Micro Exam 2

question

Kirsten sells 300 glasses of lemonade at $0.50 each. Her total costs are $125. Her profits are

answer

300x0.50=150
150-125= $25

question

Susan used to work as a telemarketer, earning $25,000 per year. She gave up that job to start a catering business. In calculating the economic profit of her catering business, the $25,000 income that she gave up is counted as part of the catering firm's

answer

implicit costs.

question

Gavin has decided to start his own snow removal business. To purchase the necessary equipment, Gavin withdrew $2,000 from his savings account, which was earning 3% interest, and borrowed an additional $4,000 from the bank at an interest rate of 7%. What is Gavin's annual implicit costs of the financial capital that has been invested in the business?

answer

$60

question

Dolores used to work as a high school teacher for $40,000 per year but quit in order to start her own catering business. To invest in her factory, she withdrew $20,000 from her savings, which paid 3 percent interest, and borrowed $30,000 from her uncle, whom she pays 3 percent interest per year. Last year she paid $25,000 for ingredients and had revenue of $60,000. She asked Louis the accountant and Greg the economist to calculate her profit for her.

answer

Louis says her costs are $25,900, and Greg says her costs are $66,500.

question

answer

Louis says her profit is $34,100, and Greg says she lost $6,500.

question

Total revenue minus both explicit and implicit costs is called

answer

economic profit

question

Total revenue minus only explicit costs is called

answer

accounting profit.

question

Number of Workers
Output (number of pet visits)
0 0
1 20
2 45
3 60
4 70

What is the marginal product of the second worker?

answer

question

Number of Workers
Output (number of pet visits)
0 0
1 20
2 45
3 60
4 70

What is the marginal product of the third worker?

answer

question

Number of Workers
Output (number of pet visits)
0 0
1 20
2 45
3 60
4 70

Alyson's pet sitting service experiences diminishing marginal productivity with the addition of the

answer

third worker

question

The marginal product of labor can be defined as

answer

change in output/change in labor

question

Let L represent the number of workers hired by a firm and let Q represent that firm's quantity of output. Assume two points on the firm's production function are (L = 12, Q = 122) and (L = 13, Q = 132). Then the marginal product of the 13th worker is

answer

10 units of output.

question

Marginal cost is equal to

answer

ΔTC/ΔQ

question

When marginal cost exceeds average total cost,

answer

average total cost must be rising

question

The most likely explanation for economies of scale is

answer

specialization of labor.

question

A key characteristic of a competitive market is that

answer

producers sell nearly identical products.

question

Which of the following is not a characteristic of a competitive market?

answer

Free entry is limited.

question

Free entry means that

answer

no legal barriers prevent a firm from entering an industry

question

If a competitive firm is currently producing a level of output at which marginal cost exceeds marginal revenue, then

answer

decreasing output would increase the firm's profit.

question

At the profit-maximizing level of output,

answer

marginal revenue equals marginal cost.

question

Laura is a gourmet chef who runs a small catering business in a competitive industry. Laura specializes in making wedding cakes. Laura sells 20 wedding cakes per month. Her monthly total revenue is $5,000. The marginal cost of making a wedding cake is $200. In order to maximize profits, Laura should

answer

make more than 20 wedding cakes per month.

question

The accountants hired by Davis Golf Course have determined total fixed cost to be $75,000, total variable cost to be $130,000, and total revenue to be $145,000. Because of this information, in the short run, Davis Golf Course should

answer

stay open because shutting down would be more expensive

question

Total profit for a firm is calculated as

answer

(price minus average cost) times quantity of output.

question

Assume a firm is producing 800 units of output, and it sells each unit for $6. Its average total cost is $4. Its profit is

answer

$1,600.

question

Ch 14
If the market price is P1, in the short run, the perfectly competitive firm will earn

answer

positive economic profits

question

If the market price is P2, in the short run, the perfectly competitive firm will earn

answer

zero economic profits.

question

If the market price is P3, in the short run, the perfectly competitive firm will earn

answer

negative economic profits but will try to remain open.

question

If the market price is P4, in the short run, the perfectly competitive firm will earn

answer

negative economic profits and will shut down.

question

The exit of existing firms from a competitive market will

answer

decrease market supply and increase market price.

question

Entry into a market by new firms will increase the

answer

supply of the good.

