Microeconomics Final Study Guide McGraw-Hill

The long run is

a period long enough for all inputs to be variable.

Economic profit is the difference between

total revenues and total economic costs.

The difference between the total revenue and total cost curves at a given output is equal to

total profits.

Which of the following types of markets does a single firm have the most market power?

monopoly

If a perfectly competitive firm wanted to maximize its total revenues, it would produce

as much as its capable of producing.

Profit per unit is equal to

P - ATC

Explicit costs are

the sum of actual monetary payments made for resources used to produce a good.

A perfectly competitive firm should expand output when

P > MC.

When the short-run marginal cost curve is upward-sloping,

diminishing returns occurs with greater output.

Fixed costs are

constant in the short run.

Implicit cost are

the costs to produce a good or service for which no direct payment is made.

Normal profit implies that

the factors employed are earning as much as they could in the best alternative employment.

The market price for T-shirts sold in a perfectly competitive market is determined by

supply and demand.

If price is greater than marginal cost, a perfectly competitive firm should increase output because

additional units of output will add to the firm's profits (or reduce losses).

The fact that a perfectly competitive firm's total revenue curve is an upward-sloping straight line implies that

product price is constant at all levels of output.

Which of the following characterizes a competitive market?

A downward-sloping demand curve for the market.

The short run is the time period in which

some costs are fixed.

Which is the best explanation for why individuals own small businesses?

The expectation of profit.

Competitive firms cannot individually affect market price because

their individual production is insignificant relative to the production of the industry.

Economists assume the principal motivation of producers is

profit.

Market structure is determined by the

number and relative size of the firms in an industry.

If diminishing returns exist, then

each unit produced will cost incrementally more.

The demand curve confronting a competitive firm is

horizontal, while market demand is downward-sloping.

A competitive firm is

a price taker.

For the perfectly competitive firm, the marginal revenue is always

constant.

A perfectly competitive firm will maximize profits by choosing an output level where

price equals marginal cost.

A firm maximizes total profit when

total revenue exceeds total cost by the greatest amount.

Profit is

the difference between variable costs and fixed costs.

The best measure of the economic cost of doing your homework is

the most valuable opportunity you give up when you do your homework.

For a competitive market in the long run,

Economic profits induce firms to enter until profits are normal.

The entry of firms into a market

Reduces the profits of existing firms in the market.

High profits in a particular industry indicate that

Consumers want more of that industry's goods.

If a firm decides to make the investment decision to expand its capacity, then it must have discovered that

P > ATC.

If someone invents a better way to produce frozen pizzas, then

The market supply curve for frozen pizzas will shift to the right.

Which of the following is an investment decision in a competitive market?

entry to exit.

Marginal cost is the increase in total cost associated with a one-unit

increase in production.

The entry of firms into a market, ceteris paribus,

Reduces the economic profit of each firm already in the market.

When firms in a competitive market are experiencing zero economic profits, this is an indication that

There is currently no better way to use society's scarce resources.

This not a characteristic of a perfectly competitive market?

high barriers.

If long-run economic losses are being experienced in a competitive market,

Equilibrium price will rise as firms exit.

This is not a barrier to entry?

perfect information.

To determine the market supply, the quantities

Supplied at each price by each supplier are added together.

What is a characteristic of a perfectly competitive market?

Zero economic profit in the long run.

A profit-maximizing producer seeks to

Maximize total profit.

The equilibrium price of a good or service in a competitive market is

A reflection of the opportunity cost of producing the product.

If two products are homogeneous, then they

Are identical.

A perfectly competitive market results in efficiency because

Price is driven down to minimum ATC.

If a firm finds that its marginal cost is greater than its price, it

Should reduce production.

Investment decisions are made on the basis of the relationship of price to

Long-run average total cost.

When a computer firm is producing a level of output at which MC is greater than price, from society's standpoint the firm is producing too

Much because society is giving up more to produce additional computers than the computers are worth.

In which of the following cases would a firm exit from a market?

P < long-run ATC.

To maximize profits, a competitive firm will seek to expand output until

Price equals marginal cost.

Which of the following is characteristic of a perfectly competitive market?

Identical products.

Marginal cost pricing means that a firm

Produces up to the output where P = MC for a given market price.

