and the price at which it can sell the product.

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If firms in a monopolistically competitive market are making short-run economic profits,

answer

new firms are likely to enter the market.

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In the long run, a monopolistic competitor will

answer

earn zero economic profit

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Why will U.S. companies not jointly decide to cease advertising?

answer

It would be collusive and illegal

question

Game theory assumes that your competitor

answer

will react to your actions.

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A monopolistically competitive firm will advertise

answer

whether or not it believes the competitor will advertise.

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In a game of advertising between two monopolistic competitors, the firms choose the most stable outcome because they can enforce the agreement between them.

answer

question

In an advertising "prisoner's dilemma" game, both firms end up __________________ which turns out to be ________________________

answer

advertising; worse for them both

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Derived demand for labor means that when a firm hires labor, it has to derive its demand

answer

from the demand for the product that the labor produces.

question

For a firm in perfect competition, the value of the marginal product is

answer

the price of the product multiplied by the additional output resulting from an additional unit employed.

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A firm that is perfectly competitive will hire labor as long as which of the following is true?

answer

VMP > W.

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The VMP curve slopes downward at some point because

answer

congestion in the work place lowers marginal product.

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Marginal revenue product is the name applied to value of the marginal product when a firm is in a perfectly competitive market.

answer

question

A firm produces 8 TVs with 1 unit of labor, 15 TVs with 2 units of labor, and 21 TVs with 3 units of labor. Its marginal revenue on each TV is $300. This would indicate that the firm

answer

is a price taker (perfectly competitive firm).

question

A firm produces 8 TVs with 1 unit of labor, 15 TVs with 2 units of labor, and 21 TVs with 3 units of labor. Its marginal revenue on each TV is $300. The value of the marginal product of the third unit of labor is

answer

1800

question

Examine the graph below. If the wage rate is $15 per hour, the firm will hire

answer

3 units of labor

1 of 205

question

The competitive firm will not sell at a price lower than the market price because they can sell all they want at the market price.

answer

true

question

A competitive firm cannot sell at a price __________ the market price because __________ will sell at the market price and the original firm will not sell any of its product

answer

above; competition

question

In competition, the firm is a

answer

price taker

question

A firm is in a competitive market when

answer

A and B

unable to influence the price of product

firm takes as given the price of its product set by supply and demand in the market

question

_________ is a type of industry characterized by having only one seller.

answer

monopoly

question

Which of the following is not a barrier to entry for a market that exhibits market power?

answer

perfect competition

question

Monopolistic competition is an industry structure in which

answer

each firm tries to gain market power by slightly diffrentiating a similar product.

question

Under the kinked-demand curve model of oligopoly, you could predict that

answer

both b and c.

if a firm lowers price, other firms do the same

if a fimr raises its price, it acts alone

question

For a perfectly competitive firm, marginal revenue is less than price.

answer

false

question

Which of the following is not an assumption of perfectly competitive markets?

answer

barriers to entry

question

Price-taking firms can charge whatever price they need in order to recover their costs and make a profit.

answer

false

question

Situations of perfect competition possess the steepest possible demand curve.

answer

false

question

Which of the following is an opportunity (implicit) cost?
S

answer

Tom, who could work for another business, works for himself.

question

If explicit costs are $60,000, opportunity costs are $90,000, and accounting profit equals $46,000, then total revenue is _________and economic profit is___________.

answer

$106,000; $16,000

question

Which statement is false?

answer

Monetary payment must be made before a cost is incurred.

question

answer

$35,000

question

answer

$10,000

question

An unrecoverable cost that economists recommend that decision makers ignore in current or future decisions is called a(n) ______________ cost.

answer

sunk

question

Accounting records almost always account for opportunity costs.

answer

false

question

answer

abandon automobile manufacturing and find another product.

question

Economic rent is how ___________ is disbursed.

answer

economic profit

question

At point B, all of the following are true except

answer

P is less than MC.

question

To produce at the profit-maximizing point, the marginal cost curve must be downward sloping at that point.

