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Econ 202 Test 2 > Test 2 > Flashcards

Test 2 Flashcards

1
Q

For most producing firms

A

Average total costs decline as output is carried to a certain level, and then begin to rise

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2
Q

Which of the following is most likely to be a fixed cost

A

Property insurance premiums

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3
Q

Which of the following is a short-run adjustment

A

A local bakery hires two additional bakers

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4
Q

To teh economist, total cost includes

A

Explicit and implicit costs

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5
Q

Economies and diseconomies of scale explain

A

Why the firm’s long-run average total cost curve is U-shaped

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6
Q

The law of diminishing returns describes the

A

Relationship between resource inputs and product outputs in the short run

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7
Q

If the law of dimishing returns applies to study time

A

The tenth hour of study will likely be less productive than the third

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8
Q

Normal profit is

A

The return to the entrepreneur when economic profits are zero

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9
Q

The long-run average total cost curve

A

Indicates the lowest unit costs achievable when a firm has had sufficient time to alter plant size

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10
Q

If a firm describes to produce no output in the short run, its costs will be

A

Its fixed costs

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11
Q

In the short run, which of the following statements is correct

A

Total cost will exceed variable cost

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12
Q

If an industry’s long-run average total cost curv has an extended range of constant returns to scale, this implies that

A

Both relatively small adn relatively large firms can be viable in the industry

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13
Q

Marginal cost

A

Equals both average variable cost and average total cost at their respective minimums

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14
Q

In the short run

A

TVC will increase for a time at a dimishing rate, but then beyond some point will increase at an increasing rate

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15
Q

To economists, the main difference between the short run and the long run is that

A

In the long run all resources are variable, while in the short run at least one resource is fixed

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16
Q

Fixed cost is

A

Any cost that does not change when the firm changes its output

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17
Q

The vertical distance between a firms ATC and AVC curves represents

A

AFC, which decreases as output increases

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18
Q

Diseconomies of scale arise primarily because

A

Of the difficulties involved in managing and coordinating a large business enterprise

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19
Q

An explicit cost is

A

A money payment made for resources not owned by the firm itself

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20
Q

A purely competitive firms short run supply curve is

A

Upsloping and equal to the oration of the marginal cost curve that lies above the average carina level cost curve

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21
Q

For a purely competitive firm, total revenue

A

Has all

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22
Q

The short run supply curve of a purely competitive producer is based primarily on its

A

Mc curve

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23
Q

On a per unit basis, economic profit can be determined as the difference between

A

Product price and average cost

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24
Q

The short run supply curve for a purely competitive industry can be found by

A

Summing horizontally the segments of the mc curves lying above the avc curve for all firms

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25
Q

Curve 1 in the dollars(y) vs. quantity(x) is a rely competitive firms

A

Total economic profit curve

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26
Q

An industry comprised of a small number of firms, each of which considers the potential reactions of its rivals in making price-output decisions, is called

A

Oligopoly

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27
Q

Refer to the $ vs. output diagram which pertains to a purely competitive firm. Curve c represents

A

Average revenue and marginal revenue

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28
Q

If a firm in a purely competitive industry is confronted with a n equilibrium price of $5, its marginal revenue

A

Will also be $5

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29
Q

Curve 3 in the dollars vs. quantity diagram is teh purely competitive firms

A

Total revenue curve

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30
Q

Which of the following is not a characteristic of pure competition

A

Price strategies by firms

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31
Q

In which of the following industry structures is the entry of new firms the most difficult

A

Pure monopoly

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32
Q

A purely competitive seller is

A

A price taker

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33
Q

Which of the following statements is correct

Chapter 10

A

The demand curve for a purely competitive firm is perfectly elastic, but the demand curve for a purely competitive industry is downsloping

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34
Q

Curve 4 in the dollars vs. quantity diagram is

A

Total cost curve

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35
Q

If a firm is confronted with economic losses in the short run, it will decide whether or not to produce by comparing

A

Price and minimum average variable cost

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36
Q

A perfectly elastic demand curve implies that the firm

A

Can sell as much output as it chooses at the existing price

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37
Q

The demand schedule or curve confronted by teh individual, purely competitive firm is

A

Perfectly elastic

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38
Q

Refer to the $ vs. output diagram. Curve A represents

A

Total revenue only

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39
Q

Assume a graph in which dollars are on the vertical axis and output on the horizontal axis. For a purely competitive firm, total revenue graphs as a

