ECON STUDY GUIDE #2

Q: Perfectly competitive markets are ["inefficient", "efficient"] because ["deadweight loss", "total surplus", "profit", "consumer surplus"] is maximized and firms produce at the lowest possible ["average total", "total", "marginal", "average variable"] cost.

Efficient, total surplus, average total

Q: characteristics of a monopoly

There are high barriers to entry or exit. The firm determines the price to charge its buyers. (Price searcher) The firm's demand curve is downward sloping. Single seller MR<P Must lower price to sell more

Q: Which of the following is true for BOTH a monopoly and a perfectly competitive firm?

The profit maximizing output level occurs where marginal revenue is equal to marginal cost

Q: Rent seeking by a monopolist ["decreases", "increases"] the social ["cost", "benefit"] of a monopoly and increases its ["marginal revenue", "marginal cost", "average total cost", "average variable cost"]

increase , cost, average variable cost

question

examples of implicit opportunity costs for the firm

answer

Interest forgone
Depreciation
The owner's time

question

The principal-agent problem suggests

answer

principals and agents are more likely to have the same goals if the agent's pay is tied to satisfying the principal's goals

question

In a perfectly competitive market there are ["many", "few"] buyers, ["many", "few"] sellers producing ["different", "identical"] products.["Only sellers", "Only buyers", "Buyers and sellers", "Neither buyers nor sellers"]have full information and ["neither buyers nor sellers", "buyers and sellers", "only buyers", "only sellers"] have market power.

answer

Many, many, identical, buyers and sellers, neither buyers nor sellers

question

The short run is a period of time in which

answer

the quantity used of at least one factor of production is fixed.

question

When a firm is producing a given output at the least possible cost, it is producing on

answer

its long-run average cost curve

question

characteristics of perfect competition

answer

Many sellers
The MARKET demand curve is downward sloping
FIRMS demand curve is perfectly elastic
There are no barriers to entry or exit
Firms sell identical products
The firm is the price taker (can't influence price)

question

profit maximizing level of output for the perfectly competitive firm occurs

answer

price = marginal cost

question

At the profit maximizing level of output, firms shutdown when

answer

price < average variable cost

question

In the long run, perfectly competitive firms earn _____economic profit and [Positive, Negative] accounting profit.

answer

Zero, positive

question

Perfectly competitive markets are ["inefficient", "efficient"] because ["deadweight loss", "total surplus", "profit", "consumer surplus"] is maximized and firms produce at the lowest possible ["average total", "total", "marginal", "average variable"] cost.

answer

Efficient, total surplus, average total

question

characteristics of a monopoly

answer

There are high barriers to entry or exit.
The firm determines the price to charge its buyers. (Price searcher)
The firm's demand curve is downward sloping.
Single seller
MR<P
Must lower price to sell more

question

Which of the following is true for BOTH a monopoly and a perfectly competitive firm?

answer

The profit maximizing output level occurs where marginal revenue is equal to marginal cost

question

The more perfectly a monopoly can price discriminate, the{ larger, smaller] its output and the [larger,smaller] its profit.

answer

Larger, Larger

question

Compared to a similar perfectly competitive industry, a single-price monopoly ["decreases", "does not change", "increases", "either positive, negative, or zero"] consumer surplus and ["does not change", "decreases", "increases", "may increase, decrease, or not change"] economic efficiency.

answer

decreases
decreases

question

Rent seeking by a monopolist ["decreases", "increases"] the social ["cost", "benefit"] of a monopoly and increases its ["marginal revenue", "marginal cost", "average total cost", "average variable cost"]

answer

increase , cost, average variable cost

question

characteristics of a oligopoly

answer

Small number of firms
The firm produces different goods or services. (Coke and pepsi)
The firm determines the price to charge its buyers.
There are high barriers to entry or exit.
The firm produces identical goods or services.
Likely to collude (work together). Oligopoly firms are strategically interdependent.

question

barriers to entry for a oligopoly

answer

Ownership of a vital resource.
Price wars
Economies of scale

question

features of game theory

answer

Players
Strategies
Payoffs

question

A game in which any gains within the group are exactly offset by equal losses by the end of the game is called a ______game.

answer

zero sum game

question

The goal of the firm is to

answer

maximize profit.

question

Total cost is

answer

average fixed cost plus average variable cost.

question

When marginal product is rising...

answer

marginal cost is falling.

question

Profit maximizing level of output for the perfectly competitive firm

answer

MC = MR

question

Short-run average profits or average losses are determined by comparing

answer

price to average total cost. .

question

long-run perfectly competitive firms earn

answer

zero economic profit.

question

Compared to the perfectly competitive firm, the profit-maximizing single price monopolist produces [lower,higher] quantity and charges a [lower, higher, same] price.

answer

lower
High

question

An implicit cost is an opportunity cost that

answer

requires no actual payment of cash.

question

The owner of a proprietorship might decide to incorporate the firm as a corporation in order to

answer

gain limited liability.