answer

false

question

The slope of the total revenue curve for a competitive firm is equal to __________, which is equal to __________.

answer

marginal revenue; price

question

The total revenue curve __________ at a __________ rate.

answer

rises; constant

question

Using the graph, at which quantity will the firm maximize its profits?

answer

question

Examine the graph below. At point A,

answer

The correct answer is B: marginal revenue is greater than marginal cost.

question

At the output level at point d, if the firm wants to maximize its profits, it should increase its output.

answer

false

question

The firm adjusts _______________ to the level that ___________________ by comparing marginal revenue and marginal cost.

answer

production, maximizes profit

question

The fact that average revenue equals price is a characteristic of

answer

all profit-maximizing firms.

question

To determine its profitability, a competitive firm must compare its average total cost to the product price.

answer

true

question

Total profit for a firm is

answer

a and c

question

A firm in a competitive industry will try to produce the output level for which

answer

marginal cost equals marginal revenue.

question

What is profit?

answer

Profit is the difference between total cost (TC) and total revenue (TR).

question

Which of the following statements is true in determining the level of output a firm should target to maximize profit (π )?

answer

Profit is maximum when marginal cost (MC) equals price and MC is increasing.

question

Is the following statement true or false? A firm that produces output at the level where marginal cost (MC) equals price and MC is increasing will be profitable (not operating at a loss).

answer

false

question

In 2001, producing widgets cost the firm $100,000. The firm sold the widgets for $125,000. What was the firm's profit or loss?

answer

$25,000

question

Walton's Widget Works, Ltd. produced 10,000 widgets at an average total cost of $5.50, and sold total production at $7.95 per widget. What was the firm's profit?

answer

24,500

question

The competitive firm produces at the output at which the firm's marginal revenue (the product price) equals its marginal cost and at which its marginal cost is decreasing.

answer

false

question

Examine the graph below. If the price for this firm's product is $40, and the firm is maximizing profits, what is the firm's total revenue? Assume that the firm is a price taker.

answer

6000

question

Examine the graph below. If the price for this firm's product is $40, and the firm is maximizing profits, what are the firm's total costs? Assume that the firm is a price taker.

answer

4800

question

Examine the graph below. If the price for this firm's product is $40, and the firm is maximizing profits, what is the firm's profit? Assume that the firm is a price taker.

answer

1200

question

answer

89,300

question

A firm has $12,000 in fixed costs. Its average variable cost (AVC) to produce 10,000 widgets is $1.50. If the price of widgets is $3.95, what is the firm's profit?

answer

12,500

question

As production increases, what happens to the average variable cost (AVC) curve and the average total cost (ATC) curve?

answer

The average variable cost (AVC) curve and the average total cost (ATC) curve approach each other asymptotically.

question

On this graph, what area represents economic profit?

answer

question

Examine the graph below. If the product price is $40, the firm's fixed cost is

answer

1500

question

Examine the graph below. If the product price is $20, the firm's loss is

answer

1500

question

answer

- $10

question

When a firm is not making a profit, what should it do in the short run?

answer

The firm should remain open if the price at least covers average variable cost.

question

A firm has fixed costs of $10,000, and its variable cost to produce 20,000 widgets is $30,000. If the price of widgets is $1.80, which of the following statements is true?

answer

The firm has a loss of $4,000.

question

A firm produces 1,000 widgets. The firm's average variable costs are $5, and its average fixed costs are $2. If the price of widgets is $6, how much is the firm's profit or loss?

answer

$1,000 loss

question

On this graph, which area represents fixed costs?

answer

s/t

question

Many recreation parks shut down because in the off season

answer

off-season revenue cannot cover variable cost.

question

If price is less than average variable cost, a firm, in the short run, will

answer

shut down

question

answer

equal to fixed cost

question

In the short run, if a firm shuts down, the firm's total revenue is equal to

answer

zero

question

When a firm shuts down, it has no costs to cover.

