question

$0, -$20,000

answer

A firm's total revenue equals $30,000, implicit costs equal $20,000, and explicit costs equal $30,000. Their accounting and economic profit respectively equal

question

zero

answer

If a firm's total revenue equals their explicit cost, this means their accounting profit will equal:

question

d

answer

In the long-run, all perfectly competitive firms: A)operate at the minimum value of their average total cost curve. B) earn zero economic profit. C)earn a normal economic profit. D)all of the above.

question

d

answer

Which of the following statements is true regarding economic rent? A) It can accrue to people as well as land. B) It is generally pushed toward zero through competition. C) It may persist for extended periods. D) Both a. and c.

question

$5000

answer

Suppose the annual interest rate (r) is 7 percent. The present value of permanent annual payment of $350 equals

question

benevolence, interest

answer

Adam Smith said in The Wealth of Nations, "It is not from the ______ of the butcher, the brewer, or the baker that we expect our dinner, but from their regard of their own ______."

question

some

answer

an imperfectly competitive firm is one that possesses ______________ degree of control over its price

question

pure monopoly

answer

a single firm produces a good with no close substitutes

question

monopolists

answer

in many town in the US a single firm provides electricity. Those firms are called:

question

oligopoly

answer

one of a few firms that produces a good with close substitutes

question

monopolistically competitive firm

answer

one of many firms that produce slightly different but very similar goods

question

downward sloping demand

answer

the common feature in pure monopoly, oligopoly, and monopolistic competition is:

question

price setters

answer

_______________ have a less than perfectly elastic demand

question

lower

answer

in order to sell another unit, an imperfectly competitive firm must ________ its price

question

perfect competitor

answer

suppose a firm is collecting $100 in total revenues when it sells 10 units and receives $110 in total revenues when it sells 11 units. This firm is a

question

$5, less than $5

answer

suppose a competitive firm and a monopolist are both charging $5 for their respective outputs. One can infer that marginal revenue is _____ for the competitive firm and _____ for the monopolist

question

demand curve

answer

a firms revenue is determined by the _______________ the firm faces

question

downward sloping demand

answer

a _________________ function necessarily implies that the firms marginal revenue will be less than price.

question

does not alter, must lower

answer

to sell an extra unit of output, a perfect competitor _____________ price, while an imperfect competitor _________________ price.

question

market power

answer

_______________ measures the firms ability to raise its price without losing all of its sales

question

geographically isolated

answer

a firm might have a monopoly in a market because it is:

question

network economies

answer

products have ________________ if they are more valuable to own as more people own them

question

c

answer

Which of the following is NOT an example of a good with network economies? A. Text messaging capabilities B. An internet connection C. A computer printer D. Computer operating systems

question

d

answer

Which of the following firms is most likely to be a monopolist? A. The clothing retailer with the best location in a mall B. The grocery store in a large city closest to the central business district C. The most popular hot dog vendor on a city street corner D. The one grocery store in a small town

question

c

answer

In exchange for a share in the revenues earned on campus, State U has granted CheapFizz the exclusive right to sell soft drinks in the student union and in vending machines on campus. Prior to the deal, three soft drink companies sold beverages on campus; now no other soft drink company is allowed to sell its products on campus or at university events. CheapFizz now has market power due to A. the economies of scale gained by having more sales on campus. B. the grant of a patent C. the grant of an exclusive license to sell. D. network economies caused by all students consuming their product.

question

d

answer

In exchange for a share in the revenues earned on campus, State U has granted CheapFizz the exclusive right to sell soft drinks in the student union and in vending machines on campus. Prior to the deal, three soft drink companies sold beverages on campus; now no other soft drink company is allowed to sell its products on campus or at university events. Prior to the deal, a 12-ounce can of CheapFizz sold for 75 cents. After the deal you would expect a 12-ounce can of CheapFizz to sell for: A. 75 cents because that is the market price. B. less than 75 cents because CheapFizz will have greater volume and so can sell for a lower price, C. more than 75 cents because demand for CheapFizz will shift to the left. D. more than 75 cents because other firms must exit the market.

question

c

answer

In exchange for a share in the revenues earned on campus, State U has granted CheapFizz the exclusive right to sell soft drinks in the student union and in vending machines on campus. Prior to the deal, three soft drink companies sold beverages on campus; now no other soft drink company is allowed to sell its products on campus or at university events. The beneficiaries of this deal are: a) State U b) CheapFizz c) both

question

protect research, development and creative expression

answer

patents and copyrights, which confer with market power, exist to:

question

economies of scale

answer

the most important and enduring source of market power is:

question

start up costs

answer

one time costs of starting production of a new product

question

start up costs; variable costs

answer

suppose a drug company introduces a new drug on the market. its research, development, and testing costs are ___________ and the chemicals used in manufacturing the drug are ____________.

question

high, low

answer

a firm is most likely to experience economies of scale if it has __________ start up costs and _____________ marginal costs.