A

Straight upsloping line

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40
Q

When a firm is maximizing profit, it will necessarily by

A

Maximizing the difference between total revenue and total cost

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41
Q

The demand curve in a purely competitive industry is ____, while the demand curve to a single firm in that industry is _____

A

Downsloping, perfectly elastic

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42
Q

Firms seek to maximize

A

Total profit

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43
Q

The MR=MC rule can be restated fora purely competitive seller as P=MC bc

A

Each additional unit of output adds exactly its price to total revenue

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44
Q

A purely competitive firm should produce inteh short run if its total revenue is sufficient to cover its

A

Total variable costs

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45
Q

If a purely competitive firm is producing at the P=MC output and realizing an economic profit, at that output

A

Marginal revenue exceeds ATC

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46
Q

In a dollars vs. output graph, for a purely competitive firm, marginal revenue graphs as a

A

Straight line , parallel to the horizontal axis

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47
Q

A firm reaches a break-even point (normal profit position) where

A

Total revenue and total cost are equal

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48
Q

In the short run, the individual competitive firms supply curve is that segment of the

A

Marginal cost curve lying above the average variable cost curve

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49
Q

Which of the following is not a basic characteristic of pure competition

A

Considerable nonprice competition

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50
Q

A purely competitive seller should produce (rather than shut down) in the short run

A

If total revenue exceeds total cost or if total cost exceeds total revenue by some amount less than total fixed cost

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51
Q

An unprofitable motel will stay open in the short run if

A

Price(average nightly room rate) exceeds average variable cost

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52
Q

In the figure 1,2,3,4 represent

A

Mc, ATC, avc, and ATC curves

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53
Q

In the costs vs. output diagram, curves 1,2,3 represent

A

Total fixed, cost, total variable cost, and total cost

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54
Q

Suppose a purely competitive, increasing cost industry is in the long run equilibrium. Now assume that a decrease in consumer demand occurs. After all reassuring adjustments have been complete, the new equilibrium price

A

And industry output will be less that the initial price and output

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55
Q

In the price vs. quantity diagram, at output level Q2

A

Resources are over allocated to this product and productive efficiency is not realized

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56
Q

Which of the following distinguishes the short run from the long run in pure competition

A

Firms can enter and exit the market in the long run but not in the short run

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57
Q

A constant cost industry is one in which

A

Resource prices remain unchanged as output is increased

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58
Q

Which of the following is true concerning purely competitive industries

A

In the short run, firms may incur economic losses or earn economic profits, but in the long run they earn normal profits

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59
Q

We would expect an industry to expand if firms in that industry are

A

Earning economic profits

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60
Q

A decreasing cost industry is one in which

A

Input prices fall or technology improves as the industry expands

61
Q

Which of the following will not hole true for a competitive firm in the long-run equilibirum

A

P=AFC

62
Q

In the unit costs vs. q diagram, line 2 reflect the long run supply curve for

A

A constant cost industry

63
Q

The primary force encouraging the entry of new firms into a purely competitive industry is

A

Economic profits earned by firms already in the industry

64
Q

Innnovations that lower production costs or create new products

A

Often generate short-run economic profits that do not last into the long run

65
Q

Creative destruction is

A

The process by which new firms and new products replace existing dominant firms and products

66
Q

Suppose a firm in a purely competitive market discover that the price of it product is above its minimum AVC pint but everywhere below ATC. Given this, the firm

A

Should continue producing in the short run but leave the industry in the long run if the situation persists

67
Q

If the long-run supply curve of a purely competitive industry slopes upward, this implies that the prices of relevant resources

A

Rise as the industry expands

68
Q

Assume a purely. O petite firm is maximizing profit at some output at which long-run average total cost is at a minimum. Then

A

There is not tendency for the firms industry to expand or contract

69
Q

Which of the following outcomes is consistent with a purely competitive market in the long-run equilibrium

A

Consumer and producer surplus will be maximized

70
Q

A purely competitive firm is precluded from making economic profits in the long run because

A

Of unimpeded entry to the industry

71
Q

The term allocative efficiency refers to

A

The production of the product mix most desired by customers

72
Q

A purely competitive firm

A

Cannot earn economic profit in the long run

73
Q

If production is occurring where marginal cost exceeds price, the purely competitive firm will

