Microeconomics Flashcards

Which of the following would cause an upward-sloping supply curve to become more elastic?

Answer: Longer time horizon allowing producers to adjust capacity

Supply becomes more elastic over longer time periods as firms have more opportunity to adjust inputs, technology, and capacity.

In which market structure does a firm face a kinked demand curve?

Answer: Oligopoly

The kinked demand curve model applies to oligopoly, where rivals match price cuts but ignore price increases, creating a kink at the prevailing price.

If marginal utility per dollar spent on good A exceeds that for good B, a utility-maximizing consumer should:

Answer: Increase spending on A and decrease spending on B

The consumer equilbrium condition requires MU_A/P_A = MU_B/P_B; if the ratio is higher for A, the consumer gains more utility by shifting spending toward A.

Which of the following best represents a positive externality in production?

Answer: A beekeeper whose bees pollinate nearby orchards at no charge

The beekeeper confers an uncompensated benefit on orchard owners, a textbook case of a positive production externality.

When a monopolist engages in perfect (first-degree) price discrimination, which of the following is true?

Answer: Deadweight loss is eliminated and all surplus goes to the producer

Perfect price discrimination charges each consumer their maximum willingness to pay, capturing all consumer surplus as producer surplus and producing the efficient output level.

The shutdown condition for a firm in the short run is satisfied when:

Answer: Price falls below average variable cost

A firm should shut down in the short run when price (and thus TR) cannot cover variable costs; fixed costs are sunk and irrelevant to this decision.

Cross-price elasticity of demand is negative when two goods are:

Answer: Complements

Complements have a negative cross-price elasticity because an increase in the price of one good reduces demand for the other good.