Micro Test Ch 13-17

Front 1

Product differentiation causes the demand curved faced by a monopolistically competitive firm to have what shape?

Back 1

downward slope

Front 2

Firms that sell a differentiated products in a competitive market have an incentive to do this

Back 2

Advertise

Front 3

The primary goal of any firm is to maximize what?

Back 3

Profit

Front 4

If Belmont enrolls 10 students at a tuition rate of $500 per student, and cost is $400 per student, their revenue is this:

Back 4

$5,000

Front 5

A cost that does not require an outlay of money is known as this:

Back 5

Explicit cost

Front 6

In the short run, capital inputs are a fixed cost but labor inputs are:

Back 6

Variable

Front 7

We use this phrase to describe a situation in which each successive unit of a variable input increases production by less

Back 7

Diminishing marginal product

Front 8

Total cost - fixed cost = ?

Back 8

variable cost

Front 9

Average total Cost (ATC) intersects marginal cost (MC) at what point?

Back 9

minimum ATC

Front 10

When a firm is operating at efficient scale it is operating as this

Back 10

minimum ATC

Front 11

LRATC will, at low levels of output, decrease as output increases because of these:

Back 11

Gains from specialization of inputs

Front 12

Buyers and sellers are price takers in this type of market

Back 12

perfectly competitive

Front 13

In a perfectly competitive market, price is the same as this

Back 13

marginal revenue

Front 14

In order to maximize profit, a firm operating in a competitive market chooses the quantity where marginal revenue equals this

Back 14

marginal cost

Front 15

When firms in a competitive market are earning profit in the short run, this will occur in the long run:

Back 15

new firms will enter the market

Front 16

A firm will shut down in the short run if this is true

Back 16

P less than AVC

Front 17

The demand curve faced by a monopolist has this shape

Back 17

Downward sloping

Front 18

Patents, copyrights, ownership of a key resource are examples of these:

Back 18

barriers to entry

Front 19

When a firm's ATC is always downward sloping, it is known as this:

Back 19

Natural Monopoly

Front 20

Because a monopolist must lower its price in order to sell another unit of its product, its marginal revenue has this relationship to price:

Back 20

Less than or below

Front 21

The business practice of selling the same product to different consumers for different prices is known as this

Back 21

price discrimination

Front 22

In an oligopoly, each firm's profits depend not only on how much output they produce but also on this:

Back 22

the other firm's output

Front 23

An Agreement among firms in a market about quantities to produce or prices to charge is known as this:

Back 23

What is collusion

Front 24

In order to reduce the inefficiency associated with oligopoly markets, public policy should promote this

Back 24

increased competition

Front 25

Under what conditions will a firm shut down temporarily?

Back 25

In the short run the firm will shut down temporarily if the total revenue it would receive from producing is less than the total variable costs it would incur from producing

Front 26

Under what conditions will a firm exit a market?

Back 26

When price < average total cost, firms will choose to exit the market.

Front 27

Does a competitive firm's price equal marginal cost in the short run, in the long run, or both?

Back 27

Both

Front 28

Does a competitive firm's price equal the minimum of average total cost in the short run, in the long run, or both?

Back 28

only in the long run

Front 29

Many small boats are made of fiberglass, which is derived from crude oil. Suppose that the price of oil rises.
1. What happens to the profits of boat makers in the short run?
2. What happens to the number of boat makers in the long run?

Back 29

1. decreases
2. decreases

Front 30

a. Calculate the company's average fixed costs, average variable costs, average total costs, and marginal costs at each level of production. (Please round your answers to the nearest hundredth.)
b. The price of a case of ball bearings is $50. Seeing that she can't make a profit, the Chief Executive Officer (CEO) decides to shut down operations. What are the firm's profits/losses?
c. Vaguely remembering his introductory economics course, the Chief Financial Officer tells the CEO it is better to produce 1 case of ball bearings, because marginal revenue equals marginal cost at that quantity. What are the firm's profits/losses at that level of production?