question

When long-run average costs decrease as output increases, there are

answer

economies of scale.

question

In perfect competition, the marginal revenue of an individual firm

answer

equals the price of the product.

question

When Sidney's Sweaters, Inc. makes exactly zero economic profit, Sidney, the owner,

answer

makes an income equal to his best alternative forgone income.

question

A firm will expand the amount of output it produces as long as its [ Select ] ["marginal cost", "average total revenue", "marginal revenue"] exceeds its [ Select ] ["marginal cost", "average total cost", "marginal revenue", "average variable cost"] .

answer

marginal revenue, marginal cost

question

In the short run, a firm will

answer

produce and incur an economic loss if its total revenue covered its total variable cost but not its total cost.

question

For a single-price monopoly, marginal revenue is ["negative", "positive"] when demand is elastic and is ["negative", "positive"] when demand is inelastic.

answer

positive
negative

question

A single-price monopolist will find when it produces its profit-maximizing amount of output that

answer

All of other options occur at the profit-maximizing output level.

question

The fundamental reason a single-price monopoly creates a deadweight loss is that it

answer

restricts output.

question

In comparison with a perfect competition, a single-price monopolist with the same costs creates a ["larger", "smaller"] consumer surplus and earns a ["larger", "smaller"] economic profit.

answer

Smaller
Larger

1 of 37

question

examples of implicit opportunity costs for the firm

answer

Interest forgone
Depreciation
The owner's time

question

The principal-agent problem suggests

answer

principals and agents are more likely to have the same goals if the agent's pay is tied to satisfying the principal's goals

question

answer

Many, many, identical, buyers and sellers, neither buyers nor sellers

question

The short run is a period of time in which

answer

the quantity used of at least one factor of production is fixed.

question

When a firm is producing a given output at the least possible cost, it is producing on

answer

its long-run average cost curve

question

characteristics of perfect competition

answer

question

profit maximizing level of output for the perfectly competitive firm occurs

answer

price = marginal cost

question

At the profit maximizing level of output, firms shutdown when

answer

price < average variable cost

question

In the long run, perfectly competitive firms earn _____economic profit and [Positive, Negative] accounting profit.

answer

Zero, positive

question

answer

Efficient, total surplus, average total

question

characteristics of a monopoly

answer

question

Which of the following is true for BOTH a monopoly and a perfectly competitive firm?

answer

The profit maximizing output level occurs where marginal revenue is equal to marginal cost

question

The more perfectly a monopoly can price discriminate, the{ larger, smaller] its output and the [larger,smaller] its profit.

answer

Larger, Larger

question

answer

decreases
decreases

question

answer

increase , cost, average variable cost

question

characteristics of a oligopoly

answer

question

barriers to entry for a oligopoly

answer

Ownership of a vital resource.
Price wars
Economies of scale

question

features of game theory

answer

Players
Strategies
Payoffs

question

A game in which any gains within the group are exactly offset by equal losses by the end of the game is called a ______game.

answer

zero sum game

question

The goal of the firm is to

answer

maximize profit.

question

Total cost is

answer

average fixed cost plus average variable cost.

question

When marginal product is rising...

answer

marginal cost is falling.

question

Profit maximizing level of output for the perfectly competitive firm

answer

MC = MR

question

Short-run average profits or average losses are determined by comparing

answer

price to average total cost. .

question

long-run perfectly competitive firms earn

answer

zero economic profit.

question

Compared to the perfectly competitive firm, the profit-maximizing single price monopolist produces [lower,higher] quantity and charges a [lower, higher, same] price.

answer

lower
High

question

An implicit cost is an opportunity cost that

answer

requires no actual payment of cash.

question

The owner of a proprietorship might decide to incorporate the firm as a corporation in order to

answer

gain limited liability.

question

When long-run average costs decrease as output increases, there are

answer

economies of scale.

question

In perfect competition, the marginal revenue of an individual firm

answer

equals the price of the product.

question

When Sidney's Sweaters, Inc. makes exactly zero economic profit, Sidney, the owner,

answer

makes an income equal to his best alternative forgone income.

question

answer

marginal revenue, marginal cost

question

In the short run, a firm will

answer

produce and incur an economic loss if its total revenue covered its total variable cost but not its total cost.

question

For a single-price monopoly, marginal revenue is ["negative", "positive"] when demand is elastic and is ["negative", "positive"] when demand is inelastic.

answer

positive
negative

question

A single-price monopolist will find when it produces its profit-maximizing amount of output that

answer

All of other options occur at the profit-maximizing output level.

question

The fundamental reason a single-price monopoly creates a deadweight loss is that it

answer

restricts output.

question

In comparison with a perfect competition, a single-price monopolist with the same costs creates a ["larger", "smaller"] consumer surplus and earns a ["larger", "smaller"] economic profit.

answer

Smaller
Larger

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ECON STUDY GUIDE #2

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