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# COMM 172 – MC Qs

question
when an industry's raw material costs increase,
the supply curve shifts to the left.
question
in a regression analysis, the dependent variable is...
the variable whose variations are to be explained
question
If two variables B and V are negatively correlated, B ...... when V .....
goes up, goes down
question
The law of diminishing returns assumes that
there is at least one fixed input
question
In a certain textile firm, labor is the only short term variable input. The manager notices that the marginal product of labor is the same for each unit of labor, which implies that
the average product of labor is always equal to the marginal product of labor.
question
A firm's marginal product of labor is 4 and its marginal product of capital is 5. If the firm adds one unit of labor, but does not want its output quantity to change, the firm should
use 0.8 fewer units of capital.
( 1u of L, output increases by 4, but want output to stay constant, so must reduce K by 4. for each 1 u in , output falls by 5 so 5/4 = 0.8)
question
Which cost does always increase as output increases?
Total cost and variable cost (VC depends on output and TC depends on VC)
question
The elasticity of demand is the same as the slope of the linear demand curve. True or false? Explain
FALSE. The elasticity of demand takes the slope of the demand curve and a particular point and multiplies the two. Elasticity uses % while demand uses changes in units.
question
The supply of apartments is more inelastic in the short run than the long run. True or false? Explain
TRUE. Apartments cannot be easily built to support short-run demand. Whereas in the long-run, supply elasticity increases.
question
Suppose that unusually hot weather causes the demand curve for ice cream to shift to the right. Why will the price of ice cream rise to a new market-clearing level?
With the demand shifting right, a new equilibrium point will be established where S=D, which would be at a higher price since suppliers must supply more.
question
Along any downward sloping straight-line demand curve:
the price elasticity varies, but the slope is constant.
question
Along any constant elasticity of demand curve:
the slope varies, but the price elasticity is constant.
question
inelastic when Ed =
0
question
A manager reduced the price on a Samsung tablet by 5% and observed a 10% increase in quantity sold. This implies that if the price were reduced by another 10%, quantity sold would rise by 20%. True or false? Explain.
FALSE. price elasticity depends on a single point so it may vary with different prices on the demand curve. However, this is true for constant elasticity.
question
You estimated the following linear demand function: QA = 20 − 2PA + 3PB, where all coefficients are statistically significant at the 1% level. You can conclude on the basis of the regression results that the products A and B are substitutes and the cross price elasticity of demand equals 3. True or false? Explain.
FALSE. yes they are subs, but the cross price elasticity depends on a particular pt since it is a linear demand fnc, so it is not always 3.
question
You estimated the following linear demand function: ln QA = 20−2 ln PA + 3 ln PB, where all coefficients are statistically significant at the 1% level. You can conclude on the basis of the regression results that the products A and B are substitutes and the cross price elasticity of demand equals 3. True or false? Explain
TRUE. since this is a constant elasticity of demand fnc, the cross price elasticity stays constant.
question
the short run is
a time period in which at least one input is fixed.
question
The average total cost to produce 100 cookies is \$0.25 per cookie. The marginal cost is constant at \$0.10 for all cookies produced. For 100 cookies, the ATC is...
falling (when there is FC, ATC is falling b/c you spread FC over more quantity)
question
The total cost of producing a given level of output is
minimized when the ratio of marginal product to input price is equal
question
A firm employs 100 workers at a wage rate of \$10 per hour, and 50 units of capital at a rate of \$20 per hour. The marginal product of labor is 3, and the marginal product of capital is 5. The firm
could reduce the cost of producing its current output level by employing more labor and less capital.
question
At the profit-maximizing level of output, what is true of the total revenue (TR) and total cost (TC) curves?
they must have the same slope
question
If current output is less than the profit-maximizing output, then the next unit produced
will increase revenue more than it increases cost.
question
The demand curve facing a perfectly competitive firm is
perfectly horizontal.
question
Marginal profit is negative when:
output exceeds the profit-maximizing level.
question
When the price faced by a competitive firm was \$5, the firm produced nothing in the short run. However, when the price rose to \$10, the firm produced 100 tons of output. From this we can infer that
the minimum value of the firm's average variable cost lies between \$5 and \$10.
question
Two soft-drink firms, Fizzle & Sizzle, operate on a river. Fizzle is farther upstream, and gets cleaner water, so its cost of purifying water for use in the soft drinks is lower than Sizzle's by \$500,000 yearly. If Fizzle & Sizzle sell the same output at the same price and are otherwise identical, Fizzle's economic profit will be
the same as Sizzle's, because Fizzle must be assigned an implicit cost of \$500,000 yearly for economic rent.
question
The supply curve for a competitive firm is
its MC curve above the minimum point of the AVC curve.
question
Short-run supply curves for perfectly competitive firms tend to be upward sloping because:
(a) there is diminishing marginal product for one or more variable inputs. (b) marginal costs increase as output increases
question
In long-run competitive equilibrium, a firm that owns factors of production will have an
economic profit = 0 and accounting profit > 0.
question
You are an employer seeking to fill a vacant position on an assembly line. If you observe that your average product is just beginning to decline, you should not hire any more workers. True or false? Explain
FALSE. you should continue hiring until marginal product of labour = marginal cost of labour.
question
The hold-up problem leads to an inefficient outcome when the amount of relationship specific investment (RSI) is reduced due to the possibility of the hold-up. True or false?
