question

In a competitive price-searcher market, the firms will

answer

be able to choose their price, and the entry barriers into the market will be low

question

A profit-maximizing price searcher will expand output to the point where

answer

marginal revenue equals marginal cost

question

In the long run, neither competitive price takers nor competitive price searchers will be able to earn economic profits because

answer

competition will force prices down to the level of per-unit production costs.

question

If firms in a competitive price-searcher market are currently earning economic losses, then in the long run,

answer

some existing firms will exit the market, and the remaining firms will experience an increase in demand for their products until zero economic profit is again restored.

question

As long as a market is contestable, then even if it has only a few sellers, the

answer

threat of new entrants will prevent the prices from rising above the competitive level.

question

Entrepreneurial judgment

answer

is necessary to make business decisions when no fixed decision rule can be used.

question

Compared to the outcome when the firms are price takers, competitive price-searcher markets will result in

answer

a wider variety of products and higher prices.

question

If a market is in long-run equilibrium, which of the following conditions will be present in a competitive price-taker market but absent from a competitive price-searcher market?

answer

P = MC

question

The strategy underlying price discrimination is

answer

to increase total revenue by charging higher prices to those with the most inelastic demand for the product and lower prices to those with the most elastic demand.

question

If a government wanted to increase the prosperity of a nation, it could best serve this goal by

answer

reducing barriers that restrict the ability of potential competitors to enter markets.

question

When profits exist in a competitive price-searcher market,

answer

rival firms will be attracted into the market.

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Which of the following is true when long-run equilibrium conditions are present in price-taker and competitive price-searcher markets?

answer

P = ATC in both price-taker and competitive price-searcher markets.

question

Losses are important to a competitive price-searcher market (industry) because they send a message to the market participants that

answer

resources can rise in value if diverted away from that particular industry

question

Many small U.S. cities are served by only one or two airlines. If a price increase in these markets allows other airlines to quickly and easily enter the market and compete, economists would call these markets

answer

contestable markets.

question

If a market is contestable, the market will be characterized by

answer

minimum-cost production methods and a competitive (normal) profit rate.

question

To the extent that competitive price searchers fail to expand output to the minimum per-unit cost rate, many economists believe that this high cost is merely a premium that must be paid for.

answer

product variety and convenience

question

Which of the following conditions is most essential if a firm is going to earn long-run economic profits?

answer

restrictions that limit the entry of potential competitors into the industry

question

The strategy underlying price discrimination is to

answer

increase total revenue by charging higher prices to those with the most inelastic demand for the product and lower prices to those with the most elastic demand

question

If a profit-maximizing restaurant is going to increase its revenues by charging senior citizens (persons age 65 and over) lower prices than other customers,

answer

the demand of senior citizens for the services of the restaurant must be elastic.

question

Why do airlines often charge students and vacationers a lower price than business travelers?

answer

The demand of students and vacationers is generally more elastic than the demand of business travelers

question

Airfares are generally cheaper if they include a Saturday night stay at the destination. This is because

answer

business travelers are less likely than leisure travelers to be willing to stay Saturday night away from home, and business travelers will generally have more inelastic demand for air travel.

question

What price should a competitive price-searcher firm with the cost and demand conditions depicted in Figure 10-4 charge if it wants to maximize its profit?

answer

$20

question

What is the maximum economic profit this firm depicted in Figure 10-4 will be able to earn?

answer

$200 loss

question

If the cost and demand conditions of this competitive price-searcher firm depicted in Figure 10-4 are representative of the market, what will happen in the future?

answer

Some firms will go out of business, and the market price will rise.

question

What price should a competitive price-searcher firm charge with the cost and demand conditions depicted in Figure 10-9 if it wants to maximize its profit?

answer

$24

question

What is the maximum economic profit this firm depicted in Figure 10-9 will be able to earn?

answer

zero profit

question

Given the cost and demand conditions depicted in Figure 10-10 for the competitive price-searcher firm, what is the price that the firm should charge if it wants to maximize its profit?

answer

40

question

Refer to Figure 10-12. Panel (a) shows a profit-maximizing competitive price-searcher firm that is

answer

earning zero economic profit.

question

Refer to Figure 10-12. Panel (b) is consistent with a firm in a competitive price-searcher market that is

answer

not in long-run equilibrium.

