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micro economics > final exam > Flashcards

final exam Flashcards

1
Q

whihc of the followign is true about market failure?

A

a) For various reasons, sometimes markets, on their own, cannot find the socially efficient level of quantity (Q*)

b) It is extremely difficult to provide some goods that people value because of their nature, it is hard to collect from everyone who uses it

c) Sometimes, the behavior of market participants affect parties not involved in the market

d) Market failure and government attempts to help are generally controversial topics

e) All of the above are true of market failure!!!!!!

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2
Q

which of the following is not an example of market failure discussed in classs?

A

when the market price of a new car is more than you can afford

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3
Q

. Suppose that buyers and sellers make up a market, and through their actions and supply and demand,
they determine the price and quantity of a good/product. However, also suppose that others not
involved (third parties) are affected by the buyers and sellers actions. What type of market failure do
we call this?

A

externalities

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4
Q

which of the following is the best example of a negetive externality?

A

when a peson next to you is smoking which makes you cough

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5
Q

Suppose that the production of a good generates a negative impact upon third parties. If the market
does NOT take these negative consequences into account, then what is the expected market price
and quantity?

A

price will be lower and quantity higher than the efficient price and quantity

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6
Q

Consider a coal mining company for the next several questions. Let’s say that the company extracts 2,000 tons of coal per day. In order to do this, it ONLY pays for both its workers and the equipment it uses. However, to extract the coal, the mining company also leaves giant, barren holes in the mountain that
need to be replanted with trees. Replanting trees cost $10 per ton of coal. Also, when electric companies burn the coal to produce electricity, it pollutes the air, leading to numerous health problems. Placing
pollution control devices on the electric plants would cost $15 per ton of coal.

A

1) what is the economic problem caused by the mining and burning of coal?
b) negative externalities

2)what does that mean in english?
a)the ining company and the electric company do NOT account for tree planting and pollution control in their decision, and too much coal is mined and burned

3)what are the private costs of mining and burning coal?
d) the labor and equipment costs to the mining company

4)what are the toal costs of mining and burning coal?
e) the cost of labor , the equipment tree panting and installing pollution control devices

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7
Q

Wrigley Field is a historic baseball park in Chicago where the Cubs play. It is also pretty well known for its nearby apartments, where people can gather and watch the live game. What is this problem
known as?

A

free-rider problem

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8
Q

which of the following is the best example of a public good?

A

dickson street

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9
Q

suppose that the town of springdale takes up a collection to put on a fireworks display. Homer, however, does not pay, but can stil watch the show. what type of market failure doesthis represent?

A

public goods

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10
Q

public goods are often best provided by

A

governments

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11
Q

what cant normal private businesses provide public goods?

A

because of the propertities of public goods, privates business can’t stop those who don’t pay from enjoying their use

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12
Q

10-6 figure each unit of plastics that is produced results in an external cost of…

A

12 $

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13
Q

The overuse of antibiotics leads to the development
of antibiotic-resistant diseases. Therefore, the socially optimal quantity of antibiotics is represented by the point

A

Q2

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14
Q

the motivating behavior we assume to drive all firm behavior is

A

maximizing profit

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15
Q

marginal product of labor is defined as the addition

A

output generated from employing 1 more unit of labor

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16
Q

. At Abby’s Cookie Store, 4 workers can bake 44 cookies in one hour, while 5 workers can bake 70
cookies in one hour. The marginal product of the 5th worker is

A

26 cookies
70-44/1

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17
Q

Diminishing returns to labor, or diminishing marginal product of labor, implies that holding other
inputs fixed, eventually
a) output decreases as we employ more units of labor.
b) output rises by more and more as we employ more units of labor.
c) revenue rises by more and more as we produce more units of output.
d) output rises by less and less as we add more units of labor.
e) costs rise by less and less as we produce more units of output.

A

d) output rises by less and less as we add more units of labor.

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18
Q

the short run production function assumes that

A

at least on einput is held fixed or cosntant

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19
Q

long run function assumes that

A

all inputs are free to vary

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20
Q

an example of an explicit cost of production would be the cost of

A

a) hiring extra labor for a busy season.
b) remodeling a store to expand business.
c) repaying a business loan.
d) purchasing raw materials (such as flour for a bakery).

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21
Q

Sabrina owns her own broomstick factory. She pays her employees $150,000 per year. Her
inventories/supplies cost her an additional $90,000 per year. Her rent on the factory is $60,000 per year.
Before running the broomstick factory, she was a race car driver earning $175,000 per year. Use this information to answer the next several questions (8-11).
what is her implicit cost?

