ECON FINAL chaps 7, 8, 9, 11, 10, 4, 14, 15

The term __________________ describes a situation where the quantity of output rises, but the average cost of production falls.

economies of scale

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.

The economies-of-scale curve is a long-run average cost curve because

it allows all factors of production to change.

The future of cities in the United States and in other countries will be determined by their ability to benefit from the _________________ and to minimize or counterbalance the ______________________.

economies of agglomeration; corresponding diseconomies

I'MaGadgetCo. produces and sells widgets. Last year, it produced 9,000 widgets and sold each one for $8. To produce the 9,000 widgets, the company incurred variable costs of $27,000 and a total cost of $36,000. I'MaGadgetCo's average fixed cost to produce 9,000 widgets was

$1.00

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

___________ include all spending on labor, machinery, tools, and supplies purchased from other firms.

Total costs

Refer to the table below.

Quantity	Variable Cost (in dollars)	Fixed Costs (in dollars)	Total Costs (in dollars)	Average Total Costs (in dollars per unit)	Average Variable Costs (in dollars per unit)	Marginal Costs (in dollars per unit)
0	0	40	40	- -	- -	- -
1	15	40	55	55	15	15
2	35	40	75	37.5	17.5	20
3	60	40	100	33.3	20	25
4	90	40	130	32.5	22.5	30
5	125	40	165	33	25	35
6	160	40	200	33.3	26.6	40

If the firm produces 5 units that it sells at a price of $30.00 each, what will its profits or losses equal?

losses equal $15

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

Variable costs

Whatever the firm's quantity of production, _____________ must exceed total costs if it is to earn a profit.

total revenue

Approximately what percentage of the US labor force is employed by firms that have fewer than 100 employees?

35%

In microeconomics, the term _____________________ is synonymous with economies of scale.

increasing returns to scale

Which of the following should typically be ignored because spending has already been made and cannot be changed?

sunk costs

The ______________ of all firms can be broken down into some common underlying patterns.

cost structure

In order to determine ____________, the firm's total costs must be divided by the quantity of its output.

average cost

The table below sets out cost information for the production of volley balls. Some values are missing. Which of the following statements is correct?

Quantity	Variable Cost	Fixed Cost	Total Cost	Average Variable Cost ($ per unit)	Marginal Cost ($ per unit)
0	0	30	30	0	-
1	12		B	12	E
2	25		C	D	F
3	A		72	14	G

A = 42, E = 12

In economics, a firm that faces no competitors is referred to as _________________.

a monopoly

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

I'MaPizzaCo. produces and sells specialty pizzas. Last year, it produced 8,000 mushroom, sausage and spinach pizzas and sold each one for $8. To produce these 8,000 specialty pizzas, the company incurred variable costs of $24,000 and a total cost of $40,000. I'MaPizzaCo's average fixed cost to produce 8,000 specialty pizzas was

$2.00

The graph above illustrates the total cost function for GoodieCookie Co. The changing slope of the total cost curve reflects this company's

 

decreasing marginal costs.

Refer to the table below. In this instance, confirmation that this firm is operating in a perfectly competitive market can readily be ascertained by the fact that its

Q	P	TR	MR	TC	MC
0	$30	0	---	$15	---
1	$30	$30	$30	$25	$10
2	$30	$60	$30	$40	$15
3	$30	$90	$30	$60	$20
4	$30	$120	$30	$85	$25
5	$30	$150	$30	$115	$30
6	$30	$180	$30	$150	$35

marginal revenue is constant.

Given the data provided in the table below, the total revenue (TR) for production at quantity

(Q) level 4 equals

Q	P	TC	TR	MR	MC	Profit
0	$5	$9
1	$5	$10
2	$5	$12
3	$5	$15
4	$5	$19
5	$5	$24
6	$5	$30
7	$5	$45

$20.00

If the price that a firm charges is higher than its _______________ cost of production for that quantity produced, then the firm will earn profits.

average

In a free market economy, firms operating in a perfectly competitive industry are said to have only one major choice to make. Which of the following correctly sets out that choice?

what quantity to produce

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

In the ______________, the perfectly competitive firm will react to losses by ______________________.

long run; reducing production or shutting down

Given the data provided in the table below, what will the marginal cost equal for production at quantity (Q) level 4?

Q	P	TC	TR	MR	MC	Profit
0	$5	$9
1	$5	$10
2	$5	$12
3	$5	$15
4	$5	$19
5	$5	$24
6	$5	$30
7	$5	$45

$4.00

Refer to the diagram above. In this instance, at the range of output represented at point c,

profits will be maximized.

Economic profit can be derived from calculating total revenues minus all of the firm's costs,

including its opportunity costs.

Refer to the diagram above. Based on the information illustrated in this graph, which of the following is an accurate statement?

a profit-seeking firm should continue to expand production as long as MR is greater than MC

The term _______________ refers to a firm operating in a perfectly competitive market that must take the prevailing market price for its product.

price taker

Refer to the diagram above. In this instance, point e shown on the graph indicates

the profit-maximizing point where MR = MC

The fact that a consumer is not required to buy the goods that a given firm produces, as well as the fact that the consumer might want the goods a firm produces, but may choose to buy from other firms instead

are two stark realities any firm with actual or potential competition must recognize.