question

Refer to Figure 10-12. Which of the panels depicts a firm in a competitive price-searcher market earning positive economic profits?

answer

Panel c

question

When economists talk about a barrier to entry, they are referring to

answer

a factor that makes it difficult for potential competitors to enter a market.

question

A monopolist will maximize profits by

answer

selling at the price on the demand curve at the output rate where marginal revenue equals marginal cost.

question

Which one of the following is the best description of a monopolist?

answer

a firm that is the sole producer of a product for which there are no good substitutes in a market with high barriers to entry

question

Assuming that firms maximize profits, how will the price and output policy of an unregulated monopolist compare with ideal market efficiency?

answer

The output of the monopolist will be too small and its price too high

question

Oligopolistic agreements on price tend to be unstable because

answer

although the monopoly price maximizes the joint profits of the firms, a secret price cut by any individual firm will increase the profits of that firm; hence, collusive agreements tend to break down.

question

The price charged by oligopolists will

answer

generally fall between the monopoly and competitive market equilibrium prices.

question

When firms use resources in an attempt to secure and maintain grants of market protection from the government, it is called

answer

rent-seeking

question

An oligopolistic market

answer

has a small number of rival firms, and each is large relative to the size of the market.

question

A monopolist has less to gain from cost-saving measures in the production process when

answer

regulators use average cost pricing to set the monopolist's price.

question

When natural monopoly is present in an industry, the per-unit costs of production will be

answer

lowest when a single firm generates the entire output of the industry.

question

A monopolist will earn economic profits as long as his price exceeds

answer

average total cost.

question

When a monopolist is maximizing profit, which of the following conditions will always be satisfied?

answer

MR = MC

question

Cartel agreements are difficult to maintain because individual members

answer

are often unable to police the price and output policies of other members.

question

Which one of the following factors reduces the likelihood that a cartel agreement will lead to higher producer profit?

answer

the development of substitutes for the good produced by the cartel

question

If entry-restricting legal barriers effectively organized the funeral home industry of a large city into a monopoly cartel, economic theory indicates that, compared to the previously competitive situation,

answer

the price of funeral services would increase, and output would decline.

question

Which of the following is a valid criticism of unregulated monopoly?

answer

Monopoly limits the options available to consumers.

question

Economists generally criticize high barriers to market entry because

answer

the ability of consumers to discipline producers is weakened.

question

Which of the following is an important side effect of government licensing and other grants of monopoly power?

answer

Rent-seeking is encouraged

question

A natural monopoly exists when

answer

ATC in an industry will be at a minimum if output is produced by a single firm

question

Regulating natural monopolies according to the "rate of return" criterion is likely to

answer

reduce the incentive of firms to minimize cost.

question

What problem does the government have that makes price regulation less than an ideal solution?

answer

Regulators frequently will not have the information they need to set prices.

question

The incentive for managers of a government-operated firm (for example, a state university or the U.S. Post Office) to operate efficiently will be

answer

low because there are no residual claimants to monitor and institute cost-reducing measures

question

The demand and cost conditions in an industry are as depicted in Figure 11-8. In the viewpoint of economic efficiency, what would the ideal price and output be?

answer

price, $15; quantity produced, 75

question

If the output in the industry is produced by a monopolist, at what price will the good sell and what quantity will be produced in Figure 11-8?

answer

price, $20; quantity produced, 50

question

Given the cost and revenue curves illustrated in Figure 11-10, what price will a profit-maximizing monopolist charge?

answer

P4

question

If the monopolist is regulated by the "marginal cost pricing" technique, what price in Figure 11-10 will be charged?

answer

P3

question

Figure 11-12 indicates the industry cost and demand conditions for a product produced in an oligopolistic industry. The price of this product is most likely to be

answer

in the range between P1 and P2.

question

If the firms in this oligopolistic industry depicted in Figure 11-12 can collude effectively and restrict the entry of potential competitors, the price of their product will tend to be

answer

close to P2

question

The demand curve for a human resource will be more elastic the

answer

more and better substitutes are available for it.

question

If skilled labor is three times the cost of unskilled labor, a profit-maximizing firm will vary the quantity of each type of labor until the

answer

marginal product of unskilled labor is one-third that of skilled labor.

