Econ B251 Final Review

Which of the following are characteristics of a monopoly?

the firms demand cure is downward sloping, there are high barriers to entry or exit, the firm determines the price to charge it's buyers.

Which of the following are barriers to entry for a monopoly?

patents, ownership of a vital resource, public franchises

Which of the following is true for BOTH a monopoly and a perfectly competitive firm?

The profit maximizing output level occurs where marginal revenue is equal to marginal cost

The profit maximizing single price monopolist produces along the elastic portion of its demand curve

elastic

Quantity ( Pizzas per day)
0
1
2
3
4
5
Price (dollars per pizzas)
$20
18
16
14
12
10
The table above shows the demand for a monopolist's output. The marginal revenue of increasing production from 3 to 4 units is $

6

Quantity ( Pizzas per day)
0
1
2
3
4
5
Price (dollars per pizzas)
$20
18
16
14
12
10
The table above shows the demand for a monopolists output. iF the pizzeria is a single-price monopoly and the marginal cost of a pizza is $6, then the firms profit maximizing output is \--- pizzas. At that amount the firm charges a price of $\--- and its total revenue is $\---

4, 12, 48

Joe, a hair dresser, offers students a discount price on haircuts. This form of pricing is an example of

price discrimination

The more perfectly a monopoly can price discriminate, the \--- its output and the \--- its profit.

larger, larger

compared to a similar perfectly competitive industry, a single-price monopoly decreases consumer surplus and decreases economic efficiency.

Decreases, decreases

Rent seeking by a monopolist \--- the social cost of a monopoly and \--- its \---

increases, cost, increases, average total cost

Which of the following are characteristics of perfect competition?

many sellers, there are no barriers to entry or exit, the market demand curve is downward sloping

The demand for corn from Hoosier farm is perfectly elastic because corn from Hoosier farms is

a perfect substitute for corn from other farms

the profit maximizing level of output for the perfectly competitive firm occurs where

price \= marginal cost

Quantity (Pizzas for day)
0
1
2
3
4
5
Total cost (dollars)
$20
25
35
50
70
95
The above table shows the total cost of producing pizzas. The market for pizzas is perfectly competitive. The equilibrium market price of a pizza is $18. Given this information the profit maximizing output is \--- pizzas

3

Quantity (Pizzas for day)
0
1
2
3
4
5
Total cost (dollars)
$20
25
35
50
70
95
The above table shows the total cost of producing pizzas. The market for pizzas is perfectly competitive. The equilibrium market price of a pizzas is $19. Given this information the profit maximizing output is \--- pizzas total revenue is $\--- total cost is $\--- and the forms economic profit is $\---

3,57,50,7

At the profit maximizing level of output, firms shutdown when

price< average variable cost

In the long run perfectly competitive firms earn zero economic profit and positive accounting profit

Zero, positive

Perfectly competitive markets are \--- because total surplus is maximized and forms produce at the lowest possible \--- cost.

Efficient, total surplus, average total

Sue quit her $40,000 per year job and opened a coffee shop that she calls Top Brew. In the first year, Top Brew earned $200,000 in revenue. For the same year, Top Brew paid $80,000 to employees in wages, spent $40,000 on ingredients such as coffee beans, $15,000 rent for the building to house Top Brew. Sue also used $50,000 of her personal savings to purchase equipment for Top Brew, which she was earning $4,000 in interest each year. Assuming no depreciation in the value of the equipment, Sue's economic profit from Top Brew for the year is $

21,000

which of the following are examples of implicit opportunity costs for the firm?

owners time, interest forgone, depreciation

having equal amount of information is known as symmetric information

symmetric

the principal-agent problem suggests

principles and agents are more likely to have the same goals if the agents pay is tied to satisfying the principles goals

In a perfectly competitive market there are \--- buyers \--- sellers producing identical products. \----have full information and \--- have market power

many, many identical, buyers and sellers, neither buyers nor sellers

the short run us a period of time in which

the quantity used of at least one factor of production is fixed

Labor ( workers per day)
0
1
2
3
4
5
Total product (pizzas per day)
0
4
10
18
23
27
The above table shows the total product of producing pizzas the marginal product of the 4th worker is equal to \--- pizzas

