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01:220:102 Lecture Notes - Lecture 6: Takers, Demand Curve, Perfect Competition

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lemonfox566
11 Mar 2016
School
Rutgers University
Department
Economic
Course
01:220:102
Professor
Barbara Crockett

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01:220:102 Full Course Notes
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01:220:102 Full Course Notes
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Document Summary

6. 2 how inputs are turned into outputs. Solve 3 problems: how to make product, what is cost of making product, how much can the seller get for the product in the market. Short run: period of time when some of the firms inputs cannot be changed. Long run: period of time when all of the firm"s inputs can be changed. Change output by changing all resources (labor and physical capital) Variable factor of production: input that can be changed in a certain period of time and that changes if the level of output changes. Fixed factor of production: input that cannot be changed in the short run and that stays the same, regardless of how much output is produced. The marginal product increases with the first few workers: ^because of specialization: result of workers developing a certain skill set in order to increase total productivity.

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Related Questions

Question 16

  1. If price is cut and demand is elastic, total revenue will rise because

    the change in quantity demanded is greater than the percent change in price.

    the percent change in quantity demanded is greater than the change in price.

    the percent change in quantity demanded is greater than the percent change in price.

    customers can't find substitutes.

3 points

Question 17

  1. If price is cut and demand is inelastic, total revenue will fall because

    the change in quantity demanded is less than the percent change in price.

    the percent change in quantity demanded is less than the change in price.

    the percent change in quantity demanded is less than the percent change in price.

    customers can find substitutes.

3 points

Question 18

  1. If something is addictive, then

    price and demand are inversely related.

    price elasticity of demand is equal to one.

    demand is perfectly inelastic.

    demand is perfectly elastic.

3 points

Question 19

  1. In general, elasticities measure

    the change in quantity demanded when a product attribute changes.

    the change in consumer spending when income changes.

    the change in an attribute for a percentage change in price.

    the percentage change in the quantity demanded resulting from a fixed percentage change in some attribute.

3 points

Question 20

  1. Average total costs are defined as

    total costs divided by the change in output.

    total costs divided by output.

    the change in total costs when output changes.

    average variable costs plus marginal costs.

3 points

Question 21

  1. If a firm is experiencing economies of scale, then the long-run average cost curve is

    falling.

    rising.

    horizontal.

    shifting.

3 points

Question 22

  1. If average total cost is rising

    marginal cost is above average total cost.

    marginal cost is rising.

    marginal product is rising.

    marginal cost is above average total cost and is falling.

3 points

Question 23

  1. The period of time over which all inputs are variable is the

    market horizon.

    short run.

    calendar year.

    long run.

3 points

Question 24

  1. The supply chain refers to

    the supply curve.

    the process of outsourcing.

    the process of downsizing.

    the process of creating and selling a product.

3 points

Question 25

  1. When the capital (a fixed input) changes

    short-run marginal costs rise.

    short-run average total costs fall but do not shift.

    labor inputs decline.

    the short-run average total cost curve shifts.

3 points

Question 26

  1. A market of price takers is called

    perfectly competitive.

    monopolistically competitive.

    a monopoly.

    an oligopoly.

3 points

Question 27

  1. A market with a single seller is called

    perfectly competitive.

    monopolistically competitive.

    a monopoly.

    an oligopoly.

3 points

Question 28

  1. A market that mainly stresses product differentiation is called

    perfectly competitive.

    monopolistically competitive.

    a monopoly.

    an oligopoly.

3 points

Question 29

  1. Entry into a competitive market will continue until

    economic profits are zero.

    normal profits are zero.

    when accounting losses are zero.

    a. and b. are true

3 points

Question 30

  1. Firms in an oligopoly

    act independently.

    engage in strategic behavior.

    have perfect knowledge of the behavior of others.

    openly collude.

Please If you can highlight or mark the correct answer

Activity : 2 point(s)

If P = $8 and MC = $5 + 0. 2Q, the competitive firm's profit-maximizing level of output is:

5

0.2

8

15

Activity : 2 point(s)

In the long run, firms will exit a perfectly competitive industry if:

excess profits exceed zero.

excess profits are less than zero.

total profit equals zero.

excess profits equal zero.

