Econ Midterm 3

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Electric utility companies have built larger and larger electric generating stations and, as a result, the long-run average cost of producing each kilowatt hour decreased. This is an example of

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economies of scale.

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Silvio's Pizza is a small pizzeria. The firm's production function is shown in the table above. Suppose that Silvio's costs include only the cost of renting ovens, which is $100 per oven per week, the labor cost, $280 per worker per week, and the opportunity cost of Silvio's entrepreneurship, $1,000 per week. When Silvio's uses 2 ovens and hires the 3rd worker, the marginal product of labor is ________ the average product of labor, and therefore the average product of labor ________.

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less than; increases

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The average total cost curves for plants A, B, C, and D are shown in the above figure. It is possible that the long-run average cost curve runs through points

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d, e, and f.

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In the above figure, the long-run average cost curve exhibits diseconomies of scale

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between 20 and 25 units per hour.

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When a firm is experiencing economies of scale

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the LRAC curve slopes downward.

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Diseconomies of scale definitely means that as the firm increases its output, its

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long-run average total cost increases.

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In the short run

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no firm experiences economies of scale.

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Silvio's Pizza is a small pizzeria. The firm's production function is shown in the table above. Suppose that Silvio's costs include only the cost of renting ovens, which is $100 per oven per week, the labor cost, $280 per worker per week, and the opportunity cost of Silvio's entrepreneurship, $1,000 per week. Suppose Silvio's uses Plant 1 and hires 3 workers. What is the firm's average fixed cost?

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$11.00

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The average total cost curves for Plant 1, ATC0, and Plant 2, ATC1, are shown in the figure above. Over what range of output is it efficient to operate Plant 2?

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greater than 25

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In the long run, if a firm is operating with economies of scale, it is on the ______ portion of its LRAC.

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downward-sloping

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If a production process faces diminishing marginal returns, which of the following is most likely?

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Marginal costs are increasing.

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The table shows the average costs of production for various quantities, given three different amounts of capital. Each factory illustrates a(n) _____ average cost curve.

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U-shaped

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Consider a firm, using capital (K) and labor (L) in the production process, that wants to expand production. Suppose MPK = 200 and MPL = 50. The cost of capital is r = 80, and the wage rate is w = 10. Should this firm employ more labor or more capital?

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Labor

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An economy is on its production possibilities frontier. If the economy faces diminishing marginal returns, what will happen to the opportunity cost as the production of one of the categories of goods increases?

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The opportunity cost will increase as it takes more to produce the good.

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In the typical short run model of the firm, we generally assume that labor is_______ and capital is________ .

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variable; fixed

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Consider the concepts of economies of scale and diseconomies of scale. What is meant by the word "scale" in these concepts?

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The size of the firm.

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An efficient Nebraska corn farm decides to hire more workers and use fewer harvesting machines after learning of:I. An increase in corn commodity prices.II. A decrease in fuel prices.III. An increase in worker productivity.IV. An increase in harvesting machine maintenance costs.

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III and IV

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In the long run, the total cost function will be:

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Upward sloping.

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Rising average product as inputs increase means that which of the following is happening to costs?

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Average costs alone are falling.

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Which of the following would be likely in a market with firms experiencing economies of scale?

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Most of the firms will tend to be large.

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Mimi wants to see if she should buy another oven for her restaurant. How might she use marginal analysis to make a decision?

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Examine the price of the oven and the marginal product of the oven.

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Diminishing returns is most relevant when:

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None of the these.

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A restaurant employs 10 workers and has one oven. The firm hires an 11th worker. The week after, it hires a 12th worker. The marginal product of the 12th worker is less than the 11th worker because of _______.

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diminishing returns.

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Consider a firm, using capital (K) and labor (L) in the production process, that wants to expand production. Suppose MPK = 400. The cost of capital is r = 80, and the wage rate is w = 10. The firm would use more labor to expand production only if the marginal product of labor is greater than _____.

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A private psychiatrist's office is a business that will demonstrate ______________, as it will face increasing average costs in the long run.

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diseconomies of scale

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If the firm were to choose a permanent output level of Q = 8,000, the lowest average cost would be achieved with the _______.

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large factory.

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In order to maximize profits at any level of output, the firm must:

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Minimize production costs.

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A car manufacturing plant in Michigan employs the optimal combination of both unionized and non-unionized labor. The plant agrees to a new union contract that stipulates higher wages. As the plant re-adjusts its inputs, marginal product of non-unionized workers will:

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Decrease.

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Use the numbers to build the firm's LRAC function. In other words, assuming that at any level of output, the firm uses the proper factory size to get the lowest average cost of production. As this firm grows from 2,000 to 8,000 units, it will be experiencing:

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Economies of scale.

