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ECO 2023, Microeconomics Final

When demand decreases, ceteris paribus, the equilibrium price will also decrease because:

A surplus exists at the old equilibrium price

When a shortage exists

Consumers bid up the price

Ceteris paribus, which of the following is most likely to cause a decrease in the supply of skateboards?

B.

An increase in the cost of materials used to produce skateboards

A buyer is said to have a demand for a good only when:

The buyer is both willing and able to purchase the good at alternative prices

Total utility is maximized when:

Marginal utility is zero

The objective of advertising is to:

Increase demand and decrease the price elasticity of demand

A consumer maximizes total utility from a given amount of income when the:

Marginal utility obtained from the last dollar spent of each good is the same

The amount of satisfaction obtained from consumption of an additional unit of a good is:

Marginal utility

A price cut will increase the total revenue a firm receives, ceteris paribus, only if the demand for its product is:

Elastic Inelastic

What can lead to an increase in the demand for boots?

An increase in income

Assume the price elasticity of demand has an absolute value of 1.8 for a particular good. This means that quantity demanded will decrease by:

1.8 percent for each 1 percent increase in price, ceteris paribus

A leftward shift of the market supply curve, ceteris paribus, causes equilibrium price to:

Increase and quantity to decrease

A factor market is a place where:

Land, labor, or capital is bought and sold

Price elasticity of demand shows how:

Quantity demanded responds to price change

If Garden's Coffee Company wants to increase total revenue and the price elasticity of demand is 0.43, the company should:

Increase the price of coffee

The most desired goods or services that are given up when a choice is made is called the:

Opportunity cost

Ceteris paribus, which of the following can change without shifting demand?

The price of the good itself

A change in demand means there has been a shift in the demand curve, and a change in quantity demanded:

Means that price has changed and there is movement along the demand curve

Economics is the study of how:

Best to use society's scarce resources

Price ceilings set below the equilibrium price create:

A shortage

In most markets, the equilibrium price is achieved:

Through trial and error

Suppose a university raises its tuition by 6 percent and as a result the enrollment of students decreases by 3 percent. The absolute value of the price elasticity of demand is:

0.50

When Sam goes to the gas station he buys 10 gallons of gas no matter what the price per gallon. What does this imply about his price elasticity of demand for gasoline?

It is perfectly inelastic

According to the law of supply, a supply curve:

Has a positive slope

Jose goes to an all-you-can-eat buffet at the Chinese restaurant and consumes three plates of food. He does not go back for a fourth plate of food because:

The marginal utility of the fourth plate would be zero or even negative

What can be purchased in a product market?

Cellphone service

Suppose the income elasticity of demand for U.S. automobiles is 1.0. If the level of income increases by 4 percent, the number of U.S. automobiles sold will, ceteris paribus:

Rise by 4.0 percent

According to the law of demand, a demand curve:

Has a negative slope

Every time we use scarce resources in one way:

We forgo the opportunity to use them in other ways

Ceteris paribus, if the price of a digital camera rises, then we can expect:

A decrease in the quantity demanded of digital cameras

Marginal utility for a good is computed as:

The change in total utility divided by the change in quantity

A market is said to be in equilibrium when:

The quantity demanded equals the quantity supplied

Assume Pepsi and Dr. Pepper are substitutes. An increase in the price of one will result in:

An increase in the demand for the other

Microeconomics involves the study of:

the economy as it relates to a firm

In a competitive market, price is determined by:

market conditions

If marginal cost is above marginal revenue, a competitive firm should...

Decrease production

A competitive firm facing a price of $50 decided to produce 500 widgets. Its marginal cost of producing the last one is $60. What would you advise the firm to do?

Produce fewer widgets

In a perfectly competitive market, the firm faces a demand curve that is:

perfectly elastic

Total Profit is maximized where:

the vertical distance between the total revenue curve and the total cost curve is greatest, assuming that the total revenue curve lies above the total cost curve

In monopolistic competition:

there are many sellers because of easy entry

Marginal revenue for a monopolistically competitive firm:

is less than the price

As firms enter a monopolistically competitive industry in which firms are currently earning economic profits:

the demand curve shifts to the left for the existing firms to the industry

Under monopolistic competition, the demand curve faces by an individual firm is downward sloping because:

the product of each seller is differentiated from that of others

For a monopolistic competitor _______ in the long run equilibrium.

p = ATC and p > minimum ATC

Any firm that has economies of scale will:

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

The In the News article " XM-Sirius Merger Made Simple: One Is Always Less Than Two" discusses the proposed merger of two satellite radio companies. Antitrust officials will examine the merger in order to:

Prevent the abuse of market power.

