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Econ 101 Final Exam
Terms in this set (214)
Jacquelyn is a student at a major state university. Which of the following is NOT an explicit cost of her attending college?
The salary that she could have earned working full-time.
Which of the following statements about opportunity cost is FALSE?
Opportunity cost is synonymous with explicit cost.
You own a small deli that sells sandwiches, salads, and soup. Which of the following is an implicit cost of the business?
The job offer you did not accept at a local catering service.
If the accounting profit for a firm is negative:
The economic profit must be negative.
Profit computed without implicit costs is _______ profit.
Suppose a local floral shop has explicit costs of $200,000 per year and implicit costs of $50,000 per year. If the store earned an economic profit of $50,000 last year, the store's accounting profit equaled:
Economic profit is:
Less than accounting profit if implicit costs exist.
Profit is the difference between ______ and ______.
Total revenues; total costs
The _____ is the increase in output that is produced when a firm hires an additional worker.
The total product curve (or production function):
Will become flatter as output increases if there are diminishing returns to the variable input.
An input whose quantity can be changed in the short run is a(n) _____ input.
An input whose quantity cannot be changed in the short run is:
The marginal product of labor is:
The slope of the total product of labor curve.
Look at the table Total Product and Marginal Product. The marginal product of the fourth worker is _____ units.
Look at the table Total Product and Marginal Product. Negative marginal returns begin when the _____ worker is added.
You own a deli. Which of the following is most likely a fixed input at your deli?
The dining room
You own a deli. Which of the following is a decision most likely to be made in the long run at your deli?
You renovate the second floor of your building to increase the size of the dining room.
The term diminishing returns/product refers to:
a decrease in the extra output due to the use of an additional unit of a variable input when all other inputs are held constant.
Diminishing returns/product to an input occur:
When some inputs are fixed and some are variable.
The total cost curve for a snowmobile dealership shows how _____ cost depends on the quantity of ______.
A fixed cost:
Can be positive, even if the firm doesn't produce any output in the short tun.
The sum of fixed and variable costs is ______ cost.
Once diminishing returns have set in, as output increases, the total cost curve:
The total cost curve (or production function) gets steeper as output increases because of:
Decreasing returns to the variable input
The change in total output resulting from a one-unit increase in the quantity of an input used, holding the quantities of all other inputs constant, is:
Which of the following statements is FALSE?
When the marginal product of labor is upward-sloping, the marginal cost curve is upward-sloping.
The larger the output, the more output over which fixed cost is distributed. Called the _____ effect, this leads to a _____ average _____ cost.
Spreading; lower; fixed
The larger the output, the more variable input required to produce additional units. Called the _____ effect, this leads to a _____ average _____ cost.
Diminishing returns; higher; variable
The average total cost curve has a U shape because the _____ effect is dominant at low levels of output, and the _____ effect is dominant at high levels of output.
Spreading; diminishing returns
For most restaurants, the average total cost curve _____ at _____ levels of output, then _____ at _____ levels.
falls; low; rises; high
The _____ cost curve is NOT affected by diminishing returns.
Austin's total fixed cost is $3,600 a month at his cupcake bakery. Austin employs 20 workers and pays each worker $600 a month. If labor is his only variable cost, what is Austin's total cost?
The marginal cost curve intersects the average variable cost curve at:
It's lowest point
When marginal cost is BELOW average variable cost, average variable cost must be:
If marginal cost is GREATER THAN average total cost:
Average total cost is increasing
When a fine caterer produces 30 catered meals, its marginal cost and average variable cost each equal $10. Therefore, assuming normally shaped cost curves, at 29 meals its marginal cost is _____ $10 and its average variable cost is _____ $10.
Less than; more than
Look at the figure A Firm's Cost Curves. The curve labeled V represents the firm's _____ cost curve.
Look at the figure A Firm's Cost Curves. The curve labeled W represents the firm's _____ cost curve.
Look at the table Output and Costs. When output is 4, total variable cost equals:
The long-run average total cost curve is tangent to an infinite number of short-run _____ cost curves.