question

The typical firm in the U. S. economy

answer

has some degree of market power

question

One characteristic of an oligopoly market structure is:

answer

firms in the industry have some degree of market power.

question

A concentration ratio

answer

All of the above are correct

measures the percentage of total output supplied by the four largest firms in the industry

reflects the level of competition in an industry

is related to the control that each firm has over price

question

A monopolistically competitive industry is characterized by

answer

many firms, differentiated products, and free entry.

question

Each firm in a monopolistically competitive market

answer

faces a downward-sloping demand curve.

question

A monopolistically competitive firm chooses its

answer

price and quantity just as a monopoly does.

question

Ch 15&16

The firm's profit-maximizing level of output is

answer

12 units

question

In order to maximize profit, the firm will charge a price of

answer

$18.

question

If the average total cost is $15 at the profit-maximizing quantity, then the firm's maximum profit is

answer

$36.

question

If the average variable cost is $12 at the profit-maximizing quantity, and if the firm's fixed costs amount to $30, then the firm's maximum profit is

answer

$42

question

A monopolistically competitive firm

answer

experiences a zero profit in the long run

question

If firms in a monopolistically competitive market are earning positive profits, then

answer

new firms will enter the market

question

Consider monopoly, monopolistic competition, and perfect competition. In which of these three market structures does a profit-maximizing firm charge a price that exceeds marginal cost?

answer

monopoly and monopolistic competition only

question

Some firms have an incentive to advertise because they sell a

answer

differentiated product and charge a price above marginal cost.

question

Advertising

answer

All of the above are correct

provides information about products, including prices and seller locations

has been proven to increase competition and reduce prices compared to markets without advertising

signals quality to consumers, because advertising is expensive

question

A monopoly

answer

can set the price it charges for its output but faces a downward-sloping demand curve so it cannot earn unlimited profits.

question

Which of the following is not a reason for the existence of a monopoly?

answer

diseconomies of scale

question

The defining characteristic of a natural monopoly is

answer

economies of scale over the relevant range of output

question

A firm that is a natural monopoly

answer

All of the above are correct

is not likely to be concerned about new entrants eroding its monopoly power.

is taking advantage of economies of scale

would experience a higher average total cost if more firms entered the market

question

Which of the following statements is true of a monopoly firm?

answer

A monopoly firm is a price maker and has no supply curve

question

A monopolist maximizes profits by

answer

producing an output level where marginal revenue equals marginal cost

question

CH 15&16 15-3
What price will the monopolist charge?

answer

question

CH 15&16 15-3
How much output will the monopolist produce?

answer

question

CH 15&16 15-3
What area measures the monopolist's profit?

answer

(B-G)*K

question

A monopoly market

answer

generally fails to maximize total economic well-being.

question

A monopolist produces

answer

less than the socially efficient quantity of output but at a higher price than in a competitive market

question

CH 15&16 15-10
Which area represents the deadweight loss from monopoly?

answer

J+H

question

Perfect price discrimination

answer

All of the above are correct

increases profits to the firm

increases total surplus

decreases consumer surplus

question

If a pharmaceutical company discovers a new drug and successfully patents it, patent law gives the firm

answer

sole ownership of the right to sell the drug for a limited number of years.

question

What do economists call the business practice of selling the same good at difference prices to different customers?

answer

price discrimination

question

In markets characterized by oligopoly,

answer

the oligopolists earn the highest profit when they cooperate and behave like a monopolist.

question

Ch 17 17-1
If Lisa and Mark operate as a profit-maximizing monopoly in the market for water, what price will they charge?

answer

$60

question

Ch 17 17-1
If Lisa and Mark operate as a profit-maximizing monopoly in the market for water, how many gallons of water will be produced and sold?

answer

600

question

Ch 17 17-1
If Lisa and Mark operate as a profit-maximizing monopoly in the market for water, how much profit will each of them earn?

answer

$18,000

question

Ch 17 17-1
If this market for water were perfectly competitive instead of monopolistic, what price would be charged?

answer

question

Ch 17 17-1
What is the socially efficient quantity of water?

answer

1,200 gallons

question

Ch 17 17-1
Suppose the town enacts new antitrust laws that prohibit Lisa and Mark from operating as a monopoly. What will be the price of water once Lisa and Mark reach a Nash equilibrium?

