ECON 2100 Midterm: ECON 2100 Kennesaw State ECON2100 Summer2016 Exam3A

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31 Jan 2019

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Econ 2100 (summer 2016 sections 10 & 11) According to the ftc classification of market concentration, a market is not concentrated if. Hhi is __________ and is highly concentrated if __________. negative; positive. below 1; above 1. below 1,000; above 1,800. above 75; below 25. Kyle sells potatoes in a perfectly competitive market. Last year he: produced 30,000 pounds of potatoes, sold each pound of output at a price of , had fixed costs of ,000, and earned a profit of ,000. More than one (perhaps all) of the above answers is correct. Brenda operates a lemonade stand for 2 hours. She spends for ingredients and sells of lemonade. During these two hours she could have instead mowed a neighbor"s lawn for (using the neighbor"s lawn mower and gas). It follows that from running the lemonade stand she has an accounting profit of _____ and an economic profit of _____.

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For both problems below, round your final answers to the level of output to the nearest unit since it is not possible to produce a fraction of a unit.

1) The market for Commodity A operates in a perfectly competitive market and the demand curve is defined by:

P = 100 - 0.2Q_D

The supply curve is defined as:

P = 2 + 0.3Q_S

Solve for the equilibrium levels of price and quantity that the market will bear.

You are the manager of your firm and you are trying to decide how much output you will be producing. You have total fixed costs of $10 and total variable costs of:

TVC = Q + 0.5Q²

How much of the total market quantity should your firm produce to maximize its profit? How can you confirm that this level is really a maximum and not a minimum?

2) Assume that you work for the same firm above. Your firm has identified a developing country as an area of expansion. There are no current producers of Commodity A in this developing country so your firm will be the sole producer of this product. Assume that the demand curve for Commodity A in this developing economy is the same as the one described above. If your objective is to maximize profit, what will be the level of output you will produce, and what will be the market price for Commodity A. Compare your results from problem 1) above. What accounts for the difference? Who suffers and who benefits from these differences?

blushcicada421

1-7 True or False

1) In the short run, a perfectly competitive firm can earn positive, zero, or negative profit depending on the market price of the firm's output.

2)In the model of the perfectly competitive firm, the firm's fixed costs are equal to its implicit costs of production.

3)Assume the market price is greater than average total cost at the perfectly competitive firm's profit-maximizing level of output. In this case, the firm is earning positive economic profits, which act as an incentive for new firms to enter the market.

4)Assume that at the current level of output, price equals marginal revenue, but is less than average total cost. So long as price is greater than average variable cost, the firm should continue to operate in the short run to minimize its losses.

5)The fact that a firm is a price-setter does not ensure it will make a positive economic profit in the short run and over time.

6)Barriers to entry serve to limit the number of firms that operate in a particular market and, as 11) such, reduce the amount of total profit earned in the market.

7)In the prisoner's dilemma game, each player's dominant strategy is also the Nash equilibrium.

14-17 Multiple Choice

14) Marginal revenue is equal to:
A) the change in P x Q due to a one unit change in output. B) the change in quantity divided by the change in price.

C) the change in price divided by the change in output. D) price, but only if the firm is a price searcher.

15) In order to maximize its profits, a price-taking firm should produce the level of output at which:

A) marginal revenue = marginal cost. B) total revenue = total cost.

C) variable revenue = variable cost. D) average revenue = average cost.

16) Assume that there is an improvement in the technology used by firms in a perfectly competitive industry that is initially in long-run equilibrium. In the short run this would cause:

A) cannot be determined with the information given. B) no change in the firm's economic profit.
C) a decrease in the firm's economic profit. D) an increase in the firm's economic profit.

17) Assume at the firm's profit-maximizing level of output P = AVC. In this case, the firm will be:

A) incurring an economic loss. B) earning a positive economic profit.

C) earning economic profit = 0. D) breaking even.

1. All of the following are characteristics of long-run equilibrium for firms in a monopolistically competitive market except:

A. price equals marginal cost.

B. price equals average total cost.

C. price exceeds the minimum of the average total cost.

D. marginal cost equals marginal revenue.

2. All of the following are strategies a firm with market power can adopt to increase its profits over time except:

A. erecting barriers to entry.

B. setting price equal to the marginal costs of production.

C. mergers with, and acquisitions of, competing firms.

D. influencing the regulatory process.

3. Assume that for a particular firm's output price = $80, marginal cost = $30, average total cost = $25. Based on this information, the firm's Lerner Index is equal to:

A. 0.313.

B. 0.625.

C. 0.6.

D. 0.375.

4. Assume that when the price is $20, the quantity demanded is 9 units, and when the price is $19, the quantity demanded is 10 units. Based on this information, what is the marginal revenue resulting from an increase in output from 9 units to 10 units?

A. $10

B. $1

C. $19

D. $20

5. Because firms produce a differentiated product, each of the firms in a monopolistically competitive market faces a demand curve that is:

A. perfectly elastic.

B. downward sloping.

C. perfectly inelastic.

D. perfectly elastic or perfectly inelastic depending on whether the firm's output is a luxury or a necessity.

6. Suppose a monopolist is producing a level of output such that MR > MC. What should the firm do to maximize its profits?

A. The firm should increase output.

B. The firm should increase the price.

C. The firm should do nothing - it wants to maximize the difference between MR and MC in order to maximize its profits.

D. The firm should hire less labor.

7. Suppose the firms in a monopolistically competitive market are earning positive economic profits. What will happen to move the market to its long-run equilibrium?

A. The demand curves faced by firms in the market will shift to the right.

B. The firms' demand curves will become less elastic.

C. More close substitutes will appear in the market.

D. Some firms will exit the market if they can't cover all of their fixed and variable costs.

8. The Lerner Index is a measure of market power that focuses on:

A. the difference between a firm's product price and its marginal costs of production.

B. the share of the market controlled by the X largest firms in the market.

C. the ratio of the price of a firm's product to the price elasticity of demand for the product.

D. the sum of the squares of the market share of each firm in an industry.

9. The measure of market power that focuses on the share of the market controlled by the X largest firms in the market is known as:

A. the Lerner Index.

B. the Herfindahl-Hirschman Index.

C. the Minimum-Efficient Scale Index.

D. a concentration ratio.

10. The monopoly characteristic of monopolistically competitive firms ensures that such firms will earn positive economic profits over the long-run.

a. True

b. False

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ECON 2100 Midterm: ECON 2100 Kennesaw State ECON2100 Summer2016 Exam3A

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