ECON 213 Quiz A2 - Quiz prep and practice questions. PDF

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202120 Spring 2021 ECON 213-D11 LUO ADDITIONAL QUIZ QUESTIONS 2

Perfect Competition: ● Buyers and sellers operate independently of each other and individual actions do not influence the market. ● Firms are both price-takers in both input and output markets. ● In equilibrium, each firm is identical in all respects - size, production techniques, prices charged, resources used, etc. ● All firms earn ZERO economic profits (all of the above)

Monopoly: Market structure in which a single firm serves an entire market for a good that has no close substitutes.

Sources of Monopoly Power: ● Economies of scale ● Economies of scope ● Cost Complementary ● Patents and other legal barriers Economies of scale: Exist whenever long-run average costs decline as output increases.

Economies of scope: Exists when the total cost of producing two products within the same firm is lower than when the products are produced by separate firms.

Cost complementarity: Exists in a multiproduct cost function when the marginal cost of producing one output is reduced when the output of another product is increased; that is, when an increase in the output of product two decreases the marginal cost of producing output.

Patents and other legal barriers: Government may grant an individual or a firm a monopoly right. Ex. City may prevent another utility company from competing against the local utility company.

Shutdown if: P < AVC (Firm must still pay FC)

Question: Refer to the accompanying table, which represents the costs and production for a monopolist, to answer the four questions that follow. The profit made by this profit-maximizing firm is: A. $7. B. $9. C. $3. D. $4. E. $8. Selected Answer: E. $8. (quantity x price compared to the fixed cost+variable cost. Maximizing is the largest result before it begins to decrease)

Question: Economists view rent seeking as: Selected Answer: a detrimental form of competition.

Question: Refer to the accompanying set of graphs to answer the three questions that follow. Which graph would result in firms entering a perfectly competitive market in the long run? A. Graph B B. Graph E C. Graph D D. Graph A E. Graph C Selected Answer: C. Graph D (Graph where MR is horizontal and ATC intercepts MR twice with MC intercepting between those two points)

Question: Economies of scale exist: Selected Answer: when long-run average total costs decrease.

Question: In instances when having a single firm in the market makes sense, governments ________ to ensure a minimum level of market standard, such as safety. Selected Answer: require licenses

Question: Because of market forces, firms have ________ over the price that they can charge and they make ________ profit(s) when competition is widespread. Selected Answer: little or no control; little or no

Question: Total revenue minus total cost equals:

Selected Answer: profit.

Question: If a monopolist is producing a quantity where marginal revenue is equal to $16 and the marginal cost is equal to $17, the monopolist should: Selected Answer: decrease production and increase the price to maximize profits.

Question: Refer to the accompanying figure to answer the four questions that follow. The total cost when a firm is profit maximizing is: A. $70,000. B. $25,000. C. $67,500. D. $60,000. E. $50,000. Selected Answer: E. $50,000. (MC and MR intercept at 1,000 quantity. Follow 1,000 up to where it hits the ATC which is $50,000)

Question: Willow Park is a small community in Texas with only one gas station. The price of gasoline in Willow Park most likely: is higher than in the big cities in Texas.

Question: Firms will always suffer a loss only if the price they charge is: Selected Answer: less than their minimum average total cost (ATC)....