Given the data provided in the table below, what will the amount of profit be for production at quantity (Q) level 7?

Q	P	TC	TR	MR	MC	Profit
0	$5	$9
1	$5	$10
2	$5	$12
3	$5	$15
4	$5	$19
5	$5	$24
6	$5	$30
7	$5	$45

-$10.00

A perfectly competitive industry is a

hypothetical extreme.

When I'MaGoldMiner chooses what quantity of gold each of its mines will produce over the next 12 months, this quantity, along with the prices prevailing in the market for output and inputs, will

determine the company's total revenue, total costs, and its profits.

____________ refers to the additional revenue gained from selling one more unit.

Marginal revenue

If the average product for six workers is fifteen and the marginal product of the seventh worker is eighteen, then

average product is rising.

If accounting profits for a firm are 20% of output, and the opportunity cost of financial capital is 8% of output, then what do the firm's economic profits equal?

12% of output

If the price that a firm charges is lower than its __________ of production, the firm will suffer losses.

average cost

Which of the following is most likely to be a monopoly?

local electricity distributor

The demand curve perceived by a perfectly competitive firm

is horizontal

Roughly speaking, patent law covers ____________ and ___________ law protects an author's original books.

original inventive creations; copyright

Deregulation occurs when a government eliminates or scales back rules relating to all but one of the following. Which one is it?

natural monopoly

The table below shows a monopolist's demand curve and the cost information for the production of its good. What will their profits equal?

Quantity	Price per Unit	Total Cost
10	$100	$100
20	$80	$400
30	$60	$800
40	$40	$1,400
50	$20	$2,400

$1,200

The use of sharp, temporary price cuts as a form of ________ would enable traditional US automakers to discourage new competition from smaller electric car manufacturers.

predatory pricing

Refer to the table below. The information pertains to the demand curve and the average cost curve for an unregulated natural monopoly firm. What will the price be in this market?

Price	Quantity Demanded	LRAC
50	1	$10.00
35	2	$20.00
20	3	$24.00
5	4	$37.50

50

Intellectual property law is a body of law that includes

copyright legislation, as well as all of the above

When the demand for a good or service limits the quantity that can be sold to an output at which the firm experiences economies of scale,

the firm is a natural monopoly.

Once I'MaPharmaCo. has received confirmation of the registration for its latest drug patent application, it will have created a monopoly for that product by restricting

entry into the market.

____________ law implies ownership over an idea or concept or image

Intellectual property

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

In the event that Only1Corp. obtains control of all the natural gas producers in the US, it would most likely

raise prices, cut production, and realize positive economic profits.

Which of the following denotes the typical shape of the monopolist's total cost curve?

total costs rise and grow steeper as output rises

Copyright protection legislation provides protection for original works

during the author's life plus 70 years

Which of the following is most unlikely to present a barrier to entry into a market?

deregulation

The form of legal protection intended to prevent reproduction of original works is referred to as _________ law.

copyright

The US laws dealing with original works of authorship allow the US Copyright Office to enforce protection for all but one of the following. Which one is it?

ancient Bible texts

The following table shows a monopolist's demand curve and cost information for the production of its good. What price will it charge?

Quantity	Price per Unit	Total Cost
1	40	$20
2	30	$25
3	25	$28
4	20	$34

$25

If it was possible for one company to gain ownership control all of the uranium processing plants in the US, then

that firm could set up barriers to entry to discourage competition.

Which of the following government institutions bears the responsibility of enforcing US antitrust laws?

Department of Justice

A merger will likely lessen competition if

it enables the new single firm to raise price.

Which of the following would a market competition regulator be most likely to assign the maximum HHI valuation to?

a monopoly

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

The implicit assumption that competitive conditions across industries are similar enough to make a decision about the effects of a merger is

a weakness of the concentration ratio analysis method.

The term __________ refers to the percentage share of a firm's total sales in the market.

market share

Which of the following has the power to allow a merger, prohibit it, or allow it if certain conditions are met?

Department of Justice

Which of the following has become a common condition for allowing a merger of large firms?

commitment to sell off certain parts of the firms

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.

Practices that reduce competition without actual documented agreements between firms to raise price are commonly referred to as ___________________ .

restrictive practices

The FTC and the Department of Justice guidelines state that, in the US market-driven economy, firms will be forbidden to

agree to rig bids or allocate lines of commerce.

The term "tie-in sales" is synonymous with

bundling

Which of the following is a true statement?

The government approves most proposed mergers.

A narrowly defined market will tend to make concentration appear ____________, while a broadly defined market will tend to make it appear _____________.

higher; smaller

Which of the following is a valid criticism of the reduction of competition that results from corporate mergers?

merged firms can increase price and maintain permanently higher profits

Which of the following concerns would groups like the Consumer Federation of America and Public Knowledge most likely raise with regulators considering a merger application?

the merger would reduce competition

The four-firm __________ measures the percentage share of the total sales in the industry that is accounted for by the largest four firms.

concentration ratio

JustMeInc. is the only provider of high speed internet in Tinytown. The firm charges their customers on an annual basis. Its cost and demand information are given below.

