Micro Exam 2 - Custom Scholars
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# Micro Exam 2

question
Kirsten sells 300 glasses of lemonade at \$0.50 each. Her total costs are \$125. Her profits are
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
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?
\$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.
Louis says her costs are \$25,900, and Greg says her costs are \$66,500.
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.
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
economic profit
question
Total revenue minus only explicit costs is called
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?
25
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?
15
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
third worker
question
The marginal product of labor can be defined as
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
10 units of output.
question
Marginal cost is equal to
ΔTC/ΔQ
question
When marginal cost exceeds average total cost,
average total cost must be rising
question
The most likely explanation for economies of scale is
specialization of labor.
question
A key characteristic of a competitive market is that
producers sell nearly identical products.
question
Which of the following is not a characteristic of a competitive market?
Free entry is limited.
question
Free entry means that
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
decreasing output would increase the firm's profit.
question
At the profit-maximizing level of output,
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
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
stay open because shutting down would be more expensive
question
Total profit for a firm is calculated as
(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
\$1,600.
question
Ch 14
If the market price is P1, in the short run, the perfectly competitive firm will earn
positive economic profits
question
If the market price is P2, in the short run, the perfectly competitive firm will earn
zero economic profits.
question
If the market price is P3, in the short run, the perfectly competitive firm will earn
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
negative economic profits and will shut down.
question
The exit of existing firms from a competitive market will
decrease market supply and increase market price.
question
Entry into a market by new firms will increase the
supply of the good.
question
The typical firm in the U. S. economy
has some degree of market power
question
One characteristic of an oligopoly market structure is:
firms in the industry have some degree of market power.
question
A concentration ratio
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
many firms, differentiated products, and free entry.
question
Each firm in a monopolistically competitive market
faces a downward-sloping demand curve.
question
A monopolistically competitive firm chooses its
price and quantity just as a monopoly does.
question
Ch 15&16

The firm's profit-maximizing level of output is
12 units
question
In order to maximize profit, the firm will charge a price of
\$18.
question
If the average total cost is \$15 at the profit-maximizing quantity, then the firm's maximum profit is
\$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
\$42
question
A monopolistically competitive firm
experiences a zero profit in the long run
question
If firms in a monopolistically competitive market are earning positive profits, then
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?
monopoly and monopolistic competition only
question
Some firms have an incentive to advertise because they sell a
differentiated product and charge a price above marginal cost.
question
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
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?
diseconomies of scale
question
The defining characteristic of a natural monopoly is
economies of scale over the relevant range of output
question
A firm that is a natural monopoly
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?
A monopoly firm is a price maker and has no supply curve
question
A monopolist maximizes profits by
producing an output level where marginal revenue equals marginal cost
question
CH 15&16 15-3
What price will the monopolist charge?
B
question
CH 15&16 15-3
How much output will the monopolist produce?
K
question
CH 15&16 15-3
What area measures the monopolist's profit?
(B-G)*K
question
A monopoly market
generally fails to maximize total economic well-being.
question
A monopolist produces
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?
J+H
question
Perfect price discrimination
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
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?
price discrimination
question
In markets characterized by oligopoly,
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?
\$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?
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?
\$18,000
question
Ch 17 17-1
If this market for water were perfectly competitive instead of monopolistic, what price would be charged?
\$0
question
Ch 17 17-1
What is the socially efficient quantity of water?
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?
\$40
question
In a duopoly situation, the logic of self-interest results in a total output level that
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
less than the monopoly price.
question
To increase their individual profits, members of a cartel have an incentive to
increase production above the level agreed upon.
question
All cartels are inherently reliant on
the cooperation of their members.
question
Antitrust laws in general are used to
prevent oligopolists from acting in ways that make markets less competitive.
question
Ch 17 17-18
If Heather chooses to clean, then Amy will
not clean and Heather's payoff will be 15.
question
Ch 17 17-18
If Heather chooses not to clean, then Amy will
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?
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
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
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?
\$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.
Louis says her costs are \$25,900, and Greg says her costs are \$66,500.
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.
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
economic profit
question
Total revenue minus only explicit costs is called
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?
25
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?
15
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
third worker
question
The marginal product of labor can be defined as
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
10 units of output.
question
Marginal cost is equal to
ΔTC/ΔQ
question
When marginal cost exceeds average total cost,
average total cost must be rising
question
The most likely explanation for economies of scale is
specialization of labor.
question
A key characteristic of a competitive market is that
producers sell nearly identical products.
question
Which of the following is not a characteristic of a competitive market?
Free entry is limited.
question
Free entry means that
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
decreasing output would increase the firm's profit.
question
At the profit-maximizing level of output,
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
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
stay open because shutting down would be more expensive
question
Total profit for a firm is calculated as
(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
\$1,600.
question
Ch 14
If the market price is P1, in the short run, the perfectly competitive firm will earn
positive economic profits
question
If the market price is P2, in the short run, the perfectly competitive firm will earn
zero economic profits.
question
If the market price is P3, in the short run, the perfectly competitive firm will earn
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
negative economic profits and will shut down.
question
The exit of existing firms from a competitive market will
decrease market supply and increase market price.
question
Entry into a market by new firms will increase the
supply of the good.
question
The typical firm in the U. S. economy
has some degree of market power
question
One characteristic of an oligopoly market structure is:
firms in the industry have some degree of market power.
question
A concentration ratio
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
many firms, differentiated products, and free entry.
question
Each firm in a monopolistically competitive market
faces a downward-sloping demand curve.
question
A monopolistically competitive firm chooses its
price and quantity just as a monopoly does.
question
Ch 15&16

The firm's profit-maximizing level of output is
12 units
question
In order to maximize profit, the firm will charge a price of
\$18.
question
If the average total cost is \$15 at the profit-maximizing quantity, then the firm's maximum profit is
\$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
\$42
question
A monopolistically competitive firm
experiences a zero profit in the long run
question
If firms in a monopolistically competitive market are earning positive profits, then
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?
monopoly and monopolistic competition only
question
Some firms have an incentive to advertise because they sell a
differentiated product and charge a price above marginal cost.
question
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
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?
diseconomies of scale
question
The defining characteristic of a natural monopoly is
economies of scale over the relevant range of output
question
A firm that is a natural monopoly
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?
A monopoly firm is a price maker and has no supply curve
question
A monopolist maximizes profits by
producing an output level where marginal revenue equals marginal cost
question
CH 15&16 15-3
What price will the monopolist charge?
B
question
CH 15&16 15-3
How much output will the monopolist produce?
K
question
CH 15&16 15-3
What area measures the monopolist's profit?
(B-G)*K
question
A monopoly market
generally fails to maximize total economic well-being.
question
A monopolist produces
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?
J+H
question
Perfect price discrimination
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
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?
price discrimination
question
In markets characterized by oligopoly,
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?
\$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?
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?
\$18,000
question
Ch 17 17-1
If this market for water were perfectly competitive instead of monopolistic, what price would be charged?
\$0
question
Ch 17 17-1
What is the socially efficient quantity of water?
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?
\$40
question
In a duopoly situation, the logic of self-interest results in a total output level that
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
less than the monopoly price.
question
To increase their individual profits, members of a cartel have an incentive to
increase production above the level agreed upon.
question
All cartels are inherently reliant on
the cooperation of their members.
question
Antitrust laws in general are used to
prevent oligopolists from acting in ways that make markets less competitive.
question
Ch 17 17-18
If Heather chooses to clean, then Amy will
not clean and Heather's payoff will be 15.
question
Ch 17 17-18
If Heather chooses not to clean, then Amy will
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?
Amy: Don't Clean
Heather: Don't Clean

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