Profit per unit is equal to:

Price minus average total cost.

Assume a monopoly confronts the same costs and demand as a competitive industry. In this case, the monopolist produces:

Less output and charges a higher price than the competitive industry.

The long run is:

A period of time long enough for all inputs to be variable.

A profit-maximizing producer seeks to:

Maximize total profit.

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

Price equals marginal cost.

The In the News article " XM-Sirius Merger Made Simple: One Is Always Less Than Two" discusses the proposed merger of two satellite radio companies. In some industries, mergers can be economically justified if economies of scale:

Lower the average cost of production.

Monopolists set prices:

At the output where marginal revenue equals marginal cost.

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

Is a monopoly.

A firm experiencing economic losses will still continue to produce output in the short run as long as:

Price is above average variable cost.

The marginal revenue of a monopolist falls below price because the firm:

Confronts a downward-sloping demand curve.

In defining economic costs, economists recognize:

Explicit and implicit costs while accountants recognize only explicit costs.

Normal profit:

Covers the full opportunity cost of the resources used by the firm.

A perfectly competitive firm is a price taker because:

The price of the product is determined by many buyers and sellers.

The entry of firms into a market:

Reduces the profits of existing firms in the market.

For a perfectly competitive market, long-run equilibrium is characterized by all of the following but which one?

A. P = MR.
B. P = MC.
C. P = minimum ATC.
D. P = maximum ATC.

P=MAXIMUM ATC

When technology improves, the firm's marginal cost curve shifts:

Downward and supply increases.

Megan used to work at the local pizzeria for $15,000 per year but quit in order to start her own deli. To buy the necessary equipment, she withdrew $20,000 from her inheritance, (which paid 8 percent interest). Last year she paid $25,000 for ingredients and $500 per month rent but had revenue of $50,000. She asked her dad the accountant and her mom the economist to calculate her profit for her.

Dad says her profit is $9,000 and Mom says her profit is $2,400.

If the equilibrium price in a perfectly competitive market for walnuts is $4.99 per pound, then an individual firm in this market can:

Sell an additional pound of walnuts at $4.99.

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

A. Long-run economic profit
B. High Barriers to entry
C.Identical products
D. A small number of firms

IDENTICAL PRODUCTS

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

Encourage competition.

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

Monopoly

According to the theory of contestable markets, monopoly may not be a problem if:

Potential competition exists.

If economic profits are earned in a competitive market, then over time:

Additional firms will enter the market.

A barrier to entry is:

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

The short run is the time period:

In which some costs are fixed.

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

A. The Shutdown decision
B. The rate of output to producce
C. Entry or exit
D. The price to charge

ENTRY OR EXIT

The marginal cost curve:

Is the short run supply curve for a competitive firm at prices above the AVC curve.

A catfish farmer will shut down production when:

Price falls below AVC.

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

A. Zero economic profit in the long run
B. Perfect Information
C. Homogenous products
D. High Barriers

HIGH BARRIERS

A monopolist who does not practice price discrimination should never produce in the:

Inelastic portion of its demand curve because it can increase total revenue and reduce total costs by increasing the price.

A monopolist has market power because it:

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

A perfectly competitive firm should expand output when:

P > MC

Other things being equal, as more firms enter a market, the market supply curve:

Shifts to the right.

The perfectly competitive market structure includes all of the following except:

A. Many Firms
B. Identical Products
C. Large Advertising Budgets
D. Low-entry barriers

LARGE ADVERTISING BUDGETS

Which of the following represents the change in total cost that results from a 1-unit increase in production?

A. Maginal profits
B. Total revenue
C. Marginal cost
D. Marginal Revenue

MARGINAL COST

For perfectly competitive firms, price:

Is equal to marginal revenue.

Profit:

Is the difference between total revenue and total cost.

The demand curve confronting a competitive firm:

Equals the marginal revenue curve.