question

exactly doubles output

answer

constant returns to scale occur when a doubling of all inputs:

question

increasing

answer

Suppose a firm increases its labor usage and office space (the only inputs used) by 10% and observes a 13% increase in output. The firm has __________ returns to scale

question

remain the same

answer

when a firm with constant returns to scale uses 30% more of all inputs and input prices remain unchanged, then average costs will:

question

economies of scale

answer

______________ exist when average costs fall as the scale of production grows

question

natural monopoly

answer

a firm that emerges as the only seller in an industry with economies of scale

question

increase

answer

if a natural monopoly decreases the quantity of output it produces, its average cost will ____________

question

$300, 10

answer

Imagine that you are an entrepreneur, making designer T-shirts in your garage. Your accountant has estimated that your firm's total costs are TC = 300 + 10 * Q. Your fixed costs are _________ and your marginal costs are __________

question

decrease, stay the same

answer

Imagine that you are an entrepreneur, making designer T-shirts in your garage. Your accountant has estimated that your firm's total costs are TC = 300 + 10 * Q. as you increase production of tshirts your average fixed costs _________ and your marginal costs __________

question

$13

answer

Imagine that you are an entrepreneur, making designer T-shirts in your garage. Your accountant has estimated that your firm's total costs are TC = 300 + 10 * Q. If you made 100 tshirts, your average total cost is:

question

$10.30

answer

Imagine that you are an entrepreneur, making designer T-shirts in your garage. Your accountant has estimated that your firm's total costs are TC = 300 + 10 * Q. if you make 1000 tshirts, your average total cost is

question

$4, $2000

answer

give then total cost function TC=2,000+2*Q, when output is 1,000 units average total costs are _________ and fixed costs are ___________

question

increase

answer

industries in which the firms have large fixed costs and small, constant marginal costs, will over time see an _____________ in the average size of the firms

question

b

answer

Suppose that there are just two firms in a small market. Acme Manufacturing's Total Costs equal $100 + $3 Qty. Generic Industries' Total Costs equal $500 + $3 Qty. Compare cost functions at the two firms. which statement is true? A. Acme will always have lower marginal costs than Generic. B. Acme and Generic have equal marginal costs. C. Marginal costs at each firm will depend on the quantity, or output, of the firms. D. Acme has greater economies of scale than does Generic.

question

a

answer

Suppose that there are just two firms in a small market. Acme Manufacturing's Total Costs equal $100 + $3 Qty. Generic Industries' Total Costs equal $500 + $3 Qty. If each firm is making the same quantity, A. Acme has lower average total costs than Generic. B. Acme's average total costs are equal to Generic's variable costs. C. Acme has higher average total costs than Generic. D. At some levels of output Acme's average total costs are less than Generic's, but at some levels of output Generic's average costs are less than Acme's.

question

d

answer

Suppose that there are just two firms in a small market. Acme Manufacturing's Total Costs equal $100 + $3 Qty. Generic Industries' Total Costs equal $500 + $3 Qty. Suppose that Acme and Generic face the same demand function, that they are both pursuing a profit maximization policy, and that both companies are earning positive economic profits at that quantity. Which statement is true? A. Acme will produce more output than Generic. B. Generic will produce more output than Acme. C. Acme and Generic will produce the same quantity and will have the same profits. D. Acme and Generic will produce the same quantity, but Acme will have higher profits.

question

maximize profits

answer

the primary objective of a monopolist is to:

question

perfectly competitive firm, monopolist

answer

Both the _____________ and the ________ find that it is best to expand production until the benefits and costs of the last unit produced are equal

question

marginal revenue

answer

for all firms, the additional revenue collected from the sale of one additional unit of output is:

question

perfect competitor, monopolist

answer

when a ___________ sells additional units,total revenue always rise and when a _____________ sells additional units, the total revenue may rise fall or remain unchanged

question

perfect competitor

answer

if a firm collects $80 in revenues when it sells 4 unites, $100 in revenues when it sells 5 units and $120 when it sells 6 units, one can infer the firm is more likely to be a:

question

monopolist

answer

if a firm collects $90 in revenues when it sells 4 units, $100 in revenues when it sells 5 units and $105 when it sells 6 units, one can infer the firm is likely to be a:

question

equals, is greater than

answer

for perfectly competitive firms price _______ marginal revenue; for monopolists price _________ marginal revenue

question

perfectly elastic, downward sloping

answer

the demand curve for a perfectly competitive firm is ______________ while the demand curve for a monopolist is _____________

question

change

answer

if a firms demand function shifts its MR function and profit maximizing, output will also ________

question

demand curve

answer

once a firm has determined the quantity of output it wishes to sell, the price it can charge is determined by the firms:

question

2.5

answer

if the monopolists demand curve is P=50-10*Q, then marginal revenues are zero when Q equals _______ units

question

-28

answer

if the monopolists demand curve is P=70-14*Q, then the slope of its marginal revenue curve is:

