Micro Final

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The provision of a public good generates a

positive externality and the use of a common resource generates a negative externality.

When a good is excludable

people can be prevented from using the good.

When a good is rival in consumption,

one person's use of the good diminishes another person's ability to use it.

A view of a spectacular sunset along a private beach is an example of a

nonrival but excludable good.

Because of the free-rider problem,

private markets tend to undersupply public goods.

You are the mayor of a town with 10,000 residents. The head of your economic development agency
recently conducted a survey in which the 10,000 residents said that a small public library in the
center of town would be worth $25 to each of them. Because the cost to build the library is only
$150,000, you arrange to have the library built. Everyone in town enjoys the library, but when you
asked for donations to pay for the library, you only collected $15,000. You are convinced that

most residents of the town are probably free-riders at the library.

You are the mayor of a town with 10,000 residents. The head of your economic development agency
recently conducted a survey in which the 10,000 residents said that a small public library in the
center of town would be worth $25 to each of them. The cost to build the library is $150,000.
Which of the following is the most efficient option?

The library should be built and paid for by the town government and paid for with a tax on
the residents because all residents would benefit from it but some residents would not
donate if they were asked.

Common resource goods are

rival and nonexcludable.

When a good is excludable but not rival, it is an example of

a natural monopoly.

What characteristics do public goods and common resources have in common?

both goods are nonexcludable

Implicit costs

do not require an outlay of money by the firm.

Accounting profits are typically:

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

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

Which of the following is a short-run adjustment?

A local bakery hires two additional bakers.

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.

Marginal product of labor is:

the increase in total output attributable to the employment of one more worker.

The law of diminishing product indicates that:

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

Which of the following is most likely to be a fixed cost?

property insurance premiums

Average fixed cost:

declines continually as output increases.

When marginal cost is less than average total cost,

average total cost is falling.

Assume a firm closes down in the short run and produces no output. Under these conditions:

FC and TC are positive, but VC is zero.

Economies of scale occur when

long-run average total costs fall as output increases.

Which of the following is NOT a characteristic of a perfectly competitive market?

Firms have difficulty entering the market

A single firm in perfect competition in the short run has a:

Horizontal demand curve

For a firm in a perfectly competitive market the price of the good is always equal to

marginal revenue, average revenue, equilibrium market price.

A perfect competitive firm's short-run supply curve is part of which of the following curves?

marginal cost

When a restaurant stays open for lunch service even though few customers patronize the
restaurant for lunch, which of the following principles is (are) best demonstrated?
(i) Fixed costs are sunk in the short run.
(ii) In the short run, only fixed costs are important to the decision to stay open for
lunch.
(iii) If revenue exceeds variable cost, the restaurant owner is making a smart
decision to remain open for lunch.

(i) and (iii) only

In the long run, a profit maximizing firm will choose to exit a competitive market when

revenue from production is less than total costs.

In a competitive market that allows free entry and exit, the process of entry and exit ends
when

profit is zero.
price of the good is equal to average total cost.
profit maximizing firms set a level of output where average total cost is minimum.

When entry and exit behavior of firms in an industry does not affect a firm's cost structure,

the long-run market supply curve must be horizontal.

When a competitive market experiences an increase in demand that increases production
costs for existing firms and potential new entrants, which of the following is most likely to
arise?

The long-run market supply curve will be upward sloping.

The key difference between a competitive firm and a monopoly firm is the ability to select

the price of its output.

If a monopolist faces a downward sloping market demand curve, its

marginal revenue is always less than the price of the units it sells

Which of the following is an example of a barrier to entry?

Dick obtains a copyright for the new computer game that he invented.

Natural monopolies result from:

extensive economies of scale in production

The supply curve for a monopoly is:

nonexistent

Which is true of price discrimination?

Successful price discrimination will provide the firm with more profit than if it did not
discriminate

Perfect price discrimination describes a situation in which the monopolist

knows the exact willingness to pay of each of its customers, can charge each customer a different price, collects the total surplus in the form of higher profit

Round-trip airline tickets are usually cheaper if you stay over a Saturday night before you fly
back. What is the reason for this price discrepancy?

Airlines are practicing imperfect price discrimination to raise their profits, Airlines charge a different rate based on the different nature of peoples' travel
needs, Airlines are attempting to charge people based on their willingness to pay

One difference between monopolistic competition and pure competition is that

There is some control over price in monopolistic competition

Monopolistically competitive firms have a

downward-sloping demand curve.

The demand curve faced by a monopolistically competitive firm

is more elastic than the monopolist's demand curve.

Which of the following market structures do not have barriers to entry that restrict firms from
entering the market?
(i) perfect competition (ii) monopolistic competition
(iii) monopoly (iv) oligopoly

both (i) and (ii)

In the long run, a profit-maximizing firm in a monopolistically competitive market operates
at

some point along the downward sloping portion of its average total cost curve.

In long-run equilibrium, a profit-maximizing firm in a monopolistically competitive industry
will produce the quantity of output where:

AC = P, MR = MC < P

Compared to a purely competitive firm in long-run equilibrium, the monopolistic competitor
has a:

higher price and lower output

Suppose some firms exit an industry characterized by monopolistic competition. We would
expect the demand curve of a firm that remains in the industry to:

shift to the right

In an oligopolistic market there are:

few sellers.

As the number of firms in an oligopoly increases, the

price approaches marginal cost, and the quantity approaches the socially efficient
level.

When the prisoners' dilemma game is generalized to describe situations other than those that
literally involve two prisoners, we see that cooperation between the players of the game

can be difficult to maintain, even when cooperation would make both players of
the game better off.

A major reason that firms form a cartel is to

maximize joint profits

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