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Given the following data, what should the firm do? Current production = 1,000 Current price = $10Marginal cost = $10Total costs = $15,000Fixed cost = $6,000

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Continue to produce in the short run, but close down in the long run.

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Suppose in the long run a firm decides to grow in size and increase output. What will happen regarding the LRAC?

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The firm will move from one point to another point, from left to right, on the same LRAC.

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The key difference between the short-run and long-run model of the firm is that:

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We assume at least one fixed input in the short run and all variable inputs in the long run.

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Suppose in the long run a firm's labor costs decrease. What will happen regarding the LRAC?

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The entire LRAC function will shift downward.

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If the firm were to choose a permanent output level of Q = 6,000, the lowest average cost would be achieved with the ______.

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medium factory.

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Given the following facts, what should the firm do in the short run? In the long run?Fixed costs are $50,000. Total costs are $90,000. Total revenues are $45,000.

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Continue to produce in the short run; leave the industry in the long run.

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Constant returns to scale.

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Consider a firm, using capital (K) and labor (L) in the production process, that wants to expand production. Suppose MPK = 200 and MPL = 60. The cost of capital is r = 50. The firm would use more labor to expand production only if the wage rate is less than _____ dollars.

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In the long run, if a firm is on the downward-sloping portion of its LRAC curve, the firm is currently experiencing ______.

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economies of scale.

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A small shirt factory in Taiwan doubles its labor inputs and experiences a tripling in output. A large catering kitchen in Tokyo increases its inputs by 30% and experiences a 50% increase in production. Which of the following is true?

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Both firms enjoy economies of scale

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At Wisconsin's snowy Lambeau Field, a football stadium, snow removal is currently done by a mix of workers (equipped with shovels and paid minimum wage) and automated self-operating snowblower machines, which require no labor. The stadium is currently using the optimal combination of both snowblowers and workers. If Wisconsin's minimum wage rises, and nothing else changes, what should the stadium do?

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Utilize more machines and fewer workers.

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A firm is producing where the Marginal Product of Labor is 18 and the Marginal Product of Capital is 10. The price of labor is $3 and the cost of capital is $2.
The firm is planning their future inputs and can now adjust both labor and capital. How should they adjust inputs?

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Increase labor and decrease capital

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Suppose a firm wants to do marginal analysis to see if it should employ more capital or more labor in order to increase output. The firm knows the prices of the inputs. Is this enough information to answer the question at hand?

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No, the firm also needs to know the marginal productivities of each of the inputs.

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Suppose that as a firm grows, it first experiences economies of scale, then constant returns to scale, then diseconomies of scale. The LRAC for this firm will be ______.

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shaped like a wide U.

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A firm is producing where the Marginal Product of Labor is 18 and the Marginal Product of Capital is 10. The price of labor is $3 and the cost of capital is $2.
They cannot adjust their capital, so are they in the short run or the long run?

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Short Run

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If the firm were to choose a permanent output level of Q = 4,000, the lowest average cost would be achieved with the _______.

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small factory.

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A pool-cleaning firm employs cleaning machines and cleaning workers. If local wages fall and robots become more effective, the firm should employ:

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One cannot tell.

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Economies of scale occurs when long-run average costs are and diseconomies of scale occurs when long-run average costs are .

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decreasing / increasing

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Suppose a company with a single large factory expands to multiple locations. This would require the firm to hire more mid-level management positions and establish an HR department. This firm is likely experiencing ________ with this expansion.

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diseconomies of scale

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The market demand for wheat is ________ and the demand for wheat produced by an individual farm is ________.

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not perfectly elastic; perfectly elastic

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If Steve's Apple Orchard, Inc. is a perfectly competitive firm, the demand for Steve's apples has

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infinite elasticity.

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Marginal revenue is defined as

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the change in total revenue that results from a one-unit increase in the quantity sold.

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The goal of a perfectly competitive firm is to maximize its

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economic profit.

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A market is perfectly competitive if

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there are many firms in it, each selling an identical product.

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A perfectly competitive firm has a total revenue curve that is

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upward sloping with a constant slope.

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The economic profit of a perfectly competitive firm

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is less than its total revenue.

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Which of the following is NOT an assumption of perfect competition?

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Firms compete by making their product different from products produced by other firms.

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For a perfectly competitive firm, as its output increases its marginal revenue ________ and its marginal cost ________.

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does not change; changes

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Bob's Lawn Care Services is a perfectly competitive firm that currently mows 22 lawns a week. Bob's marginal cost exceeds the price he charges. Bob can increase his profit if he

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mows fewer than 22 lawns a week.