question

less

answer

because the monopolist charges a price in excess of marginal costs, it must be the case that the monopolist produces ____________ than the socially efficient level of output

question

maximized

answer

when marginal revenues are zero, total revenues are _______________

question

MR=MC

answer

the monopolist will maximize profits if it produces where:

question

perfect competitors only

answer

the profit maximizing rule, P=MC, applies to:

question

all firms

answer

the profit maximizing rule, MR=MC applies to:

question

expand, marginal revenue

answer

if a monopolist finds that its marginal revenue exceeds its marginal costs at the current level of output it should ____________ output until ________________ equals marginal costs

question

less

answer

the reason economists consider monopoly socially undesirable is the monopolist produces __________ than the socially efficient amount

question

P=Mc; P>MC

answer

perfect competition is efficient and monopoly is not because in perfect competition _______, while in monopoly_________

question

decrease

answer

a monopolist calculates its marginal revenues to be $15 and marginal costs to be $16. one can infer that it should __________ output

question

price discrimination

answer

charging different prices to different consumers when production costs are the same

question

exactly

answer

perfect price discrimination occurs when each buyer pays _________ his or her reservation price.

question

less than

answer

imperfect price discrimination occurs when some buyers pay ___________ their reservation price

question

$36

answer

Campus Bookstore is the only textbook supplier in the town, a profit-maximizing business. Customer Reservation Price Q 60 R 54 S 48 T 42 U 36 V 30 W 24 X 18Assume that the marginal and average total cost for each book is $12.How much should the bookstore charge for this book if it must charge a single price to all customers?

question

5

answer

Campus Bookstore is the only textbook supplier in the town, a profit-maximizing business. Assume that the marginal and average total cost for each book is $12. At the profit maximizing price how many books will they sell each day? Customer Reservation Price Q 60 R 54 S 48 T 42 U 36 V 30 W 24 X 18

question

$120

answer

Campus Bookstore is the only textbook supplier in the town, a profit-maximizing business. Assume that the marginal and average total cost for each book is $12. What will be the economic profit for the bookstore when selling its profit maximizing quantity? Customer Reservation Price Q 60 R 54 S 48 T 42 U 36 V 30 W 24 X 18

question

8

answer

Campus Bookstore is the only textbook supplier in the town, a profit-maximizing business. Assume that the marginal and average total cost for each book is $12. If the bookstore is selling the socially efficient number of books, how many will it sell? Customer Reservation Price Q 60 R 54 S 48 T 42 U 36 V 30 W 24 X 18

question

$36, $24

answer

Campus Bookstore is the only textbook supplier in the town, a profit-maximizing business. Assume that the marginal and average total cost for each book is $12. If the bookstore can charge two different prices for this book, the list price for the book will be _________ and the discounted price for the book will be __________. Customer Reservation Price Q 60 R 54 S 48 T 42 U 36 V 30 W 24 X 18

question

7

answer

Campus Bookstore is the only textbook supplier in the town, a profit-maximizing business. Assume that the marginal and average total cost for each book is $12. If the bookstore can charge two different prices for this book, how many books will the bookstore sell? Customer Reservation Price Q 60 R 54 S 48 T 42 U 36 V 30 W 24 X 18

question

$144

answer

Campus Bookstore is the only textbook supplier in the town, a profit-maximizing business. Assume that the marginal and average total cost for each book is $12. If the bookstore can charge two different prices for this book, the economic profit for the bookstore is _____________. Customer Reservation Price Q 60 R 54 S 48 T 42 U 36 V 30 W 24 X 18

question

$60, $66

answer

when the bookstore does not price discriminate, consumer surplus is __________, and when the bookstore can charge two different prices for this book, the consumer surplus will be ______________. Customer Reservation Price Q 60 R 54 S 48 T 42 U 36 V 30 W 24 X 18

question

greater

answer

comparing the non-price discriminating monopoly outcome to the perfectly price discriminating outcome, profits are _________ when price discriminating

question

c

answer

Suppose a monopolist charges a uniform price of $10 based on profit maximization and has constant marginal costs of $3. Cody is willing to pay $6 for the monopolist's output. Therefore, A. the monopolist should lower its price to $6 for all consumers. B. the monopolist should ignore Cody's want; it is already profit maximizing. C. if resale of the output is impossible, the monopolist should lower its price to $6 just for Cody. D. the monopolist will not be better off if it lowers its price to $6 just for Cody.

question

increase

answer

suppose a single-price monopolist is considering becoming a price discriminating monopolist. If the firm does begin to price discriminate, it can expect to ___________ output AND profit

question

a

answer

Suppose a monopolist sells one version of its output to consumers and another version to businesses. The marginal cost of the consumer version is $5 per unit while the business version has marginal costs of $5.75. If resale is impossible, one can infer that A. the monopolist will charge two different prices and is not practicing price discrimination. B. the monopolist will charge a uniform price to both consumers and businesses. C. the monopolist will charge two different prices and is perfectly price discriminating. D. the monopolist will charge two different prices and is imperfectly price discriminating.

