# Econ 2100 Test 3

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(i) and (ii) only
Economists normally assume that the goal of a firm is to earn: (i) profits as large as possible, even if it means reducing output. (ii) profits as large as possible, even if it means incurring a higher total cost. (iii) revenues as large as possible, even if it reduces profits.
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total cost
Which of the following can be added to profit to obtain total revenue?
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explicit costs + implicit costs.
A firm's opportunity costs of production are equal to its
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. require an outlay of money by the firm
Explicit costs
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how a firm turns inputs into output.
A production function describes
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increase in output obtained from a one unit increase in labor.
The marginal product of labor is equal to the
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10 units of output.
Let L represent the number of workers hired by a firm, and let Q represent that firm's quantity of output. Assume two points on the firm's production function are (L = 12, Q = 122) and (L = 13, Q = 132). Then the marginal product of the 13th worker is
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decreasing marginal product.
If a production function shows declining marginal product of an input as the quantity of the input increases, then the production function exhibits
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amount by which total cost rises when output is increased by one unit.
Marginal cost tells us the
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product of an extra worker is less than the previous worker's marginal product.
Diminishing marginal product suggests that the marginal
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In the long run,
inputs that were fixed in the short run become variable.
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long-run average total costs fall as output increases.
Economies of scale occur when
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both buyers and sellers
Who is a price taker in a competitive market?
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Price exceeds marginal revenue.
Which of the following statements regarding a competitive market is not correct?
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double.
If a firm in a competitive market doubles its number of units sold, total revenue for the firm will
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a. price. b. average revenue. c. total revenue divided by output. All of the above are correct.
Firms operating in competitive markets produce output levels where marginal revenue equals
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equal to marginal revenue.
For a firm in a perfectly competitive market, the price of the good is always
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a one-unit increase in output will increase the firm's profit.
If a competitive firm is currently producing a level of output at which marginal revenue exceeds marginal cost, then
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profit is maximized.
The intersection of a firm's marginal revenue and marginal cost curves determines the level of output at which
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increase its output.
If a profit-maximizing firm in a competitive market discovers that, at its current level of production, price is greater than marginal cost, it should
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a. new firms to enter the market. b. the market price to fall. c. its profits to fall. All of the above are correct.
Suppose a firm operates in the short run at a price above its average total cost of production. In the long run the firm should expect
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the portion of its marginal cost curve that lies above its average variable cost.
The short-run supply curve for a firm in a perfectly competitive market is
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shut down if P < AVC.
Competitive firms that earn a loss in the short run should
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exit if P < ATC
Which of the following represents the firm's long-run condition for exiting a market?
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drive down profits of existing firms in the market.
When new firms have an incentive to enter a competitive market, their entry will
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profits will rise.
If there is an increase in market demand in a perfectly competitive market, then in the short run
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Implicit costs
As a general rule, when accountants calculate profit they account for explicit costs but usually ignore
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barriers to entry
Which of the following is a characteristic of a monopoly?
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government-created monopolies.
Patent and copyright laws are major sources of
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society is better served by having one firm supply the product
When a firm experiences continually declining average total costs,
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lower its price.
In order to sell more of its product, a monopolist must
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less than price, whereas marginal revenue is equal to price for a perfectly competitive firm.
For a monopolist, marginal revenue is
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The economic inefficiency of a monopolist can be measured by the
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(ii) only
Economic welfare is generally measured by (i) profit. (ii) total surplus. (iii) the price consumers pay for the product.
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free entry
Which of the following is a characteristic of monopolistic competition?
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both a monopoly and a competitive firm.
A monopolistically competitive market has characteristics that are similar to
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competition and monopoly
Which of the following pairs illustrates the two extreme examples of market structures?
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price making ability.
Imperfectly competitive firms are characterized by
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tap water
Which of the following goods are not likely to be sold in monopolistically competitive markets?
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(i), (ii), and (iii)
Monopolistic competition is characterized by which of the following attributes? (i) free entry (ii) product differentiation (iii) many sellers
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product differentiation
Which of the following conditions distinguishes monopolistic competition from perfect competition?
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price and quantity just as a monopoly does.
A monopolistically competitive firm chooses its
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new firms will enter the market.
If firms in a monopolistically competitive market are earning positive profits, then
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price exceeds marginal cost.
A monopolistically competitive market could be considered inefficient because
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the market for tennis balls
In which of the following markets are strategic interactions among firms most likely to occur?
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oligopolistic markets.
We must be knowledgeable of how people behave in strategic situations if we are to understand
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cooperation and self interest.
A distinguishing feature of an oligopolistic industry is the tension between
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duopoly.
The simplest type of oligopoly is
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as a single monopolist.
As a group, oligopolists would always be better off if they would act collectively
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a firm will have chosen its best strategy, given the strategies chosen by other firms in the market.
When an oligopoly market reaches a Nash equilibrium,
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collusion.
An agreement among firms regarding price and/or production levels is called
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price effect disappears.
When an oligopoly grows very large, the
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There are a very large number of firms.
Other things the same, in which case is the quantity produced the highest?
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. undesirable, because it leads to output levels that are too low and prices that are too high.