Back 30

a.
b. loss $50
c. loss $100

Front 31

A firm in a competitive market receives $500 in total revenue and has marginal revenue of $10.
What is the average revenue?
How many units were sold?

Back 31

$10
50 units

Front 32

Is a monopolist's marginal revenue always less than the price of its good?

Can marginal revenue ever be negative?

Back 32

yes

yes

Front 33

Bob's lawn-mowing service is a profit-maximizing, competitive firm. Bob mows lawns for $27 each. His total cost is $280, of which $30 is a fixed cost. He mows 10 lawns a day.
1. Should Bob continue to operate or shut down in the short run?
2. Should Bob remain in the market or exit the market in the long run?

Back 33

1. Continue to operate
2. exit the market

Front 34

Does a monopolistic competitor produce too much or too little output compared to the most efficient level?

What practical considerations make it difficult for policymakers to solve this problem?

Back 34

The firm produces too little output

both of these

Front 35

A profit-maximizing firm in a competitive market is currently producing 100 units of output. It has average revenue of $10, average total cost of $8, and fixed costs of $200.
a. What is its profit?
b. What is its marginal cost?
c. What is its average variable cost?
d. Is the efficient scale of the firm more than, less than, or exactly 100 units?

Back 35

a. 200
b. 10
c. 6
d. less than 100 units

Front 36

How might advertising with no apparent informational content in fact convey information to consumers?

Back 36

By spending a large sum of money on advertising, a firm may signal the high quality of its product.

Front 37

For each of the following characteristics, say whether it describes a monopoly firm, a monopolistically competitive firm, both, or neither.
1. Faces a downward-sloping demand curve
2. Has marginal revenue less than price
3. Faces the entry of new firms selling similar products
4. Earns economic profit in the long run
5. Equates marginal revenue and marginal cost
6. Produces the socially efficient quantity of output

Back 37

1. Both
2. Both
3. monopolistically competitive firm
4. monopoly firm
5. both
6. neither

Front 38

For each of the following characteristics, select whether it describes a perfectly competitive firm, a monopolistically competitive firm, both, or neither.
1. Sells a product differentiated from that of its competitors
2. Has marginal revenue less than price
3. Earns economic profit in the long run
4. Produces at the minimum of average total cost in the long run
5. Equates marginal revenue and marginal cost
6. Charges a price above marginal cost

Back 38

1. monopolistically competitive firm
2. monopolistically competitive firm
3. neither
4. perfectly competitive firm
5. both
6. monopolistically competitive firm

Front 39

If a group of sellers could form a cartel, what quantity and price would they try to set?

Back 39

The cartel would try to set the monopoly price and quantity

Front 40

A large share of the world supply of diamonds comes from Russia and South Africa. Suppose that the marginal cost of mining diamonds is constant at $1,000 per diamond, and the demand for diamonds is described by the following schedule:
1. If there were many suppliers of diamonds, what would be the price and quantity?
Price: $
Quantity:
2. If there were only one supplier of diamonds, what would be the price and quantity?
Price: $
Quantity:
3. If Russia and South Africa formed a cartel, what would be the price and quantity?
Price: $
Quantity:
4. If the countries split the market evenly, what would be South Africa's production and profit?
Production: diamonds
Profit: $ million
5. If South Africa increased it's production 1,000 while Russia stuck to the cartel agreement, would the country's profits increase or decrease?

Back 40

Front 41

The New York Times (Nov. 30, 1993) reported that "the inability of OPEC to agree last week to cut production has sent the oil market into turmoil... [leading to] the lowest price for domestic crude oil since June 1990."
1. Why were the members of OPEC trying to agree to cut production?

2. The newspaper also noted OPEC's view "that producing nations outside the organization, like Norway and Britain, should do their share and cut production." What does the phrase "do their share" suggest about OPEC's desired relationship with Norway and Britain?

Back 41

1. So that they could raise the price of oil and increase profits
2. OPEC would like Britain and Norway to join OPEC so that all of the OPEC countries could operate as a single monoploy