In the long run, all costs are:
In the long run:
All factors are variable
A firm that is able to use its inputs more efficiently as it increases production in the long run best demonstrates:
Economies of scale
Buffalo Aircraft doubles the amount of all of the inputs it uses- the factory doubles in size and twice as many workers are hired. After this expansion, the number of aircraft produced triples. IF the price of inputs is unchanged, this means that Buffalo Aircraft is operating with:
Economies of scale
Market structures are categorized by:
The number of firms and whether products are differentiated.
Which of the following statements about the differences between monopoly and perfect competition is incorrect?
Monopoly profits can continue in the long run because the monopoly produces more and charges a higher price than a comparable perfectly competitive industry.
Produces a product with no close substitutes.
Which of the following statements concerning monopoly is true?
A monopoly has no rivals
De Beers became a monopoly by:
Establishing control over diamond mines
A monopolist is likely to produce _____ and charge _____ than a comparable perfectly competitive firm.
If you had a license for the exclusive right to sell breakfast bagels in your community, your monopoly would result from:
The ability of a monopolist to raise the price of a product above the competitive level by reducing the output is known as:
Suppose that you build a high-speed, magnetically powered transportation system from New York to Los Angeles, and you are the only firm providing this service. High fixed costs resulting from the enormous quantity of capital used in this system enable decreasing average cost for any conceivable level of demand. Your monopoly would result from:
Increasing returns to scale
Most electric, gas, and water companies are examples of:
In contrast with perfect competition, a monopolist:
May have economic profits in the long run
You own a lemonade stand in a competitive market, and as such, you are a price-taking firm. Which of the following events would most likely increase your market power?
You own exclusive rights to harvest lemons from all domestic citrus orchards
Conditions that keep new firms out of a monopoly market are:
Barriers to entry
A natural monopoly exists whenever a single firm:
Has economies of scale over the entire range of production that is relevant to its market
Suppose that you build a new jumbo jet that can carry five times more passengers than any other competitor. You have high fixed costs due to the quantity of capital used to build the jets, and average cost is decreasing for all levels of demand. In this case, your monopoly would result from:
Economies of scale
Natural monopolies are likely to include all of the following except:
A diamond mining company
Which of the following is (are) barrier(s) to entry?
Control of scarce resources, economies of scale, and patents and copyrights
The large barriers to entry are a reason a monopoly:
Earns an economic profit in the long run
Which of the following is true?
MR=MC is a profit-maximizing rule for any firm
Wendy has a monopoly in the retailing of motor homes. She can sell five per week at $21,000 each. If she wants to sell six, she can charge only $20,000 each. The quantity effect of selling the sixth motor home is:
Wendy has a monopoly in the retailing of motor homes. She can sell five per week at $21,000 each. If she wants to sell six, she can only charge $20,000 each. The price effect of selling the sixth motor home is:
Mr. Porter sells 10 bottles of champagne per week at $50 per bottle. He can sell 11 bottles per week if he lowers the price to $45 per bottle. The quantity and the price effects on total revenue would be, respectively, an increase of _______ and a decrease of _______.
One of the major differences between a monopolist and a purely competitive firm is that the monopolist has a ______ demand curve, while the purely competitive firm has a _______ demand curve.
Downward-sloping; perfectly elastic
The demand curve facing a monopolist is:
A monopolist responds to an increase in demand by ____ price and _____ output.
A monopolist responds to an increase in marginal cost by ______ price and _____ output.
Look at the figure A Profit-Maximizing Monopoly Firm. This firm's profit per unit is:
Look at the table Prices and Demand. Professor Dumbledore has a monopoly on magic hats. The marginal cost of producing a hat is $18. Suppose Dumbledore can perfectly price-discriminate. How many hats will he produce?
Look at the table Demand and Total Cost. Lenoia runs a natural monopoly firm producing electricity for a small mountain village. The table shows Lenoia's demand and total cost of producing electricity. To maximize profits, Lenoia should charge a price of:
Which of the following statements about monopoly equilibrium and perfectly competitive equilibrium is incorrect?
In the long run, economic profits are driven to zero in both a monopoly and a perfectly competitive market
Look at the figure PPV, which shows the demand and marginal revenue for a pay-per-view football game on cable TV. Assume that the marginal cost and average cost are a constant $20. If the cable company is a monopoly, how much is deadweight loss when the monopolist maximizes profit?