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For a perfectly competitive firm, the shutdown point is the

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amount of output at which price equals minimum average variable cost.

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The donut market is perfectly competitive. The figure shows the costs of a typical donut producer. In the short run, the donut producer's supply curve is the curve running from point ________ to point E.

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As long as it does not shut down, a profit-maximizing perfectly competitive firm will.

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produce so that marginal revenue equals marginal cost.

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If the price exceeds the average variable cost, by producing the level of output such that marginal revenue equals marginal cost, the firm ensures that it will

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earn the largest profit possible.

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In the above figure, if the price is $8 per unit, how many units will a profit maximizing perfectly competitive firm produce?

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The figure above shows the marginal revenue and costs of a perfectly competitive firm. The marginal cost of the last unit produced is

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$16 per unit.

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The figure above shows a perfectly competitive firm. The firm is operating; that is, it has not shut down. The firm produces

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10 units of output and incurs an economic loss.

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The figure above shows a perfectly competitive firm. The firm is operating; that is, the firm has not shut down. The firm is

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incurring a economic loss of $200.

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In the short run, an increase in demand for a good that is sold in a perfectly competitive market

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increases the economic profits of existing firms in the market.

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Giuseppe's Pizza is a perfectly competitive firm. The firm's costs are shown in the table above. If the market price is $15, how much economic profit does the firm make?

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The figure above shows the marginal revenue and costs of a perfectly competitive firm. The firm's profit is maximized when the firm produces

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170 units of output.

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The above table shows the per day total cost for Kiley's Baseball Glove Company. Each glove is priced at $50 and Kiley's Baseball Glove Company is a perfectly competitive firm. At which of the following amounts of output is the economic profit maximized for Kiley's Baseball Glove Company?

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The figure illustrates the short-run costs of Paul's Picture Frames Inc. The picture frame market is perfectly competitive and the market price is $30 a frame. Paul produces ________ frames each week, makes ________ of total revenue, and makes zero ________ profit.

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300; $9,000; economic

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In the long run, perfectly competitive firms earn just enough revenue to

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pay all opportunity costs.

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The above figure shows the cost curves for a perfectly competitive firm. If all firms in the market have the same cost curves and the price equals $16 per unit

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over time, the price will fall as new firms enter the market.

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Homer's Holesome Donuts has determined that its profit-maximizing quantity is 10,000 donuts per year. Homer's earns $12,000 in revenue from the sale of those donuts. Homer's has two costs. First he pays $16,000 in annual rental payments for its five-year lease on its store. Second Homer incurs an additional cost of $5,000 for ingredients. Should Homer's exit the market in the long run?

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yes, because he is incurring an economic loss

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In the long-run equilibrium in a perfectly competitive market, the economic profit of the firms is

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zero.

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In the long-run, if firms in a perfectly competitive market are incurring persistent economic losses, some firms will

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exit and the price will rise.

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In the long-run equilibrium, perfectly competitive firms make zero economic profit because of

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the ability of firms to enter and exit.

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In the long run, the economic profit of a firm in a perfectly competitive market

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will equal zero.

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Fast Copy is a perfectly competitive firm. The figure above shows Fast Copy's cost curves. If the market price is 4 cents per page, what is Fast Copy's economic profit?

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between $0.51 and $1.00 per hour

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The industry that produces zangs is in long-run equilibrium. Then the demand for zangs increases permanently. As a result, firms in the industry will ________. Some firms will ________ the industry, and the industry supply curve will shift ________.

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make economic an profit; enter; rightward

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Suppose a perfectly competitive market is in long-run equilibrium. If there is a permanent increase in demand,

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All of these answers are correct.

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In a perfectly competitive market, a permanent increase in demand initially brings a higher price, economic

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profit, and entry into the market.

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In the long run, perfectly competitive firms make zero economic profit (their owners earn a normal profit) because

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any economic profit would attract newcomers to the industry.

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In a perfectly competitive market that is in long-run equilibrium, which of the following will NOT occur?

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Entrepreneurs want to enter this industry.

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In a perfectly competitive market that is in long-run equilibrium, a rightward shift in the market demand curve results in

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none of the events listed above.

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The figure above shows a typical perfectly competitive corn farm, whose marginal cost curve is MC and average total cost curve is ATC. The market is initially in a long-run equilibrium, where the price is $3.00 per bushel. Then, the market demand for corn decreases and, in the short run, the price falls to $2.50 per bushel. In the new short-run equilibrium, the farm produces ________ bushels of corn and sells corn at ________ per bushel.