answer

false

question

When a firm is not making a profit, it should always shut down.

answer

false

question

Which of the following statements about a firm's short-run supply (SS) curve is true?

answer

A firm's short-run supply (SS) curve is the same as the firm's marginal cost (MC) curve above the average variable cost (AVC) curve.

question

Producing 50,000 widgets costs the firm $250,000. The marginal cost of the 50,001st widget is $3. The price of widgets is $4. Should the firm shut down?

answer

There is not enough information given to answer the question.

question

A firm that makes widgets has $50,000 in fixed costs. The firm can produce 10,000 widgets at an average total cost of $15. The price of widgets is $12. Should the firm shut down?

answer

No, because continuing to produce (in the short run) allows the firm to minimize losses.

question

answer

$30

question

The portion of a firm's marginal cost curve that is above the average variable cost curve is

answer

the firm's short run supply curve.

question

The short-run market supply curve is

answer

the summation of the short-run supply curves of of all firms in the market.

question

The ____________ firms there are in the market, the ____________ the market supply curve.

answer

more; smoother

question

If the price for a product falls below the lowest minimum marginal cost of all firms producing that product, which of the following statements is true?

answer

All firms producing that product will shut down.

question

Which of the following is not an assumption of the short-run market supply (SS) curve in a competitve market?

answer

There are very few firms producing the product.

question

Which of the following statements about the short-run market supply (SS) curve is not true?

answer

The short run market supply (SS) curve is applicable only to monopolistic firms.

question

When will the short-run market supply (SS) curve not exist?

answer

The short-run market supply (SS) curve will not exist when the price of the product falls below the lowest minimum marginal cost of all of the firms.

question

If a firm in a competitive market sees an increase in market demand and makes a short-run profit, it responds to the the profit by increasing output.

answer

true

question

Examine the graph below. If the market price for this firm's product increases from $20 to $40, the firm will produce

answer

150 units

question

Examine the graph below. If the price falls from $40 to $30, the firm has an incentive to

answer

decrease prod to 125 units

question

In a perfectly competitive marketplace, the firm determines the price it charges for its product.

answer

false

question

How do firms respond to changes in price?

answer

all of the above

question

If the demand for a product increases, what happens to the price?

answer

price increases

question

What will firms do when demand for a product increases?

answer

Firms will hire additional workers, even if the additional workers result in a decrease in productivity

question

Which of the following statements about economic profit is true?

answer

Opportunity costs are included in economic profit.

question

Using the graph, the long run supply curve is identified as

answer

question

Using the graph, which curve represents the long run supply?

answer

question

Examine the graph, what type of industry is this?

answer

constant cost

question

Using the graph, what type of industry is this?

answer

increasing cost

question

Firms produce efficiently in the long run by

answer

producing at the minimum of LRAC.

question

In the long run, a firm in a competive market will operate at

answer

at its point of efficient scale.Explanation

question

When firms in a competitive industry earn accounting profits, other firms will enter that industry, in the long run.

answer

false

question

Use the graph to answer this question. Suppose the price of the product increases to p1. In the short run, the firm will produce quantity

answer

question

In the graph, area abcd represents a perfectly competitive firm's

answer

long-run total revenue.

question

Use the graph to answer the question. Point c represents the

answer

all of the above.

question

Examine the graph below. After a price increase to p1, the firm would like to increase output to

answer

question

A natural monopoly arises because of the interaction between the __________ of the market and the __________ scale of operation of a single firm.

answer

size; efficient

question

Market power exists when a firm is

answer

all of the above

question

A monopoly is a single seller of a good or service.

answer

true

question

All of the following are examples of how monopolies are created except

answer

profitability

question

Which of the following is a a good example of a monopoly?

answer

a local electric power company

question

If one company is a single seller of a good and is earning economic profits, what prevents other firms from entering the market and competing with the firm?

answer

high barriers to entry

question

A natural monopoly exists when

answer

economies of scale are so large that only one firm can survive and achieve low unit cost.