5

Labor ( workers per day)
0
1
2
3
4
5
Total product (pizzas per day)
0
4
10
18
23
27
The above table shows the total product of producing pizzas. Diminishing returns begins when the pizzeria hires the fourth worker

fourth

Labor ( workers per day)
0
1
2
3
4
5
Total product (pizzas per day)
0
4
10
18
23
27
Patti's Pizza production function is shown in the above table. Patti rents three ovens for $30 a day each and hires workers at a wage rate of $20 a day. If Patti produces 18 pizzas per day, then her average total cost is $

8.33

Labor ( workers per day)
0
1
2
3
4
5
Total product (pizzas per day)
0
4
10
18
23
27
Patti's Pizza production function is shown in the above table. Patti rents three ovens for $30 a day each and hires workers at a wage rate of $20 a day. If Patti increases her production of pizzas from 10 to 18 pizzas per day, then her marginal cost is $

2.50

As output increases if marginal product is decreasing, the marginal cost is increasing

marginal, increasing

When a firm is producing a given output at the least possible cost, it is producing on

its long-run average cost curve

Latesha has $20 to spend on pizza slices and movie downloads, which are normal goods. The price of a pizza slice is $2 and the price of a movie download is $4. If latish spends all of her income and she has downloaded four movies, the she can buy \--- pizza slices

2

Latesha has $20 to spend on pizza slices and movie downloads, which are normal goods. The price of a pizza slice is $2 and the price of a movie download is $4. IF the price of pizza slices decreases then Lateshas consumption possibilities increase

increase

Latesha has $20 to spend on pizza slices and movie downloads, which are normal goods. The price of a pizza slice is $2 and the price of a movie download is $4. If lateshas income increases to $30 then Lateshas budget line shifts outward

shifts outward

As you consume more of any good, you experience decreasing marginal utility

decreasing marginal

Assume the consumption of coffee causes a positive marginal benefit. As the quantity of coffee consumed increases, the marginal utility of coffee decreases and the total utility of coffee increases as additional coffee is consumed.

decreases, increases

Coffee ( cups per week)
0
1
2
3
4
5
Your total utility
0
9
16
21
25
27
the above table lists the total utility you receive from consuming different cups of coffee each week. The marginal utility from the fourth cup of coffee is

4

Jared maximizes his total utility when he spends all his income so his \---- utility per dollar is \---- for all goods and services

total, marginal, equal

Juan is in consumer equilibrium when

his is maximizing his utility, given his income and e prices of goods and services

quantity of pizza slices
1
2
3
4
5
6
Marginal unity from pizza slices
30
35
17
12
5
4
Quantity of movies
1
2
3
4
5
6
marginal utility from movies
24
20
16
10
8
4
If income in $16 the price slice is $1 and the price of a movie download is $2 then the consumer optimum is \--- pizza slices and \---- movie downloads

6,5

You consume pizza. If the price of pixie increases, then

you will buy less pizza

You consume pizza and your income increases. If pizza is a normal good, then your consumption of pizza increases . If pizza is an inferior good, then your consumption of pizza decreases .

increases, decreases

You consume pizza. If the price of pizza decreases, then the marginal utility per dollar spent on pizza remains unchanged .

increases

Which of the following is an example of a market failure?

overproduction of goods and services, outcome in which a cost onto a third party, quantity in which marginal social benefit exceeds marginal social cost

An example of an activity generating an external cost is

dumping mercury into a local stream

the coast theorem is the proposition that is the number of involved parties is low if property rights \---- and transactions costs are \---- then private transactions are efficient

low, exist, low

When external benefits are present

competitive markets underproduce the good

A movie shown on a pay-per-view cable station is an example of a \---- and \---- good

non rival, excludable

Quantity (lamps)
0
1
2
3
4
5
Marginal benefit for Marlon
\-
4
3
2
1
0
Marginal benefit for Jia
\-
8
6
4
2
0
Marginal benefit for Sam
\-
5
4
3
2
0
Marlon, Jia, and Sam are roommates. They need lamps for their common living room. Lamps in their living room are a public good for these roommates. The marginal benefit that each individual receives from varying numbers of lamps in the living room is given in the table above. The marginal benefit for the second lamp to this group of roommates taken as a whole is

