EC 110 – Exam 3 SG

question

Monopolistic competition differs from perfect competition because in monopolistically competitive markets

answer

each of the sellers offers a somewhat different product

question

Unlike a perfectly competitive market, a monopoly creates a deadweight loss because it _______ .

answer

produces a lower output and charges a higher price

question

Why would a perfectly competitive firm continue to operate if their economic profit is 0 in the long run?

answer

Because the firm is earning enough to cover all total costs and their accounting profit is positive.

question

When a university price discriminates by offering need based financial aid to low income students, the university is discriminating based on the low income student's

answer

willingness to pay for a college education

question

Perfectly competitive firms maximize profits when ______ .

answer

marginal cost equals price.

question

Diminishing marginal product of labor holds that

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output per additional worker declines as more workers are hired

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The slope of the production function is also equal to

answer

the marginal product of labor.

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Now, using the information that the market for MP3 players is perfectly competitive and the diagram above of a perfectly competitive firm, Apple, answer the following questions 8, 9, and 10.
If the market for MP3 players is perfectly competitive and given the market price of s200, how many MP3 Players does Apple produce?

answer

question

What is the profit or loss Apple earns at the level of output you determined in Question 8?

answer

$3000

question

Based on the results in Question 9, in the long run, the following will happen to this market:

answer

Firms will enter the market which will cause the supply curve for MP3 players to shift to the right, which, in turn, causes price to fall and economic profit to fall to 0.

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output increases in the short run, average fixed costs:

answer

fall

question

Diseconomies of scale occur in the long run when:

answer

average total costs rise as output increases

question

In a perfectly competitive market, one farmer's wheat is

answer

is identical or the same as another farmer's wheat

question

Which of the following is true in the long-run equilibrium under perfect competition?

answer

Economic profit is zero because price equals the minimum of ATC.

question

The long-run supply curve for a firm in a perfectly competitive market

answer

is the portion of its marginal cost curve that lies above its average total cost.

question

Suppose that a perfectly competitive market is in the short-run with firms earning economic losses. Then in the long run, firms will ______ which causes ______ .

answer

right. exit the market, the market supply curve to shift to the left.

question

Which of the following is not a barrier to entry?

answer

Circle K's the only gas station in a small rural town in Alabama.

question

For a profit maximizing monopolistically competitive firm, (P stands for Price in the question)

answer

P > MC and this is called a markup.

question

Marginal costs tell us

answer

the amount total cost changes when output changes by one unit

question

For a monopoly, why is marginal revenue less than price?

answer

To sell more units of output, the price must be lowered.

question

The above graph represents the Harold's Hamburger Haven, the only hamburger restaurant in Tuscaloosa. Using the figure above, answer the following questions, 21, 22, and 23.

Based on the above diagram, what is Harold's profit maximizing level of output and price?

answer

50 and $7

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(22) Based on the above diagram, what is Harold's total costs at the profit maximizing level of output?

answer

$250

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(23) Given the quantity and price you obtained, what is the profit or loss Harold's receives? $100

answer

$100

question

Since a monopolistically competitive firm's product has many close ________ , the elasticity for the monopolistically competitive firm's product is _______ .

answer

substitutes: elastic.

question

Tom's Coffee House operates in a perfectly competitive market. Tom produces 100 cups of coffee at the point where MC equals MR and each cup of coffee sells for $2 each. If Tom's average fixed costs is $1 and his average variable costs is $1.20 for each cup of coffee, then

answer

Tom is incurring a loss of-$20 and, in the short run, Tom will stay open and continue to sell coffee.

question

For a monopoly firm, the quantity of output does not depend on the price because

answer

the monopoly's quantity and price are jointly determined by MC and MR and the demand curve.

question

Perfectly competitive firms have

answer

horizontal demand curves and they can sell as much output as they want at the market price

question

The long run is a time period that is

answer

when all of the firm's inputs are variable

question

Monopolistic competition is similar to perfect competition because _______ , and also similar to a monopoly because __________ .

answer

there are no barriers to entry, marginal revenue is less than price

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If average total costs are declining, marginal cost must be

answer

less than average total cost.

question

The following table represents the cost information for Levi Inc, which operates in a perfectly competitive market, producing and selling jeans. Use this table to answer the following questions 31, 32, 33, 34. (Creating columns for the additional costs will help you answer the following questions.)
What is the average total cost for the 5 th pair of jeans?