question

Monopolists always require government protection to maintain their monopoly position.

answer

false

question

For a profit-maximizing monopoly, when total revenue is maximized, marginal revenue is zero.

answer

true

question

Marginal revenue is equal to the

answer

change in total revenue ÷change in quantity sold.

question

Marginal revenue is always less than price for a competitive firm.

answer

false

question

Examine the graph of a monopolist's market. The __________ curve is always downward sloping because price and quantity are _____________ related.

answer

demand; inversely

question

Which of the following statements about marginal revenue is true?

answer

Marginal revenue (MR) is always less than the price.

question

For a firm with market power, marginal revenue (MR) equals price.

answer

false

question

A monopolist can sell 20 widgets at $25 each. In order to sell 21 widgets, the firm must lower the price to $23. What happens to marginal revenue?

answer

The marginal revenue (MR) would be −$17.

question

Which of the statements concerning a monopolist's revenue is not always true?

answer

Total revenue increases with each additional unit of output.

question

If the total revenue (TR) that a monopolist earns for 50 widgets is $20,000 and the marginal revenue (MR) for selling 51 widgets is $145, what is the average revenue (AR) for 51 widgets?

answer

395

question

What is the profit maximizing point for both firms in competition and in a monopoly?

answer

mr = mc

question

A monopolist is constrained by marginal revenue in setting price.

answer

question

To maximize revenue, a monopolist prices its product at the point where ___________ is equal to zero.

answer

question

For a monopolist, maximizing revenue is the same as maximizing profit.

answer

question

Examine the graph below. This monopolist is maximizing profits at

answer

Q1 and charging a price of P1.

question

For a monopolist, marginal revenue is

answer

less than the product's price.

question

The demand curve facing a monopolist is the same as the one facing every other firm in the industry.

answer

question

By following the profit maximizing rule, a monopolist

answer

maximizes its profit (or minimizes its losses).

question

At which level of output would a monopolist produce to maximize profit?

answer

The monopolist maximizes profit by producing at the level of output where marginal revenue (MR) equals marginal cost (MC).

question

For a monopolist, which of the following statements about marginal revenue is true?

answer

For a monopolist, marginal revenue depends on the elasticity of the demand curve.

question

A monopolist maximizes profit by maximizing price.

answer

question

For a monopolist, profit maximization occurs at the output where marginal revenue is equal to marginal cost.

answer

question

In a competitive market, a change in the price of the product

answer

will cause movement along the short run MC curve.

question

In a competitive market, if firms are required to put safety latches on tool boxes to meet government regulations, their costs increase. It is likely that

answer

the market supply curve shifts to the left.

question

If a firm's marginal product of of labor increases, its marginal cost must also increase.

answer

question

Examine the graph below. The firm's profit is

answer

750

question

A monopolist calculates its profit by multiplying the quantity of output by average revenue minus average cost.

answer

question

If a monopolist sells 100 units for $10 per unit and has an average cost of $8 per unit, what is the firm's total cost?

answer

800

question

If a monopolist sells 100 units for $10 per unit and has an average cost of $8 per unit, what is the firm's total revenue?

answer

1000

question

Is the following statement true or false? A monopolist will always be able to operate at a profit.

answer

question

Which of these statements about the marginal cost (MC) curve and average total cost (ATC) curve is true?

answer

For a monopolist, the average total cost (ATC) curve is decreasing when it is above the marginal cost (MC) curve and is increasing when it is below the marginal cost (MC) curve.

question

If a monopolist firm has an inelastic demand curve, it can increase its price and expect a more than proportionate increase in revenue.

answer

question

Examine the demand curve for a monopolist below. If the monopolist decreases the price of the product from P2 to P1, the area ______________ represents the firm's additional revenue.

answer

ABFG

question

Examine the graph below. If the firm decreases the product price from P2 to P1, area ____________ represents the firm's lost revenue.

answer

EDCB

question

Which of the following statements about elasticity is true?