answer

$40

question

In a duopoly situation, the logic of self-interest results in a total output level that

answer

exceeds the monopoly level of output, but falls short of the competitive level of output.

question

If duopolists individually pursue their own self-interest when deciding how much to produce, the profit-maximizing price they will charge for their product will be

answer

less than the monopoly price.

question

To increase their individual profits, members of a cartel have an incentive to

answer

increase production above the level agreed upon.

question

All cartels are inherently reliant on

answer

the cooperation of their members.

question

Antitrust laws in general are used to

answer

prevent oligopolists from acting in ways that make markets less competitive.

question

Ch 17 17-18
If Heather chooses to clean, then Amy will

answer

not clean and Heather's payoff will be 15.

question

Ch 17 17-18
If Heather chooses not to clean, then Amy will

answer

not clean, and Amy's payoff will be 20.

question

Ch 17 17-18
What is the Nash Equilibrium in this dorm room cleaning game?

answer

Amy: Don't Clean
Heather: Don't Clean

1 of 75

question

Kirsten sells 300 glasses of lemonade at $0.50 each. Her total costs are $125. Her profits are

answer

300x0.50=150
150-125= $25

question

answer

implicit costs.

question

answer

$60

question

answer

Louis says her costs are $25,900, and Greg says her costs are $66,500.

question

answer

Louis says her profit is $34,100, and Greg says she lost $6,500.

question

Total revenue minus both explicit and implicit costs is called

answer

economic profit

question

Total revenue minus only explicit costs is called

answer

accounting profit.

question

Number of Workers
Output (number of pet visits)
0 0
1 20
2 45
3 60
4 70

What is the marginal product of the second worker?

answer

question

Number of Workers
Output (number of pet visits)
0 0
1 20
2 45
3 60
4 70

What is the marginal product of the third worker?

answer

question

Number of Workers
Output (number of pet visits)
0 0
1 20
2 45
3 60
4 70

Alyson's pet sitting service experiences diminishing marginal productivity with the addition of the

answer

third worker

question

The marginal product of labor can be defined as

answer

change in output/change in labor

question

answer

10 units of output.

question

Marginal cost is equal to

answer

ΔTC/ΔQ

question

When marginal cost exceeds average total cost,

answer

average total cost must be rising

question

The most likely explanation for economies of scale is

answer

specialization of labor.

question

A key characteristic of a competitive market is that

answer

producers sell nearly identical products.

question

Which of the following is not a characteristic of a competitive market?

answer

Free entry is limited.

question

Free entry means that

answer

no legal barriers prevent a firm from entering an industry

question

If a competitive firm is currently producing a level of output at which marginal cost exceeds marginal revenue, then

answer

decreasing output would increase the firm's profit.

question

At the profit-maximizing level of output,

answer

marginal revenue equals marginal cost.

question

answer

make more than 20 wedding cakes per month.

question

answer

stay open because shutting down would be more expensive

question

Total profit for a firm is calculated as

answer

(price minus average cost) times quantity of output.

question

Assume a firm is producing 800 units of output, and it sells each unit for $6. Its average total cost is $4. Its profit is

answer

$1,600.

question

Ch 14
If the market price is P1, in the short run, the perfectly competitive firm will earn

answer

positive economic profits

question

If the market price is P2, in the short run, the perfectly competitive firm will earn

answer

zero economic profits.

question

If the market price is P3, in the short run, the perfectly competitive firm will earn

answer

negative economic profits but will try to remain open.

question

If the market price is P4, in the short run, the perfectly competitive firm will earn

answer

negative economic profits and will shut down.

question

The exit of existing firms from a competitive market will

answer

decrease market supply and increase market price.

question

Entry into a market by new firms will increase the

answer

supply of the good.

question

The typical firm in the U. S. economy

answer

has some degree of market power

question

One characteristic of an oligopoly market structure is:

answer

firms in the industry have some degree of market power.

question

A concentration ratio

answer

question

A monopolistically competitive industry is characterized by

answer

many firms, differentiated products, and free entry.

question

Each firm in a monopolistically competitive market

answer

faces a downward-sloping demand curve.

question

A monopolistically competitive firm chooses its

answer

price and quantity just as a monopoly does.