Look at the figure Demand, Revenue, and Cost Curves. Figglenuts-R-Us is a monopolist in the figglenut market. If the government wanted to regulate Figglenuts-R-Us such that the entire deadweight loss would be eliminated in the short run, it would impose a price ceiling of:
Which of the following is true?
Monopolies produce too little and charge too much from the standpoint of efficiency
A monopolist or an imperfectly competitive firm practices price discrimination primarily to:
One government policy for dealing with natural monopoly is to:
Impose a price ceiling to reduce economic profit
Price discrimination leads to a _______ price for consumers with a ____ demand.
Higher; less elastic
Because business travelers' demand for airline flights is relatively ______, small increases in price will result in relatively _______ decreases in additional business travelers.
If the government allowed only one airline to serve the entire U.S. market, there would be a _____ loss associated with ____ efficiency in the airline industry.
Which of the following is not an example of price discrimination?
A fourth of july sale
The municipal swimming pool charges lower entrance fees to local residents than to nonresidents. Assuming that this pricing strategy increases the profits of the pool, we can conclude that nonresidents must have a ______ demand for swimming at the pool than residents.
A community college charges lower tuition fees to town residents than to nonresidents. This pricing strategy increases the profits of the community college. Using this information, we can conclude that nonresidents must have a ____ demand for attending the community college than residents.
A Japanese steel firm sells steel in the United States and in Japan. Since the U.S. buys steel from a number of sources, the U.S. demand for Japanese steel is more price-elastic than the Japanese demand for Japanese steel. If the Japanese steel firm wishes to maximize its profits, it should:
Charge a lower price in the U.S. and a higher price in Japan
Suppose the elasticity of demand for tickets to Broadway shows is 2.0 for men and 0.3 for women. To use price discrimination to increase profits, the producers should charge lower prices to _____ because their demand is _____.
Ashley bought a new pair of jeans. When she walked out of the store, she thought, "I got such a great deal; I would have paid $40 more for these jeans!" This best represents the concept of:
A consumer's willingness to pay reflects:
The maximum price at which he or she would buy the good or service.
The total consumer surplus for good X can be calculated in all ways except as:
The area bounded by the demand curve for X and the two axes
Consumer surplus for an individual buyer is equal to:
The consumer's willingness to pay for the good minus the price of the good
Consumer surplus can be found by computing the area _____ the _____ curve and ______ the price.
Below; demand; above
The table Economics Textbooks shows how much money four consumers would be willing to pay for a new economics textbook. If the price of the textbook is $100, what is the total consumer surplus received by these consumers?
Two consumers, Eli and Madison, like to download songs to their iPhone, and the table Music Downloads represents their willingness to pay for each download song. If an individual song can be downloaded for $1, what is the total consumer surplus received by these consumers?
Use the graph to calculate consumer surplus when the market is at equilibrium.
Along a given downward-sloping demand curve, an increase in the price of a good will _____ consumer surplus.
Along a given downward-sloping demand curve, an increase in the price of a good will:
Decrease consumer surplus
Suppose the United States removes sugar quotas and the market price of sugar drops. If the demand curve for candy bars is downward-sloping, in the candy bar market we would expect:
The consumer surplus to increase
Anna is willing to sell her 20-year old boat, but not for less than $2,300. For anna, the cost of selling this boat is _____ $2,300.
Producer surplus is represented by the area _____ the supply curve and _____ the price.
The total producer surplus for a good can be calculated in all of the following ways except as:
The area below the supply curve for the good up to the quantity of the good sold.
Along a given supply curve, an increase in the price of a good will:
Increase producer surplus
Assuming that the supply curve of cupcakes is upward-sloping and demand for cupcakes decreases, there is a(n) _____ in _____ surplus.
Peanut butter and jelly are complements in consumption. Assuming that the supply curve of peanut butter is upward-sloping, if there is a decrease in the price of jelly, producer surplus in the peanut butter market:
The figure The Market for Hamburgers shows the weekly market for hamburgers in Irvine, Kentucky. If the price of a hamburger is $1 and 200 hamburgers are supplied, producer surplus will equal:
The figure The Market for Hamburgers shows the weekly market for hamburgers in Irvine, Kentucky. If the price of burgers falls from $1.50 to $1.00, there is a loss in producer surplus. How much of the loss accrues because of the change in the quantity supplied?