A

her foregone income from being a racecar driver (175000)

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22
Q

Sabrina owns her own broomstick factory. She pays her employees $150,000 per year. Her
inventories/supplies cost her an additional $90,000 per year. Her rent on the factory is $60,000 per year.
Before running the broomstick factory, she was a race car driver earning $175,000 per year. Use this
information to answer the next several questions (8-11).

what are sabrinas explicit costs?

A

labor 150000 inventory 90000 rent 60000

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23
Q

Sabrina owns her own broomstick factory. She pays her employees $150,000 per year. Her
inventories/supplies cost her an additional $90,000 per year. Her rent on the factory is $60,000 per year.
Before running the broomstick factory, she was a race car driver earning $175,000 per year. Use this
information to answer the next several questions (8-11).

an accountant would say that sabrinas yearly costs are _______ while an economist wold say that her yearly costs are _________

A

300,000 an 475,000
accounting = explicit
econ= explicit and implict

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24
Q

Sabrina owns her own broomstick factory. She pays her employees $150,000 per year. Her
inventories/supplies cost her an additional $90,000 per year. Her rent on the factory is $60,000 per year.
Before running the broomstick factory, she was a race car driver earning $175,000 per year. Use this
information to answer the next several questions (8-11).

if her revenues were 500,000 for the year, an accountant would say that sabrinas profits were _____ while an economist would say that her profits were ____

A

200,000 and 25,000
rev- yearly costs

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25
Q

economists profits are normally ___ than accoutning profits because ___

A

lower/ econoic costs are greater than accounting costs

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26
Q

marginal cost (MC) can be thought of as the change in

A

total cost from producing one more unit of output

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27
Q

becuase the amount of labor can be changed in the short run, it is known as a

A

variable cost

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28
Q

what happens to fixed costs (FC) as the firm increases production in the short run

A

FC remains cosntant

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29
Q
  1. What happens to average fixed costs (AFC) as the firm increases production in the short-run?
A

AFC continually decreases

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30
Q
  1. What happens to variable costs (VC) as the firm increases production in the short-run?
A

Vc increases slowly at first and then increase fast and faster

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31
Q
  1. What happens to average variable costs (AVC) as the firm increases production in the short-run?
A

AVC decreases at fisr and then begins to increase

32
Q
  1. What happens to total costs (TC) as the firm increases production in the short-run?
A

TC increases slowly at first and the increase faster and faster

33
Q
  1. What happens to average total costs (ATC) as the firm increases production in the short-run?
A

e) ATC decrease at first and then begin to increase

34
Q
  1. What happens to marginal cost (MC) as the firm increases production in the short-run?
A

e) MC decrease at first and then begin to increase

35
Q
  1. Which of the following concerning typical cost curves is correct?
A

a) When marginal cost equals average total cost (ATC), the ATC is at its minimum.
d) When marginal cost is less than average total cost (ATC), the ATC is falling.

36
Q
  1. Which of the following short-run cost curves is NOT typically U-shaped?
    a) average fixed cost
    b) average variable cost
    c) average total cost
    d) marginal cost
    e) All of the above are typically U-shaped
A

a) average fixed cost

37
Q

Use the information below to answer the next several questions 24 - 27.
Hooray! You own your own business producing and selling UARK t-shirts. Suppose that when you employ 4 workers per day, you can produce/sell 100 shirts per week. When you employ 5 workers per week, you can produce/sell 130 shirts per week. When you employ 6 workers per day, you can
produce/sell 170 per week.

  1. As you move from 4 to 5 to 6 workers, what is happening to your production function?
A

INCREASING AT AN INCREASNG RATE

38
Q
  1. As you move from 4 to 5 to 6 workers, what is happening to your marginal production of labor?
A

a) Marginal product of labor (MPL) is rising

39
Q

Given your answers above, what is happening to your total cost function as you increase your weekly
output from 100 to 130 to 170 shirts per week?

A

b) TC is rising at a decreasing rate

40
Q

Given your answers above, what is happing to your marginal cost (MC) function as you increase your
weekly output from 100 to 130 to 170 shirts per week?

A

c) MC is falling

41
Q

what does theat mean?

A

At this point in production, the 170th shirt costs you less to make than the 169th
c) At this point in production, you get more shirts from your 6th worker than you did from your 5th worker

42
Q

graph on pg 12
29. What would be the best way to interpret point A on the graph above?

