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will be the nine month period between August 15 and May 15; any time period longer than this will be long run for her.

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The academic calendar for a university is August 15 through May 15. A professor commits to a contract that binds her to a teaching position at this university for this period. Based on this information, the short run for the professor

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

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From the perspective of the firm, what is the difference between the short run and the long run?

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the existence of a fixed input that must be combined with increasing amounts of the variable input

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The law of diminishing marginal returns is caused by

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inputs and outputs for a firm in the short run.

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The law of diminishing marginal returns shows the relationship between

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This is an example of a fixed cost because the cost doesn't vary with the number of trains.

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During autumn months, passenger railroads across the globe deal with a condition called slippery rail. It results from a combination of water, leaf oil, and pressure from the train's weight, which creates a slippery black ooze that prevents trains from gaining traction. One solution for slippery rail is to cut back trees from all of a rail firm's rail network on a regular basis, thereby helping prevent the problem from developing. If incurred, would this railroad expense be a better example of a fixed cost or a variable cost? Why?

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-the law of diminishing returns has set in -marginal product is falling -marginal cost is rising

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When the total product function begins to increase at a decreasing rate,

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marginal cost

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The wage rate divided by marginal product equals

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The long-run average cost curve is the envelope of the firm's short-run average cost curves.

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Which of the following is true about the long-run average cost curve?

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the long run, during which all inputs are variable.

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In economics, the planning horizon is defined as

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when the firm is experiencing the long-run, or per-unit, cost falls

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Economics of sale

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all inputs are variables

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Which of the following is a correct statement about the long run in economics?

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At least one input cannot be changed

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Which of the following is a correct statement about the short run in economics?

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marginal product is decreasing

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In the short run, if marginal cost is increasing, which of the following statements must be true?

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average variable cost is decreasing

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In the short run, if average product is increasing, which of the following statements must be true?

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that period of time in which at least one of the firm's inputs, usally plant size, is fixed

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Economists generally define the short run as being

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Law of Diminishing Marginal Product

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The observation that after some point, successive equal size increases in a variable factor of production, such as labor, added to fixed factors of production, will result in smaller increases in output is the Q6

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A U-shaped curve that represents the minimum unit cost of producing any given rate of output.

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Which of the following statements describes a firm's long-run average cost curve? Q15

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is a curve which is tangent to each member of a set of short-run cost curves

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The long-run average cost curve Q18

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attributed to economics of scale

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An increase in long−run average costs resulting from decreases in output is Q19

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the lowest output level at which long-run average costs are at their minimum.

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Minimum efficient scale is defined as Q20

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there is a large number of buyers and sellers,

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Even though one firm produces a large portion of the industry's total output, there are many firms in the industry, and their products are indistinguishable. Firms can easily exit and enter the industry. This example violates characteristic number

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firms in the industry produce and sell a homogeneous product,

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There are many buyers and sellers in the industry. Consumers have equal information about the prices of firms' products, which differ slightly in quality from firm to firm. This example violates characteristic number

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there are insignificant barriers to industry entry or exit.

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Many taxicabs compete in a city. The city's government requires all taxicabs to provide identical service. Taxicabs are virtually identical, and all drivers must wear a designated uniform. The government also limits the number of taxicab companies that can operate within the city's boundaries. This example violates characteristic number

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Better information for producers than consumers.

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Which of the following is not one of the assumptions of a perfectly competitive market?

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perfectly elastic

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The demand curve for the perfectly competitive firm is

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the market dictates each firm's price.

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The demand curve for the perfect competitor is horizontal because

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CARPU = Price * quantity / quantity

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Current average revenue per unit

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PEP = Price - ATC * quantity

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Present Economic Profits

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they are producing where the marginal revenue equals the marginal cost.

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Maximizing economic profits happens when

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equals both average revenue and marginal revenue.

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For a perfectly competitive firm, price

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TP= (Average revenue - average total cost) * quantity

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Total profit equation

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price

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Average revenue is also known as

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ATC = Average Fixed Cost + Average Variable Cost

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Average Total Cost equation

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No, if the firm was maximizing its economic profits the marginal cost would not be less than the average total cost at that rate of output.

