final exam

Question 1

whihc of the followign is true about market failure?

Answer 1

a) For various reasons, sometimes markets, on their own, cannot find the socially efficient level of quantity (Q*)

b) It is extremely difficult to provide some goods that people value because of their nature, it is hard to collect from everyone who uses it

c) Sometimes, the behavior of market participants affect parties not involved in the market

d) Market failure and government attempts to help are generally controversial topics

e) All of the above are true of market failure!!!!!!

Question 2

which of the following is not an example of market failure discussed in classs?

Answer 2

when the market price of a new car is more than you can afford

Question 3

. Suppose that buyers and sellers make up a market, and through their actions and supply and demand,
they determine the price and quantity of a good/product. However, also suppose that others not
involved (third parties) are affected by the buyers and sellers actions. What type of market failure do
we call this?

Answer 3

externalities

Question 4

which of the following is the best example of a negetive externality?

Answer 4

when a peson next to you is smoking which makes you cough

Question 5

Suppose that the production of a good generates a negative impact upon third parties. If the market
does NOT take these negative consequences into account, then what is the expected market price
and quantity?

Answer 5

price will be lower and quantity higher than the efficient price and quantity

Question 6

Consider a coal mining company for the next several questions. Let’s say that the company extracts 2,000 tons of coal per day. In order to do this, it ONLY pays for both its workers and the equipment it uses. However, to extract the coal, the mining company also leaves giant, barren holes in the mountain that
need to be replanted with trees. Replanting trees cost $10 per ton of coal. Also, when electric companies burn the coal to produce electricity, it pollutes the air, leading to numerous health problems. Placing
pollution control devices on the electric plants would cost $15 per ton of coal.

Answer 6

1) what is the economic problem caused by the mining and burning of coal?
b) negative externalities

2)what does that mean in english?
a)the ining company and the electric company do NOT account for tree planting and pollution control in their decision, and too much coal is mined and burned

3)what are the private costs of mining and burning coal?
d) the labor and equipment costs to the mining company

4)what are the toal costs of mining and burning coal?
e) the cost of labor , the equipment tree panting and installing pollution control devices

Question 7

Wrigley Field is a historic baseball park in Chicago where the Cubs play. It is also pretty well known for its nearby apartments, where people can gather and watch the live game. What is this problem
known as?

Answer 7

free-rider problem

Question 8

which of the following is the best example of a public good?

Answer 8

dickson street

Question 9

suppose that the town of springdale takes up a collection to put on a fireworks display. Homer, however, does not pay, but can stil watch the show. what type of market failure doesthis represent?

Answer 9

public goods

Question 10

public goods are often best provided by

Answer 10

governments

Question 11

what cant normal private businesses provide public goods?

Answer 11

because of the propertities of public goods, privates business can’t stop those who don’t pay from enjoying their use

Question 12

10-6 figure each unit of plastics that is produced results in an external cost of…

Answer 12

12 $

Question 13

The overuse of antibiotics leads to the development
of antibiotic-resistant diseases. Therefore, the socially optimal quantity of antibiotics is represented by the point

Answer 13

Q2

Question 14

the motivating behavior we assume to drive all firm behavior is

Answer 14

maximizing profit

Question 15

marginal product of labor is defined as the addition

Answer 15

output generated from employing 1 more unit of labor

Question 16

. At Abby’s Cookie Store, 4 workers can bake 44 cookies in one hour, while 5 workers can bake 70
cookies in one hour. The marginal product of the 5th worker is

Answer 16

26 cookies
70-44/1

Question 17

Diminishing returns to labor, or diminishing marginal product of labor, implies that holding other
inputs fixed, eventually
a) output decreases as we employ more units of labor.
b) output rises by more and more as we employ more units of labor.
c) revenue rises by more and more as we produce more units of output.
d) output rises by less and less as we add more units of labor.
e) costs rise by less and less as we produce more units of output.

Answer 17

d) output rises by less and less as we add more units of labor.

Question 18

the short run production function assumes that

Answer 18

at least on einput is held fixed or cosntant

Question 19

long run function assumes that

Answer 19

all inputs are free to vary

Question 20

an example of an explicit cost of production would be the cost of

Answer 20

a) hiring extra labor for a busy season.
b) remodeling a store to expand business.
c) repaying a business loan.
d) purchasing raw materials (such as flour for a bakery).

Question 21

Sabrina owns her own broomstick factory. She pays her employees $150,000 per year. Her
inventories/supplies cost her an additional $90,000 per year. Her rent on the factory is $60,000 per year.
Before running the broomstick factory, she was a race car driver earning $175,000 per year. Use this information to answer the next several questions (8-11).
what is her implicit cost?