Economic losses are a signal to producers

that they are not using their resources in the best way.

Which of the following is characteristic of a perfectly competitive market?

A large number of firms.

The exit of firms from a market, ceteris paribus,

Reduces the economic losses of remaining firms in the market.

A patent gives a firm the exclusive right to produce a product for

20 years.

A firm can take advantage of economies of scale through

Investment decisions to increase capacity.

A monopoly

Produces less output than a competitive industry, ceteris paribus.

If the entire output of a market is produced by a single seller, the firm

is a monopoly.

In a contestable market,

Barriers to entry and long-run economic profits are low.

Which of the following does not contribute to a firm maintaining a monopoly?

The presence of many close substitutes for its product.

At equilibrium in a monopoly, economic profits will most likely be

greater than zero.

Price-discriminating firms charge higher prices to those who

Have lower price elasticities of demand.

Price-discriminating firms that sell in two markets will charge higher prices in the market, ceteris paribus,

With the more price-inelastic demand.

Price discrimination does not allow a producer to

Designate a point above the market demand curve as the new equilibrium.

In monopoly and perfect competition, a firm should expand production when

Marginal revenue is above marginal cost.

Which of the following rules is satisfied when a monopoly maximizes profits?

MR = MC.

Monopolists are price

Makers, but competitive firms are price takers.

The primary purpose of antitrust policy in the United States is to

Encourage competition.

A monopolist has market power because it

Faces a downward-sloping demand curve for its own output.

Which of the following is a barrier to entry in a monopoly market?

A patent on a new product.

Any firm that has economies of scale will

Be able to produce at a lower unit cost as it increases production.

Which of the following is a barrier to entry in a monopoly market?

Economies of scale.

Both a competitive industry and a monopoly

Face downward-sloping market demand curves.

Price discrimination is best defined as

The selling of an identical good at different prices to different consumers by a single seller.

If a monopolist is producing a level of output where MR exceeds MC, then it should

Increase its output.

A monopolist will not use marginal cost pricing because at that output

MC is greater than MR.

Which of the following prohibits price discrimination, certain types of mergers, and interlocking boards of directors among competing companies?

The Clayton Act.

Which of the following is an argument in favor of a competitive market structure rather than monopoly?

Monopolies produce less at a higher price than competitive markets, ceteris paribus.

A barrier to entry is

An obstacle that makes it difficult for new firms to enter a market.

If tourists are charged a much higher price than the natives of a country for exactly the same item, what kind of pricing is involved?

Price discrimination.

Which of the following is a barrier to entry into a monopoly market?

Economies of scale.

A monopoly

Charges higher prices than competitive firms, ceteris paribus.

Suppose a monopoly concrete contractor builds 20 driveways per month for $10,000 each. In order to increase sales to 21 driveways, the contractor must lower the price of driveways to $9,500. The marginal revenue of the 21st driveway is

-$500.

The correct ranking of degree of market power (from highest to lowest) is

Monopoly, oligopoly, monopolistic competition, perfect competition.

The potential for maximizing total industry profits is greater in oligopolies than in perfect competition because

There are fewer firms and each is dependent on the actions of rivals.

Temporary price reductions intended to drive out competition are referred to as

Predatory pricing.

A firm cannot maintain above-normal profits over the long run unless

barriers to entry exist.

Which of the following may not characterize an oligopoly?

no market power.

Market power is the ability of a firm to

Control the price and quantity supplied.

Oligopolists have a mutual interest in coordinating production decisions in order to maximize joint

Profits.

If an oligopoly market is contestable and new firms enter, the

Market power of the former oligopolists will be reduced.

A cartel is

A public agreement between firms or countries to restrict production and raise prices.

Borden, Inc., which sold milk to Texas Tech University, public schools, and hospitals, paid $8 million in fines for

Price-fixing.

The number of firms in an oligopoly must be

Small enough so that one firm's decisions have a significant impact on the decisions of the other firms in the industry.

Market power leads to market failure when it results in

Decreased market output.

Which of the following market structures is characterized by the absence of market power?

perfect competition.

The Herfindahl-Hirshman Index is

Used to identify cases worthy of antitrust concern.