question

monopolist, some consumers

answer

compared to a monopolist charging a single price to everyone, perfect price discrimination makes the ___________ and ________________ better off

question

hurdle method

answer

when a consumer must take some sort of additional action to receive a lower price, the consumer is being subjected to _________________ of price discrimination

question

discount stores

answer

one would expect to see more mail in rebate coupons being offered at:

question

a

answer

A consumer goes to purchase a TV advertised for $300. As he is checking out, the clerk informs him of a $20 rebate offer for the TV, which he fills out and receives in 3 months. One can infer that the consumer had A. a reservation price of at least $300 but jumped the hurdle anyway. B. a reservation price of at most $280. C. a reservation price of exactly $300. D. a reservation price of at least $280.

question

c

answer

A consumer has a reservation price of $90 for a blender. If the local store is offering the blender for $100 with a $10 rebate and he does not make the purchase, one can surmise that A. his reservation price was too high. B. his reservation price was too low. C. the hurdle was too high. D. the hurdle was too low.

question

a

answer

monopolist sets its price at $100 and offers a 10% rebate. For this to be a perfect hurdle, it must be the case that A. those with a reservation price of $100 or more purchase and ignore the rebate while those with a reservation price between $99 and $90 purchase and use the rebate. B. those with a reservation price of $90 don't make a purchase. C. no one takes advantage of the rebate. D. those with a reservation price of $100 make the purchase and claim the rebate.

question

b

answer

Which of the following is not an example of the hurdle method of price discrimination? A. A rebate offer B. Eliminating all sales specials and reducing all prices by 10% C. After-Christmas sales D. Weekly grocery store coupon fliers

question

d

answer

Which of the following situations will come closest to perfect price discrimination? A. Charging a different price on different days B. Charging a different price at the end of the year C. Negotiating a price with a group of consumers D. Negotiating a price with each individual consumer

question

separate

answer

any hurdle method of price discrimination is an attempt to ______________ consumers on the basis of their reservation prices

question

increases, increases

answer

the hurdle method of price discrimination usually ___________ consumer surplus and ___________ producer surplus

question

not perfectly, more

answer

the hurdle method of price discrimination is ______________ efficient, however it is ____________ efficient than charging a single price to all buyers

question

less deadweight loss

answer

relative to a single price monopolist, a price discriminating monopolist generates:

question

less than

answer

a feature of natural monopoly is economies of scale in production, which means marginal cost will always be ___________ average total cost

question

loss

answer

if a natural monopoly sets price equal to its marginal cost it will have an economic _______

question

no, minimize

answer

a state owned natural monopoly will have ______ incentive to ________ cost

question

b

answer

When the Water Authority in Townsville cuts cost by $1000, the government cuts its budget by $1000. The most likely reason for this is, that _______ A. it is a natural monopoly B. it is a state-owned natural monopoly C. it is a private natural monopoly D. its marginal cost is always greater than its average total cost

question

cost-plus regulation

answer

government regulators in idaho set the price of electricity based on the explicit costs of the electric power company, then add an extra amount to assure a normal return on the firms investment. this procedure is called:

question

a

answer

Which one of the following is an example of exclusive contracting for natural monopoly? A. Garbage collection B. Satellite TV C. Campus bookstore D. Oil wells in Alaska

question

sherman act

answer

according to the ___________, it is illegal to monopolize or attempt to monopolize

question

lower, higher

answer

A monopolist produces a _____ equilibrium quantity and charges a _____ equilibrium price compared to a perfectly competitive industry

question

maximize its profit

answer

the economic theory of business behavior assumes that the goal of a firm is to:

question

explicit costs

answer

measure the payments made to the firms factors

question

b

answer

which of the following is not an example of explicit cost: a. wages paid to worker b. personal savings of the owner invested in the firm c. salaries paid to management d. office space rent

question

d

answer

Which of the following is correct, Explicit costs: a. are the only costs that matter to business owners b. usually exceed implicit costs c. are difficult to measure d. appear on the balance sheet

question

implicit costs

answer

measure the forgone opportunities of the owners of the business; opportunity cost

question

accounting profit

answer

the difference between total revenues and explicit costs

question

c

answer

an example of an implicit cost is: a. interest paid on a bank loan b.wages paid to family member c.the value of a spare bedroom turned into a home office d. operating costs of a company owned car

question

opportunity cost of your time

answer

If you were to start your own business, your implicit costs would include:

question

accounted for lost salary of $1000

answer

Suppose you quit your job to start a business. In the first month, your total revenue was $6,000. You paid $1,000 in monthly rent for office space. $ 200 in monthly rent for equipment. $3,000 to your workers in wages for the month. $1,000 for the supplies you used that month.You determine that your true profit that month was negative $200. Why?