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250,000; $2.50

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In a perfectly competitive market that is in long-run equilibrium, a permanent leftward shift in the market demand curve

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lowers the price at first but then raises it as firms leave the market.

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The figure above shows the marginal revenue and long-run cost curves for a perfectly competitive firm. Which of the following statements is TRUE?

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The firm is producing at minimum long-run average cost.

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Consumer surplus ________.

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plus producer surplus is maximized when resources are used efficiently

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In the long-run equilibrium, perfectly competitive firms produce where

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average total cost is minimized.

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The figure above shows the marginal revenue and long-run cost curves for a perfectly competitive firm. All other firms in the industry have identical curves. Which of the following statements is TRUE?

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None of these are true.

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In the long-run equilibrium for a perfectly competitive market

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All of these are correct.

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In the long-run equilibrium in a perfectly competitive market, the firms produce at the ________ possible average total cost and the price equals the ________ possible average total cost.

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lowest; lowest

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If the donut industry is perfectly competitive and is in long-run equilibrium, then the price of a donut

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equals long-run average cost.

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In the long-run equilibrium, perfectly competitive firms produce the level of output such that

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Both answers average total cost is minimized and marginal cost equals the price are correct.

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This type of firm would likely operate as a monopoly

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the local water company.

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If economies of scale allow one cable TV firm to supply the entire market at the lowest possible cost, then this company is

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a natural monopoly.

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A barrier to entry is

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a natural or legal impediment that makes it difficult for new firms to enter a market.

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Firms that can price discriminate between customers do so to ________.

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increase their profit

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Suppose a new vaccine for Lyme disease is developed by Merck, a large drug company. Which of the following is most likely to occur?

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Merck will apply for a patent on the vaccine that grants it the monopoly rights to the vaccine for many years.

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When natural or legal forces work to protect a firm from potential competitors, the market is said to have ________.

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barriers to entry

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Patents encourage invention by

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allowing patent owners to make an economic profit.

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A copyright creates a monopoly by restricting ________.

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entry into the market

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If the government grants a firm a public franchise to supply coal, a monopoly is created by

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a legal barrier to entry.

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All of the following are examples of price discrimination EXCEPT

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"buy now, pay later" payment options.

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The unregulated, single-price monopoly shown in the figure above will produce where its demand

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is elastic.

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The above figure illustrates a single-price unregulated monopolist. If the monopolist maximizes its profit, the consumer surplus equals ________.

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$20,000

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Roxie's Movie Theatre is the only one in town. The table above gives the demand schedule for movies. If Roxie's is a single-price monopoly and the marginal cost of a movie is $6, Roxie's will charge ________ a movie and will sell ________ movie tickets a week.

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$12; 200

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The unregulated, single-price monopoly shown in the figure above will sell

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30 tickets.

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The motel whose costs are given in the table above has total fixed costs equal to

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$100.

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La Bella Pizza is the only pizza place on Pepper Island. The figure above shows La Bella Pizza's demand curve, marginal revenue curve, and marginal cost curve. At La Bella Pizza's profit-maximizing output, its annual total revenue is

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$312,000.

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If a monopolist lowers its price and its demand is inelastic, then its

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total revenue decreases.

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The figure above shows the cost, demand, and marginal revenue curves for a monopoly. At an output level of ________, demand is ________.

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20; elastic

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Which of the following statements is TRUE?

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A monopolist will leave the market if it incurs an economic loss in the long run.

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The table above gives the demand for a monopolist's output. Between which two quantities is marginal revenue equal to 0?

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4 and 5

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For the monopoly shown in the figure above, the economic profit is

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$40.

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Because of a decrease in labor costs, a monopoly finds that its marginal cost and average total cost have decreased. The monopoly ________ its price and ________ its quantity.

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lowers; increases

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When a person lobbies Congress to grant the person the exclusive right to sell a particular good, such lobbying activity is called

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rent seeking.

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Economists are critical of monopoly because

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monopolists can create a deadweight loss.

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If a perfectly competitive market becomes a monopoly and the costs do not change, which of the following allocations of costs and benefits applies?
Correct Answer

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The producer benefits, but consumers and society are harmed.

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In the above figure, if a single-price monopolist charges the profit-maximizing price, the triangle dce represents

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deadweight loss.

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Interlace, Inc. produces and a unique soda. The company cannot price discriminate. The figure above shows Interlace's demand curve, marginal revenue curve, and marginal cost curve. The quantity of soda Interlace Inc. will choose to produce is ________ because when this quantity is produced, ________.

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not efficient; marginal social benefit exceeds marginal social cost

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An attempt by a firm to create a monopoly and gain the economic profit from the monopoly is called

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rent seeking.