Quantity (Millions of subscribers)	Price ($ per subscriber)	Total Cost (million $)
1	300	200
2	260	380
3	233.33	540
4	210	680
5	180	800
6	150	900
7	100	980
8	60	1040

If the government decides to regulate this natural monopoly by forcing them to sell the quantity and price where the market demand curve crosses average cost, then the market price would be

$150

There have been two especially important shifts in how markets are defined in recent decades: one involves _________________ and the other involves _______________.

technology; globalization

The information below sets out the estimated market shares for the cellular phone manufacturing market.

Firm	Market Share
Nokia	36%
Fujitsu	3%
Kyocera	3%
LG	6%
Motorola	16%
Samsung	6%
Sanyo	4%
Siemens	7%
Sony Ericsson	11%
Plus 8 more firms with 1% each

Based on this information, the four-firm concentration ratio is

70

Which of the following would be classified as a differentiated product produced by a monopolistic competitor?

Chanel No. 5 perfume

Why are the underlying economic meanings of the perceived demand curves for a monopolist and monopolistic competitor different?

a monopolist faces the market demand curve and a monopolist competitor does not

In the framework of monopolistic competition, the way advertising works can be perceived as

causing both b and c to occur.

The demand curve as perceived by a perfectly competitive firm is _______________.

flat

When exit occurs in a monopolistically competitive industry the

perceived demand and marginal revenue curves will shift to the right.

The typical slope of the demand curve as perceived by a monopolistic competitor will

reflect that firm's ability to raise its price without losing all of its customers.

A _______________ refers to a group of firms colluding with one another to produce at the monopoly output and sell at the monopoly price.

 

cartel

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

will decline

A monopolistic competitor has the following information about cost and demand in the short run.

Quantity	Price ($)	Total Revenue ($)	Marginal Revenue ($)	Total Cost ($)	Marginal Cost ($)	Average Cost($)
2	24	48	23	35	2.5	17.5
4	23	92	21	45	5	11.25
6	22	132	19	60	7.5	10
8	21	168	17	77	8.5	9.63
10	20	200	15	100	11.5	10
12	19	228	13	126	13	10.5
14	18	252	11	165	19.5	11.79
16	17	272	9	210	22.5	13.13
18	16	288	7	260	25	14.44
20	15	300	5	320	30	16

What will the firm's profits equal in the short run?

$102

Perfect competition and monopoly stand at ___________ of the spectrum of competition.

opposite ends

If the firm is producing at a quantity of output where marginal revenue exceeds marginal cost, then,

the firm should keep expanding production.

A monopolistic competitor has the following information about cost and demand in the long run.

Quantity	Price ($)	Total Revenue ($)	Marginal Revenue ($)	Total Cost ($)	Marginal Cost ($)	Average Cost($)
0	15	0	15	175	—	—
5	14	70	13	180	1	36
10	13	130	11	190	2	19
15	12	180	9	207	3.4	13.8
20	11	220	7	225	3.6	11.25
25	10	250	5	250	5	10
30	9	270	3	290	8	9.67
35	8	280	1	335	9	9.57
40	7	280	-1	385	10	9.63
45	6	270	-3	465	16	10.33
50	5	250	-5	565	20	11.3

Then, in the long run equilibrium, the firm will sell this good at what price?

$10

The shape of the perceived demand curve for a perfectly competitive firm reflects that firm's ability to

sell any quantity it wishes at the prevailing market price.

Sam owns an antique store in Boston. Many of his competitors left the market, causing his perceived demand curve to change. The following 2 tables show his old and new perceived demand curves.

Original Demand Curve
Price	Quantity	TC
$1,000	0	$3,000
$900	10	$3,300
$800	20	$4,500
$700	30	$7,000
$600	40	$12,000
New Demand Curve
Price	Quantity	TC
$1,100	0	$3,000
$1,000	10	$3,300
$900	20	$4,500
$800	30	$7,000
$700	40	$12,000

Assume Sam can only choose from the quantities of output given in the table. By how much will the quantity that he sells change as a result of his competitors leaving the market?

it will stay the same

_________________ occurs when circumstances have allowed several large firms to have all or most of the sales in an industry.

An oligopoly

A successful advertising campaign may allow a monopolistically competitive firm to

do all of the above.

The desire of businesses to _____________, so that they can raise the prices that they charge and earn higher profits, has been well-understood by economists for a long time.

avoid competing with each other

Shopping malls typically lease retail space to a large number of clothing stores. When this group of retailers competes to sell similar but not identical products, they engage in what economists call _______________.

monopolistic competition

If monopolistic competitors must expect a process of entry and exit like perfectly competitive firms,

they will be unable to earn higher-than-normal profits in the long run.

Through the process of exit, monopolistically competitive firms remaining in the market

are no longer earning losses.