question

B

answer

Curly told Larry about his new business venture: Curly pays Acme International $1,000 per month for supplies and access to Acme's network, works out of his own apartment on his own computer and earns monthly revenues of $1500. Should Larry quit his job and do what Curly is doing? A. Yes, if Larry has at least $1000 in savings to get started. B. No, not if Larry is earning more than $500 per month at his current job. C. Yes, if Larry can borrow the $1000 monthly payment for less than 3% interest. D. Yes, if Larry already owns a computer.

question

zero

answer

The owners are earning a return on their time and investment that is equal to the opportunity cost of that time and investment. the firm is earning _____ economic profits.

question

b

answer

which of the following would not be included in the calculation of accounting profits? a. wages of the workers b. the salary the owner could have earned working elsewhere c. rent d. medical insurance coverage for workers

question

true

answer

True or False: Accounting profits are greater than or equal to economic profits

question

zero

answer

normal profits occur when economic profits equal ___________

question

less

answer

If economic profits are negative but accounting profits are positive, then accounting profits are _________ than implicit costs

question

$51,000

answer

Chris was the business manager for a real estate firm earning an annual salary of $40,000. Then Chris decided to become a consultant. Chris hired an administrative assistant at $15,000 per year and rents office space (utilities included) for $3,000 per month. Chris earned $100,000 in total revenue the first year. What is Chris's explicit annual cost?

question

$40,000

answer

Chris was the business manager for a real estate firm earning an annual salary of $40,000. Then Chris decided to become a consultant. Chris hired an administrative assistant at $15,000 per year and rents office space (utilities included) for $3,000 per month. Chris earned $100,000 in total revenue the first year. What is Chris' implicit cost?

question

$40,000, implicit cost

answer

Chris was the business manager for a real estate firm earning an annual salary of $40,000. Then Chris decided to become a consultant. Chris hired an administrative assistant at $15,000 per year and rents office space (utilities included) for $3,000 per month. Chris earned $100,000 in total revenue the first year. Chris' opportunity cost of running her own business is ___________ which is the _____________.

question

$49,000

answer

Chris was the business manager for a real estate firm earning an annual salary of $40,000. Then Chris decided to become a consultant. Chris hired an administrative assistant at $15,000 per year and rents office space (utilities included) for $3,000 per month. Chris earned $100,000 in total revenue the first year. Chris' accounting profit is __________.

question

normal

answer

If owners of a business are receiving total revenues just sufficient to cover all of their explicit and implicit costs, they are earning a ___________ profit

question

economic profits

answer

In the perfectly competitive industry, ___________ serve to motivate entry or exit

question

rationing

answer

The statement, "price distributes goods and services to those that value them most" refers to the ____________ function of price

question

allocative

answer

the statement, "price directs resources across difference sectors of the economy" refers to the ______________ function of price.

question

b

answer

Which of the following would be an example of the rationing function of price? A. Switching from a Ph.D. in economics to finance because finance salaries are higher B. Bill Gates purchasing the Mona Lisa for $5 billion C. A firm attempting to lower its explicit costs D. Government price controls

question

c

answer

Which of the following would be an example of the allocative function of price? A. A consumer deciding the price of steak is more than she wishes to pay B. Losing $50 at a roadside rest stop C. Switching from a Ph.D. in economics to finance because finance salaries are higher D. Finding $50 that somebody lost at a rest stop

question

rationing and allocative

answer

____________ and ____________ functions of price work together to guide resources to their highest value

question

rationing

answer

Harvard charges very high tuition while other private universities charge less. this illustrates the ________ function of price

question

economic profits, economic losses

answer

Generally, _____________ motivate firms to enter an industry while __________ motivate firms to exit an industry.

question

switch to growing corn

answer

Suppose last year Pat was a soybean farmer and Chris was a corn farmer. This year high demand for ethanol, an automobile fuel made from corn, causes the price of corn to increase. You predict that this year Pat will:

question

higher, higher

answer

Suppose last year Pat was a soybean farmer and Chris was a corn farmer. This year high demand for ethanol, an automobile fuel made from corn, causes the price of corn to increase. Relative to last year, the price of soybeans is likely to be ___________ and the price of corn is likely to be ______.

question

rise, fall

answer

suppose all firms in a perfectly competitive industry are experiencing economic profits. one would expect that, over time, the number of firms will _________ and the market price will _________.

question

stable

answer

if all firms in a perfectly competitive industry earn a normal profit, then the number of firms in the industry is _____________

question

exit; zero

answer

If all firms in a perfectly competitive industry are experiencing economic losses, the firms will __________ the industry, until economic profits equal __________

question

economic profits

answer

the signal for new firms to join an industry:

question

less than

answer

for entry into a particular perfect competitive industry to occur, economic profits have to be __________ than zero

question

c

answer

In an industry with free entry and exit, economic profits A. indicate a market failure. B. can never occur. C. induce a reallocation of resources out of other industries and into the one with economic profits. D. can be sustained indefinitely.