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Methods of rent seeking include which of the following?I. Buying a monopolyII. Creating a monopolyIII. Price discrimination

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I and II

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A key difference between a monopoly and a perfectly competitive firm is that the monopolist

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has a marginal revenue curve that lies below its demand curve.

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Donna owns the only dog grooming salon on Lonely Island. If Donna can price discriminate between dog owners who are seniors and those who are not, her economic profit will be ________ than if she does not price discriminate and the number of dog groomings will be ________ than if she does not price discriminate.

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greater; more

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For a monopoly able to practice perfect price discrimination, the market

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demand curve is the same as the marginal revenue curve.

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If a monopolist can perfectly price discriminate, then

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there will be no consumer surplus.

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Which of the following is NOT necessary for a firm to engage in price discrimination?

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The firm must produce output for different buyers at different costs.

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Price discrimination by a monopoly

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Both answers decreases consumer surplus and increases the firm's profit are correct.

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It is easier for a monopolist to price discriminate between groups for a service than for a good because

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it is easier for consumers to resell goods than resell services.

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Price discrimination, where different units of a good are sold for different prices

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is possible if the good cannot be resold.

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Roxie's Movie Theatre has a monopoly and discovers that at $12 a movie, no one is buying movie tickets during weekdays. Roxie's conducts a survey and the table above reveals the results of the survey. Roxie decides to price discriminate between weekend and weekday moviegoers. The marginal cost of a showing a movie is $6. Roxie's charges ________ on weekdays and ________ on weekends.

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$9; $12

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In the figure above, a single-price unregulated monopoly will produce an amount of output equal to

answer

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If the monopoly illustrated in the figure above could engage in perfect price discrimination, then when it maximizes

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$210.

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Compared with the allocative efficiency of perfectly competitive firms, a monopoly tends to be:

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Less efficient, as monopoly price will be higher than the marginal cost.

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A monopoly firm currently finds that its marginal cost exceeds marginal revenue. What will the monopoly do to raise its profit?

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It will lower the output and increase the price.

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Assume a firm faces a market where there are individuals with elastic demands and inelastic demands. What should it do if it wishes to maximize revenues?

answer

ower prices for those with elastic demand and raise them for those with inelastic demand

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A monopoly is currently producing a certain quantity of output. All else being equal, what will happen to the price charged by this monopoly if there is an upward shift in demand?

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Price will increase.

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A monopolist produces a level of output that can be described as follows. The output is:

answer

where marginal revenue is equal to marginal cost; and too little for allocative efficiency.

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Due to_____________ , a natural monopoly's average cost is___________ as its output rises.

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Economies of scale; decreasing

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Price discrimination will mean that a firm will lower price to consumers whose demand is:

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elastic and raise price where demand is inelastic. Revenues will rise in both cases.

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A monopolist will produce where demand is:

answer

elastic

1 of 143

question

Electric utility companies have built larger and larger electric generating stations and, as a result, the long-run average cost of producing each kilowatt hour decreased. This is an example of

answer

economies of scale.

question

answer

less than; increases

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The average total cost curves for plants A, B, C, and D are shown in the above figure. It is possible that the long-run average cost curve runs through points

answer

d, e, and f.

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In the above figure, the long-run average cost curve exhibits diseconomies of scale

answer

between 20 and 25 units per hour.

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When a firm is experiencing economies of scale

answer

the LRAC curve slopes downward.

question

Diseconomies of scale definitely means that as the firm increases its output, its

answer

long-run average total cost increases.

question

In the short run

answer

no firm experiences economies of scale.

question

Silvio's Pizza is a small pizzeria. The firm's production function is shown in the table above. Suppose that Silvio's costs include only the cost of renting ovens, which is $100 per oven per week, the labor cost, $280 per worker per week, and the opportunity cost of Silvio's entrepreneurship, $1,000 per week. Suppose Silvio's uses Plant 1 and hires 3 workers. What is the firm's average fixed cost?

answer

$11.00

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The average total cost curves for Plant 1, ATC0, and Plant 2, ATC1, are shown in the figure above. Over what range of output is it efficient to operate Plant 2?

answer

greater than 25

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In the long run, if a firm is operating with economies of scale, it is on the ______ portion of its LRAC.

answer

downward-sloping

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If a production process faces diminishing marginal returns, which of the following is most likely?

answer

Marginal costs are increasing.

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The table shows the average costs of production for various quantities, given three different amounts of capital. Each factory illustrates a(n) _____ average cost curve.

