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ECON 201 B Exam 2
Terms in this set (49)
Roy opens up a latte stand for two hours during the most common break between final exams at his college. He spends $10 for ingredients and sells $60 worth of lattes. In the same two hours, he could have washed his neighbor's cars for $40. Roy has an accounting profit of and an economic profit of
A firm's ______________ consist of expenditures that must be made before production starts that typically, over the short run, ______________ regardless of the level of production.
fixed costs; do not change
______________ include all of the costs of production that increase with the quantity produced.
_____________ occur when the marginal gain in output diminishes as each additional unit of input is added.
diminishing marginal returns
______________ is calculated by taking the quantity of everything that is sold and multiplying it by the sale price.
In order to determine ______________ , the firm's total costs must be divided by the quantity of its output.
In order to determine the average variable cost, the firm's variable costs are divided by ______________.
The term ______________ is used to describe the additional cost of producing one more unit. `
The term ______________ describes a situation where the quantity of output rises, but the average cost of production falls.
economies of scale
If a perfectly competitive market involves many firms selling identical products, then, in the face of such competition,
each of these firms must act as a price-taker
If the firm is producing at a quantity of output where marginal revenue exceeds marginal cost, then,
the firm should keep expanding production
The shape of the perceived demand curve for a perfectly competitive firm reflects that firm's ability to
sell any quantity it wishes at the prevailing market price
If a perfectly competitive firm raises its price, the quantity demanded of its product ______________.
falls to zero
The demand curve as perceived by a perfectly competitive firm is ______________.
The long-term result of entry and exit in a perfectly competitive market is that all firms end up selling at the price level determined by the lowest point on the
average cost curve
Which of the following is most unlikely to present a barrier to entry into a market?
Government ______________ regulations specify that inventors will maintain exclusive legal rights to their respective inventions for ______________.
patent; a limited time
Intellectual property law is a body of law that includes
copyright legislation, as well as all of the above
Which of the following is most likely to be a monopoly?
local electricity distributor
Which one of the following is the most accurate description of a monopolist?
a sole producer of a product for which good substitutes are lacking in a market with high barriers to entry
A firm that holds a monopoly position in the market place is
a price maker
A monopolist is able to maximize its profits by
producing output where MR = MC and charging a price along the demand curve
The slope of the demand curve for a monopoly firm is
The marginal revenue curve for a monopolist ______________ the market demand curve.
always lies beneath
For a pure monopoly to exist,
there is a single seller in a particular industry
Following the assumption that firms maximize profits, how will the price and output policy of an unregulated monopolist compare with ideal market efficiency?
output will be too small and its price too high
After the airline mergers, the four remaining airlines had an increased level of market power. For consumers, this meant that they had to pay
higher prices, regardless of consumer demand
After the airline mergers, the four remaining airlines had an increased level of market power. For the airlines, this meant that the remaining airlines had
the power to set airfares without losing all customers
Why is it more difficult for firms to enter an oligopolistic industry than a highly competitive one?
there are significant barriers to entry, including high start up costs
The fast food industry, where there are many firms with slightly differentiated menus, is best categorized as
How do low-cost carriers impact other airlines?
they increase competition, incentivizing other airlines to offer cheaper prices
Before deregulation, airlines relied on __________ strategies to attract customers, whereas airlines relied more on __________ after deregulation.
non-price competition; price competition
If the government were to grant a single airline sole access to a route from St. Louis to Washington, D.C., it would be reasonable to predict that
airfares on the route would increase
Airlines demonstrate economies of scale because they often have __________ startup costs from the cost of buying airplanes and relatively __________ marginal costs from operating and maintaining air-crafts.
If the airline industry could function under perfect competition, then there would be __________ firms and flights would be __________.
The market structure most associated with the fast food industry is __________ because the firms in the industry produce products that are __________.
monopolistic competition; similar but not identical
Shopping malls typically lease retail space to a large number of clothing stores. When this group of retailers competes to sell similar but not identical products, they engage in what economists call ______________.
In a monopolistic competitive industry, firms can try to differentiate their products by
enhancing product's physical aspects, creating optimal perceptions of the product, choosing optimal locations from which the product is sold, and enhancing the intangible aspects of the product
Which of the following would be classified as a differentiated product produced by a monopolistic competitor?
Channel No. 5
Product differentiation may occur in ______________ because ______________ created strong preferences for certain brands.
the minds of buyers; past habits and advertising
If a monopoly or a monopolistic competitor raises their prices, then
decline in quantity demanded will be larger for the monopolistic competitor
If a monopolistic competitor raises its price, it ______________ customers than a perfectly competitive firm, but ______________ customers compared to the number that a monopoly that raised its
will lose fewer; it will lose more
Which of the following statements about the comparison between monopolistic competition in the long run and monopoly in the long run is FALSE?
Price is greater than average total cost for both monopoly and monopolistic competition.
Which of the following statements about the comparison between perfect competition and monopolistic competition is TRUE?
I. Both perfectly competitive and monopolistically competitive firms produce where marginal revenue equals marginal cost.
II. Both perfectly competitive and monopolistically competitive firms produce where price equals marginal cost.
III. Both perfectly competitive and monopolistically industries are characterized by free entry and zero profits in the long run.
I and III only
A monopolistically competitive firm may earn abnormally high profits in the
short term, but the process of entry will drive those profits to zero in the long run
_____________ occurs when circumstances have allowed several large firms to have all or most of the sales in an industry.
______________ arises when firms act together to reduce output and keep prices high.
The branch of mathematics that analyzes situations in which players must make decisions and then receive payoffs most often used by economists is
The perceived demand curve for a group of competing oligopoly firms will appear kinked as a result of their commitment to
match price cuts, but not price increases
the cross-price elasticity of demand between an unlimited texting option and an unlimited call minutes option offered from a cell phone provider would be
How would you determine the brand value of Contadina tomato products?
----- refers to a point and supply refers to the whole curve.
27. How do the smallness of individual firms relative to the market and the homogeneity of goods among firms impact the pricing behavior of firms in perfectly competitive markets?
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