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Suppose that a firm in a perfectly competitive industry finds that at its current output rate, marginal revenue exceeds the minimum average total cost of producing any feasible rate of output. Furthermore, the firm is producing an output rate at which marginal cost is less than the average total cost at that rate of output. Is the firm maximizing its economic profits?

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the firm is covering all of its opportunity costs and will stay in business.

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Zero economic profits means

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more elastic

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As the number of firms increases, industry supply becomes relatively

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exit the industry

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When the perfect competitor earns less than normal profits in the long run, the firm will

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-make economic profits -leave the industry -suffer losses

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In a perfectly competitive market, if P = ATC in the long run, the firm will not

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signal entrepreneurs to enter the industry.

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The role of profits in the model of perfect competition is to

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minimized

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At the long-run equilibrium the firm's average total cost is

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the price charged is equal to the opportunity cost to society of producing one more unit of the good.

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With marginal cost pricing,

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Monopoly producers are faced with

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Monopoly producers are faced with

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a single supplier of a good or service for which there is no close substitute.

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A monopolist is defined as

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economics of scale

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As opposed to other types of monopoly, a natural monopoly typically owes its monopoly position to

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There are large economics of scale in the production of widgets Joe's bar

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Which of the following markets has a barrier to entry?

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is the same as the industry demand curve.

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The demand curve of the monopolist

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less than the price of the product

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For a monopolist, marginal revenue is

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-is not -inelastic since this is range in which revenues are falling and the firm could raise revenues by raising the price into the elastic range of demand.

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You observe that the revenue of a monopolist varies directly with changes in price. This firm _____ maximizing its economic profits because a profit-maximizing monopolist will never operate in a price range in which demand is

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has greater price elasticity of demand as close substitutes for the monopoly product are developed.

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The demand curve faced by the monopolist

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greater the price elasticity of demand.

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The better the substitutes for a monopoly firm's product, the

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-The monopolist will sell some of its output at higher prices to consumers with less elastic demand. -A monopoly will engage in price discrimination whenever feasible to increase profits. -Charging different prices to different customers does not mean the monopoly is necessarily using price discrimination.

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Consider a price discriminating monopolist. Which of the following is true?

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The company's demand curve and supply curve are upward sloping.

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If a public utility company is considered a monopolist, which of the following is not true?

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on the elastic portion of the demand curve and charge a higher price.

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If we were to compare the amount produced by firms in a competitive industry to the output produced by a monopoly, the monopolist will produce

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produce less and set a higher price.

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As compared to a perfectly competitive industry, a monopoly industry with identical cost curves will

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-diseconomics of scale

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Which of the following is not a barrier to entry into a market? Q2

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-its demand curve is the same as the market demand for the industry. -it is a single seller of a good or service. -it produces a product with no close substitutes.

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All of the following are true about a monopolist Q3

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-ownership of resources without close substitutes. -governmental restrictions on a firm's ability enter a market. -economies of scale.

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All of the following are considered a barrier to entry into a market Q4

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the demand curve is inelastic.

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A privately owned monopoly will NEVER produce along a range of output for which Q8

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the rate of output where marginal revenue equals marginal cost.

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A monopolist maximizes profits by finding Q14

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The firm must be able to prevent resale of the product.

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Which of the following is necessary for a firm to practice price discrimination? Q16

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I only

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Which of the following conditions is NOT necessary for a firm to be able to engage in price discrimination? I. The firm must be able to produce to the point at which price equals marginal revenue. II. The firm must easily be able to identify consumers with different demand elasticities. III. The firm must be able to prevent resale of the item it produces and sells. Q17

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they can increase their profits.

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Monopolies that price discriminate do so because Q18

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-P is greater than MC and this implies economic inefficiency. -a monopoly produces less and charges a higher price than a perfectly competitive firm would producing the same product or service. -too few resources are being used in the monopoly industry and too many are used elsewhere.

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Monopoly has social costs because Q19

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Monopolies tend to misallocate resources.