TRUE. if the amount of RSI is reduced due to the possibility of hold-up, then the joint surplus will be reduced.
question
Which of the following is true at the output level where P = MC?
The monopolist is not maximizing profit and should decrease output
question
At the profit-maximizing level of output, demand is
(d) elastic, but not infinitely elastic.
question
The ... elastic a firm's demand curve, the greater its ...
less; monopoly power
question
What happens to an incumbent firm's demand curve in monopolistic competition as new firms enter?
(b) It shifts left.
question
Although firms earn zero profits in the long run, why is the outcome from monopolistic competition considered to be inefficient?
(a) Price exceeds marginal cost.
(b) Quantity is lower than the perfectly competitive outcome.
question
The authors cited statistical evidence that the price elasticity of demand for Royal Crown cola is 2.4, and the price elasticity of demand for Coke is roughly 5.5. Which firm likely has stronger brand loyalty among customers that provides greater potential for market power in the cola market?
(b) Royal Crown
question
What condition may provide for a relatively small degree of inefficiency under monopolistic competition?
The demand curve is relatively elastic so that the price is near the long-run minimum average cost
question
A monopolist faces a demand with constant elasticity, has a constant MC, and sets a price to maximize profit. If MC increases by 5%, the price charged will rise by more than 5%. True or false? Explain.
FALSE. according to the rule of thumb for pricing, if MC increase by 5%, then P will equally increase by 5%.
question
If a single-price monopolist produces on the elastic portion of its demand curve, the monopolist's profits could always be increased by reducing price. True or false? Explain.
FALSE. the monopolist's profits could only be increased by reducing price ONLY IF MR > MC. A reduction in price will lead to an increase in quantity. TR will rise but so will TC. profits will rise only if TR > TC.
question
Why might a firm have market power even if it is not the only producer in the market?
If its product is differentiated fro other firms' products and if some consumers prefer its product to other firms' products.
1 of 41
question
when an industry's raw material costs increase,
the supply curve shifts to the left.
question
in a regression analysis, the dependent variable is...
the variable whose variations are to be explained
question
If two variables B and V are negatively correlated, B ...... when V .....
goes up, goes down
question
The law of diminishing returns assumes that
there is at least one fixed input
question
In a certain textile firm, labor is the only short term variable input. The manager notices that the marginal product of labor is the same for each unit of labor, which implies that
the average product of labor is always equal to the marginal product of labor.
question
A firm's marginal product of labor is 4 and its marginal product of capital is 5. If the firm adds one unit of labor, but does not want its output quantity to change, the firm should
use 0.8 fewer units of capital.
( 1u of L, output increases by 4, but want output to stay constant, so must reduce K by 4. for each 1 u in , output falls by 5 so 5/4 = 0.8)
question
Which cost does always increase as output increases?
Total cost and variable cost (VC depends on output and TC depends on VC)
question
The elasticity of demand is the same as the slope of the linear demand curve. True or false? Explain
FALSE. The elasticity of demand takes the slope of the demand curve and a particular point and multiplies the two. Elasticity uses % while demand uses changes in units.
question
The supply of apartments is more inelastic in the short run than the long run. True or false? Explain
TRUE. Apartments cannot be easily built to support short-run demand. Whereas in the long-run, supply elasticity increases.
question
Suppose that unusually hot weather causes the demand curve for ice cream to shift to the right. Why will the price of ice cream rise to a new market-clearing level?
With the demand shifting right, a new equilibrium point will be established where S=D, which would be at a higher price since suppliers must supply more.
question
Along any downward sloping straight-line demand curve:
the price elasticity varies, but the slope is constant.
question
Along any constant elasticity of demand curve:
the slope varies, but the price elasticity is constant.
question
inelastic when Ed =
0
question
A manager reduced the price on a Samsung tablet by 5% and observed a 10% increase in quantity sold. This implies that if the price were reduced by another 10%, quantity sold would rise by 20%. True or false? Explain.
FALSE. price elasticity depends on a single point so it may vary with different prices on the demand curve. However, this is true for constant elasticity.
question
You estimated the following linear demand function: QA = 20 − 2PA + 3PB, where all coefficients are statistically significant at the 1% level. You can conclude on the basis of the regression results that the products A and B are substitutes and the cross price elasticity of demand equals 3. True or false? Explain.