A

Fail to maximize profit and resources will be over allocated to the product

74
Q

The MR=MC rule applies

A

In both short and long run

75
Q

Which of the following is an example of creative destruction

A

Automobile production causes the wagon industry to shut down

76
Q

A pure monopolist should ever produce in teh

A

Inelastic segment of its demand curve bc it can increase total revenue and reduce total cost by increasing price

77
Q

A pure monopolists short run profit maximizing or loss- minimizing position is such that price

A

Will vertically intersect demand where MR=MC

78
Q

For a pure monopolist the relationship between total revenue and marginal revenue is such that

A

Marginal revenue is positive when total revenue is increasing, but marginal revenue becomes negative when total revenue is decreasing

79
Q

When a firm is on the inelastic segment of its demand curve it can

A

Increase profits by increasing price

80
Q

A competitive firm is a ____ and a monopolist is a _____

A

Price taker, price maker

81
Q

Because the monopolists demand curve is downsloping

A

Price must be lowered to sell more output

82
Q

A pure monopolist

A

Will realize an economic profit if price exceeds ATC at the profit-maximizing/loss-minimizing level of output

83
Q

Confronted with the same unit cost data, a monopolistic producer will charge

A

A higher price and produce a smaller output than a competitive firm

84
Q

A purely monopolistic firm

A

Faces a downsloping demand curve

85
Q

Barriers to entering an industry

A

Are the basis for monopoly

86
Q

What do economies of scale, the ownership of essential raw materials, and patent have in common

A

They are all barriers to entry

87
Q

In the short run a monopolists economic profits

A

May be positive or negative depending on market demand and cost conditions

88
Q

Price discrimination refers to

A

The selling of a given product at different prices to different customers that do not reflect cost differences

89
Q

In seeking the profit maximizing output

A

The pure monopolist underalloactes resources to its production

90
Q

The profit maximizing output of a pure monopoly is not socially optimal bc in equilibrium

A

Price exceeds marginal cost

91
Q

If a regulatory commisssion wants to establish a socially optimal price for a natural monopoly, it should select a price

A

At which the marginal cost curve intersects the demand curve

92
Q

For a pure monopolist, marginal revenue is less that price bc

A

When a monopolist lowers price to sell more output, the lower price applies to all units sold

93
Q

A single price monopoly is economically inefficient bc at the profit maximizing output

A

Society value units of monopolized product more highly than it does the alternative products those resources could otherwise produce

94
Q

The vertical distance between the horizontal axis and any point on a nondiscrimination monopolists demand curve measures

A

Product price and average revenue

95
Q

Oligopolistic firms engage in collusion to

A

Earn greater profits

96
Q

Cartels are difficult to maintain in the long run bc

A

Individual members may find it profitable to cheat on agreements

97
Q

The kinked demand curve of an oligopolist is based on the assumption that

A

Competitors will follow a price but ignore a price increase

98
Q

Monopolistic competition is characterized by a

A

Large number of firms adn low entry barriers

99
Q

In game theory, the credibility of a threat

A

Influences the degree of cooperation between two rivals

100
Q

Monopolistically competitive firms

A

May realize either profits or losses in the short run but realize normal profits in the long run

101
Q

Suppose an oligopolistic producer assumes its rivals will ignore a price increase but match a price cut. In this case the firm perceives its

A

Demand curve as kinked, being steeper below the going price than above

102
Q

When a monopolistically competitive firm is in long-run equilibrium

A

MR=MC and P> minimum ATC

103
Q

The Herfindahl index

A

Gives much greater weight to larger firms than to smaller firms in an industry

104
Q

Aluminum competes with copper in the market for power transmission lines. This illustrates

A

Interindustry compettion

105
Q

In the United States cartels are

A

In violation of the antitrust laws

106
Q

Concentration ratios measure the

A

Percentage of total industry sales accounted for by the largest firms in the industry

107
Q

In the short run, the price charged by a monopolistically competitive firm attempting to maximize profits

A

May be either equal to ATC, less than ATC, or more than ATC

108
Q

If the four firm concentration ratio for industry x is 80

A

The four largest firms account for 80 percent of total sales

109
Q

Which of the following is correct for a monopolistically competitive firm in the long run equilibrium

A

P exceeds minimum ATC

110
Q

Excess capacity refers to the

A

Amount by which actual production falls short of the minimum ATC output

111
Q

Under monopolistic competition, entry to the industry is

A

More difficult than under pure competition but not nearly as difficult as under pure monopoly