Activity : 2 point(s)

In long-run equilibrium, monopoly prices are set at a level where:

price exceeds marginal revenue.

industry demand equals industry supply.

industry demand is less than industry supply.

price exceeds average revenue.

Activity : 1 point(s)

The kinked demand curve theory of oligopoly assumes that rival firms:

react to price increases.

react to price increases and decreases.

do not react to price changes.

react to price decreases.

Activity : 1 point(s)

In oligopoly markets, the market demand curve is:

upward sloping.

downward sloping.

horizontal.

vertical.

Activity : 2 point(s)

The level of competition in a given market tends to increase if:

minimum efficient scale of firms increases.

the number of substitutes increases.

significant barriers to exit are imposed.

the number of potential entrants decreases.

Activity : 2 point(s)

In the short run, the:

firm has complete flexibility with respect to input use.

availability of all inputs is fixed.

operating period is longer than the planning period.

availability of at least one input is fixed.

Activity : 1 point(s)

In both monopolistic competition and oligopoly markets:

there is easy entry and exit.

consumers perceive differences among the products of various competitors.

economic profits may be earned in the long run.

there are many sellers.

Activity : 1 point(s)

In oligopoly equilibrium:

MC = AC

MC > AC

MR = MC

MC < AC

Activity : 2 point(s)

A firm will earn normal profits when price:

equals average total cost.

equals average variable cost.

equals marginal cost.

exceeds minimum average total cost.

Activity : 2 point(s)

Economic costs include both explicit and implicit cost. When analyzing costs the next-best use of a given asset is called:

current cost.

replacement cost.

historical cost

opportunity cost.

Activity : 2 point(s)

In a perfectly competitive market:

sellers and buyers have perfect information.

entry and exit are difficult.

c. sellers produce similar, but not identical products.

each seller can affect the market price by changing output.

Activity : 2 point(s)

In competitive market equilibrium, the firm's:

MR = MC and P > AR

MR = MC and P > AC

AR = AC and MR > MC

P = MR = AR = AC = MC

Activity : 1 point(s)

A firm should increase advertising if the net marginal revenue derived is:

equal to the marginal cost of advertising.

greater than the marginal cost of advertising.

greater than zero.

less than the marginal cost of advertising.

Activity : 2 point(s)

For a firm in perfectly competitive market equilibrium:

a replacement cost.

an implicit cost.

an explicit cost.

an opportunity cost.

Activity : 1 point(s)

In a monopolistically competitive industry, firms:

offer products that are not perfect substitutes.

make decisions in light of expected reactions from other firms.

set price equal to marginal cost.

are price takers.

Activity : 2 point(s)

Fixed costs include:

variable labor expenses.

output-related energy costs.

output-related raw material costs.

variable interest costs for borrowed capital.

Activity : 2 point(s)

A monopolist maximizes profits by producing a level of output when:

P = AC

P > MC

P < MC

P = MC

Activity : 2 point(s)

The demand curve for a unique product without substitutes is:

upward sloping.

downward sloping.

horizontal.

vertical.

Activity : 2 point(s)

At the point of minimum Average Variable Cost:

historical cost.

incremental cost.

current cost.

Activity : 2 point(s)

In the decision process, management should ignore:

implicit costs.

historical costs.

sunk costs.

incremental costs.

Activity : 1 point(s)

At the profit maximizing level of output for a monopolist:

P = AR and AR = AC

P = MC and MR > MC

P = MR and AC = MC

P > MC and MR = MC

Activity : 2 point(s)

In perfectly competitive markets, profits are maximized when:

MC=AC

P>AC

MR=MC

MR=P

Activity : 2 point(s)

Graphically, competitive market supply is measured by the:

vertical difference of competitor demand curves.

vertical sum of competitor demand curves.

horizontal difference of competitor MC curves.

horizontal sum of competitor MC curves.

Activity : 2 point(s)

For a firm in perfectly competitive market equilibrium:

MR < AR

P > AC

P > MR

P = MC

Activity : 2 point(s)

In the long run, firms will offer supply at the point where P = MR = MC if:

MC is rising.

MC is falling.

MC is constant.

P > AC

Activity : 2 point(s)

The firm demand curve in a competitive market is:

upward sloping.

downward sloping.

horizontal.

vertical.

