Principles of Microeconomics: Final Exam

A perfectly competitive firm...

takes its price as given by market conditions

When a perfectly competitive firm increases the quantity it produces and sells by 10 percent, its marginal revenue ____ and its total revenue rises by _____.

stays the same; exactly 10 percent

A competitive firm maximizes profit by choosing the quantity at which...

marginal cost equals the price

A competitive firm's short-run supply curve is its ________ cost curve above its ________ cost curve.

marginal; average variable

If profit-maximizing competitive firm is producing a quantity at which marginal cost is between average a variable cost and average total cost, it will...

keep producing in the short-run but exit the market in the long-run

In the long-run equilibrium of a perfectly competitive market with identical firms, what are the relationships among price P, marginal cost MC, and average total cost ATC?

P=MC and P=ATC

In the short-run equilibrium of a competitive market with identical firms, if new firms are getting ready to enter, what are the relationships among price P, marginal cost MC, and average total cost ATC?

P=MC and P>ATC

Suppose pretzel stands in New York City are a perfectly competitive market in long-run equilibrium. One day, the city starts imposing a $100 per month tax on each stand. How does this policy affect the number of pretzels consumed in the short run and the long run?

no change in the short run, down in the long run

Some government grants of monopoly power may be desirable if they...

provide incentives for invention and artistic creation.

A firm is a natural monopoly if it exhibits its output increases.

decreasing average total cost

For a profit-maximizing monopoly that charges a single price, what is the relationship between price P, marginal revenue MR, and marginal cost MC?

P>MR and MR=MC

If a monopoly's fixed costs increase, its price will _____ and its profit will _____.

stay the same; decrease

Compared to the social optimum, a monopoly firm chooses

quantity that is too low and a price that is too high.

The deadweight loss from monopoly arises because

some potential consumers who forgo buying the good value it more than its marginal cost.

Price discrimination by a monopolist refers to charging different prices based on

the consumer's willingness to pay.

When a monopolist switches from charging a single price to practicing perfect price discrimination, it reduces

consumer surplus

Antitrust regulators are likely to prohibit two firms from merging if

the combined firm will have a large share of the market.

If regulators impose marginal-cost pricing on a natural monopoly, a possible problem is that

the firm will lose maney and exit the market,

Which of the following conditions does NOT describe a firm in a monopolistically competitive market?

it takes its price as given by market conditions.

Which of the following markets best fits the definition of monopolistic competition?

haircuts

A monopolistically competitive firm will increase its production if

marginal revenue is greater than marginal cost.

New firms will enter a monopolistically competitive market if

price is greater than average total cost.

What is true of a monopolistically competitive market in long-run equilibrium?

Price is greater than marginal cost.

If advertising makes consumers more loyal to particular brands, it could _____ the of demand and_______ the elasticity markup of price over marginal cost.

decrease; increase

If advertising makes consumers more loyal to particular brands, it could ________ the elasticity of demand and ________ the markup of price over marginal cost.

increase; decrease

Advertising can be a signal of quality

if the benefit of attracting customers is greater for firms with better products.

The key feature of an oligopolistic market is that

a small number of firms are acting strategically.

If an oligopolistic industry organizes itself as a cooperative cartel, it will produce a quantity of output that is ________ the competitive level and ________ the monopoly level.

less than; equal to

If an oligopoly does not cooperate and each firm chooses its own quantity, the industry will produce a quantity of output ________ the competitive level and ________ the monopoly level.

less than: more than

As the number of firms in an oligopoly grows, the industry approaches a level of output ________ the competitive level and ________ the monopoly level.

equal to; more than

The prisoners' dilemma is a two-person game illustrating that

even if cooperation is better than the Mash equilibrium, each person might have an incentive not to cooperate

Two people facing the prisoners' dilemma may cooperate if

play the game repeatedly and expect noncooperation to be met with future retaliation.

Antitrust laws aim to

prevent firms from acting in ways that reduce competition.

Antitrust enforcement is controversial mainly because

some business practices that seem anticompeti- tive may have legitimate purposes.

Approximately what percentage of U.S. national income is paid to workers rather than to owners of capital and land?

65%

If firms are competitive and profit-maximizing, the demand curve for labor is determined by

the value of the marginal product of labor.

A bakery operating in competitive markets sells its output for $20 per cake and pays workers $10 per hour. To maximize profit, it should hire workers until the marginal product of labor is

1/2 cake per hour.

Who has a greater opportunity cost of leisure— janitors or surgeons?

surgeons because their wages are higher

A person works more hours at a higher wage if the substitution effect

is larger than the income effect

Which of the following events will shift the labor supply curve to the right?

Relaxed immigration laws allow more workers to come in from abroad.

A technological advance that increases the marginal product of labor shifts the labor- ________ curve to the ________.

demand; right

Around 1973, the U.S. economy experienced a significant ________ in productivity growth, coupled with a ________ in the growth of real wages.

slowdown; slowdown

A bakery operating in competitive markets sells its output for $20 per cake and rents ovens at $30 per hour. To maximize profit, it should rent ovens until the marginal product of an oven is

3/2 cake per hour

A of storm destroys several factories, reducing the stock capital. What effect does this event have on factor markets?

Wages fall, and the rental price of capital rises.