112
Q

As a general rule, oligopoly exists when the four firm concentration ratio

A

Is 40 percent or more

113
Q

Economic analysis of a monopolistically competitive industry is more complicated than that of pure competition bc

A

Of product differentiation and consequent product promotion activities

114
Q

A significant benefit of monopolistic competition compared with pure competition is

A

Greater product variety

115
Q

A monopolistically competitive industry combines elements of both competition and monopoly. It is correct to say that the competitive element results from

A

A relatively large number of firms and the monopolistic element from product differentiation

116
Q

Game theory can be used to demonstrate that oligopolist s

A

Can increase their profits through collusion

117
Q

A monopolistically competitive firm has a

A

Highly elastic demand curve

118
Q

Prices are likely to be least flexible

A

In oligopoly

119
Q

No price competition refers to

A

Advertising, product promotion, and changes in the real or perceived characteristics of a product

120
Q

The herfindahl index for a pure monopolist is

A

10,000

121
Q

Clear-cut interdependence with respect to the price output policies exists in

A

Oligopoly

122
Q

If the firms in an oligopolistic industry can establish an effective cartel, the resulting output and price will approx. those of

A

A pure monopoly

123
Q

Which of the following is an illustration of differentiated oligopoly

A

The soft drink industry

124
Q

The general rule for hiring any input (say labor) in the profit maximizing amount in MRC=MRP. This rule takes the special form W=MRP where W is the wage rate, when the

A

Firm is hiring labor under purely competitive conditions

125
Q

The substitution effect indicates that a profit seeking firm will use

A

More of an input whose rice has called and less of other inputs in producing a given output

126
Q

Marginal resource cost is

A

The increase in total resource cost associated with the hire of one more unit of the resource

127
Q

The labor demand curve of an imperfectly competitive seller is downsloping

A

Bc of both diminishing returns and the neccessity to lower price to sell more output

128
Q

Assume that coefficient of elasticity of product demand is 0.5 in industry A and is 3.2 in industry B. Other things equal, labor demand will be

A

More elastic in industry B than in A

129
Q

Assuming a competing resource market, a firm is hiring resources in the profit maximizing amounts when the

A

Marginal revenue product of each resource is equal to its price

130
Q

Resource pricing is important bc

A

All

131
Q

The demand for a resource depends primarily on

A

The demand for the product or service that it helps produce

132
Q

The demand for airline pilots results from Teh demand for air travel. This fact is an example of

A

The derived demand for labor

133
Q

Assume the price of capital doubles and as a result firms make no change int he relative quantities of capital and labor they employ. This implies

A

Labor is not readily substitutable for capital

134
Q

The marginal revenue product schedule is

A

The firms resource demand schedule

135
Q

Resource x has many close substitutes, whereas resource y has none. Other thing equal, we would expect

A

The demand for x to be more elastic than demand for y

136
Q

Other things equal, the resource demand curve of an o perfectly competitive seller will

A

Be less elastic than that of a purely competitive seller

137
Q

Which of the following occupations is projected to be the fastes growing in the us in terms of percentage increases

A

Personal care aides

138
Q

Marginal revenue product measures the

A

Amount by which the extra production of one more worker increases a firm’s total revenue

139
Q

Which of the following is true. Other things equal, the demand for labor will be less elastic the

A

Smaller the ratio of labor costs to total costs

140
Q

ATMs and human bank tellers

A

Are substitute resources

141
Q

For a firm selling its product in an imperfectly competitive market, the marginal revenue product of labor can be found by

A

Multiplying marginal product by marginal revenue

142
Q

A decline in the price of resource a will

A

Increase the demand for complementary resource b

143
Q

The relationship between the elasticity of product demand and the elasticity of demand for labor employed in its production is such that, other things being equal

A

The more elastic the demand for the product, the more elastic the demand for labor

144
Q

The labor demand curve of a purely competitive seller

A

Slopes downward bc of diminishing marginal productivity

145
Q

A profit-maximizing firm employs resources to the point where

A

MRP=MRC

146
Q

The elasticity of resource demand measures the

A

Responsiveness of producers to changes in resource prices

147
Q

The elasticity of resource demand will be greater th

A

Easier it is to substitute other resources in production

148
Q

If resource a and b are complementary and employed in fixed proportions

A

An increase in the price of a will decrease the demand for b

Econ 202 Test 2 (1 decks)

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