Exam 2 study guide Macroeconomics

A situation known as _____________________ occurs when all production inputs are

allowed to expand, but that expansion does not result in much of a change in the average

cost of production.

constant returns to scale

Approximately what percentage of the US labor force is employed by firms that have fewer

than 100 employees?

35%

Economies of scale may arise from all but one of the following. Which one is it?

government economic subsidies protect firms from competition to avoid losses.

If a solar panel manufacturer wants to look at its total costs of production in the short run,

which of the following would provide a useful starting point?

divide total costs into two categories: fixed costs that can’t be changed in the short run and

variable costs that can be

In order to calculate marginal cost, the change in ______________ is divided by the amount

of change in quantity.

either total cost or variable cost

In the US economy, nearly half of all the workers employed by private firms work at

18,000 large firms that employ more than 500 workers.

______________ include all of the costs of production that increase with the quantity

produced.

Variable costs

The term __________________ describes a situation where the quantity of output rises, but

the average cost of production falls.

economies of scale

Why would labor be treated as a variable cost?

producing larger quantities of a good or service generally requires more workers

Marcella operates a small, but very successful art gallery. All but one of the following can

be classified as a variable cost arising from the physical inputs Marcella requires to

operate her business. Which is it?

physical space for the gallery

A manufacturer would likely make an ___________________ in a market following the long-

run process of beginning and expanding production in response to.

entry; a sustained pattern of profits

An _________________ is calculated by subtracting the firm's costs from its total revenues,

_______________________.

accounting profit; excluding opportunity cost

Economic profit can be derived from calculating total revenues minus all of the firm’s

costs,

including its opportunity costs

Given the data provided in the table below, what will the amount of profit be for

production at quantity (Q) level 7?

$-10.00

For a perfectly competitive firm, the marginal cost curve is identical to the firm’s

____________________.

supply curve

daho farmers can sell as large a quantity of their potato crop as they wish,

if they set their own price in the short run, but in the long run, the market sets the price.

provided each is willing to accept the prevailing market price.

It is said that in a perfectly competitive market, raising the price of a firm's product from

the prevailing market price of $179.00 to $199.00, ________________________.

could likely result in a notable loss of sales to competitors

Neil’s Bakery is famous for its giant cinnamon buns. The bakery has fixed costs of $100.

Neil must pay each worker a wage of $10.00 per hour and each works an 8 hour shift. He

earns $2 for each cinnamon bun that is sold. The following table shows how many

cinnamon buns he can sell, depending on the number of workers he hires. Refer to the

table below. To maximize his profits in this competitive market, how many workers should

he hire?

3 Workers

f the price that a firm charge is higher than its _______________ cost of production for that

quantity produced, then the firm will earn profits.

average

Temperatures have persisted below freezing levels in Florida throughout the months of

December and January. As a result, demand for electricity sharply increased and the price

of electricity rose sharply. The price of coal also rose. In these circumstances, any

resulting shifts in the supply curves for coal miners and electricity producers

can also be interpreted as shifts of their respective marginal cost curves

A ___________ exists when the quantity demanded in the market is less than the quantity

at the bottom of the long-run average cost curve.

natural monopoly

A monopolist is able to maximize its profits by

producing output where MR = MC and charging a price along the demand curve.

A natural monopoly occurs when the quantity demanded is ____________ the minimum

quantity it takes to be at the bottom of the long-run average cost curve.

less than

Following the assumption that firms maximize profits, how will the price and output policy

of an unregulated monopolist compare with ideal market efficiency?

output will be too small and its price too high.

For a pure monopoly to exist,

there is a single seller in a particular industry

Copyright protection legislation provides protection for original works

during the author's life plus 70 years

f the North American newsprint paper market has barriers to entry, then

entry will be blocked even if firms are earning high profits.

The largest cattle rancher in a given region will be unable to have a _____________

sufficient numbers of smaller cattle ranchers provide sources of competition.

monopoly

The US government has registered ________ on behalf of business firms to protect a

particularly distinct element each has selected for its ability to aid consumers to easily

_____________.

800,000 trademarks; identify the source of goods

A _______________ refers to a group of firms colluding with one another to produce at the

monopoly output and sell at the monopoly price.

cartel

A monopolistically competitive firm may earn abnormally high profits in the

short term, but the process of entry will drive those profits to zero in the long run.

A successful advertising campaign may allow competing monopolists to

do all of the above.

Bob competes in a monopolistically competitive market. Suppose some new firms enter

the market, causing his perceived demand curve to shift. The following tables show his

demand curves, before and after the change, and his cost information.Assume that Bob can only choose from the quantities of output given in the table. By how

much will his profit change after these new firms enter the market?

decrease by $9,000

How can parties who find themselves in a prisoner’s dilemma situation avoid the

undesired outcome and cooperate with each other?

find effective ways to penalize firms who do not cooperate

If a monopoly or a monopolistic competitor raises their prices, the quantity demanded

____________.

will decline

Oligopoly firms acting individually may seek to gain profits _______________.

by expanding levels of output and cutting prices

Mary competes in a monopolistically competitive market. Suddenly, 5 new firms enter the

market, causing her perceived demand curve to shift. The following tables show her

original and new demand curves and her cost information.Assume that Mary can only choose from the quantities of output given in the table. By how

much will the quantity that she produces change after the new firms enter the market?

decrease by 10

n the framework of an oligopoly, what strategy can work like a silent form of cooperation?

always match other cartel firms' price cuts, but don’t match price increases

If one firm operating in an oligopoly raises its price and other firms do not do so,

the sales of the firm that increased its price will decline sharply.

f a monopoly or a monopolistic competitor raises their prices, then

decline in quantity demanded will be larger for the monopolistic competitor.

A business_____________occurs when, for practical purposes, one firm purchases

another.

acquisition

A local regulator has calculated the average cost of production for the public water utility.

The regulator has allowed an adjustment for the normal rate of profit the firm should

expect to earn, and then set the price that consumers can be charged accordingly. In this

instance, the regulator has used which of the following?

cost-plus regulation

An agreement between a manufacturer and a distributor stipulating that a dealer will only

distribute that manufacturer's products would be classified as a form of

exclusive dealing.

A minimum resale price maintenance agreement requires a dealer who buys from a

manufacturer ______________.

to sell for at least a certain maximum price

Antitrust laws were created to give government the power to

block certain mergers and break up large firms into smaller ones.

Norway's government nationalized the country's oil resources, and it has been

accumulating a massive sovereign wealth fund worth billions of dollars ever since. This

sovereign fund is used as a monetary source for government funded national education

and healthcare. This is because the wealth generated by nationalized industries

is used to serve the citizens of the country.

JustMeInc., is the only provider of high-speed internet in Tinytown. The firm charges its

customers on an annual basis. The firm's cost and demand information are given below.*An unregulated monopoly will have ________ million subscribers and charge each of them

______.

4; $210

If the two smallest firms in a competitive market merged, the four-firm concentration ratio

________________ because _______________.

would not change; the degree of competition isn't notably diminished

Currently, the approach to antitrust regulation involves

detailed analysis of specific markets and companies.

Regulations that permit a regulated firm to cover its costs and to make a normal level of

profit are commonly referred to as

cost-plus regulation.