Activity : 1 point(s)

Monopolistic competition is characterized by:

homogeneous products.

barriers to entry and exit.

perfect dissemination of information.

few buyers and sellers.

Activity : 2 point(s)

Marginal cost equals:

average variable cost at its maximum point.

the change in total fixed cost divided by the change in quantity.

the change in total variable cost divided by the change in quantity.

total cost divided by quantity.

Activity : 2 point(s)

In the short run, a perfectly competitive firm will shut down and produce nothing if:

excess profits equal zero.

total cost exceeds total revenue.

total variable cost exceeds total revenue.

the market price falls below the minimum average total cost.

Activity : 2 point(s)

For a monopoly in equilibrium:

MR = MC

MC ≤ AC

MR ≤ AC

P ≥ AC

Activity : 2 point(s)

When profits are maximized in a competitive market, average cost is always:

rising.

falling.

constant.

none of these.

Activity : 2 point(s)

So long as P > AVC, the competitive firm's short-run supply curve is equal to:

AVC

P

MC

none of these.

Activity : 1 point(s)

The four-firm concentration ratio will rise following:

a rise in imports.

a fall in imports.

a merger between the two largest firms in the industry.

small firm entry.

Activity : 2 point(s)

In oligopoly markets, the market demand curve is:

point on the short-run marginal cost curve.

short-run average cost of production.

long-run average cost of production.

point on the short-run average cost curve.

Activity : 2 point(s)

The following market cannot be described as perfectly competitive:

the unskilled labor market.

the milk market.

discount retailing.

the agricultural grain markets.

Activity : 2 point(s)

In the long run, the:

availability of at least one input is fixed.

firm's operating decisions are typically constrained by prior capital expenditures.

availability of all but one input is fixed.

firm has complete flexibility with respect to input use.

Activity : 1 point(s)

The industry supply curve is derived through the horizontal summation of firm:

average cost curves.

marginal revenue curves.

marginal cost curves.

demand curves.

Activity : 2 point(s)

Price and product quality competition tends to be vigorous when:

entry barriers are low.

potential entrants are few.

product quality information is scarce.

the number of active sellers is few.

Activity : 1 point(s)

A perfectly functioning cartel results in:

oligopoly.

monopoly.

perfect competition.

monopolistic competition.

Activity : 1 point(s)

When prices in monopolistically competitive markets exceed those in a perfectly competitive equilibrium, this difference is the cost of:

information.

market power.

inefficiency.

product differentiation.

Activity : 1 point(s)

In the short run, a monopolist will:

shut down if price equals average total cost.

shut down if price is less than average total cost.

shut down if price is less than average variable cost.

never shut down.

Activity : 2 point(s)

In the short run, a perfectly competitive firm will shut down and produce nothing if:

typically involve multiple units of output.

do not vary across decision alternatives.

come into play when judging the costs of adding a new product line, advertising campaign, production shift, or organization structure.

play a role in determining the optimal course of action.

Activity : 2 point(s)

At the point of minimum AVC:

MC is falling.

MC is constant.

MC is rising.

MC = AVC.

Activity : 2 point(s)

A monopsony is a market with:

many sellers.

one buyer.

many buyers.

one seller.

Activity : 1 point(s)

The demand curve faced by a firm in a monopolistically competitive industry is:

the downward sloping industry demand curve.

downward sloping.

more elastic than the perfectly competitive firm's demand curve.

horizontal.

Activity : 2 point(s)

Perfect competition always prevails in markets with:

few buyers and sellers.

many buyers and sellers.

an even balance of power between sellers and buyers.

a single buyer.

Activity : 2 point(s)

If the slope of a long-run total cost function decreases as output increases, the firm's underlying production function exhibits:

constant returns to scale.

decreasing returns to scale.

decreasing returns to a factor input.

increasing returns to scale.

Activity : 2 point(s)

Average cost declines as output expands in a production process with:

constant returns to scale.

decreasing returns to scale.

decreasing returns to a factor input.

increasing returns to scale.

Activity : 2 point(s)

If the productivity of variable factors is decreasing in the short-run:

marginal cost must increase as output increases.

average cost must decrease as output increases.

average cost must increase as output increases.

marginal cost must decrease as output increases.