A

e) When the firm produces 80 units per day, the 80th unit costs an extra $60 to make.

43
Q
  1. What would be the best way to interpret point B on the graph above?
A

a) When the firm produces 80 units per day, each one on average costs $45 to make.
d) When the firm produces 80 units per day, its total costs are $3,600 per day.

44
Q
  1. When the firm produces 80 units per day, what are its total costs per day?
A

c) $3,600

45
Q
  1. When the firm produces 80 units per day, what are its variable costs per day?
A

c) $2,800

46
Q
  1. When the firm produces 80 units per day, what are its fixed costs per day?
A

b) $800

47
Q
  1. Diminishing returns to labor occurs
A

in the short run only

48
Q
  1. When a perfectly competitive firm is producing at a level of output where MC > MR, then the firm
A

e) should decrease output to increase profits.

49
Q
  1. A firm should make the short-run decision to shut down if the
A

e) All of the above would cause a firm to shut down in the short run.

50
Q
  1. A firm should make the long run decision to exit the market if
A

c) price is less than average cost.

51
Q

The perfectly competitive firm’s short run supply curve is its _______, while its long run supply
curve is its _________.

A

d) marginal cost curve above the AVC; marginal cost curve above the ATC

52
Q

Suppose that factory XYZ is a perfectly competitive firm. At the current level of profit-maximizing level of output (Q*), the average total cost is $30, the average variable cost is $25, and the perfectly competitive price is $27. Then, in the short run, XYZ should

A

e) stay open, since it is covering its variable costs and some of its fixed costs.

53
Q

Refer to the question above. What if all the costs were the same at Q*, but the perfectly
competitive price of was $23? Then, in the short run, XYZ should

A

b) shut down since it is not even covering its variable costs.

54
Q

Refer to the questions above. Market price is $23. At Q*, ATC is $30 and AVC is $25. What should
the firm do in the long run?

A

d) Exit. The firm should exit the industry and pursue its next best opportunity.

55
Q

a monopoly can be said to exist when

A

one firm produces a good with no close substitues

56
Q

the debeers group owns a majority of the world diamond mines. this barrier to entry is known as

A

control of resource

57
Q

marginal revenue is the

A

additional revenue generated from selling one more unit of a good

58
Q

the golden rule for finding the profit maximizing level of output* under all market structures is to set the level of output where

A

marginal revenue equals marginalcostwh

59
Q

when comparing monolpoply verses perfect competition, we normally assume that

A

barriers to entry exist under monopoly but not under perfect competition

60
Q

when a monopolist increases output say at lest 1 unit what happens to total revenue

A

unable to determine without information because the monopolist will lose some revenue by charging a lower price but gain some revenue by selling more unitsi

61
Q

in general when marginal revenues is negative what is happening to total revenue

A

totl rev is falling

62
Q

in gen when marginal rev is posititve what is happening to total rev

A

total rev is rising but by less and lss

63
Q

a monopolist can maximize total revenue by setting its level of output where

A

marginal revenue equals zero

64
Q

a monolplist can mazimize profits by setting its level of output where

A

marginal rev equals marginal cost

65
Q

if a monopolist is producing at a level of output where MR> MC then the monopolist

A

should lower its price and increase its level of foutput

66
Q

barriers to entry imply that in the long run

A

Economic profits can be positive

67
Q

suppose that UofA had only one place to buy coffee- starbucks. hwich market structure best captures this scenario

A

monolpoly

68
Q

suppose that uark had many places sellign very similar coffe

A

perfect ocmpetitionco

69
Q

snider the two scenarios above, under which scenario would you predict coffe will be most expense

A

starbucks only

70
Q

under which would it be less expensive

A

coffee produced by many

71
Q

positive longrun profit occurs in

A

monopoly only

72
Q

market power means

A

the ability of a firm to charge a price higher than MC

73
Q

in which market structure do we assume that firms possess market power

A

monopoly only

74
Q

suppy and demand is relly a model of wihc type of market

A

perfect ocmpetition

75
Q

which are true about lessions from the different market structures

A

the more inelastic demand, the more market power firms will have, the greater barriers to entry the easier it is to make long run economic profits
greater barriers to entry provide greater incentive for firms to collude

76
Q

clayton act

A

individuals can sue to recover damages from illegal cooperative aggreements

77
Q
A

micro economics (3 decks)

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