ECON 1010 Chapter Notes - Chapter 3: Economic Equilibrium, Invisible Hand, Productive Forces

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erinchimpanzee657

19 May 2017

School

University of Manitoba

Department

Economics

Course

ECON 1010

Professor

Laura K.Brown

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ECON 1010 Full Course Notes

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Following the assumption there is a large number of firms all producing the same good and using the same technology. Hence, in the long run customers can buy as many units as they want at a price equal to the minimum atc. Hence, long run supply curve for the whole market is going to be a horizontal line, with vertical intercept equal to the minimum average cost. In the short run, if there was an increase in demand; the market would adjust by increasing equilibrium price, mc goes up. In the long run, an increase in demand would have no effect on the market when new suppliers enter the market, they effectively nullify the pressure on existing suppliers. Entry continues and the price remains stable at the level of the minimum atc. What changes is the quantity supplied, which increases more than it would have in the short run. Long run supply curve in a more general model.

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Question 1 (1 point) Question 1 Unsaved In a competitive market the equilibrium price is determined: Question 1 options: at the intersection of the firmâs demand and the market supply curves. at the intersection of the market demand and supply curves. at the intersection of the firmâs demand and marginal cost curves. so as to cover the costs of the potential firms. so as to cover the costs of the firms currently in the industry. Save Question 2 (1 point) Question 2 Unsaved If the perfectly competitive market demand for gym shoes is given by QD = 100 â P and the market supply is given by QS = 10 + 2P, then the equilibrium price and quantity will be: Question 2 options: P = 50 and Q = 50. P = 40 and Q = 90. P = 40 and Q = 60. P = 30 and Q = 70. P = 25 and Q = 75. Save Question 3 (1 point) Question 3 Unsaved A constant-cost industry is one in which: Question 3 options: input prices do not change over time. technology does not change over time. input prices and technology do not change as firms enter or exit the industry. input prices and technology do not change over time. firms have reached the maturity phase of the industryâs life cycle. Save Question 4 (1 point) Question 4 Unsaved At the profit-maximizing level of output for the monopolist: Question 4 options: total revenue is equal to total cost. total costs are minimized. total revenue is maximized. marginal revenue is equal to marginal cost. average revenue is equal to average cost. Save Question 5 (1 point) Question 5 Unsaved Craigâs Red Sea Restaurant is the only restaurant in Columbia, South Carolina, that sells Ethiopian food. The demand for Ethiopian food is given by Q = 25 â P. Craigâs costs are given by TC = 25 + Q + 5Q2. Its maximum monopoly profit is: Question 5 options: â$1. $21. $22. $24. $26. Save Question 6 (1 point) Question 6 Unsaved So long as price exceeds average variable cost, in the model of monopolistic competition, a firm maximizes profits by producing where: Question 6 options: the difference between marginal revenue and marginal cost is maximized. marginal cost equals marginal revenue. marginal revenue equals price. the difference between price and marginal cost is maximized. price equals marginal cost. Save Question 7 (1 point) Question 7 Unsaved If a firm in a monopolistically competitive industry is profit maximizing, it should choose its level of advertising such that the marginal revenue of an additional dollar of advertising: Question 7 options: is equal to the elasticity of its demand curve minus 1. is exactly $1. increases revenues by $1. is equal to 1 plus the elasticity of its demand curve. is equal to the elasticity of its demand curve. Save Question 8 (1 point) Question 8 Unsaved Firms advertise in order to: Question 8 options: build brand loyalty. appeal to the price-sensitive consumers. increase the demand elasticities of their loyal customers. shift the market supply curve to the left. shift the market demand curve to the left. Save Question 9 (1 point) Question 9 Unsaved Firms offer promotions in order to: Question 9 options: build brand loyalty. appeal to the price-sensitive consumers. increase the demand elasticities of their loyal customers. shift the market supply curve to the left. shift the market demand curve to the left. Save Question 10 (1 point) Question 10 Unsaved If the demand increases for the product of a decreasing-cost industry: Question 10 options: short-run price goes up, but long-run price falls. long-run output goes up, but long-run price may go up or down. short-run output goes up, but long-run output may go up or down. long-run output goes up, but short-run price remains constant. long-run price goes up, but short-run price may go up or down. Save Question 11 (1 point) Question 11 Unsaved If the demand increases for the product of an increasing-cost industry: Question 11 options: short-run price goes up, but long-run price falls. long-run output goes up, but long-run price may go up or down. short-run output goes up, but long-run output may go up or down. long-run output goes up, but short-run price remains constant. short-run price goes up, and long-run price goes up. Save Question 12 (1 point) Question 12 Unsaved When Pan United Airlines gives a $400 fare discount to persons with student IDs, they are practicing: Question 12 options: first-degree price discrimination. second-degree price discrimination. third-degree price discrimination. markup pricing. tying. Save Question 13 (1 point) Question 13 Unsaved When a utility charges homeowners less than big industrial users, it is practicing: Question 13 options: first-degree price discrimination. fourth-degree price discrimination. third-degree price discrimination. markup pricing. tying. Save Question 14 (1 point) Question 14 Unsaved Cereal manufacturersâ use of coupons can be partially explained by: Question 14 options: first-degree price discrimination. second-degree price discrimination. third-degree price discrimination. markup pricing. tying. Save Question 15 (1 point) Question 15 Unsaved If a firm supplies separable markets with price elasticities h1 and h2, it should set prices P1 and P2 so that: Question 15 options: P1h1 = P2h2. P1 /h1 = P2 /h2. P1(1 + 1/h1) = P2 (1 + 1/h2). P1/(1 â 1 /h1) = P2 / (1 â 1/h2). P1 = 1 â 1/h1 and P2 = 1 â 1/h2. Save Question 16 (1 point) Question 16 Unsaved If a firm supplies separable markets with price elasticities h1 = â3 and h2 = â2, it should set prices P1 and P2 so that: Question 16 options: P1 = P2. 3P1 = 2P2. 2P1 = 3P2. 2/3P1 = 1/2P2. 2P1 = 2/3P2. Save Question 17 (1 point) Question 17 Unsaved Women are often charged more than men for haircuts performed by the same haircutter. This is not considered price discrimination because: Question 17 options: women receive more consumer surplus from haircuts than men receive. haircutters claim to spend more time on womenâs hair, raising the cost of the haircut to the firm. firms make up the extra cost to consumers by giving women free samples of products. men receive more consumer surplus from haircuts than women receive. women have a lower price elasticity of demand for haircuts. Save Question 18 (1 point) Question 18 Unsaved If price is above the average variable cost but below the average total cost of a representative firm in a competitive industry: Question 18 options: there will be entry to the industry over time. there will be exit from the industry over time. the firms in the industry are just earning a normal rate of return. the firms in the industry are earning a supranormal rate of return. the industry is in long-run equilibrium. Save Question 19 (1 point) Question 19 Unsaved Joeâs T-shirts has costs given by TC = $100 + 3Q, where Q is the number of shirts. If Joe charges $5 each, the percentage markup for 100 shirts is: Question 19 options: 20%. 25%. 33%. 50%. 67%. Save Question 20 (1 point) Question 20 Unsaved In the model of monopolistic competition, there can be short-run: Question 20 options: losses or profits, but there must be profits in long-run equilibrium. profits, but there must be losses in long-run equilibrium. losses or profits, but there must be losses in long-run equilibrium. losses or profits, but there must be neither profits nor losses in long-run equilibrium. losses, but there must be profits in long-run equilibrium.