A competitive firm’s short-run demand for labor will rise when the price of its product rises.

True

False

As the wage rate rises, the marginal revenue product of labor increases.

True

False

A competitive firm’s demand for labor always slopes down in the short-run, but may slope upwards or downwards in the long run.

True

False

When labor an capital are complements in production, a higher wage will cause a firm to use more capital in the long run.

True

False

If labor is a regressive factor, then a firm’s long-run demand for labor may or may not be downward sloping.

True

False

The short-run demand curve for labor for a firm in any type of market for its output coincides with

the upward-sloping portion of the marginal revenue product curve.

the downward-sloping portion of the marginal revenue product curve.

the downward-sloping portion of the marginal product curve.

the marginal labor cost curve.

An increase in the price of labor will, in the short run, cause a competitive firm’s

marginal cost to increase, the quantity it sells to decrease, and therefore reduce the quantity of labor demanded.

price of its output to increase, leaving the quantity of labor demanded unchanged.

marginal revenue product of labor to decrease, and therefore reduce demand for labor.

marginal revenue product of labor to increase, and therefore increase demand for labor.

Which of the following would cause the firm’s short-run demand curve for labor to shift to the right?

A decrease in the wage rate.

An increase in the price of the firm’s product.

An increase in the rental rate paid to capital.

A decrease in the amount of complementary capital available.

If increased capital usage reduces the firm’s short-run demand for labor, then

labor is a regressive factor.

labor and capital are complements in production.

labor and capital are substitutes in production.

labor is a Giffen factor.

When is the law of demand violated for labor? That is, with regards to the law of labor demand, when does an increase in the wage not lead to a reduction in the quantity of labor demanded?

Never.

When the substitution and scale effects are in opposition, with the scale effect being the larger.

When labor is a regressive factor.

When labor earns zero economic rent.

If the wage rate rises, then the firm’s long-run marginal costs change, which in turn affects the firm’s output level and its employment of labor. This phenomenon is known as

the substitution effect.

the scale effect.

the regressive-factor effect.

the factor-price effect.

When will the scale effect of a wage increase cause a reduction in the quantity of labor demanded?

Always.

When labor is not a regressive factor.

When labor and capital are substitutes in production.

When labor and capital are complements in production.

Consider the usual case where a higher wage rate increases a firms’ marginal costs. In this case, the industry’s demand curve for labor

is more wage inelastic than the individual firms’ demand curves would indicate.

coincides with the horizontal sum of individual firms’ demand curves.

contains only substitution effects but no scale effects.

is horizontal at the going wage rate.

To maximize profits, a monopolist will hire the quantity of labor at which marginal revenue product of labor

is downward sloping and equal to the market wage rate.

is downward sloping and equal to marginal labor cost.

minus marginal labor cost is maximized.

is maximized.

A firm’s revenue minus its factor payments equals

zero.

the profits or losses earned by the firm.

the quasi-rents earned by the factors of production.

the firm’s total revenue.

As the amount of labor used in production increases, total product

increases at low levels of labor and decreases at higher levels of labor.

increases at high levels of labor and decreases at low levels of labor.

always increases.

always decreases.

A profit-maximizing price taker will produce at a level where

the wage equals the marginal product of labor.

the marginal revenue product of labor equals the price of their output.

the wage rate equals the price of their output.

the marginal revenue product of labor equals the wage rate.

If the wage rate is $10 per hour and one worker can produce 2 units of output per hour, then the marginal cost of production is

$5.

$10.

$20.

The answer cannot be determined from the information given.

A firm’s long-run demand for labor is more wage-elastic than its short-run demand for labor.

True

False

A monopsonist’s short-run demand curve for labor coincides with its marginal revenue product of labor curve.

True

False

Workers will receive higher wages when an employer faces an upward-sloping supply curve for labor.

True

False

The profit an owner receives is equivalent to the rent received for her entrepreneurial services.

True

False

When high levels of labor are employed, total production tends to increase at a decreasing rate.

True

False

The substitution effect on labor always decreases the quantity of labor demanded when the wage rate increases.

True

False

A firm’s marginal revenue product of labor equals the marginal product of labor multiplied by the per-unit cost of labor.