answer

Elasticity changes as the quantity demanded changes.

question

If reducing the price of a product from $20 to $18 results in an increase in sales from 100 units to 106 units, what is the product's elasticity of demand?

answer

0.6

question

A firm with market power faces a demand curve with constant elasticity.

answer

question

Which of these statements is true about a firm with market power?

answer

If a firm with market power faces an elastic demand curve, a small change in price results in positive marginal revenue.

question

All of the following are reasons some monopolies are legal in the U.S. except

answer

increasing availability of jobs.

question

Which of the following effects is not created by a monopoly?

answer

an increase in innovation

question

A monopolist's price is _______ and output is ______ than perfect competition.

answer

greater; less

question

A monopolist is not as good for society as a perfectly competitive firm because

answer

output is lower and price is higher than under competition.

question

Monopolies create a social cost because consumers who may be willing to pay for the product up to its marginal cost are not served.

answer

question

Monopoly pricing blocks some trades from taking place. These trades would have taken place if the industry were perfectly competitive. These unrealized trades are

answer

a deadweight loss to society.

question

The main problem with monopolies is their ability to

answer

restrict output to level below the socially efficient level.

question

Monopolists set the price of their products on the demand curve at the output level where the supply curve intersects the marginal revenue curve.

answer

question

Use the graph to answer the question. If the graph is a market for a monopoly, which area represents the consumer surplus?

answer

question

Use the graph to answer the question. Which area represents the deadweight loss in a monopoly?

answer

question

Deadweight loss compares

answer

monopoly surplus to competitive surplus.

question

Use the graph to answer the question. Which letter represents the profit-maximizing output in a monopoly?

answer

question

Examine the graph below. The areas of deadweight loss are

answer

e/f

question

The following are all examples of rent-seeking practices except

answer

increasing the monthly rental rate for tenants in a building.

question

Average cost pricing

answer

allows the monopolist to cover per-unit costs.

question

The economic problem with a monopoly is

answer

price high qty low

question

Which of the following is a serious problem associated with breaking up a monopoly?

answer

Economies of scale may be disrupted.

question

All of the following may be methods of regulating a monopoly, except

answer

restricting quantity sold.

question

Governments sometimes force monopolies to set their price at their average cost. The main problem with this regulatory pricing method is that

answer

there is no incentive for a monopolist to lower its costs.

question

One method of government regulation of monopolies is to require the firm to price the product at its marginal cost and produce at the competitive output level. The problem with this scheme is

answer

the monopolist may have economic losses and exit the industry.

question

For natural monopolies, average total cost falls continuously and never begins to increase. Therefore, marginal cost

answer

is always less than average total cost.

question

If a regulated monopolist has a loss when the government forces it to price at its marginal cost,

answer

the government should subsidize the firm.

question

When regulators consider ways to regulate monopolies, they should choose to set price and output where marginal cost equals demand, thus maximizing social value.

answer

question

One of the paradoxes of game theory is that the players' "dominant strategy"

answer

is not necessarily the most efficient outcome

question

What do oligopolies and perfectly competitive firms have in common?

answer

the rule of profit maximization

question

An oligopoly assumes

answer

each firm will react to its competitor's price decreases.

question

An outcome of the prisoner's dilemma in which each player does the best that he / she can do, given what the other players are doing is known as a

answer

nash equilibrium

question

The prisoner's dilemma game does not explain _____________________ markets, but is useful in explaining behavior in ________________ markets.

answer

competitive, oligopoly

question

One of the main characteristics of an oligopoly is firms' complete independence from one another.

answer

question

Which of the following would hinder the success of a cartel?

answer

low barriers to entry

question

Which of the following is not a problem associated with cartels?

answer

higher production costs

question

A cartel is different from a monopoly

answer

because a cartel is made up of multiple firms.

question

Oil producing countries can operate as a cartel in all of the following ways except

answer

each country sets its profit maximizing price and quantity.

question

Cartels are

answer

illegal in the U.S. for restraining free trade.