13

if a nontrivial and nonexculdable good was produced by the private sector then

less the the efficient quantity would be produced

A common resource is used efficiently is

marginal social benefit equals marginal social cost

with rent controls, which of the following is most likely to occur

A decrease in consumer surplus, black market activity, an increase in search activity

Price(dollars per month)
300
400
500
600
700
Quantitysupplied(apartments)
100
200
300
400
500
600
Quantitydemanded(apartments)
700
500
400
200
100
The above table shows the market for apartment.
If a rent ceiling is set at a price of $400 per month, then the housing shortage is apartments.
If a rent ceiling is set at a price of $600 per month, then the housing shortage is apartments.

300,0

If policy makers believe the equilibrium wage rate is unfairly "too low," then policy makers can address this issue by imposing a price the equilibrium wage. As a result, a(n) occurs

floor, above, surplus, labor

Wage Rate(dollars per hour)
8
9
10
11
12
Laborsupplied(millions of workers)
2
3
5
8
11
Labordemanded(millions of workers)
12
8
5
4
2
The above table shows the market for labor.
If a minimum wage is set at a price of $8 per hour, then the number of unemployed workers is million.
If a minimum wage is set at a price of $11 per month, then the number of unemployed workers is million.

0,4

suppose a 10 tax is placed on a good. the more elastic the supply of the good the

larger the increase in the after tax price

Price(dollars per pound)
3
4
5
6
7
Quantitysupplied(pounds)
2
3
4
5
6
Quantitydemanded(pounds)
6
5
4
3
2
The above table shows the market for chocolate chip cookies. A $2 tax per pound of cookies is placed on sellers. The new equilibrium price of cookies is $ per pound and the amount of tax paid by sellers is $ per pound.

6,1

When an effective production quota is applied in the market for​ sugar, the quantity produced , the price​ , and marginal social benefit is greater than marginal social cost.

decreases, increases, greater than

In the market for​ wheat when a subsidy is paid to wheat farmers, the equilibrium quantity of wheat , the equilibrium price​ of wheat , and marginal social benefit is less than marginal social cost in the market for wheat.

increases, decreases, less than

Which of the following are characteristics of a oligopoly?

the firm determines the price to share its buyers, the firm produces identical goods or services, the firm produces different goods or services, there are high barriers to entry or exit

which of the following are barriers to entry for a oligopoly?

price wars, ownership o fa vital resource, economies of scale

which of the following are features of game theory?

players, strategies, payoffs

A game in which any gains within the group are exactly offset by equal losses by the end of the game is called a zero-sum game

zero sum

In a repeated game, punishments that result in heavy damages are an incentive for players to adopt the strategies that result in a cooperativeequilibrium.

cooperative

In the prisoners' dilemma game, when each player takes the best possible action given the action of the other player, a Nash equilibrium is reached.

Nash

US government decided to prohibit imports of cars from china. As a result, the IS cars market supply curve shifts to the \----, prices will \--- and quantity will \----

left, increase, decrease

What shifts in demand and supply curves may result in no change of equilibrium price?

increase in demand and increase in supply

What shifts in demand and supply curves may result in no change of equilibrium quantity?

increase in demand and decrease in supply

Due to adverse weather conditions wheat crops suffered. As a result, the bread supply curve will \----, price will \----, and quantity will \----.

decrease, increase, decrease

Scientists discovered technology that significantly increased productivity in the toasters industry. However, rumors have it that the toasters produced using this technology quite often explode. As a result, equilibrium price of toasters \_____, and equilibrium quantity of toasters\_____.

will decrease, will increase

Teska improved technology that improves the efficiency in the production of the batteries. The supply curve of batteries will \----, the price of batteries will \----, and the quantity of batteries will \----.

