Micro

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Midterm 2

Candy Cane Corporation (CCC) produces 100,000 boxes of candy bars per year which sell for $3 a box. If variable costs are $2 per box, and it has $125,000 in fixed operating costs, in the short run the CCC should:

Keep producing as variable costs are covered

When a purely competitive industry is in long-run equilibrium, which statement is true?

Price and average total cost are equal

An industry experiencing constant returns to scale and fixed factor prices will have a long run supply curve that is:

Horizontal

A purely competitive firm does not try to sell more of its product by lowering its price below the market price because:

It can sell all it wants to at the market price

In pure competition, the demand for the product of a single firm is perfectly:

Elastic because many other firms produce the same product

In long-run equilibrium under conditions of pure competition and productive efficiency, all firms produce at minimum:

Average total cost

A purely competitive firm can be identified by the fact that:

Its average revenue equals marginal revenue

Farmer Jones is producing wheat, and must accept the market price of $6.00 per bushel. At this time, her average total costs and her marginal costs both equal $8.00 per bushel. Her average variable costs are $5 per bushel. In choosing her optimal output, farmer Jones should:

Reduce output but continue production

In the standard model of pure competition, a profit-maximizing entrepreneur will shut down in the short run if:

Total revenue is less than total variable costs

A firm sells a product in a purely competitive market. The marginal cost of the product at the current output is $5.00 and the market price is $5.00. What should the firm do?

Shut down if the minimum possible average variable cost is $5.25

Allocative efficiency occurs when the:

Marginal cost equals the marginal benefit to society

A firm sells a product in a purely competitive market. The marginal cost of the product at the current output of 1,000 units is $2.50. The minimum possible average variable cost is $2.00. The market price of the product is $2.50. To maximize profit or minimize losses, the firm should:

Continue producing 1,000 units

T-Shirt Enterprises is selling in a purely competitive market. Its output is 300 units, which sell for $1 each. At this level of output, marginal cost is $1 and average variable cost is $1.50. The firm should:

Produce zero units of output

The long-run supply curve would be downsloping in:

A decreasing-cost industry

Total revenue for producing 8 units of output is $48. Total revenue for producing 9 units of output is $63. Given this information, the:

Marginal revenue for producing the ninth unit is $15

Suppose that when 3000 units of output are produced, the marginal cost of the 3001st unit is $2. This amount is equal to the minimum of average total cost, and marginal cost is rising. If the optimal level of output in the short run is 3300 units, then at this higher level of output marginal cost is:

Greater than $2 and marginal cost is greater than average total cost

In a purely competitive industry, each firm:

Can easily enter or exit the industry

In pure competition, price is determined where the industry:

Demand and supply curves intersect

A firm sells a product in a purely competitive market. The marginal cost of the product at the current output of 500 units is $1.50. The minimum possible average variable cost is $1.00. The market price of the product is $1.25. To maximize profit or minimize losses, the firm should:

Produce less than 500 units

The long-run supply curve under pure competition will be:

Downsloping in a decreasing-cost industry and upsloping in an increasing-cost industry

Pure competition produces a socially optimal allocation of resources in the long run because:

Marginal cost equals price

If firms enter a purely competitive industry, then in the long run this change will shift the industry:

Supply curve to the right, and the market price will decrease

The representative firm in a purely competitive industry:

Will earn an economic profit of zero in the long run

A firm should always continue to operate at a loss in the short run if:

It can cover its variable costs and some of its fixed costs

When a purely competitive firm is in long-run equilibrium and is allocatively efficient:

Marginal cost equals marginal revenue

Which is true for a purely competitive firm in short-run equilibrium?

The firm's marginal revenue is equal to its marginal cost

The long-run supply curve would be up-sloping in:

An increasing-cost industry

Market failure occurs when:

the competitive market system under-or overallocates resources to production of goods.

From the economist's perspective, "market failures" basically arise when:

demand and supply do not accurately reflect all the benefits and all the costs of production.

If an economy is being "productively efficient," then that means the economy is:

using the least costly production techniques.

With allocative efficiency:

there is production of that particular mix of goods and services most wanted by society.

Private goods are characterized by:

rivalry and excludability.

Which of the following statements is correct about measuring collective demand for public and private goods?

Private good demand is found by horizontally adding individual demand curves; public good demand is found by vertically adding individual demand curves.

In a market where there are external or spillover costs associated with consumption and production, the equilibrium will not be efficient because:

too many resources will be allocated to production of the good.

If there are positive externalities associated with the consumption of a good or service:

the private demand curve will underestimate the true demand curve.

If the production of a product or service involves external or spillover benefits, then the government can improve efficiency in the market by:

providing a subsidy to correct for an underallocation of resources.

If the production of a product or service involves external or spillover benefits, then the government can improve efficiency in the market by:

much of the product at too low a price.

One condition for individual bargaining to occur, according to the Coase theorem, is that there must be:

clearly defined property rights.

To internalize the external costs of pollution is to:

make the polluter pay all of the costs associated with the polluting activity.