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Which of the following statements about a monopolist is TRUE? Q20

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price elasticity of demand.

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The greater the monopolistically competitive firm's success at product differentiation the lower is (are) the firm's

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in long-run equilibrium.

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The monopolistically competitive firm at a level of output of Q1 in the diagram is

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earning positive economic profits.

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The monopolistically competitive firm in the diagram is

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make zero economic profits.

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In the long run, monopolistically competitive firms

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product differentiation and variety.

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The fact that a monopolistically competitive firm does not produce at the minimum ATC can be viewed as the cost of generating

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the monopolistically competitive firm will produce fewer units than the perfectly competitive firm.

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If the average total costs are the same for a perfectly competitive firm and a monopolistically competitive firm, then we know that

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Perfect competition: P = MC = minimum of ATC and zero economic profits; Monopolistic competition: P > MC, P > minimum ATC and zero economic profits.

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In comparing the long-run equilibrium of perfect competition and monopolistic competition, which of the following is true?

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Both of these techniques can be used to increase the demand for the product.

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Why are brand names and advertising important features of monopolistic competition?

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use informational advertising.

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If a firm is selling a search good it is more likely to

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a search good.

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When the qualities of a good are relatively easy to assess in advance of their purchase, the good is known as

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use persuasive advertising.

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When a firm is selling an experience good it is more likely to

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most consume in order to assess them properly

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experience goods are goods that consumers

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both informational and persuasive advertising, so as to provide detailed information and at the same time persuade the consumer to try the product.

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the advertising of credence goods contain

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Direct

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A mortgage company targets a list of specific low risk borrowers for a barrage of e-mail messages touting its low interest rates and fees.

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Direct

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The sales force of a pharmaceutical company visits physicians' offices to promote new medications and to answer physicians' questions about treatment options and possible side effects.

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interactive

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An online bookseller pays fees to an Internet search engine to post banner ads relating to each search topic chosen by someone conducting a search; in part this helps promote the bookseller's brand, but clicking on the banner ad also directs the person to a Web page displaying books on the topic that are available for purchase.

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mass marketin

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A national rental car chain runs advertisements on all of the nation's major television networks.

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an experience good, since people must actually consume before they can determine their qualities.

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A restaurant meal represents

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a credence good, one with qualities that might be difficult for consumers lacking expertise to assess without assistance.

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Psychotherapy represents

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a search good, since it possesses qualities that are relatively easy for consumers to assess in advance of their purchase.

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A heavy-duty filing cabinet represents

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a search good, since it possesses qualities that are relatively easy for consumers to assess in advance of their purchase.

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A wool overcoat represents

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high

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When a firm produces an information product, the initial or fixed costs are

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decrease

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Consequently the average fixed cost and average total cost _______ as the volume of output increases.

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marginal constant

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Since most of the costs are the initial fixed costs of development, once the product is developed, the _______ cost of producing more units of the product are typically low and _______.

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below

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In this case, then, the low and constant marginal cost is _______ the average cost.

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The price equals average total cost.

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What does the long-run price equal for an informational product?

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are known as an informational product.

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Assume that every time you wanted to take this quiz you were charged a fee. The publisher's cost for developing the quizzes and making them available does not vary with the number of times you or anyone else takes the quizzes. These quizzes

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a homogeneous product.

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All of the following are key characteristics of a monopolistically competitive industry except Q1

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some monopoly power over price, and therefore advertising may increase profits.

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The downward slope of the demand curve of a monopolistically competitive firm implies that the firm has Q2

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each firm acts independently of other firms.

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For a monopolistically competitive market, the number of firms in the market implies that Q4

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price exceeds marginal cost and minimum average total cost.

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Critics argue that monopolistically competitive markets are wasteful because Q8

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MR = MC.

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A firm in a monopolistically competitive market determines the profit-maximizing output at which Q12

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use persuasive advertising.

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When a firm is selling an experience good it is more likely to Q16

question

advertise their product.

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In order to differentiate their product brands from those of competing firms, monopolistically competitive firms Q17

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