question

Ch 15&16

The firm's profit-maximizing level of output is

answer

12 units

question

In order to maximize profit, the firm will charge a price of

answer

$18.

question

If the average total cost is $15 at the profit-maximizing quantity, then the firm's maximum profit is

answer

$36.

question

If the average variable cost is $12 at the profit-maximizing quantity, and if the firm's fixed costs amount to $30, then the firm's maximum profit is

answer

$42

question

A monopolistically competitive firm

answer

experiences a zero profit in the long run

question

If firms in a monopolistically competitive market are earning positive profits, then

answer

new firms will enter the market

question

Consider monopoly, monopolistic competition, and perfect competition. In which of these three market structures does a profit-maximizing firm charge a price that exceeds marginal cost?

answer

monopoly and monopolistic competition only

question

Some firms have an incentive to advertise because they sell a

answer

differentiated product and charge a price above marginal cost.

question

Advertising

answer

question

A monopoly

answer

can set the price it charges for its output but faces a downward-sloping demand curve so it cannot earn unlimited profits.

question

Which of the following is not a reason for the existence of a monopoly?

answer

diseconomies of scale

question

The defining characteristic of a natural monopoly is

answer

economies of scale over the relevant range of output

question

A firm that is a natural monopoly

answer

question

Which of the following statements is true of a monopoly firm?

answer

A monopoly firm is a price maker and has no supply curve

question

A monopolist maximizes profits by

answer

producing an output level where marginal revenue equals marginal cost

question

CH 15&16 15-3
What price will the monopolist charge?

answer

question

CH 15&16 15-3
How much output will the monopolist produce?

answer

question

CH 15&16 15-3
What area measures the monopolist's profit?

answer

(B-G)*K

question

A monopoly market

answer

generally fails to maximize total economic well-being.

question

A monopolist produces

answer

less than the socially efficient quantity of output but at a higher price than in a competitive market

question

CH 15&16 15-10
Which area represents the deadweight loss from monopoly?

answer

J+H

question

Perfect price discrimination

answer

All of the above are correct

increases profits to the firm

increases total surplus

decreases consumer surplus

question

If a pharmaceutical company discovers a new drug and successfully patents it, patent law gives the firm

answer

sole ownership of the right to sell the drug for a limited number of years.

question

What do economists call the business practice of selling the same good at difference prices to different customers?

answer

price discrimination

question

In markets characterized by oligopoly,

answer

the oligopolists earn the highest profit when they cooperate and behave like a monopolist.

question

Ch 17 17-1
If Lisa and Mark operate as a profit-maximizing monopoly in the market for water, what price will they charge?

answer

$60

question

Ch 17 17-1
If Lisa and Mark operate as a profit-maximizing monopoly in the market for water, how many gallons of water will be produced and sold?

answer

600

question

Ch 17 17-1
If Lisa and Mark operate as a profit-maximizing monopoly in the market for water, how much profit will each of them earn?

answer

$18,000

question

Ch 17 17-1
If this market for water were perfectly competitive instead of monopolistic, what price would be charged?

answer

question

Ch 17 17-1
What is the socially efficient quantity of water?

answer

1,200 gallons

question

Ch 17 17-1
Suppose the town enacts new antitrust laws that prohibit Lisa and Mark from operating as a monopoly. What will be the price of water once Lisa and Mark reach a Nash equilibrium?

answer

$40

question

In a duopoly situation, the logic of self-interest results in a total output level that

answer

exceeds the monopoly level of output, but falls short of the competitive level of output.

question

If duopolists individually pursue their own self-interest when deciding how much to produce, the profit-maximizing price they will charge for their product will be

answer

less than the monopoly price.

question

To increase their individual profits, members of a cartel have an incentive to

answer

increase production above the level agreed upon.

question

All cartels are inherently reliant on

answer

the cooperation of their members.

question

Antitrust laws in general are used to

answer

prevent oligopolists from acting in ways that make markets less competitive.

question

Ch 17 17-18
If Heather chooses to clean, then Amy will

answer

not clean and Heather's payoff will be 15.

question

Ch 17 17-18
If Heather chooses not to clean, then Amy will

answer

not clean, and Amy's payoff will be 20.

question

Ch 17 17-18
What is the Nash Equilibrium in this dorm room cleaning game?

answer

Amy: Don't Clean
Heather: Don't Clean

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