Look at the Producer Surplus. When the price falls from $45 to $35, producer surplus _____ for a total producer surplus of _______.
Decreases by $40; $60
Look at the figure Producer Surplus. When the price rises from $25 to $35, producer surplus _______ for a total producer surplus of _______.
Increases by $30; $60
Look at the figure Producer Surplus. Total producer surplus is _____ when the price is $40.
Maximum total surplus in the market for chocolate occurs when:
The market is in equilibrium
The total surplus in a market is:
The sum of consumer surplus and producer surplus
Look at the figure The Market for Hamburgers. The maximum total surplus for the market is _____, and it occurs at a price equal to _______.
Look at the figure The Market for Sandwiches. At the competitive price of $5, 10 sandwiches are sold. At this competitive price, consumer surplus equals _____ and producer surplus equals _______.
If the market for grapefruit is in equilibrium without any outside intervention to change the equilibrium price:
Consumer and producer surplus are maximized
When market is efficient:
There is no way to make some people better off without making other people worse off
Look at the figure Change in Total Surplus. Which of the following areas represent the change in total surplus when the price falls from P1 to P2?
C and E
Look at the figure Change in Total Surplus. Which of the following areas represent the change in total surplus when the price falls from P2 to P3?
C and E
There are two consumers, Andy and Ben, in the market for pumpkins. Their willingness to pay for each pumpkin is shown in the table Pumpkin Market. There are two producers of pumpkins, Cindy and Diane, and their costs are also shown. The equilibrium price for pumpkins is:
There are two consumers, Andy and Ben, in the market for pumpkins. Their willingness to pay for each pumpkin is shown in the table Pumpkin Market. There are two producers of pumpkins, Cindy and Diane, and their costs are also shown. The equilibrium price for pumpkins is $8 and the equilibrium quantity is 5. At the equilibrium price and quantity, Andy buys ______ pumpkins and his consumer surplus is _______.
There are two consumers, Andy and Ben, in the market for pumpkins. Their willingness to pay for each pumpkin is shown in the table Pumpkin Market. There are two producers of pumpkins, Cindy and Diane, and their costs are also shown. The equilibrium price for pumpkins is $8 and the equilibrium quantity is 5. At the equilibrium price and quantity, total consumer surplus is:
There are two consumers, Andy and Ben, in the market for pumpkins. Their willingness to pay for each pumpkin is shown in the table Pumpkin Market. There are two producers of pumpkins, Cindy and Diane, and their costs are also shown. The equilibrium price for pumpkins is $8 and the equilibrium quantity is 5.At the equilibrium price and quantity, total producer surplus is:
There are two consumers, Andy and Ben, in the market for pumpkins. Their willingness to pay for each pumpkin is shown in the table Pumpkin Market. There are two producers of pumpkins, Cindy and Diane, and their costs are also shown. The equilibrium price for pumpkins is $8 and the equilibrium quantity is 5.At the equilibrium price and quantity, total surplus is:
Look at the figure The Gains from Trade. What is the total surplus in this market with the demand curve is D1 and the market is in equilibrium?
Look at the figure The Gains from Trade. What is the total surplus in this market with the demand curve is D2 and the market is in equilibrium?
Look at the figure The Gains from Trade. When demand increases from D1 to D2, equilibrium total surplus:
Increases by $27.50
Coffee and tea are substitutes in consumption. If there is an increase in the price of coffee, assuming a positively sloped supply curve and a negatively sloped demand curve, total surplus in the tea market:
If a frost destroys much of the grapefruit crop, assuming a positively sloped supply curve and a negatively sloped demand curve, total surplus:
Suppose a competitive market has a downward-sloping demand curve and a horizontal supply curve. If the supply curve shifts downward, equilibrium price will ________, equilibrium quantity will ________, consumer surplus will _______, and producer surplus will ________.
Decrease; Increase; Increase; Not change
Look at the figure Consumer and Producer surplus. If the price is held above equilibrium, consumer surplus ______ and total surplus _______.
Look at the figure Consumer and Producer surplus. If the price is held below equilibrium, producer surplus ______ and total surplus _______.