answer

$44

question

(32) What is the marginal cost of the 3rd pair of jeans?

answer

$40

question

(33) If the current market price of a pair of Levi jeans is S70, how many pairs of jeans should Levi Inc produce?

answer

5 pairs

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(34) What is the profit for the level of output determined in question 33?

answer

$130

question

A perfectly competitive firm will continue to operate in the short run when the market price is below its average total cost if the

answer

price is greater than the minimum average variable cost

question

Average total costs cost is generally U-shaped because

answer

average fixed costs are declining pulling ATC downward and average variable costs are rising pulling ATC upward

question

If a perfectly competitive firm produces 70 units of a good and has marginal revenue of $9.00, what is the firm's total revenue?

answer

$630

question

Based on the table above, the marginal product of labor for the second worker is

answer

25 units

question

(39) Based on the table above, diminishing marginal product of labor begins with the addition of the

answer

third worker

question

The Roller Coaster Corporation of America has fixed costs of $100,000 per year. The firm's average variable cost is $10 for 10,000 roller coaster wheels produced. At that level of output, the firm's average total costs equal

answer

$20

question

A fishing vessel sells the Alaskan king crab it catches in a perfectly competitive market at the going market price of $15.00 a pound, At 10,000 pounds of king crab, the boat's average total cost is $10.00 per pound, its marginal cost is $15.00 per pound, and its average variable cost is $8.75 per pound. Based on this, the fishing vessel should

answer

maintain its current level of output.

question

When calculating a firm's profit, an economist will subtract

answer

both the explicit and implicit costs from total revenue because these include the costs that require a direct monetary payment by the firm and the opportunity costs of the firm.

question

To determine whether a perfectly competitive firm is earning an economic profit at a particular level of output, we compare price with:

answer

average total cost

question

Bruno Mars is opening his own locksmith shop called "You Make Feel Like I've Been Locked Out of my House". He spends $6,000 to purchase locksmith tools and equipment, $2,000 on rent and utilities, and $5000 on transportation to make service calls. If Bruno had not opened his own shop, he could have earned a salary of $45,000 as a professional grenade catcher. In his first year, his revenues were $37,000. Which of the following statements is correct?

answer

Bruno's accounting profit is $24,000.

question

Which of the following is correct for both a monopoly and a perfectly competitive firm?

answer

The firm maximizes profit by equating marginal revenue with marginal cost.

question

The defining characteristic of a natural monopoly is

answer

the natural monopoly has falling ATC over the relevant range of output.

question

Which of the following costs is positive when output is zero?

answer

fixed costs

question

An example of an explicit cost of production would be the

answer

lease payments for the delivery trucks

question

Which of the following is an argument for advertising by monopolistically competitive firms?

answer

Advertising provides useful information to consumers, which allows the consumer to have some market power.

question

If firms in a monopolistically competitive market are earning positive economic profits in the short run, then

answer

new firms will enter the market in the long run and the demand curve for the existing firms will shift to the left, causing prices to fall and economic profit to fall to 0.

1 of 50

question

Monopolistic competition differs from perfect competition because in monopolistically competitive markets

answer

each of the sellers offers a somewhat different product

question

Unlike a perfectly competitive market, a monopoly creates a deadweight loss because it _______ .

answer

produces a lower output and charges a higher price

question

Why would a perfectly competitive firm continue to operate if their economic profit is 0 in the long run?

answer

Because the firm is earning enough to cover all total costs and their accounting profit is positive.

question

When a university price discriminates by offering need based financial aid to low income students, the university is discriminating based on the low income student's

answer

willingness to pay for a college education

question

Perfectly competitive firms maximize profits when ______ .

answer

marginal cost equals price.

question

Diminishing marginal product of labor holds that

answer

output per additional worker declines as more workers are hired

question

The slope of the production function is also equal to

answer

the marginal product of labor.

question

answer

question

What is the profit or loss Apple earns at the level of output you determined in Question 8?

answer

$3000

question

Based on the results in Question 9, in the long run, the following will happen to this market:

answer

Firms will enter the market which will cause the supply curve for MP3 players to shift to the right, which, in turn, causes price to fall and economic profit to fall to 0.