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U-shaped

question

answer

Labor

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answer

The opportunity cost will increase as it takes more to produce the good.

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In the typical short run model of the firm, we generally assume that labor is_______ and capital is________ .

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variable; fixed

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Consider the concepts of economies of scale and diseconomies of scale. What is meant by the word "scale" in these concepts?

answer

The size of the firm.

question

answer

III and IV

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In the long run, the total cost function will be:

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Upward sloping.

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Rising average product as inputs increase means that which of the following is happening to costs?

answer

Average costs alone are falling.

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Which of the following would be likely in a market with firms experiencing economies of scale?

answer

Most of the firms will tend to be large.

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Mimi wants to see if she should buy another oven for her restaurant. How might she use marginal analysis to make a decision?

answer

Examine the price of the oven and the marginal product of the oven.

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Diminishing returns is most relevant when:

answer

None of the these.

question

answer

diminishing returns.

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answer

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A private psychiatrist's office is a business that will demonstrate ______________, as it will face increasing average costs in the long run.

answer

diseconomies of scale

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If the firm were to choose a permanent output level of Q = 8,000, the lowest average cost would be achieved with the _______.

answer

large factory.

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In order to maximize profits at any level of output, the firm must:

answer

Minimize production costs.

question

answer

Decrease.

question

answer

Economies of scale.

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Given the following data, what should the firm do? Current production = 1,000 Current price = $10Marginal cost = $10Total costs = $15,000Fixed cost = $6,000

answer

Continue to produce in the short run, but close down in the long run.

question

Suppose in the long run a firm decides to grow in size and increase output. What will happen regarding the LRAC?

answer

The firm will move from one point to another point, from left to right, on the same LRAC.

question

The key difference between the short-run and long-run model of the firm is that:

answer

We assume at least one fixed input in the short run and all variable inputs in the long run.

question

Suppose in the long run a firm's labor costs decrease. What will happen regarding the LRAC?

answer

The entire LRAC function will shift downward.

question

If the firm were to choose a permanent output level of Q = 6,000, the lowest average cost would be achieved with the ______.

answer

medium factory.

question

Given the following facts, what should the firm do in the short run? In the long run?Fixed costs are $50,000. Total costs are $90,000. Total revenues are $45,000.

answer

Continue to produce in the short run; leave the industry in the long run.

question

answer

Constant returns to scale.

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answer

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In the long run, if a firm is on the downward-sloping portion of its LRAC curve, the firm is currently experiencing ______.

answer

economies of scale.

question

answer

Both firms enjoy economies of scale

question

answer

Utilize more machines and fewer workers.

question

answer

Increase labor and decrease capital

question

answer

No, the firm also needs to know the marginal productivities of each of the inputs.

question

Suppose that as a firm grows, it first experiences economies of scale, then constant returns to scale, then diseconomies of scale. The LRAC for this firm will be ______.

answer

shaped like a wide U.

question

answer

Short Run

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If the firm were to choose a permanent output level of Q = 4,000, the lowest average cost would be achieved with the _______.

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small factory.

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A pool-cleaning firm employs cleaning machines and cleaning workers. If local wages fall and robots become more effective, the firm should employ:

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One cannot tell.

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Economies of scale occurs when long-run average costs are and diseconomies of scale occurs when long-run average costs are .

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decreasing / increasing

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answer

diseconomies of scale

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The market demand for wheat is ________ and the demand for wheat produced by an individual farm is ________.

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not perfectly elastic; perfectly elastic

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If Steve's Apple Orchard, Inc. is a perfectly competitive firm, the demand for Steve's apples has

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infinite elasticity.

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Marginal revenue is defined as

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the change in total revenue that results from a one-unit increase in the quantity sold.

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The goal of a perfectly competitive firm is to maximize its

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economic profit.

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A market is perfectly competitive if

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there are many firms in it, each selling an identical product.

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A perfectly competitive firm has a total revenue curve that is

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upward sloping with a constant slope.

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The economic profit of a perfectly competitive firm

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is less than its total revenue.

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Which of the following is NOT an assumption of perfect competition?

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Firms compete by making their product different from products produced by other firms.

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For a perfectly competitive firm, as its output increases its marginal revenue ________ and its marginal cost ________.

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does not change; changes

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Bob's Lawn Care Services is a perfectly competitive firm that currently mows 22 lawns a week. Bob's marginal cost exceeds the price he charges. Bob can increase his profit if he

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mows fewer than 22 lawns a week.

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For a perfectly competitive firm, the shutdown point is the

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amount of output at which price equals minimum average variable cost.

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answer

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As long as it does not shut down, a profit-maximizing perfectly competitive firm will.