1- All of the following statements apply to a purely competitive market in the long run, except:

A- In the long run, all inputs are variable in quantity.

B- Firms can expand their plant capacities in the long run.

C- Total fixed costs remain constant even when output expands in the long run.

D- Firms may enter or leave the industry in the long run.

2- Which of the following is true of normal profits?

A- They are necessary to keep a firm in the industry in the long run

B- They are zero under pure competition in the long run

C- They are excluded from a firm's costs of production

D- They are what attract other firms to enter an industry

3- -The long-run supply curve would be perfectly elastic when:

A- An increase in demand does not cause a change in product price

B- An increase in demand causes an increase in product price

C- A decrease in demand causes an increase in short-run supply

D- A decrease in demand causes an increase in product price

4- What happens in a decreasing-cost industry when some firms leave and the industry's output contracts?

A- The average cost will increase

B- The average cost will decrease

D- The total cost will decrease

C- The product price will decrease

5- Which of the following statements about a competitive firm is correct?

A-To maximize profits a competitive firm should produce at that output at which total revenue is greatest

B- In long-run equilibrium a competitive firm will produce at the point of minimum average costs

C- A competitive firm will produce in the short run so long as total receipts are sufficient to cover total fixed costs

D-A competitive firm will close down in the short run whenever price is less than the minimum attainable average total cost

6- When there is allocative efficiency in a purely competitive market for a product, the minimum price producers are willing to accept is:

A- Less than marginal benefit

B- Greater than marginal cost

C- Equal to the amount of efficiency or deadweight losses

D- Equal to the maximum price consumers are willing to pay

7- A patent is the legal right granted to a firm that allows it to:

A- Make copies of other firm's products

B- Be the sole buyer of a particular product or resource

C- Sell its new product exclusively for a set number of years

D- Be the exclusive distributor of a particular imported product

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1) When there is a competitive firm it will maximize profits at which output:

1. Total revenue and total cost are equal.
2 Total revenue exceeds total cost by the greatest amount.
3. Price exceeds average total cost by the largest amount.
4. The difference between marginal revenue and price is at a maximum.

2) Assume that QRS Corporation is producing 20 units of output. It is selling this output in a purely competitive market at $10 per unit. Its total fixed costs are $100 and its average variable cost is $3 at 20 units of output. This corporation:

1. Should close down in the short run.
2. Is maximizing its profits.
3. Is realizing a loss of $60.
4. Is realizing an economic profit of $40.

3) In a purely competitive industry:

1. There will be no economic profits in either the short run or the long run.
2. Economic profits may persist in the long run if consumer demand is strong and stable.
3. There may be economic profits in the short run, but not in the long run.
4. There may be economic profits in the long run, but not in the short run.

4) Assume a firm in a purely competitive market discovers that the price of its product is above its minimum AVC point but everywhere below ATC. The firm will:

1. Minimizes losses by producing at the minimum point of its AFC curve.
2. Maximizes profits by producing where MR = ATC.
3. Should close down immediately.
4. Should continue producing in the short run.

5) A constant-cost industry is one in which:

1. If 100 units can be produced for $100, then 150 can be produced for $150, 200 for $200, and so forth.
2. If 100 units can be produced for $100, then 150 can be produced for $300, 200 for $600, and so forth.
3. The demand curve and therefore the unit price and quantity sold seldom change.
4. The total cost of producing 200 or 300 units is no greater than the cost of producing 100 units.

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ECON 1010 Chapter Notes - Chapter 3: Economic Equilibrium, Invisible Hand, Productive Forces

ECON 1010 Full Course Notes

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