Micro – Flashcards

Unlock all answers in this set

Unlock answers
question
Candy Cane Corporation (CCC) produces 100,000 boxes of candy bars per year which sell for $3 a box. If variable costs are $2 per box, and it has $125,000 in fixed operating costs, in the short run the CCC should:
answer
Keep producing as variable costs are covered
question
When a purely competitive industry is in long-run equilibrium, which statement is true?
answer
Price and average total cost are equal
question
An industry experiencing constant returns to scale and fixed factor prices will have a long run supply curve that is:
answer
Horizontal
question
A purely competitive firm does not try to sell more of its product by lowering its price below the market price because:
answer
It can sell all it wants to at the market price
question
In pure competition, the demand for the product of a single firm is perfectly:
answer
Elastic because many other firms produce the same product
question
In long-run equilibrium under conditions of pure competition and productive efficiency, all firms produce at minimum:
answer
Average total cost
question
A purely competitive firm can be identified by the fact that:
answer
Its average revenue equals marginal revenue
question
Farmer Jones is producing wheat, and must accept the market price of $6.00 per bushel. At this time, her average total costs and her marginal costs both equal $8.00 per bushel. Her average variable costs are $5 per bushel. In choosing her optimal output, farmer Jones should:
answer
Reduce output but continue production
question
In the standard model of pure competition, a profit-maximizing entrepreneur will shut down in the short run if:
answer
Total revenue is less than total variable costs
question
A firm sells a product in a purely competitive market. The marginal cost of the product at the current output is $5.00 and the market price is $5.00. What should the firm do?
answer
Shut down if the minimum possible average variable cost is $5.25
question
Allocative efficiency occurs when the:
answer
Marginal cost equals the marginal benefit to society
question
A firm sells a product in a purely competitive market. The marginal cost of the product at the current output of 1,000 units is $2.50. The minimum possible average variable cost is $2.00. The market price of the product is $2.50. To maximize profit or minimize losses, the firm should:
answer
Continue producing 1,000 units
question
T-Shirt Enterprises is selling in a purely competitive market. Its output is 300 units, which sell for $1 each. At this level of output, marginal cost is $1 and average variable cost is $1.50. The firm should:
answer
Produce zero units of output
question
The long-run supply curve would be downsloping in:
answer
A decreasing-cost industry
question
Total revenue for producing 8 units of output is $48. Total revenue for producing 9 units of output is $63. Given this information, the:
answer
Marginal revenue for producing the ninth unit is $15
question
Suppose that when 3000 units of output are produced, the marginal cost of the 3001st unit is $2. This amount is equal to the minimum of average total cost, and marginal cost is rising. If the optimal level of output in the short run is 3300 units, then at this higher level of output marginal cost is:
answer
Greater than $2 and marginal cost is greater than average total cost
question
In a purely competitive industry, each firm:
answer
Can easily enter or exit the industry
question
In pure competition, price is determined where the industry:
answer
Demand and supply curves intersect
question
A firm sells a product in a purely competitive market. The marginal cost of the product at the current output of 500 units is $1.50. The minimum possible average variable cost is $1.00. The market price of the product is $1.25. To maximize profit or minimize losses, the firm should:
answer
Produce less than 500 units
question
The long-run supply curve under pure competition will be:
answer
Downsloping in a decreasing-cost industry and upsloping in an increasing-cost industry
question
Pure competition produces a socially optimal allocation of resources in the long run because:
answer
Marginal cost equals price
question
If firms enter a purely competitive industry, then in the long run this change will shift the industry:
answer
Supply curve to the right, and the market price will decrease
question
The representative firm in a purely competitive industry:
answer
Will earn an economic profit of zero in the long run
question
A firm should always continue to operate at a loss in the short run if:
answer
It can cover its variable costs and some of its fixed costs
question
When a purely competitive firm is in long-run equilibrium and is allocatively efficient:
answer
Marginal cost equals marginal revenue
question
Which is true for a purely competitive firm in short-run equilibrium?
answer
The firm's marginal revenue is equal to its marginal cost
question
The long-run supply curve would be up-sloping in:
answer
An increasing-cost industry
question
Market failure occurs when:
answer
the competitive market system under-or overallocates resources to production of goods.
question
From the economist's perspective, "market failures" basically arise when:
answer
demand and supply do not accurately reflect all the benefits and all the costs of production.
question
If an economy is being "productively efficient," then that means the economy is:
answer
using the least costly production techniques.
question
With allocative efficiency:
answer
there is production of that particular mix of goods and services most wanted by society.
question
Private goods are characterized by:
answer
rivalry and excludability.
question
Which of the following statements is correct about measuring collective demand for public and private goods?
answer
Private good demand is found by horizontally adding individual demand curves; public good demand is found by vertically adding individual demand curves.
question
In a market where there are external or spillover costs associated with consumption and production, the equilibrium will not be efficient because:
answer
too many resources will be allocated to production of the good.
question
If there are positive externalities associated with the consumption of a good or service:
answer
the private demand curve will underestimate the true demand curve.
question
If the production of a product or service involves external or spillover benefits, then the government can improve efficiency in the market by:
answer
providing a subsidy to correct for an underallocation of resources.
question
If the production of a product or service involves external or spillover benefits, then the government can improve efficiency in the market by:
answer
much of the product at too low a price.
question
One condition for individual bargaining to occur, according to the Coase theorem, is that there must be:
answer
clearly defined property rights.
question
To internalize the external costs of pollution is to:
answer
make the polluter pay all of the costs associated with the polluting activity.
question
The optimal level of pollution in society occurs whenever:
answer
the marginal benefit of pollution control equals the marginal cost.