question

When firms have either an explicit or implicit agreement among themselves to restrict the quantity of product and regulate its price, the arrangement is called a

answer

cartel

question

A Nash equilibrium means that in an oligopoly market,

answer

firms choose their own best pricing strategy, given the behavior of other firms in the industry.

question

In the kinked-demand curve model, the kink means that

answer

other firms in the industry match all price decreases below the kink.

question

In a kinked-demand curve model, the demand curve at prices greater than the kink is _______________, but the curve below the kink is______________.

answer

elastic; inelastic

question

The main criticism of the kinked-demand curve model is that it does not explain how firms reach the original price / output at the kink.

answer

question

What would be the result for a firm if its marginal cost curve shifted up within the gap on the marginal revenue curve?

answer

The firm would not change either price or output.

question

Which of the following would not be an example of product differentiation?

answer

All of the above are methods of differentiation.

question

Advertising by monopolistically competitive firms assumes that

answer

people will pay more for a product they consider superior.

question

Which of the following characteristics can be used to differentiate products in a specific market?

answer

advertising

question

Product differentiation matters because it is the method by which monopolistically competitive firms

answer

can have some control over their share of the market.

question

In the market for pants, there are many sellers. These sellers distinguish themselves from one another and thus

answer

face downward sloping demand curves.

question

Product differentiation is a type of

answer

nonprice competition.

question

Which of the following is an example of a monopolistically competitive industry?

answer

fast-food hamburger restaurants

question

Which of the following is probably not a method of product differentiation.

answer

small number of sellers

question

A monopolistically competitive firm is characterized by high barriers to entry.

answer

question

Product differentiation leads to some degree of market power.

answer

question

Use the graph to answer the question. If this firm is behaving as a firm with some market power, it is experiencing

answer

a loss

question

Which of the following will be true of the monopolistic competitor in the long run?

answer

The firm will not make an economic profit because low barriers to entry permit other firms to enter.Explanation:

question

A monopolistically competitive firm behaves somewhat like

answer

monopoly due to their market power.

question

For a monopolistically competitive firm, when price equals average total cost, the price must lie above marginal cost.

answer

question

Monopolistically competitive markets are like competitive markets in that they have

answer

many sellers

question

In the short run, a monopolistically competitive firm chooses

answer

the quantity to produce and the price at which it can sell the product.

question

If firms in a monopolistically competitive market are making short-run economic profits,

answer

new firms are likely to enter the market.

question

In the long run, a monopolistic competitor will

answer

earn zero economic profit

question

Why will U.S. companies not jointly decide to cease advertising?

answer

It would be collusive and illegal

question

Game theory assumes that your competitor

answer

will react to your actions.

question

A monopolistically competitive firm will advertise

answer

whether or not it believes the competitor will advertise.

question

In a game of advertising between two monopolistic competitors, the firms choose the most stable outcome because they can enforce the agreement between them.

answer

question

In an advertising "prisoner's dilemma" game, both firms end up __________________ which turns out to be ________________________

answer

advertising; worse for them both

question

Derived demand for labor means that when a firm hires labor, it has to derive its demand

answer

from the demand for the product that the labor produces.

question

For a firm in perfect competition, the value of the marginal product is

answer

the price of the product multiplied by the additional output resulting from an additional unit employed.

question

A firm that is perfectly competitive will hire labor as long as which of the following is true?

answer

VMP > W.

question

The VMP curve slopes downward at some point because

answer

congestion in the work place lowers marginal product.

question

Marginal revenue product is the name applied to value of the marginal product when a firm is in a perfectly competitive market.

answer

question

A firm produces 8 TVs with 1 unit of labor, 15 TVs with 2 units of labor, and 21 TVs with 3 units of labor. Its marginal revenue on each TV is $300. This would indicate that the firm

answer

is a price taker (perfectly competitive firm).

question

answer

1800

question

Examine the graph below. If the wage rate is $15 per hour, the firm will hire

answer

3 units of labor

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