The optimal level of pollution in society occurs whenever:

the marginal benefit of pollution control equals the marginal cost.

Suppose that the ABC industry produces a product which results in significant spillover costs to society. Such production suggests that:

resources are overallocated to the industry.

If an activity results in a spillover benefit, then in a pure market economy the:

quantity produced is too low.

What two basic philosophies underlie how an economy's tax burden is assigned?

Benefits-received and ability-to-pay.

A factory, mine, store or warehouse that performs one or more functions in making and distributing goods and services is:

A plant

A group of firms that produce the same or similar products is:

An industry

To the economist, total cost includes:

explicit and implicit costs, including a normal profit.

Accounting profits are typically:

greater than economic profits because the former do not take implicit costs into account.

Economic profits are calculated by subtracting:

explicit and implicit costs from total revenue.

Suppose that a business incurred implicit costs of $200,000 and explicit costs of $1 million in a specific year. If the firm sold 4,000 units of its output at $300 per unit, its accounting profits were:

$200,000 and its economic profits were zero.

Suppose that a business incurred implicit costs of $500,000 and explicit costs of $5 million in a specific year. If the firm sold 100,000 units of its output at $50 per unit, its accounting:

profits were zero and its economic losses were $500,000.

To economists, the main difference between the short run and the long run is that:

in the long run all resources are variable, while in the short run at least one resource is fixed.

The amount of calendar time associated with the long run:

varies from industry to industry.

The long run is characterized by:

the ability of the firm to change its plant size.

The law of diminishing returns indicates that:

as extra units of a variable resource are added to a fixed resource, marginal product will decline beyond some point.

Marginal product:

may initially increase, then diminish, and ultimately become negative.

The total output of a firm will be at a maximum where:

MP is zero.

When total product is increasing at an increasing rate, marginal product is:

positive and increasing.

When total product is increasing at a decreasing rate, marginal product is:

positive and decreasing.

Fixed cost is:

any cost which does not change when the firm changes its output

Average fixed cost:

declines continually as output increases.

Marginal cost is the:

change in total cost that results from producing one more unit of output.

Which of the following is correct as it relates to cost curves?

Marginal cost intersects average total cost at the latter's minimum point.

Assume that in the short run a firm is producing 100 units of output, has average total costs of $200, and average variable costs of $150. The firm's total fixed costs are:

$5,000.00

In the short run the Sure-Screen T-Shirt Company is producing 500 units of output. Its average variable costs are $2.00 and its average fixed costs are $.50. The firm's total costs are:

$1,250.00

Suppose that, when producing 10 units of output, a firm's AVC is $22, its AFC is $5, and its MC is $30. This:

firm's total cost is $270.

If the total variable cost of 9 units of output is $90 and the total variable cost of 10 units of output is $120, then:

the average variable cost of 9 units is $10.

When diseconomies of scale occur:

the long-run average total cost curve rises.

The minimum efficient scale of a firm:

is the smallest level of output at which long-run average total cost is minimized.

Under conditions of pure monopoly:

Entry is blocked

Which is a barrier to entry?

Patents

The demand curve confronting a nondiscriminating pure monopolist is:

The same as the industry's demand curve

Under pure monopoly, a profit-maximizing firm will produce:

In the elastic range of its demand curve

Which is true with respect to the demand data confronting a monopolist?

Marginal revenue is less than price

Allocative inefficiency due to unregulated monopoly is characterized by the condition:

P > MC

At an equilibrium level of output in a pure monopoly:

P > MC and P > minimum ATC

Which of the following conditions is not required for price discrimination?

Buyer with different elasticities must be physically separate from each other.

The practice of price discrimination is associated with pure monopoly because:

monopolists have considerable ability to control output and price.

A monopolist seeks maximum unit profits.

FALSE

In a monopoly, price is greater than marginal cost.

TRUE

Price discrimination is not viable if consumers can resell the products they purchase.

TRUE

Without regulations, monopolists will produce at an output level where marginal benefit is greater than marginal social cost.

TRUE

One feature of pure monopoly is that the monopolist is:

A price maker

Natural monopolies result from:

Extensive economies of scale in production

One feature of pure monopoly is that the demand curve:

Slopes downward

The non-discriminating monopolist's demand curve:

is less elastic than a purely competitive firm's demand curve

At the profit-maximizing level of output, a monopolist will always operate where:

Price is greater than marginal cost

Suppose that a monopolist calculates that at present output and sales levels, marginal revenue is $1.00 and marginal cost is $2.00. He or she could maximize profits or minimize losses by:

Increasing price and decreasing output

Suppose that a monopolist calculates that at present output and sales, marginal cost is $1.00 and marginal revenue is $2.00. He or she could maximize profits by:

Decreasing price and increasing output

The supply curve for a monopoly is:

Nonexistent

A monopolist will definitely discontinue production in the short run if:

Price is less than average variable cost

Which statement is correct?

Pure monopolists do not always realize economic profits

The supply curve for a pure monopolist:

Does not exist because there is no fixed relationship between price and quantity supplied

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