question

The notion that the demand for inputs depends on the demand for outputs is termed

answer

derived demand

question

What concept implies that a firm's marginal revenue product curve for labor will slope downward in the short run?

answer

diminishing marginal returns

question

Which one of the following labor resources will likely have the most inelastic supply schedule in the short run?

answer

dentists

question

Suppose the United Auto Workers' Union succeeded in obtaining a 10 percent increase in the wages of its workers and that the wage increase caused automobile prices to rise. Employment in the auto industry would be most likely to decline significantly if

answer

the demand for American-made automobiles was highly elastic.

question

If the demand for a consumer good decreases, the demand for resources required to make the good will

answer

decrease.

question

An increase in the demand for a product will cause

answer

both the demand for and prices of the resources used to produce the product to increase.

question

If the demand for workers with doctorate degrees in economics increases, we would expect

answer

the wages of economists to increase in the short run and the number of economists employed to increase in the long run.

question

Which of the following scenarios would serve to decrease the demand for unskilled labor in our country?

answer

increased international trade with countries where unskilled labor is more plentiful.

question

As the price paid to a resource increases,

answer

resources will shift from other resource markets to this one.

question

Which of the following most clearly illustrates the concept of "derived demand"?

answer

An increase in the demand for new houses leads to an increase in the demand for construction workers.

question

When the price of steel rises, Ford uses more aluminum in the production of its cars. This is an example of

answer

substitution in production

question

The demand for a product, such as coal, is likely to be

answer

more elastic in the long run than in the short run.

question

When a firm decides to hire more workers because local wage rates have decreased, this is an example of

answer

substitution in production

question

Assume that the demand for paper products increases. Then, we expect that the

answer

demand for trees will also increase

question

If a profit-maximizing firm hires an additional unit of labor, what must be true about labor's wage and marginal revenue product?

answer

Its wage is always less than or equal to its marginal revenue product.

question

An improvement in technology that allows workers to process twice as many insurance forms in an hour than before will cause

answer

more workers to be employed because their marginal revenue product has increased.

question

Troll Corporation sells dolls for $10.00 each in a market that is perfectly competitive. Increasing the number of workers from 100 to 101 would cause output to rise from 500 to 550 dolls per day. The marginal revenue product for the 101st worker is

answer

$500

question

Tucker Corporation sells its product for $5.00. Tucker's industrial engineers have informed management that hiring one additional worker will increase output by five units per hour. Tucker should hire the additional worker only if the wage rate is

answer

$25.00 or less per hour.

question

What happens to labor supply in the pear-picking market when the wage paid to apple pickers increases?

answer

The labor supply will decrease.

question

If a college education did not increase worker productivity,

answer

the earnings of workers with a college education would tend to be the same as for workers without a college degree.

question

Which one of the following resources will likely have the most elastic supply curve in the short run?

answer

sales clerks

question

If Figure 12-1 indicated the short-run and long-run supply curves for a resource, which of the following would probably be the long-run supply curve of the resource?

answer

Sa

question

If one short-run supply curve in Figure 12-1 was for truck drivers and the other was for nuclear physicists (also short-run), which one would probably be the supply curve for physicists?

answer

Sb

question

The demand D1 and short-run supply SSR of accountants is indicated in Figure 12-2. Which of the following would most likely shift the demand for accountants from D1 to D2?

answer

enacting legislation that increases the complexity of personal and business tax returns

question

If an unanticipated increase in demand in Figure 12-2 shifts the demand for accountants from D1 to D2, how will the higher level of demand influence the wages of accountants in the short run and the long run?

answer

In the short run, wages will increase to W2, but the wage increase will be smaller in the long run.

question

Refer to Figure 12-3. This figure depicts labor demand and supply in a nonunionized labor market. The original equilibrium is at point A. If a labor union subsequently establishes a union shop and negotiates an hourly wage of $20, then there will be an excess

answer

supply of 7,000 workers.

question

Refer to Figure 12-3. This figure depicts labor demand and supply in a nonunionized labor market. The original equilibrium is at point A. If a labor union subsequently establishes a union shop and negotiates an hourly wage of $20, then the employment level

answer

decreases from 6,000 to 3,000.

question

The supply of human capital to a particular use is

answer

more inelastic in the short run since it takes time for persons to acquire a particular skill.

Econn 201 Chp 10-12 – Flashcards

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