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produce so that marginal revenue equals marginal cost.

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If the price exceeds the average variable cost, by producing the level of output such that marginal revenue equals marginal cost, the firm ensures that it will

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earn the largest profit possible.

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In the above figure, if the price is $8 per unit, how many units will a profit maximizing perfectly competitive firm produce?

answer

question

The figure above shows the marginal revenue and costs of a perfectly competitive firm. The marginal cost of the last unit produced is

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$16 per unit.

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The figure above shows a perfectly competitive firm. The firm is operating; that is, it has not shut down. The firm produces

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10 units of output and incurs an economic loss.

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The figure above shows a perfectly competitive firm. The firm is operating; that is, the firm has not shut down. The firm is

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incurring a economic loss of $200.

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In the short run, an increase in demand for a good that is sold in a perfectly competitive market

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increases the economic profits of existing firms in the market.

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Giuseppe's Pizza is a perfectly competitive firm. The firm's costs are shown in the table above. If the market price is $15, how much economic profit does the firm make?

answer

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The figure above shows the marginal revenue and costs of a perfectly competitive firm. The firm's profit is maximized when the firm produces

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170 units of output.

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answer

question

answer

300; $9,000; economic

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In the long run, perfectly competitive firms earn just enough revenue to

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pay all opportunity costs.

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The above figure shows the cost curves for a perfectly competitive firm. If all firms in the market have the same cost curves and the price equals $16 per unit

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over time, the price will fall as new firms enter the market.

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answer

yes, because he is incurring an economic loss

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In the long-run equilibrium in a perfectly competitive market, the economic profit of the firms is

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zero.

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In the long-run, if firms in a perfectly competitive market are incurring persistent economic losses, some firms will

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exit and the price will rise.

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In the long-run equilibrium, perfectly competitive firms make zero economic profit because of

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the ability of firms to enter and exit.

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In the long run, the economic profit of a firm in a perfectly competitive market

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will equal zero.

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Fast Copy is a perfectly competitive firm. The figure above shows Fast Copy's cost curves. If the market price is 4 cents per page, what is Fast Copy's economic profit?

answer

between $0.51 and $1.00 per hour

question

answer

make economic an profit; enter; rightward

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Suppose a perfectly competitive market is in long-run equilibrium. If there is a permanent increase in demand,

answer

All of these answers are correct.

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In a perfectly competitive market, a permanent increase in demand initially brings a higher price, economic

answer

profit, and entry into the market.

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In the long run, perfectly competitive firms make zero economic profit (their owners earn a normal profit) because

answer

any economic profit would attract newcomers to the industry.

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In a perfectly competitive market that is in long-run equilibrium, which of the following will NOT occur?

answer

Entrepreneurs want to enter this industry.

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In a perfectly competitive market that is in long-run equilibrium, a rightward shift in the market demand curve results in

answer

none of the events listed above.

question

answer

250,000; $2.50

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In a perfectly competitive market that is in long-run equilibrium, a permanent leftward shift in the market demand curve

answer

lowers the price at first but then raises it as firms leave the market.

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The figure above shows the marginal revenue and long-run cost curves for a perfectly competitive firm. Which of the following statements is TRUE?

answer

The firm is producing at minimum long-run average cost.

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Consumer surplus ________.

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plus producer surplus is maximized when resources are used efficiently

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In the long-run equilibrium, perfectly competitive firms produce where

answer

average total cost is minimized.

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answer

None of these are true.

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In the long-run equilibrium for a perfectly competitive market

answer

All of these are correct.

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In the long-run equilibrium in a perfectly competitive market, the firms produce at the ________ possible average total cost and the price equals the ________ possible average total cost.

answer

lowest; lowest

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If the donut industry is perfectly competitive and is in long-run equilibrium, then the price of a donut

answer

equals long-run average cost.

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In the long-run equilibrium, perfectly competitive firms produce the level of output such that

answer

Both answers average total cost is minimized and marginal cost equals the price are correct.

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This type of firm would likely operate as a monopoly

answer

the local water company.

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If economies of scale allow one cable TV firm to supply the entire market at the lowest possible cost, then this company is

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a natural monopoly.

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A barrier to entry is

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a natural or legal impediment that makes it difficult for new firms to enter a market.

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Firms that can price discriminate between customers do so to ________.

answer

increase their profit

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Suppose a new vaccine for Lyme disease is developed by Merck, a large drug company. Which of the following is most likely to occur?

answer

Merck will apply for a patent on the vaccine that grants it the monopoly rights to the vaccine for many years.