Look at the figure Consumer and Producer Surplus. An increase in supply will:
Increase consumer surplus and total surplus
Peanut butter is an inferior good. If there is an increase in income, total surplus in the peanut butter market:
If the technology of producing peanuts improves, total surplus in the peanut butter market:
When the price goes down, the quantity demanded goes up. The price elasticity of demand measures:
The responsiveness of the quantity change to the price change
The price of gasoline rises 5% and the quantity of gasoline purchased falls 1%. The price elasticity of demand is equal to ______, and demand is described as _______.
The ratio of the percentage change in quantity demanded to the percentage change in price is the ______ elasticity of demand.
The price elasticity of demand can be found by:
Comparing the percentage change in quantity demanded to the percentage change in price
If the estimated price elasticity of demand for foreign travel is 4:
A 20% decrease in the price of foreign travel will increase quantity demanded by 80%
Egg producers know that the elasticity of demand for eggs is 0.1. If they want to increase sales by 5% they will have to lower price by:
Gas prices recently increased by 25%. In response, purchases of gasoline decreased by 5%. According to this finding, the price elasticity of demand for gas is:
The only producer of chocolate bunnies in the world, Choco's Bunny Company, recently expanded its production capacity from 1,000 to 2,000 bunnies per day. If the price elasticity of demand for bunnies is 3.33, by how much will the company have to reduce its price to sell the additional 1,000 bunnies?
Use of the midpoint method to calculate the price elasticity of demand eliminates the problem of computing:
Different elasticities, depending on whether price decreases or increases
Each month Jessica buys exactly 15 Big Macs regardless of the price. Jessica's price elasticity of demand for Big Macs is:
Suppose the price elasticity of demand for cheeseburgers equals 0.37. This means the overall demand for cheeseburgers is:
The price elasticity of demand for skiing lessons in New Hampshire is over 1. This means that the demand is _____ in New Hampshire.
A rancher in Oklahoma decides to raise the price of her beef by 19% over the prevailing market price. If the demand for beef is perfectly elastic, this rancher's quantity demanded will:
Fall to 0
A restaurant manager has estimated that the price elasticity of demand for meals is 2. If the restaurant increases menu prices by 5%, she can expect the number of meals sold to decrease by _____ and total revenue to _______.
After a price decrease, the quantity effect tends to:
Increase total revenue
The university hopes to raise more revenue by increasing parking fees. This plan will only work if:
The price effect is larger than the quantity effect
Look at the figure Demand Curves. Which graph shows a perfectly elastic demand curve?
A perfectly price-inelastic demand curve is:
If demand is elastic, the ____ effect dominates the ____ effect, and a(n) _____ in price will cause total revenue to rise.
Quantity; price; decrease
When demand is ________, a rise in price leads to a(n) _____ in total revenue
Which of the following is not true regarding a price-elastic demand curve?
The absolute value of the price elasticity is a fraction less than 1
If total revenue goes up when the price falls, demand is said to:
Total revenue will decrease if the price goes _____ and demand is _________.
If demand ______ and the University of Michigan increases the price of football tickets, revenues will increase.
Is a price-inelastic
Which of the following is not a factor in determining the price elasticity of demand?
The slope of the supply curve
If a good has a price-inelastic demand, then which of the following is not likely to be a characteristic of this good?
It has many substitutes
If the price of emergency visits to the doctor rose, we would expect:
Only a slight decline in the number of emergency visits to the doctor
A newspaper typically consumes a smaller fraction of a consumer's budget than a home entertainment system. Therefore, you would expect the demand for:
A home entertainment system to be more price-elastic
The demand for textbooks is price-inelastic. Which of the following would explain this?
Textbooks are a necessity
Which of the following goods is likely to have the largest price elasticity of demand?
A green cannondale mountain bike
We predict the long-run price elasticity of demand for gasoline to be _____ the short-run price elasticity of demand for it
Which of the following is most likely to have a vertical supply curve?
Paintings by Van Gogh
The long-run price elasticity of supply of crude oil is _____ the short-run price elasticity of supply of crude oil.
The price elasticity of supply for a good is 3 if a ________ in price leads to a 3% decrease in the quantity supplied.
The supply curve for a good will be more elastic if:
Production inputs are readily available at a relatively low cost
Which of the following statements is true?
