Basic Economics Study Guide

Basic Economics Study Guide BY GTAG-ay Atone De Manila University 2nd semester 2013-2014, SEC 102 1 and C Reviewer for the 2nd Long Exam In the short-run, the average fixed cost (AFC) curve will be asymptotic to the origin. This simply means that the average fixed cost curve will come closer and closer to zero, but will never be zero. TRUE Variable costs usually change as the firm alters the quantity of output produced. TRUE In a perfectly competitive market, firms are unable to differentiate their product from that of other producers. TRUE

Profits for all market structures are maximized when the MR. (marginal revenue) is equal to the MS (marginal cost). TRUE For a firm in a perfectly competitive market, price is always equal to marginal revenue. TRUE A unapologetically competitive market is characterized by barriers to entry. FALSE Cartels normally engage in direct price competition. FALSE Multiple Choice: Choose the best economic answer. Questions 1 to 4 refer to the following costs table: ETC TV -RCA AFC PVC AC MS -10 10. 5 12 -20 14 13 (m) 18 (f) 42 20 39 70 O) 1. Total Fixed Cost (item f) in the table must be equal to d) 10 2.

Items (g) and (h), respectively, must be equal to a) 60 and 28 b) 60 and 24 c) 80 and 32 d) 48 and 24 3. Items O) and (k), respectively, must be equal to a) 3 and 10 b) 10 and 12 c) 5 and 8 d) 2. 5 and 9 4. Items (l) and (m) respectively must be equal to a) 14 and 10 b) 14 and 11 c) 15 and 10 d) 15 and 11 5. One of the defining characteristics of a perfectly competitive market is a) a small number of sellers. B) a large number to buyers and c) a homogeneous product. D) a small number to sellers significant advertising by firms to promote their products. For Questions 6 to 7, please refer to the situation below:

Two hospitals (General Hospital and Colonel Hospital) in a growing urban area are interested in expanding their market share. Both are interested in expanding the size of their emergency rooms to accommodate potential growth in their customer base. The following game depicts the strategic outcomes that result from the game. Growth-related profits of the two hospitals under two scenarios are reflected in the table below. Colonel Hospital General Hospital Increase the size of emergency room Do not increase the size of emergency room Increase the size of emergency General Hospital