hw 9 Flashcards
(20 cards)
In a market with pure competition, a firm:
a.Chooses its price to maximize profits
b.Sets its price to undercut other firms selling similar products
c.Takes its price as given by the market
d.Picks the price that yields the largest market share
c. takes it prices as given by the market
A firm in a competitive market maximizes profit by choosing the quantity at which:
a.Average total cost is at its minimum
b.Marginal cost equals the price
c.Average total cost equals the price
d.Marginal cost equals average total cost
b. marginal costs equals the price
In a competitive market, a firm’s short run supply curve is its _____ cost curve above its ______ cost curve.
a.Average total, marginal
b. Average variable, marginal
c.Marginal, average total
d.Marginal, average variable
d. marginal, average variable
If a profit-maximizing firm in a competitive market is producing a quantity at which marginal cost is between average variable cost and average total cost, it will:
a.Keep producing in the short run but exit the market in the long term
b.Shut down in the short term but return to production in the long run
c.Shut down in the short run and exit the market in the long run
a. keep producing in the short run but exit the market in the long term
In the long run equilibrium of a competitive market with identical firms, what is the relationship between price P, marginal cost MC, and average total cost ATC?
a.P > MC and P > ATC
b.P > MC and P = ATC
c.P = MC and P > ATC
d.P = MC and P = ATC
d. P=MC and P=ATC
To celebrate your “ace-ing” the last Econ exam, you go out to a posh restaurant and order a ginourmous lobster dinner for $120. After eating half of the lobster, you realize that you are quite full and will not get any benefit from eating any more (i.e., MB is zero and starts to decline). Because it is a posh restaurant, there are no “doggy” bags and you are not going to be so gauche (ill mannered) as to steal one of the nice crisply-starched cloth napkins to wrap up the leftovers, and thus you will not be able to take home leftovers. You are thinking that maybe you should finish your lobster dinner because you already paid for it. Or maybe you should leave the remaining lobster. Based on sound economics logic, what should you do?
a.Finish it, because “you already paid for it” (i.e., a sunk cost).
b.Leave it because “you already paid for it” (i.e., a sunk cost) and the applicable economics is diminishing marginal returns.
c. Leave it and only pay for the half that you ate (but leave a tip based on the full amount)
d.Start a food fight with the leftovers because “you already paid for it”.
b. leave it because “you already paid for it” and the applicable economics is diminishing marginal returns
Bob’s lawn mowing service is a profit maximizing firm in a competitive market. Bob mows lawns for $27 each (that’s the market price). His total cost each day is $280 of which $30 is fixed costs. He mows ten lawns a day. What is Bob’s short run decision regarding shutdown and what is his long run decision regarding exit?
a.Keep mowing in the short run but exit the market in the long term
b.Shut down in the short run and exit the market in the long run
c.Shut down in the short term but return to mowing in the long run
d.Keep mowing both in the short run and in the long run
a. keep moving in the short run but exit the market in the long term
For a market to be perfectly competitive, certain conditions must be met. Which of the following are conditions for a perfectly competitive market:
a.Both buyers and sellers are price makers
b.There are no barriers to entry
Firms’ products are identical
A , B, and C
c. A and B but not C
d. B and C but not A
d. b and c but not a
The goal of a firm is to maximize profits (and not maximize revenue). A firm maximizes profit when:
a.average revenue equals average cost
b.marginal revenue equals total cost
c.marginal revenue equals price
d.marginal revenue equals marginal cost
d. marginal revenue equals marginal cost
If MR > MC, a firm can increase profit by ___________ output. If MR < MC, a firm can increase profit by ____________ its output.
a.Increasing, decreasing
b.Decreasing, increasing
c. Decreasing, decreasing
d. Increasing, increasing
a. increasing and decreasing
Because the marginal cost curve tells us how much of a good a firm will supply at a given price, the marginal cost curve is the firm’s ______ curve.
a.Demand curve
b.Supply curve
c.Average total cost curve
d. Average variable cost curve
b. supply curve
In the short run, more of the market adjustments to changes in demand are due to changes in _________ , while in the in the long run, more of the market adjustment is done by changes in the _________ of firms in the market.
a.Price, quantity
b.Supply, quantity
c.Price, technology
d. Consumer expectations, technology
a. price, quantity
With respect to a firm’s long-run decision to exit/enter a market,
a.A firm should exit the market if total revenue is calculated to be less than total costs; TR < TC
b.A firm should enter the market if total revenue is calculated to be more than total costs; TR > TC
c.A firm should enter the market if average variable costs is calculated to be more than marginal costs; AVC > MC
d.A and B
e. A and C
d. A and B
True or False: Economic efficiency is achieved in the long run under pure competition because 1) there is Productive Efficiency since production occurs where price is equal to minimum average total costs, 2) there is Allocative Efficiency since production occurs where price is equal to marginal costs, and 3) there is Maximized Surplus (aka Welfare, Satisfaction)since the sum of consumer surplus and producer surplus are maximized at equilibrium.
True
False
true
True or False: Unlike planned economies, purely competitive markets will automatically adjust (“Dynamic Adjustments”) to changes in Consumer tastes, Resource supplies, and Technology. Therefore, after binge watching several episodes of “Diners, Drive-ins, and Dives” you get a hankerin’ for pork BBQ which means that your demand curve for pork BBQ shifts out, which incrementally shifts out the market demand curve for pork BBQ, thus incrementally affecting the price of pork BBQ. And since pork BBQ and cole slaw are complements, it also incrementally affects the price of cole slaw.
True
False
true
Which of the following is true?
a. Any change that moves a market out of equilibrium will cause an expansion or contraction of the market until a new equilibrium occurs when price equals retail price.
b.On its own, the “invisible guiding hand” does its magic – since everyone gave their explicit orders to the market to achieve a new equilibrium at P = MC.
c.The highly desired, efficient economic outcomes of Productive Efficiency, Allocative Efficiency, and Maximized Surplus arise out of, and from, the self-interest, profit motivation.
d.None of the above are true
c. the highly desired, efficient economic outcomes of Productive Efficiency, Allocative Efficiency, and Maximised Surplus arise out of, and from, the self- interest, profit motivation
True or False: The concept of Creative Destruction is a powerful economic concept because it can explain many of the dynamics of industrial change: the transition of an industry from a competitive to a monopolistic market, and back again.
True
False
true
True or False: In the short run, a power plant will be dispatched (turned on to generate electricity) when its marginal cost is above its average variable cost.
True
False
true
True or False: In the long run, a company will permanently shut down when its projection of market price (P) is less than its average total cost (ATC).
True
False
true
At long run equilibrium, economic profits are zero. This is because:
a.Profits create incentives for new firms to enter which causes market supply to increase which causes the price to fall until zero profits are made.
b.The existence of losses will cause firms to leave the industry which causes market supply to decrease which causes the price to increase until losses are zero.
c.Both A and B
d. Neither A or B
c. Both A and B