Answer 21

her foregone income from being a racecar driver (175000)

Question 22

Sabrina owns her own broomstick factory. She pays her employees $150,000 per year. Her
inventories/supplies cost her an additional $90,000 per year. Her rent on the factory is $60,000 per year.
Before running the broomstick factory, she was a race car driver earning $175,000 per year. Use this
information to answer the next several questions (8-11).

what are sabrinas explicit costs?

Answer 22

labor 150000 inventory 90000 rent 60000

Question 23

Sabrina owns her own broomstick factory. She pays her employees $150,000 per year. Her
inventories/supplies cost her an additional $90,000 per year. Her rent on the factory is $60,000 per year.
Before running the broomstick factory, she was a race car driver earning $175,000 per year. Use this
information to answer the next several questions (8-11).

an accountant would say that sabrinas yearly costs are _______ while an economist wold say that her yearly costs are _________

Answer 23

300,000 an 475,000
accounting = explicit
econ= explicit and implict

Question 24

Sabrina owns her own broomstick factory. She pays her employees $150,000 per year. Her
inventories/supplies cost her an additional $90,000 per year. Her rent on the factory is $60,000 per year.
Before running the broomstick factory, she was a race car driver earning $175,000 per year. Use this
information to answer the next several questions (8-11).

if her revenues were 500,000 for the year, an accountant would say that sabrinas profits were _____ while an economist would say that her profits were ____

Answer 24

200,000 and 25,000
rev- yearly costs

Question 25

economists profits are normally ___ than accoutning profits because ___

Answer 25

lower/ econoic costs are greater than accounting costs

Question 26

marginal cost (MC) can be thought of as the change in

Answer 26

total cost from producing one more unit of output

Question 27

becuase the amount of labor can be changed in the short run, it is known as a

Answer 27

variable cost

Question 28

what happens to fixed costs (FC) as the firm increases production in the short run

Answer 28

FC remains cosntant

Question 29

16. What happens to average fixed costs (AFC) as the firm increases production in the short-run?

Answer 29

AFC continually decreases

Question 30

17. What happens to variable costs (VC) as the firm increases production in the short-run?

Answer 30

Vc increases slowly at first and then increase fast and faster

Question 31

18. What happens to average variable costs (AVC) as the firm increases production in the short-run?

Answer 31

AVC decreases at fisr and then begins to increase

Question 32

19. What happens to total costs (TC) as the firm increases production in the short-run?

Answer 32

TC increases slowly at first and the increase faster and faster

Question 33

20. What happens to average total costs (ATC) as the firm increases production in the short-run?

Answer 33

e) ATC decrease at first and then begin to increase

Question 34

21. What happens to marginal cost (MC) as the firm increases production in the short-run?

Answer 34

e) MC decrease at first and then begin to increase

Question 35

22. Which of the following concerning typical cost curves is correct?

Answer 35

a) When marginal cost equals average total cost (ATC), the ATC is at its minimum. d) When marginal cost is less than average total cost (ATC), the ATC is falling.

Question 36

23. Which of the following short-run cost curves is NOT typically U-shaped? a) average fixed cost b) average variable cost c) average total cost d) marginal cost e) All of the above are typically U-shaped

Answer 36

a) average fixed cost

Question 37

Use the information below to answer the next several questions 24 - 27. Hooray! You own your own business producing and selling UARK t-shirts. Suppose that when you employ 4 workers per day, you can produce/sell 100 shirts per week. When you employ 5 workers per week, you can produce/sell 130 shirts per week. When you employ 6 workers per day, you can produce/sell 170 per week. 24. As you move from 4 to 5 to 6 workers, what is happening to your production function?

Answer 37

INCREASING AT AN INCREASNG RATE

Question 38

25. As you move from 4 to 5 to 6 workers, what is happening to your marginal production of labor?

Answer 38

a) Marginal product of labor (MPL) is rising

Question 39

Given your answers above, what is happening to your total cost function as you increase your weekly output from 100 to 130 to 170 shirts per week?

Answer 39

b) TC is rising at a decreasing rate

Question 40

Given your answers above, what is happing to your marginal cost (MC) function as you increase your weekly output from 100 to 130 to 170 shirts per week?

Answer 40

c) MC is falling

Question 41

what does theat mean?

Answer 41

At this point in production, the 170th shirt costs you less to make than the 169th c) At this point in production, you get more shirts from your 6th worker than you did from your 5th worker

Question 42

graph on pg 12 29. What would be the best way to interpret point A on the graph above?