Income elasticity of demand measures how much the quantity demanded of a good is affected by changes in consumer's incomes
If the income elasticity of demand for a good is _______, the good is said to be __________.
For which of the following is the cross-price elasticity of demand most likely a large positive number?
French fries and onion rings
Raina consumes 100% more mechanical pencils when the price of felt-tip pens increases by 50%. For Raina, pencils and pens are ________ and the cross-price elasticity of demand is ________.
In an oligopoly:
Firms recognize their interdependence
Oligopoly is a market structure that is characterized by a _______ number of _______ firms producing _________ products.
Small; interdependent; identical or differentiated
To be called an oligopoly, an industry must have:
A small number of interdependent firms
In oligopoly, a firm must realize that:
Another major firm may dominate choices in the industry, and it will have to behave accordingly
Which of the following scenarios best describes an oligopolistic industry?
Coca-Cola and Pepsi sell most of the soft drinks consumed around the world
An extreme case of oligopoly in which firms collude to raise joint profits is known as a:
Collusive agreements are typically difficult for cartels to maintain because each firm can increase profits by:
Producing more than the quantity that maximizes join profits
Game theory is commonly used to explain behavior in oligopolies, because oligopolies are characterized by:
An analytical approach through which strategic choices can be assessed is called:
In the classic prisoner's dilemma with two accomplices in crime, the dominant strategy for each individual is to:
The outcome of a strategic choice is called a:
Market power in the U.S. was often gained in the latter part of the 19th century by:
Attempts by the federal government to prevent exercise of monopoly power in the U.S. are known as _______ policy.
The field of law that attempts to limit the ability of oligopolists to collude and restrict competition is called:
One of the earliest actions of antitrust policy was the breakup of:
The Standard Oil Company
Monopolistic competition is similar to perfect competition because firms in both market structures:
Do not face any barriers to entry to the industry in the long-run
Which of the following industries is most likely to be monopolistically competitive?
Fresh bagel shops
An example of monopolistic competition is the _________ industry.
The wedding dress industry is monopolistically competitive. As a result:
Dresses tend to be differentiated among the many sellers serving this market
For the monopolistically competitive wild-caught seafood market, the demand curve for any individual firm is _____, and there are ______ producers of seafood.
The downward-sloping demand curve for a monopolistically competitive firm:
Reflects product differentiation
Because most communities have a large number of similar but not identical substitutes, the market for chiropractors is best considered to be:
Which of the following is not a characteristic of monopolistic competition?
A common example of monopolistic competition is the market for:
The sources of product differentiation do not include:
Consumers' values in uniformity
The demand curve for a firm in monopolistic competition is _________ facing a perfectly competitive firm.
Downward-sloping, unlike the horizontal demand curve
If a monopolistically competitive firm is producing the profit- maximizing level of output and is earning an economic profit in the short run:
Marginal revenue equals marginal cost
In the long run, monopolistic competitors will:
Earn zero economic profits
In long run equilibrium, a firm in monopolistic competition is similar to a monopoly because it:
Charges a price greater than marginal cost
Which of the following is true of firms in both perfect competition and monopolistic competition?
Long-run economic profits are equal to zero
In long-run equilibrium in monopolistic competition:
Price is equal to average total cost an output below where average total cost is minimized.
The most likely reason that the government implements a _____ is because it feels the price is too high for _____
Price ceiling; consumers
To be binding, a price ceiling must be set at a price:
Lower than the equilibrium price
If the government imposes binding rent control:
It may result in some landlords leaving the business because they cannot cover costs
Price ceilings will impose costs on society because they:
Lead to a smaller quantity offered on the market
When a tenant in a rent-controlled apartment sublets the apartment to another renter at a rent higher than the price-ceiling:
The transaction takes place on a black market
One of the ways rent control is inefficient is that it leads to:
High opportunity costs associated with wasted time searching for apartments
Rent controls in NYC cause all of the following except:
An increase in the quantity supplied of rent-controlled apartments
The most likely reason that the government would implement a ________ is because it feels that the price is too low for ________.
Price floor; producers
When the government removes a binding price floor:
Quantity demanded will increase and quantity supplied will decrease
When the minimum wage increases:
Unemployment among unskilled workers increases
Suppose the government sets a price floor below the current price of a good. This price floor will:
Have no effect on the price of the good
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