question

economic losses

answer

signal that reallocation of resources out of the industry needs to occur

question

c

answer

An implication of entry and exit in response to the profit incentive is that, for perfectly competitive firms, A. no firm accepts zero economic profits in the long run. B. firms produce the quantity that minimizes average variable costs in the short run. C. firms produce the quantity that minimizes average total costs in the long run. D. demand is completely inelastic

question

minimizes

answer

one difference between the long run and the short run in a perfectly competitive industry is that firms operate at the output level that ___________ average total cost in the long run.

question

c

answer

Which ordering best describes how a perfectly competitive industry would respond to a sudden increase in popularity of the product? The market demand function will shift to the right causing the market A. price to increase, and a new stable equilibrium to be established at a higher price and higher quantity. B. price to increase, and all firms in the industry will earn higher profits at lower quantities of output. C. price to increase. Increased profits will encourage new firms to enter shifting the market supply function to the right. Long-run market equilibrium will be at a higher quantity but at the same price as before the surge in popularity. D. price and quantity supplied to increase. Increased profits will encourage new firms to enter shifting the market supply function upward. Long-run market equilibrium will be at a higher quantity and higher price than before the surge in popularity.

question

positive

answer

one assumption of the perfectly competitive model is that there are no barriers to entry. this assumption most directly leads to the implication that ___________ economic profits will only be possible for a short time

question

efficient

answer

if buyers and sellers are free to pursue their own selfish interests, according to the invisible hand theory, the result would be _____________ allocation of resources

question

b

answer

Suppose a remote community in Montana lacks broadband access to the Internet. A proponent of the invisible hand view would argue that A. government regulation is necessary to ensure access. B. the selfish pursuit of profit by Internet service providers will bring access to those willing to pay for it. C. the consumers need to move to a large city. D. the lack of access is the efficient allocation.

question

b

answer

E-commerce and an Internet presence are important to many firms, requiring employees with specialized skills that are in short supply. The invisible hand solves the employment problem by A. encouraging the government to set up new training programs. B. giving selfish workers the incentive to acquire the skills in order to receive high wages. C. allowing the few employees with the skills to exploit the firms. D. moving slowly until the e-commerce craze ends.

question

prices

answer

in a free market economy the decisions of buyers and sellers are guided by ___________

question

a

answer

If resources are misallocated, then the presence of opportunities to profit A. will exist and self interests will ensure someone will profit. B. will exist but it is uncertain if someone will seek to profit. C. may or may not exist. D. will exist but no one will recognize their existence.

question

barriers to entry

answer

forces that limit new firms from joining an industry

question

barriers to entry

answer

the ability of the invisible hand to allocate resources efficiently is reduced by the presence of ____________

question

high

answer

most market in US hold a _________ degree of free entry

question

self interested

answer

adam smith claimed that an efficient allocation of resources was the byproduct of involvement of ________________ buyers and sellers

question

economic rent

answer

the difference between the payment made to the supplier of an input and the suppliers reservation price

question

$2

answer

Mary Jane is willing to baby-sit for $6 an hour. Her neighbor called and asked her to baby-sit for $8 an hour. Mary Jane will earn economic rent of:

question

true

answer

true or false economic rent can never be negative

question

cant

answer

unlike economic profits, economic rent (can, cant) be driven to zero by entry

question

b

answer

If a single firm, belonging to a perfectly competitive industry in long run equilibrium, discovers a significant cost saving methodology, then A. all firms will enjoy economic profits for a short period of time. B. the rest of the industry will quickly adopt the new methodology. C. the firm will enjoy economic profits forever. D. the firm will lower its price to drive the rest of the industry out of business.

question

invisible hand

answer

In markets with regulated prices, ___________ will guide resources on some basis other than the price that is regulated

question

number

answer

According to the textbook, when airlines were regulated with respect to airfares, they competed with each other on the basis of the _________ of flights to and from a particular city

question

inefficiently

answer

during the era of regulated airfares, economic profits were ___________ driven towards zero.

question

b

answer

Suppose the government grants grain subsidies to poor farmers to raise farm family incomes. In the long run, A. poor farm families are made permanently better off. B. as the profits of farming increase, new farmers will emerge from other sectors and drive profits to zero. C. as new farmers enter, government will lessen the size of the subsidy. D. the quality of grains will fall.

question

customer service, other amenities

answer

If firms are prevented from competing on the basis of price, they will compete on the basis of ___________ and ____________

question

invisible hand

answer

efforts to raise incomes of those in a particular industry fail because of:

question

b

answer

As the interest rate increases, the single payment of money that you would need to receive today to be compensated for giving up annual payments into the future A. remains the same: the single payment does not vary with the interest rate. B. decreases: you need less money today because it will earn a higher rate of interest when saved. C. increases: the present value of a stream of income is higher at higher rates of interest. D. depends on your assessment of future risk.