FALSE. yes they are subs, but the cross price elasticity depends on a particular pt since it is a linear demand fnc, so it is not always 3.
question
You estimated the following linear demand function: ln QA = 20−2 ln PA + 3 ln PB, where all coefficients are statistically significant at the 1% level. You can conclude on the basis of the regression results that the products A and B are substitutes and the cross price elasticity of demand equals 3. True or false? Explain
TRUE. since this is a constant elasticity of demand fnc, the cross price elasticity stays constant.
question
the short run is
a time period in which at least one input is fixed.
question
The average total cost to produce 100 cookies is \$0.25 per cookie. The marginal cost is constant at \$0.10 for all cookies produced. For 100 cookies, the ATC is...
falling (when there is FC, ATC is falling b/c you spread FC over more quantity)
question
The total cost of producing a given level of output is
minimized when the ratio of marginal product to input price is equal
question
A firm employs 100 workers at a wage rate of \$10 per hour, and 50 units of capital at a rate of \$20 per hour. The marginal product of labor is 3, and the marginal product of capital is 5. The firm
could reduce the cost of producing its current output level by employing more labor and less capital.
question
At the profit-maximizing level of output, what is true of the total revenue (TR) and total cost (TC) curves?
they must have the same slope
question
If current output is less than the profit-maximizing output, then the next unit produced
will increase revenue more than it increases cost.
question
The demand curve facing a perfectly competitive firm is
perfectly horizontal.
question
Marginal profit is negative when:
output exceeds the profit-maximizing level.
question
When the price faced by a competitive firm was \$5, the firm produced nothing in the short run. However, when the price rose to \$10, the firm produced 100 tons of output. From this we can infer that
the minimum value of the firm's average variable cost lies between \$5 and \$10.
question
Two soft-drink firms, Fizzle & Sizzle, operate on a river. Fizzle is farther upstream, and gets cleaner water, so its cost of purifying water for use in the soft drinks is lower than Sizzle's by \$500,000 yearly. If Fizzle & Sizzle sell the same output at the same price and are otherwise identical, Fizzle's economic profit will be
the same as Sizzle's, because Fizzle must be assigned an implicit cost of \$500,000 yearly for economic rent.
question
The supply curve for a competitive firm is
its MC curve above the minimum point of the AVC curve.
question
Short-run supply curves for perfectly competitive firms tend to be upward sloping because:
(a) there is diminishing marginal product for one or more variable inputs. (b) marginal costs increase as output increases
question
In long-run competitive equilibrium, a firm that owns factors of production will have an
economic profit = 0 and accounting profit > 0.
question
You are an employer seeking to fill a vacant position on an assembly line. If you observe that your average product is just beginning to decline, you should not hire any more workers. True or false? Explain
FALSE. you should continue hiring until marginal product of labour = marginal cost of labour.
question
The hold-up problem leads to an inefficient outcome when the amount of relationship specific investment (RSI) is reduced due to the possibility of the hold-up. True or false?
TRUE. if the amount of RSI is reduced due to the possibility of hold-up, then the joint surplus will be reduced.
question
Which of the following is true at the output level where P = MC?
The monopolist is not maximizing profit and should decrease output
question
At the profit-maximizing level of output, demand is
(d) elastic, but not infinitely elastic.
question
The ... elastic a firm's demand curve, the greater its ...
less; monopoly power
question
What happens to an incumbent firm's demand curve in monopolistic competition as new firms enter?
(b) It shifts left.
question
Although firms earn zero profits in the long run, why is the outcome from monopolistic competition considered to be inefficient?
(a) Price exceeds marginal cost.
(b) Quantity is lower than the perfectly competitive outcome.
question
The authors cited statistical evidence that the price elasticity of demand for Royal Crown cola is 2.4, and the price elasticity of demand for Coke is roughly 5.5. Which firm likely has stronger brand loyalty among customers that provides greater potential for market power in the cola market?
(b) Royal Crown
question
What condition may provide for a relatively small degree of inefficiency under monopolistic competition?
The demand curve is relatively elastic so that the price is near the long-run minimum average cost
question
A monopolist faces a demand with constant elasticity, has a constant MC, and sets a price to maximize profit. If MC increases by 5%, the price charged will rise by more than 5%. True or false? Explain.
FALSE. according to the rule of thumb for pricing, if MC increase by 5%, then P will equally increase by 5%.
question
If a single-price monopolist produces on the elastic portion of its demand curve, the monopolist's profits could always be increased by reducing price. True or false? Explain.
FALSE. the monopolist's profits could only be increased by reducing price ONLY IF MR > MC. A reduction in price will lead to an increase in quantity. TR will rise but so will TC. profits will rise only if TR > TC.
question
Why might a firm have market power even if it is not the only producer in the market?
If its product is differentiated fro other firms' products and if some consumers prefer its product to other firms' products.

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