increase, decrease, increase

PlayStation and Xbox gaming consoles are substitutes goods. Xbox announced that they were raising the price of their console. The PlayStation gaming console will experience a(n) \_____ in price and a(n) \_____ in quantity

increase, increase

Rice and wheat are substitute goods. The government subsidizes the production of wheat at the same time flooding destroyed much of the rice \---- in demand and \---- in supply.

an increase, an increase

Milk and cookies are compliment goods. If the price of milk decrease, then the demand of cookies will \----.

increase

The market with the lowest barriers to enter is \-----

perfect competition

Long-run average total costs decrease as output increases is known as economies of scale and observed on the upwards sloping part of the long-run average cost curve.

economies of, downwards sloping part, long-run

True of False: Both, monopoly and perfect competitive market have downward sloping demand curve

true

True or False: Both, monopolist and perfectly competitive firm have downward sloping demand curve.

false

The most important goal of the firm is to

maximize its profits

An implicit cost is an oppotunitu cost that

requires no actual payment of cash

Heidi quit her job as a chef making $40,000 per year to start her own restaurant. The first year, Heidi's restaurant earned $100,000 in revenue. Heidi pays $50,000 per year in wages to the waitresses and hostess, $20,000 per year to buy food, etc. Heidi's economic profit for the year $

Her total revenue \= $100,000
Her total explicit cost \= $50,000 + $20,000
Her total implicit cost \= $40,000
So, her total cost \= $110,000
Her profit \= -$10,000

The owner of a proprietorship might decide incorporate the firm as a corporation in order to

avoid the principal -agent problem

An example of a variable resource in the short run is

an employee

The law of diminishing marginal returns says that as the firm uses more \----, with a given quantity of \----, the marginal product of the variable input eventually diminishes.

a variable, fixed inputs, marginal

When long-run average costs decreases as output increases, there are

economies of scale

In perfect competition, restrictions on entry into an industry

do not exist

In perfect competition, each individual firm faces \---- demand curve

a perfectly elastic

In perfect competition, the marginal revenue of an individual firm

equals the price of the product

When Sidneys sweater Inc makes exactly zero economic profit, Sidney, the owner

makes an income equal to his best alternative forgone income

A firm will expand the amount of output it produces as long as its marginal cost exceeds its marginal revenue

marginal revenue, marginal cost

In the short run, a firm will

produce and incur an economic loss if its total revenue covers its total variable cost but not its total cost

What is true about a monopoly?

a monopoly is the only producer of the good, the good produced by a monopoly has no close substitutes, none of the other options are true statements about a monopoly

A single-price monody charges the same price

to all customers

When Dominant Pizza is willing to sell a pizza to a student who lives on-campus at a lower price than it is willing to sell the identical pizza to a student who lives a block away from the campus, the pizza firm is

practicing price discrimination

For a single-price monopoly, marginal revenue is \---- when demand is elastic and is \---- when demand is inelastic

positive, negative

An unregulated monopoly will

produce in the elastic range of its demand curve

A single-price monopolist will find when it produces its profit-maximizing amount of output that

all of other options occur at the profit- maximizing output level

Price(dollars)
30
27
24
21
18
15
12
9
Quantity demanded
0
1
2
3
4
5
6
7
Marginal revenue (dollars)
0
27
21
15
9
3
-3
-9
Total cost (dollars)
25
28
33
40
49
60
73
88

The single-price profit maximizing monopolist produces where MR \= MC, which occurs at 4 units (MR \= MC \= $9).

Price(dollars)
30
27
24
21
18
15
12
9
Quantity demanded
0
1
2
3
4
5
6
7
Marginal revenue (dollars)
0
27
21
15
9
3
-3
-9
Total cost (dollars)
25
28
33
40
49
60
73
88
using the data in the above table, the single price profit maximizing monopolist will earn total revenue \----, total cost of \----, and total economic profit of \----

72, 29,23
At the profit maximizing quantity of 4 units, total revenue \= $72 ($18), total cost \= $49, and total profit of $23 ($72 - $49).

The fundamental reason a single-price monopoly creates a deadweight loss is that it

restricts output

\#24

The profit maximizing perfectly competitive firm produces where P \= MC, which occurs at 6 units.
The profit maximizing single-price monopolist firm produces where MR \= MC, which occurs at 4 units.