question

c

answer

You have just won the lottery! You may take your winnings in either a single immediate payment of $1,000,000 or in annual payments of $25,000 forever. At what interest rate would you be indifferent between these two choices? A. 4% B. 25% C. 2.5% D. 0.25%

question

reinvest

answer

publicly held corporation often ________ current accounting profits to enlarge future accounting profits

question

more

answer

the concept of the time value of money indicates a dollar today is __________ valuable than a dollar tomorrow.

question

overvalued

answer

failure to use present values when calculating the price of stock leads to __________ share of prices

question

efficient market hypothesis

answer

all relevant information about a companys current and future earnings prospects is embodied in its stock price

question

no cash on the table principle

answer

the statement, "if a deal is too good to be true, it probably is not true" is most closely related to which principle?

question

d

answer

The efficient-markets hypothesis suggests A. newsletters with stock tips and recommendations are helpful to investors. B. a significant lag exists between new information and changes in stock price. C. there is little incentive for insider trading. D. information in stock tip newsletters is too outdated to be useful.

question

smart for one, dumb for all

answer

principle that indicates that pursuing selfish interests sometimes conflicts with social welfare

question

inefficient

answer

when either the costs of production or the benefits of consumption to individuals differ from those of society, the equilibrium is __________

question

adam smith

answer

who believed that the individual pursuit of self interest sometimes worked to advance social benefits

question

interdependence

answer

game theory provides tools that are used to model:

question

player, strategy, payoff

answer

Three elements of a game are:

question

small

answer

Game theory is not useful in understanding perfect competition because, by assumption, the firms are so _________________ as to be unable to influence price and thus not interdependent

question

a

answer

Which of the following situations does not involve game theory? A. Buying a pair of pants at the Gap. B. Congress deciding to spend more on nuclear weapons. C. Intel debating whether to lower the price on its microprocessors. D. A student considering cheating on this exam.

question

payoff matrix

answer

____________________ is used to show each player's payoffs in each possible combination of strategies

question

unrealized

answer

in the nash equilibrium of a prisoner's dilemma game there is ____________ opportunity for both to gain.

question

prisoner's dilemma

answer

________________ refers to games in which both players have a dominant strategy which results in a lower payoff than they would earn if they play their dominated strategies

question

smart for one, dumb for all

answer

the equilibrium in a prisoner's dilemma is an example of what principle?

question

b

answer

For a game involving two players with two possible strategies, which of the following is a requirement for a prisoner's dilemma? A. Neither player has a dominant strategy. B. The payoff to playing the dominated strategies must be more than the payoff to their dominant strategies. C. The payoff to playing the dominant strategies must be more than the payoff to their dominated strategies. D. There is no Nash equilibrium.

question

cartel

answer

an agreement among firms to restrict production with the goal of earning economic profit is:

question

cheat

answer

the reason most cartels end or cease to be effective is the incentive to _________ on the agreement

question

legally punished

answer

cartels would be more stable if cheaters were

question

cartel

answer

OPEC is an example of:

question

collapse

answer

Suppose in the U.S., market demand for bottled water is low enough that one firm could supply all of the demand. Two firms enter the market and agree to charge a price above the marginal cost of production. We can expect that the agreement will:

question

d

answer

Cigarette manufacturers once relied heavily on TV advertising. According to the textbook, when the government banned TV ads, the cigarette manufacturers A. supported the ban due to their concern over health effects of smoking. B. felt their First Amendment rights were being violated. C. were made worse off because the ban significantly reduced cigarette sales. D. benefited because their advertising prisoner's dilemma was solved.

question

tit for tat

answer

Suppose a new element was introduced into the agreement: if one firm cheats today, the other firm will cheat tomorrow but if one firm abides today, the other will abide tomorrow. This strategy pattern is known as

question

both

answer

Suppose the firms agree to the following: if one firm cheats today, the other firm will cheat tomorrow but if one firm abides today, the other will abide tomorrow. The likely effect of this agreement would be increase that _______ firms would abide

question

b

answer

According to the text, at a party everyone shouts in order to be heard. If instead everyone spoke at a normal volume people would still be heard. The likely reason that people continue to shout is that the A. individual incentive to be heard is smaller than group incentive for everyone to be heard. B. individual incentive to be heard is greater than group incentive for everyone to be heard. C. individuals will never do better by speaking more loudly. D. prisoner's dilemma does not work in a party.

question

tit for tat

answer

a strategy that limits defection in a repeated prisoner's dilemma game is:

question

repeated

answer

the tit for tat strategy only works for prisoners dilemma games that are:

question

defected, defect

answer

In tit-for-tat, if your partner _______ on the first interaction you would then _______ in your next interaction with her.

question

timing

answer

a decision tree is used when modeling game in which ___________ matters

question

decision tree

answer

a _____________ describes all the possible moves in a game in sequence and the payoffs to each possible combination of moves

question

d

answer

The essential characteristic of a credible threat is A. that the threatener has a reputation for carrying out threats. B. that the threatener ignores the costs of carrying out the threat. C. that the threatener and the threatenee know each other well. D. that it is in the threatener's self interest to act on the threat.