Answer 42

e) When the firm produces 80 units per day, the 80th unit costs an extra $60 to make.

Question 43

30. What would be the best way to interpret point B on the graph above?

Answer 43

a) When the firm produces 80 units per day, each one on average costs $45 to make. d) When the firm produces 80 units per day, its total costs are $3,600 per day.

Question 44

31. When the firm produces 80 units per day, what are its total costs per day?

Answer 44

c) $3,600

Question 45

32. When the firm produces 80 units per day, what are its variable costs per day?

Answer 45

c) $2,800

Question 46

33. When the firm produces 80 units per day, what are its fixed costs per day?

Answer 46

b) $800

Question 47

34. Diminishing returns to labor occurs

Answer 47

in the short run only

Question 48

17. When a perfectly competitive firm is producing at a level of output where MC > MR, then the firm

Answer 48

e) should decrease output to increase profits.

Question 49

18. A firm should make the short-run decision to shut down if the

Answer 49

e) All of the above would cause a firm to shut down in the short run.

Question 50

19. A firm should make the long run decision to exit the market if

Answer 50

c) price is less than average cost.

Question 51

The perfectly competitive firm's short run supply curve is its _______, while its long run supply curve is its _________.

Answer 51

d) marginal cost curve above the AVC; marginal cost curve above the ATC

Question 52

Suppose that factory XYZ is a perfectly competitive firm. At the current level of profit-maximizing level of output (Q*), the average total cost is $30, the average variable cost is $25, and the perfectly competitive price is $27. Then, in the short run, XYZ should

Answer 52

e) stay open, since it is covering its variable costs and some of its fixed costs.

Question 53

Refer to the question above. What if all the costs were the same at Q*, but the perfectly competitive price of was $23? Then, in the short run, XYZ should

Answer 53

b) shut down since it is not even covering its variable costs.

Question 54

Refer to the questions above. Market price is $23. At Q*, ATC is $30 and AVC is $25. What should the firm do in the long run?

Answer 54

d) Exit. The firm should exit the industry and pursue its next best opportunity.

Question 55

a monopoly can be said to exist when

Answer 55

one firm produces a good with no close substitues

Question 56

the debeers group owns a majority of the world diamond mines. this barrier to entry is known as

Answer 56

control of resource

Question 57

marginal revenue is the

Answer 57

additional revenue generated from selling one more unit of a good

Question 58

the golden rule for finding the profit maximizing level of output* under all market structures is to set the level of output where

Answer 58

marginal revenue equals marginalcostwh

Question 59

when comparing monolpoply verses perfect competition, we normally assume that

Answer 59

barriers to entry exist under monopoly but not under perfect competition

Question 60

when a monopolist increases output say at lest 1 unit what happens to total revenue

Answer 60

unable to determine without information because the monopolist will lose some revenue by charging a lower price but gain some revenue by selling more unitsi

Question 61

in general when marginal revenues is negative what is happening to total revenue

Answer 61

totl rev is falling

Question 62

in gen when marginal rev is posititve what is happening to total rev

Answer 62

total rev is rising but by less and lss

Question 63

a monopolist can maximize total revenue by setting its level of output where

Answer 63

marginal revenue equals zero

Question 64

a monolplist can mazimize profits by setting its level of output where

Answer 64

marginal rev equals marginal cost

Question 65

if a monopolist is producing at a level of output where MR> MC then the monopolist

Answer 65

should lower its price and increase its level of foutput

Question 66

barriers to entry imply that in the long run

Answer 66

Economic profits can be positive

Question 67

suppose that UofA had only one place to buy coffee- starbucks. hwich market structure best captures this scenario

Answer 67

monolpoly

Question 68

suppose that uark had many places sellign very similar coffe

Answer 68

perfect ocmpetitionco

Question 69

snider the two scenarios above, under which scenario would you predict coffe will be most expense

Answer 69

starbucks only

Question 70

under which would it be less expensive

Answer 70

coffee produced by many

Question 71

positive longrun profit occurs in

Answer 71

monopoly only

Question 72

market power means

Answer 72

the ability of a firm to charge a price higher than MC

Question 73

in which market structure do we assume that firms possess market power

Answer 73

monopoly only

Question 74

suppy and demand is relly a model of wihc type of market

Answer 74

perfect ocmpetition

Question 75

which are true about lessions from the different market structures

Answer 75

the more inelastic demand, the more market power firms will have, the greater barriers to entry the easier it is to make long run economic profits greater barriers to entry provide greater incentive for firms to collude

Question 76

clayton act

Answer 76

individuals can sue to recover damages from illegal cooperative aggreements