Exam 3

Question 1

Fixed Input

Answer 1

An input whose quantity is fixed for a period of time and cannot be varied

Question 2

Variable input

Answer 2

an input whose quantity the firm can vary at any time

Question 3

Long run

Answer 3

Time period in which all inputs can be varied

Question 4

short run

Answer 4

the time period in which at least one input is fixed

Question 5

total product curve

Answer 5

The quantity of output depends on the quantity of the variable input, for a given quantity of the fixed input.

Question 6

the marginal product

Answer 6

is the additional quantity of output produced by using one more unit.

Question 7

diminishing returns to an input

Answer 7

The quantity of the input that hold all levels fixed goes up, the marginal product of the input falls

Question 8

The _______ shows the relationship between the firm’s inputs and its output.

Answer 8

production function

The relationship between the firm’s output and the input used to produce it is the production function.

Question 9

The _____ product of labor is the added quantity of output from using one more worker.

Answer 9

marginal

Question 10

An input that cannot be varied for a specified time period is a(n) _______ input.

Answer 10

fixed

Question 11

Adding more fixed inputs to the production process shifts the total product curve _______ and the marginal product curve ___________.

Answer 11

upward; upward

Question 12

Fixed Cost

Answer 12

Does not depends on out produced. it is the cost of the fixed input.

Question 13

Variable Cost

Answer 13

cost depends on output. Cost of variable input

Question 14

total cost

Answer 14

sum of the fixed cost + variable cost

Question 15

Total cost curve

Answer 15

Shows how total cost depends on quantity of output

Question 16

A cost that depends on the quantity of output produced is a _____ cost.

Answer 16

variable

Question 17

There is a trade-off between higher fixed cost and lower variable cost for any output level.

Answer 17

True

Question 18

Products produced by monopolistically competitive firms are viewed by consumers as

Answer 18

imperfect substitutes.

Question 19

A firm’s _________ is the fraction of the total industry output accounted for by that producer’s output.

Answer 19

market share

Question 20

Which of the following industries is most likely to be monopolistically competitive?

Answer 20

food vendors in the food court of a mall

Question 21

True or False? A commodity is a standardized product.

Answer 21

true

Question 22

technological superiority

Answer 22

Will act as a barrier to entry the is likely to be temporary.

Question 23

In the fast food industry, there are many firms producing a differentiated product. This is an example of which market structure?

Answer 23

monopolistic competition

Question 24

An industry with many firms producing differentiated products with free entry and exit in the long run is

Answer 24

monopolistic competition.

Question 25

In the market for wheat, there are many farmers selling exactly the same type of wheat. This is an example of:

Answer 25

perfect competition

Question 26

True or False? A natural monopoly exists when the owner controls a scarce natural resource.

Answer 26

false

Question 27

True or False? The wheat growing industry is a perfectly competitive industry because it produces a standardized product and each farmer has a very small market share.

Answer 27

true

Question 28

Which of the following industries is likely to be monopolistically competitive?

Answer 28

fast food

Question 29

when profit is maximized by producing the quantity of output where the marginal revenue of the last unit produced is equal to its marginal cost

Answer 29

optimal output rule

Question 30

A firm's profit is equal to total _____ minus total cost.

Answer 30

revenue

Question 31

The change in total revenue when output increases by one unit is known as _____ revenue.

Answer 31

Marginal

Question 32

the change in total revenue divided by the change in output.

Answer 32

Marginal revenue is

Question 33

The firm will shut down in the short run if price is less than the minimum average _____ cost.

Answer 33

Variable

Question 34

Dan sells his firewood in a competitive market. At a price of $140 per load, at a quantity of 5, the total revenue at Dan's profit-maximizing output is is?

Answer 34

$700 (140x5)

Question 35

Suppose that Prince Puckler's Ice Cream sells 100 cones each day. It sells each cone for $3, its average variable cost is $2.50, marginal cost is $3, and the average total cost is $3.20. From this we know:

Answer 35

The firm will exit the industry in the long run because their marginal cost is than the average total cost.

Question 36

Dan sells his firewood in a competitive market. If the price is $55 per load, and quantity is 3 (MC is below ATC), Dan should ________ in the long-run.