question
Suppose that the ABC industry produces a product which results in significant spillover costs to society. Such production suggests that:
answer
resources are overallocated to the industry.
question
If an activity results in a spillover benefit, then in a pure market economy the:
answer
quantity produced is too low.
question
What two basic philosophies underlie how an economy's tax burden is assigned?
answer
Benefits-received and ability-to-pay.
question
A factory, mine, store or warehouse that performs one or more functions in making and distributing goods and services is:
answer
A plant
question
A group of firms that produce the same or similar products is:
answer
An industry
question
To the economist, total cost includes:
answer
explicit and implicit costs, including a normal profit.
question
Accounting profits are typically:
answer
greater than economic profits because the former do not take implicit costs into account.
question
Economic profits are calculated by subtracting:
answer
explicit and implicit costs from total revenue.
question
Suppose that a business incurred implicit costs of $200,000 and explicit costs of $1 million in a specific year. If the firm sold 4,000 units of its output at $300 per unit, its accounting profits were:
answer
$200,000 and its economic profits were zero.
question
Suppose that a business incurred implicit costs of $500,000 and explicit costs of $5 million in a specific year. If the firm sold 100,000 units of its output at $50 per unit, its accounting:
answer
profits were zero and its economic losses were $500,000.
question
To economists, the main difference between the short run and the long run is that:
answer
in the long run all resources are variable, while in the short run at least one resource is fixed.
question
The amount of calendar time associated with the long run:
answer
varies from industry to industry.
question
The long run is characterized by:
answer
the ability of the firm to change its plant size.
question
The law of diminishing returns indicates that:
answer
as extra units of a variable resource are added to a fixed resource, marginal product will decline beyond some point.
question
Marginal product:
answer
may initially increase, then diminish, and ultimately become negative.
question
The total output of a firm will be at a maximum where:
answer
MP is zero.
question
When total product is increasing at an increasing rate, marginal product is:
answer
positive and increasing.
question
When total product is increasing at a decreasing rate, marginal product is:
answer
positive and decreasing.
question
Fixed cost is:
answer
any cost which does not change when the firm changes its output
question
Average fixed cost:
answer
declines continually as output increases.
question
Marginal cost is the:
answer
change in total cost that results from producing one more unit of output.
question
Which of the following is correct as it relates to cost curves?
answer
Marginal cost intersects average total cost at the latter's minimum point.
question
Assume that in the short run a firm is producing 100 units of output, has average total costs of $200, and average variable costs of $150. The firm's total fixed costs are:
answer
$5,000.00
question
In the short run the Sure-Screen T-Shirt Company is producing 500 units of output. Its average variable costs are $2.00 and its average fixed costs are $.50. The firm's total costs are:
answer
$1,250.00
question
Suppose that, when producing 10 units of output, a firm's AVC is $22, its AFC is $5, and its MC is $30. This:
answer
firm's total cost is $270.
question
If the total variable cost of 9 units of output is $90 and the total variable cost of 10 units of output is $120, then:
answer
the average variable cost of 9 units is $10.
question
When diseconomies of scale occur:
answer
the long-run average total cost curve rises.
question
The minimum efficient scale of a firm:
answer
is the smallest level of output at which long-run average total cost is minimized.
question
Under conditions of pure monopoly:
answer
Entry is blocked
question
Which is a barrier to entry?
answer
Patents
question
The demand curve confronting a nondiscriminating pure monopolist is:
answer
The same as the industry's demand curve
question
Under pure monopoly, a profit-maximizing firm will produce:
answer
In the elastic range of its demand curve
question
Which is true with respect to the demand data confronting a monopolist?
answer
Marginal revenue is less than price
question
Allocative inefficiency due to unregulated monopoly is characterized by the condition:
answer
P > MC
question
At an equilibrium level of output in a pure monopoly:
answer
P > MC and P > minimum ATC
question
Which of the following conditions is not required for price discrimination?
answer
Buyer with different elasticities must be physically separate from each other.
question
The practice of price discrimination is associated with pure monopoly because:
answer
monopolists have considerable ability to control output and price.
question
A monopolist seeks maximum unit profits.
answer
FALSE
question
In a monopoly, price is greater than marginal cost.
answer
TRUE
question
Price discrimination is not viable if consumers can resell the products they purchase.
answer
TRUE
question
Without regulations, monopolists will produce at an output level where marginal benefit is greater than marginal social cost.
answer
TRUE
question
One feature of pure monopoly is that the monopolist is:
answer
A price maker
question
Natural monopolies result from:
answer
Extensive economies of scale in production
question
One feature of pure monopoly is that the demand curve:
answer
Slopes downward
question
The non-discriminating monopolist's demand curve:
answer
is less elastic than a purely competitive firm's demand curve
question
At the profit-maximizing level of output, a monopolist will always operate where:
answer
Price is greater than marginal cost
question
Suppose that a monopolist calculates that at present output and sales levels, marginal revenue is $1.00 and marginal cost is $2.00. He or she could maximize profits or minimize losses by:
answer
Increasing price and decreasing output
question
Suppose that a monopolist calculates that at present output and sales, marginal cost is $1.00 and marginal revenue is $2.00. He or she could maximize profits by:
answer
Decreasing price and increasing output
question
The supply curve for a monopoly is:
answer
Nonexistent
question
A monopolist will definitely discontinue production in the short run if:
answer
Price is less than average variable cost
question
Which statement is correct?
answer
Pure monopolists do not always realize economic profits
question
The supply curve for a pure monopolist:
answer
Does not exist because there is no fixed relationship between price and quantity supplied
Get an explanation on any task
Get unstuck with the help of our AI assistant in seconds
New