True

False

Tastes and preferences are relevant to individual choices for consumption but not relevant to choices for supplying labor.

True

False

A higher wage will always cause a worker to increase the quantity of labor supplied.

True

False

The substitution and income effects of a wage increase both cause consumption to rise.

True

False

A worker’s labor supply may either rise or fall when nonlabor income increases, depending on whether the substitution effect or the income effect dominates.

True

False

When an increase in marginal productivity increases workers’ nonlabor income, the effect on the quantity of labor supplied is ambiguous/uncertain.

True

False

A technological improvement that is permanent is more likely to raise employment than one that is temporary.

True

False

Other factors being constant, firms that provide on-the-job training to workers will tend to pay higher wages.

True

False

If there is discrimination, employers engage in it a cost.

True

False

Human capital tends to increase over the course of a person’s life.

True

False

In the indifference curve budget line model of labor supply,

labor is measured along the horizontal axis and leisure is measured along the vertical axis.

labor is measured along the horizontal axis and consumption is measured along the vertical axis.

consumption is measured along the horizontal axis and labor is measured along the vertical axis.

consumption is measured along the horizontal axis and leisure is measured along the vertical axis.

In the indifference curve budget line model of labor supply, the slope of the indifference curve is used to measure

the wage rate.

labor’s marginal product.

the worker’s nonlabor income.

the marginal value of leisure.

If a worker has chosen a quantity of labor where the marginal value of leisure exceeds the wage rate, she would be better off by

choosing less leisure.

providing fewer hours of labor.

providing more hours of labor.

staying at this combination of labor and consumption.

When there is an increase in the wage rate there will be

both a substitution effect and an income effect.

only a substitution effect.

only a substitution effect.

either a substitution effect or an income effect.

When the wage rate rises, the substitution effect leads a worker to

increase consumption while the income effect leads to a decrease in consumption.

decrease consumption while the income effect leads to an increase in consumption.

increase consumption, as does the income effect.

substitution sleep for other leisure.

Consider the indifference curve budget line model of labor supply, and assume consumption and leisure are both normal goods. A higher wage rate would result in

more consumption and less leisure.

a reduction in the worker’s marginal value of leisure.

reduced consumption if the income effect is larger than the substitution effect.

increased labor only if the substitution effect outweighs the income effect.

When the wage rate rises, a worker chooses to replace some leisure hours with work hours, even if he would remain equally well off. This phenomenon is known as

compensating differential.

the income effect.

the substitution effect.

intertemporal substitution.

Which of the following will shift a worker’s labor supply curve to the left?

Higher nonlabor income.

A lower wage rate, assuming the substitution effect dominates the income effect.

New machinery that substitutes for labor and lowers its marginal product.

A decrease in the marginal value of leisure.

Which of the following would cause a rightward shift in the labor demand curve?

Manna from heaven.

A rise in the wage rate.

A rise in workers’ marginal productivity.

A decline in workers’ nonlabor incomes.

When some jobs are inherently more risky or unpleasant than other jobs, different workers will be paid different wages because of

differences in human capital.

differing access to capital.

compensating differentials

discrimination.

Discrimination is difficult to measure empirically because

it is hard to measure and control for differences in marginal productivity.

data on racial and gender differences is rarely available.

discrimination is practiced by very few employers.

economists find no significant wage differentials due to gender or race.

Intertemporal substitution dictates that

people will work less in periods of high productivity.

people will spend more in periods of high productivity.

people will work more in periods of high productivity.

people will spend less in periods of high productivity.

A decrease in the wage rate causes the budget line to

become flatter.

become steeper.

shift upward.

shift downward.

An increase in the marginal productivity of labor will tend to

shift the labor supply curve rightward if the change is temporary.

result in an increase in employment if the change is temporary.

result in an increase in employment if the change is permanent.

all of the above.

A downward shift in a worker’s budget line is a result of

an increase in the wage rate.

a decrease in the wage rate.

an increase in nonlabor income.

a decrease in nonlabor income

One deficiency of the labor-leisure indifference curve analysis is that because indifference curves are always tangent to the worker’s budget line, the model cannot explain why some people choose not to work.

True

False