Answer 36

shut down and leave the industry since his price is less than the average total cost.

Question 37

New firms will enter a perfectly competitive industry if:

Answer 37

Firms currently in the industry are producing at the point where price is above ATC.

Question 38

What is the formula for a firm's profit?

Answer 38

Profit = (Price − ATC) × Quantity

Question 39

What cost do you use to tell if you need to exit the market?

Answer 39

ATC once it decreases then immediately increases

Question 40

The firm will maximize profit by producing at which point?

Answer 40

A point where price is equal to marginal cost.

Question 41

Which is true? - The firm will cease production in the short run if price falls below $18. - The firm's short-run supply curve is its average variable cost curve. - The firm's average total cost is minimized when it is equal to marginal cost. - The firm will earn a positive economic profit if price is above $10.

Answer 41

The firm's average total cost is minimized when it is equal to marginal cost.

Question 42

True or False? An individual firm's demand curve in a perfectly competitive market is perfectly elastic.

Answer 42

True

Question 43

The profit-maximizing rule for the perfectly competitive firm is that it will choose output such that:

Answer 43

MR = MC.

Question 44

Compared to a perfectly competitive firm, a monopolist produces _______ and charges a _____ price.

Answer 44

less; higher

Question 45

True or False? Both perfectly competitive firms and monopolies earn economic profits in the long run.

Answer 45

False

Question 46

The demand curve for a monopolist:

Answer 46

is the industry demand curve.

Question 47

The short-run industry supply curve is the sum of the individual ________ cost curves, assuming that there is _____ entry and exit to and from the industry.

Answer 47

marginal; no

Question 48

When the number of producers is given, the short-run industry supply curve shows

Answer 48

the total quantity supplied for each possible price.

Question 49

Suppose that the long-run industry supply in the production of synthetic fabrics is perfectly elastic. Which of the following statements then is TRUE?

Answer 49

The long-run industry supply for synthetics is horizontal.

Question 50

How does the long-run industry supply curve compare to the short-run industry supply curve?

Answer 50

The long-run curve is always flatter than the short-run curve.

Question 51

The relationship between the long-run industry supply curve and the short-run industry supply curve is such that:

Answer 51

the long-run supply curve is more elastic than the short-run supply curve.

Question 52

If costs are constant in the industry so that each firm faces the same cost structure, then the long-run industry supply curve is:

Answer 52

perfectly elastic.

Question 53

The long-run industry supply curve can slope downward if costs are:

Answer 53

decreasing

Question 54

Suppose a perfectly competitive industry is in long-run equilibrium and no economic profits are being earned. If demand increases, firms will ________ the industry in response, and until exiting firms earn _________ economic profits.

Answer 54

exit; positive

Question 55

Assume that some firms in a perfectly competitive industry are incurring negative economic profits. In the long run, the:

Answer 55

industry supply curve will shift to the left.

Question 56

In the long-run equilibrium of a perfectly competitive industry:

Answer 56

every consumer who is willing to pay the cost of producing the good gets it.

Question 57

A perfectly competitive tomato industry is in long-run equilibrium. Now suppose that a study shows that eating too many tomatoes can be harmful. In the long run:

Answer 57

the supply of tomatoes will decrease and the market price will increase.

Question 58

In the long-run equilibrium of a perfectly competitive industry:

Answer 58

every consumer who is willing to pay the cost of producing the good gets it.

Question 59

Suppose GoSports pennant monopoly is broken up and the pennant industry becomes perfectly competitive. It would be expected that the _____ would increase from the breakup and the _____ would decrease from the breakup.

Answer 59

consumer surplus and total surplus; producer surplus

Question 60

Suppose that a monopoly computer chip maker increases production from 10 microchips to 11 microchips. If the market price declines from $30 per unit to $29 per unit, marginal revenue for the eleventh unit is:

Answer 60

$19.

Question 61

The ability of a monopolist to raise the price of a product above the competitive level by reducing the output is known as:

Answer 61

market power.

Question 62

The demand curve for a perfectly competitive firm is:

Answer 62

perfectly elastic.

Question 63

In perfect competition, the assumption of easy entry and exit implies that:

Answer 63

in the long run all firms in the industry will earn zero economic profits.