question

output increases in the short run, average fixed costs:

answer

fall

question

Diseconomies of scale occur in the long run when:

answer

average total costs rise as output increases

question

In a perfectly competitive market, one farmer's wheat is

answer

is identical or the same as another farmer's wheat

question

Which of the following is true in the long-run equilibrium under perfect competition?

answer

Economic profit is zero because price equals the minimum of ATC.

question

The long-run supply curve for a firm in a perfectly competitive market

answer

is the portion of its marginal cost curve that lies above its average total cost.

question

Suppose that a perfectly competitive market is in the short-run with firms earning economic losses. Then in the long run, firms will ______ which causes ______ .

answer

right. exit the market, the market supply curve to shift to the left.

question

Which of the following is not a barrier to entry?

answer

Circle K's the only gas station in a small rural town in Alabama.

question

For a profit maximizing monopolistically competitive firm, (P stands for Price in the question)

answer

P > MC and this is called a markup.

question

Marginal costs tell us

answer

the amount total cost changes when output changes by one unit

question

For a monopoly, why is marginal revenue less than price?

answer

To sell more units of output, the price must be lowered.

question

answer

50 and $7

question

(22) Based on the above diagram, what is Harold's total costs at the profit maximizing level of output?

answer

$250

question

(23) Given the quantity and price you obtained, what is the profit or loss Harold's receives? $100

answer

$100

question

Since a monopolistically competitive firm's product has many close ________ , the elasticity for the monopolistically competitive firm's product is _______ .

answer

substitutes: elastic.

question

answer

Tom is incurring a loss of-$20 and, in the short run, Tom will stay open and continue to sell coffee.

question

For a monopoly firm, the quantity of output does not depend on the price because

answer

the monopoly's quantity and price are jointly determined by MC and MR and the demand curve.

question

Perfectly competitive firms have

answer

horizontal demand curves and they can sell as much output as they want at the market price

question

The long run is a time period that is

answer

when all of the firm's inputs are variable

question

Monopolistic competition is similar to perfect competition because _______ , and also similar to a monopoly because __________ .

answer

there are no barriers to entry, marginal revenue is less than price

question

If average total costs are declining, marginal cost must be

answer

less than average total cost.

question

answer

$44

question

(32) What is the marginal cost of the 3rd pair of jeans?

answer

$40

question

(33) If the current market price of a pair of Levi jeans is S70, how many pairs of jeans should Levi Inc produce?

answer

5 pairs

question

(34) What is the profit for the level of output determined in question 33?

answer

$130

question

A perfectly competitive firm will continue to operate in the short run when the market price is below its average total cost if the

answer

price is greater than the minimum average variable cost

question

Average total costs cost is generally U-shaped because

answer

average fixed costs are declining pulling ATC downward and average variable costs are rising pulling ATC upward

question

If a perfectly competitive firm produces 70 units of a good and has marginal revenue of $9.00, what is the firm's total revenue?

answer

$630

question

Based on the table above, the marginal product of labor for the second worker is

answer

25 units

question

(39) Based on the table above, diminishing marginal product of labor begins with the addition of the

answer

third worker

question

answer

$20

question

answer

maintain its current level of output.

question

When calculating a firm's profit, an economist will subtract

answer

both the explicit and implicit costs from total revenue because these include the costs that require a direct monetary payment by the firm and the opportunity costs of the firm.

question

To determine whether a perfectly competitive firm is earning an economic profit at a particular level of output, we compare price with:

answer

average total cost

question

answer

Bruno's accounting profit is $24,000.

question

Which of the following is correct for both a monopoly and a perfectly competitive firm?

answer

The firm maximizes profit by equating marginal revenue with marginal cost.

question

The defining characteristic of a natural monopoly is

answer

the natural monopoly has falling ATC over the relevant range of output.

question

Which of the following costs is positive when output is zero?

answer

fixed costs

question

An example of an explicit cost of production would be the

answer

lease payments for the delivery trucks

question

Which of the following is an argument for advertising by monopolistically competitive firms?

answer

Advertising provides useful information to consumers, which allows the consumer to have some market power.

question

If firms in a monopolistically competitive market are earning positive economic profits in the short run, then

answer

new firms will enter the market in the long run and the demand curve for the existing firms will shift to the left, causing prices to fall and economic profit to fall to 0.

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EC 110 – Exam 3 SG

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