If price is less than marginal cost, a perfectly competitive firm should decrease output because:

The firm is producing units that cost more to produce than the firm receives in revenue thus reducing profits (or increasing losses).

Fixed costs:

Must be paid even if output is zero in the short run.

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

A.A small number of firms
B. Exit of small firms when profits are high for large firms
C. Zero economic profit in the long run
D. Marginal Revenue lower than price for each firm

ZERO ECONOMIC PROFIT IN THE LONG RUN

Perfect competition and monopolistic competition are best distinguished by:

The degree of product differentiation.

When a monopolistically competitive firm advertises, it is attempting to increase:

The demand and decrease the price elasticity of demand for its product.

If an oligopolist is going to change its price or output, its initial concern is:

The response of its competitors.

One of the main differences between an oligopoly and a monopolistically competitive firm is that a monopolistically competitive firm:

Is relatively independent; an oligopoly is interdependent.

Both perfect competition and monopolistic competition:

Earn zero economic profit in the long run.

The following multiple-choice question requires critical thinking about In the News and World View articles that appear in the text.

An In the News article, "Water, Water Everywhere," refers to the use of advertising. Successful advertising can do all of the following except:

Maximize efficiency.

Which of the following is true about a monopolistically competitive industry?

A. Marginal cost pricing occurs
B. There is excess capacity
C. Resources are allocated efficiently
D. it produces at teh minimum ATC

THERE IS EXCESS CAPACITY

Oligopolists will maximize total profits for all of the firms in the market at the rate of output where:

MR = MC for the market.

A monopolistically competitive firm maximizes profits or minimizes losses in the short run by:

Producing output at the level where MC = MR.

A concentration ratio measures the:

Proportion of industry output produced by the largest firms.

Which of the following market structures is characterized by firms that have limited control over price?

A. Monopolistic competition
B. Oligopoly
C. Monopoly
D. Duopoly

MONOPOLISTIC COMPETITION

Which of the following characterizes monopolistic competition?

A. Many interdependent firms sell a homogeneous product.
B.A few firms produce a particular type of product
C. Many firms produce a particular type of product, but each maintains some independent control over its own price.
D. A few firms produce all of the market supply of a good.

MANY FIRMS PRODUCE A PARTICULAR TYPE OF PRODUCT, BUT EACH MAINTAINS SOME INDEPENDENT CONTROL OVER ITS OWN PRICE.

What is the most likely response by rivals when an oligopolist cuts its price to increase its sales?

Cut their prices

If new firms enter a monopolistically competitive market, the demand curves for the existing firms will shift to the:

Left and become more price elastic.

One reason why prices tend to be less flexible in oligopoly markets than in other market structures is because:

According to the kinked-demand model, a firm will tend to become worse off if it increases or decreases its prices.

The kinked demand curve explains the observation that in oligopoly markets:

Prices may not change even in the face of cost increases.

The demand curve will be kinked if rival oligopolists:

Match price reductions but not price increases.

The competitive dimension of monopolistic competition is that:

Low barriers to entry tend to push economic profits toward zero.

The following multiple-choice question requires critical thinking about In the News and World View articles that appear in the text.

According to "Coke and Pepsi May Call Off Pricing Battle," price discounting (price wars) can destroy oligopoly profits. When profit destruction occurs,

Rival oligopolists seek to end it as quickly as possible.

The pricing strategy in which there is an explicit agreement among producers regarding price is called:

Price-fixing.

A monopolistically competitive industry is characterized by ________ concentration ratios and ________ entry barriers.

Low; low

How might an oligopolist increase total revenue without changing price?

Through nonprice competition

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

Predatory pricing.

The pricing strategy in which one firm is allowed by its rivals to establish the market price for all firms in the market is called:

Price leadership.

In monopolistic competition there is allocative inefficiency because:

Price is greater than MC.

Which of the following is the critical determinant of market power?

The extent of barriers to entry.

It is most difficult for new firms to enter into:

An oligopolistic market.

The goal of an oligopoly is to maximize:

Market share to achieve long-run economic profit.

For an oligopoly, above-normal profits cannot be maintained in the long run unless:

Barriers to entry exist.

Which of the following industries is likely to have the highest concentration ratio?

Video game systems

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.

Game theory is:

The study of how decisions are made when interdependence exists between firms.

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