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When natural or legal forces work to protect a firm from potential competitors, the market is said to have ________.

answer

barriers to entry

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Patents encourage invention by

answer

allowing patent owners to make an economic profit.

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A copyright creates a monopoly by restricting ________.

answer

entry into the market

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If the government grants a firm a public franchise to supply coal, a monopoly is created by

answer

a legal barrier to entry.

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All of the following are examples of price discrimination EXCEPT

answer

"buy now, pay later" payment options.

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The unregulated, single-price monopoly shown in the figure above will produce where its demand

answer

is elastic.

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The above figure illustrates a single-price unregulated monopolist. If the monopolist maximizes its profit, the consumer surplus equals ________.

answer

$20,000

question

answer

$12; 200

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The unregulated, single-price monopoly shown in the figure above will sell

answer

30 tickets.

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The motel whose costs are given in the table above has total fixed costs equal to

answer

$100.

question

answer

$312,000.

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If a monopolist lowers its price and its demand is inelastic, then its

answer

total revenue decreases.

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The figure above shows the cost, demand, and marginal revenue curves for a monopoly. At an output level of ________, demand is ________.

answer

20; elastic

question

Which of the following statements is TRUE?

answer

A monopolist will leave the market if it incurs an economic loss in the long run.

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The table above gives the demand for a monopolist's output. Between which two quantities is marginal revenue equal to 0?

answer

4 and 5

question

For the monopoly shown in the figure above, the economic profit is

answer

$40.

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Because of a decrease in labor costs, a monopoly finds that its marginal cost and average total cost have decreased. The monopoly ________ its price and ________ its quantity.

answer

lowers; increases

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When a person lobbies Congress to grant the person the exclusive right to sell a particular good, such lobbying activity is called

answer

rent seeking.

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Economists are critical of monopoly because

answer

monopolists can create a deadweight loss.

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If a perfectly competitive market becomes a monopoly and the costs do not change, which of the following allocations of costs and benefits applies?
Correct Answer

answer

The producer benefits, but consumers and society are harmed.

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In the above figure, if a single-price monopolist charges the profit-maximizing price, the triangle dce represents

answer

deadweight loss.

question

answer

not efficient; marginal social benefit exceeds marginal social cost

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An attempt by a firm to create a monopoly and gain the economic profit from the monopoly is called

answer

rent seeking.

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Methods of rent seeking include which of the following?I. Buying a monopolyII. Creating a monopolyIII. Price discrimination

answer

I and II

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A key difference between a monopoly and a perfectly competitive firm is that the monopolist

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has a marginal revenue curve that lies below its demand curve.

question

answer

greater; more

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For a monopoly able to practice perfect price discrimination, the market

answer

demand curve is the same as the marginal revenue curve.

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If a monopolist can perfectly price discriminate, then

answer

there will be no consumer surplus.

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Which of the following is NOT necessary for a firm to engage in price discrimination?

answer

The firm must produce output for different buyers at different costs.

question

Price discrimination by a monopoly

answer

Both answers decreases consumer surplus and increases the firm's profit are correct.

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It is easier for a monopolist to price discriminate between groups for a service than for a good because

answer

it is easier for consumers to resell goods than resell services.

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Price discrimination, where different units of a good are sold for different prices

answer

is possible if the good cannot be resold.

question

answer

$9; $12

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In the figure above, a single-price unregulated monopoly will produce an amount of output equal to

answer

question

If the monopoly illustrated in the figure above could engage in perfect price discrimination, then when it maximizes

answer

$210.

question

Compared with the allocative efficiency of perfectly competitive firms, a monopoly tends to be:

answer

Less efficient, as monopoly price will be higher than the marginal cost.

question

A monopoly firm currently finds that its marginal cost exceeds marginal revenue. What will the monopoly do to raise its profit?

answer

It will lower the output and increase the price.

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Assume a firm faces a market where there are individuals with elastic demands and inelastic demands. What should it do if it wishes to maximize revenues?

answer

ower prices for those with elastic demand and raise them for those with inelastic demand

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A monopoly is currently producing a certain quantity of output. All else being equal, what will happen to the price charged by this monopoly if there is an upward shift in demand?

answer

Price will increase.

question

A monopolist produces a level of output that can be described as follows. The output is:

answer

where marginal revenue is equal to marginal cost; and too little for allocative efficiency.

question

Due to_____________ , a natural monopoly's average cost is___________ as its output rises.

answer

Economies of scale; decreasing

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Price discrimination will mean that a firm will lower price to consumers whose demand is:

answer

elastic and raise price where demand is inelastic. Revenues will rise in both cases.

question

A monopolist will produce where demand is:

answer

elastic

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Econ Midterm 3

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