question

d

answer

in sequential games, the player who moves first A. always has a first-mover advantage. B. has a first-mover advantage only when he or she is able to make a credible threat or promise to choose a dominated strategy. C. has a first-mover advantage only when the second mover fails to choose the dominant strategy. D. sometimes has an advantage and sometimes has a disadvantage.

question

c

answer

A monopolistically competitive firm A. sells products that are perfect substitutes for its competitors' products, so must compete on the basis of location. B. sells products that are close substitutes for its competitors' products, so will locate as far away from its competitors as possible. C. sometimes distinguishes its output from that of its competitors by locating in a more convenient place. D. will be more successful the more similar its output is to its competitors' output.

question

c

answer

If Harold Hotelling's insight about location is extended to other firm decisions, you would expect the output of monopolistically competitive firms to become A. more differentiated over time. B. more similar over time, while location, hours and other features become more differentiated over time. C. more similar over time, with location, hours and other features also becoming more similar over time. D. lower in quality over time.

question

b

answer

Suppose that you have noticed that almost all of the car dealers in your city are located along a 3-block stretch of the same street. A likely reason for this clustering of car dealers is that A. the dealers are better able to form a cartel. B. each dealer is attempting to locate closest to the customers. C. there is a social norm in that city that dealers follow in choosing location. D. each dealer sells a different brand of car, so they are not competitors and do not have to be concerned about the other dealers' locations.

question

a

answer

One thousand adults live in Milltown, and all of them leave work at 4:30 p.m. everyday and arrive home at exactly 5:00. They all go to bed at 9 p.m. Three telemarketers selling cruises to Hawaii, Alpha, Beta, and Charlie, have targeted Milltown's population. Because the cruises are identical, the first telemarketer to call a willing consumer will get the sale. The solution to the firms' problem will involve A. differentiation by timing B. differentiation by geographic location C. exploiting perfectly inelastic demand D. differentiation by quality

question

b

answer

One thousand adults live in Milltown, and all of them leave work at 4:30 p.m. everyday and arrive home at exactly 5:00. They all go to bed at 9 p.m. Three telemarketers selling cruises to Hawaii, Alpha, Beta, and Charlie, have targeted Milltown's population. Because the cruises are identical, the first telemarketer to call a willing consumer will get the sale. Calls made by telemarketers at each firm will tend to A. be evenly distributed throughout the evening. B. cluster near 5:00 p.m. C. cluster near 6:00 p.m. D. cluster near 7:00 p.m.

question

d

answer

One thousand adults live in Milltown, and all of them leave work at 4:30 p.m. everyday and arrive home at exactly 5:00. They all go to bed at 9 p.m. Three telemarketers selling cruises to Hawaii, Alpha, Beta, and Charlie, have targeted Milltown's population. Because the cruises are identical, the first telemarketer to call a willing consumer will get the sale. Beta's manager has decided that the best time to call is 7:00 because it is exactly halfway between 5:00 p.m. and bedtime. A. Beta is certain to make the most sales because all customers are 2 hours or less away from a phone call. B. Alpha and Charlie will have an incentive to also make calls at 7:00, causing clustering at the halfway point in the evening. C. Alpha and Charlie will divide up the rest of the market, with one choosing to call at 6:00 and the other at 8:00. D. Beta's manager did not choose wisely.

question

favorable location

answer

The last time you went on a road trip, you noticed that there were several fast food outlets clustered near some freeway exits, but none at the others. Now that you are familiar with Hotelling's model you know that the reason for this is:

question

clustering

answer

According to the text, the observation that many New York - Los Angeles flights leave exactly on the hour is due to

question

commitment problem

answer

when players cannot achieve their goals because they are unable to make credible threats or promises, the situation is called:

question

commitment device

answer

an action that makes otherwise empty threats or promises credible is called:

question

d

answer

Which of the following is not a commitment device used to overcome a commitment problem? A. A non-refundable advance payment to reserve a room at a resort. B. A manufacturer's 2-year agreement to fix, at no cost to you, anything that breaks on your computer. C. A pre-nuptial agreement that provides for a large penalty in the event a spouse has an affair. D. High fines for illegal parking on campus.

question

preferences to be honest altered his motivation/choice

answer

if someone informs a sales clerk that he was given $20 in change when he was only owed $10, one can conclude:

question

public ridicule

answer

in the scarlet letter the punishment for adultery was to always wear a large, red letter "A". this is an example of using __________________ to solve commitment problems

question

preference

answer

when parents encourage their children to be honest and punish them when they are not in an example of using ________________ to solve commitment problems.

question

preference

answer

when parents encourage their children to be honest and punish them when they are not in an example of using ________________ to solve commitment problems.

Micro: Chapters 8-10 – Flashcards

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