AgEco test 2
(Table: Barrels of Oil 2) Refer to the table. What is the marginal revenue of producing the fifth barrel of oil A. 50 B.200 C. 250 D. 61
A.
Competitive firms want to enter industries in which: A. P > AC. B. P < AC. C. P = MC. D. P < MC.
A.
Consider industries X and Y. Industry X has total revenue of $100 million and total costs of $77 million. Industry Y has total revenue of $80 million and total costs of $40 million. We should expect that A. labor and capital will move from Industry X to Industry Y. B. firms in both industries will shut down operations. C. resources will move from Industry Y to Industry X. D. prices are higher in Industry X.
A.
Economic profit differs from accounting profits because of its inclusion of: A. implicit costs. B. explicit costs. C. incidental costs. D. potential costs.
A.
If Tom sells 500 sandwiches for $7 and has an average cost of $5, what is his profit? A. $1,000 B. $2,500 C. $500 D. $3,500
A.
In a competitive industry, entry and exit decisions: A. ensure that labor and capital move across industries to optimally balance production. B. move capital and labor away from profitable industries in order to maximize the total value of production. C. allow some firms to earn above-normal profits in the long run. D. rely on demand signals, not price signals.
A.
Informative advertising: A. improves the competitive process by educating the consumer about prices and new products. B. degrades the competitive process by increasing the costs of firms. C. improves the competitive process by making all products appear to be the same. D. degrades the competitive process by confusing the consumer with information about prices and new products.
A.
Monopolistic competition is a market that has: A. many sellers, free entry, and product differentiation. B. many sellers, high barriers to entry, and product differentiation. C. few sellers, free entry, and product differentiation. D. many sellers, free entry, and identical products.
A.
The power to raise price above marginal cost without fear that other firms will enter the market is: A. market power. B. marginal power. C. cost power. D. firm power.
A.
What is the profit maximization condition for a monopolist? A. MR = MC B. AR = D C. AR = MC D. MR > MC
A.
Which of the following conditions would prevent a firm from setting different prices in different markets? A. possibility of arbitrage for buyers between different markets B. government imposition of a price ceiling C. law enforcement preventing smuggling from occurring D. government intervention forcing the firm to reduce the level of output
A.
Which of the following conditions would prevent a firm from setting different prices in different markets? A. possibility of arbitrage for buyers between different markets B. government imposition of a price ceiling law enforcement preventing smuggling from occurring government intervention forcing the firm to reduce the level of output
A.
Which of the following is always TRUE for monopolies? A. P > MR B. P > AC C. MR > D D. TR < TC
A.
Which of the following statements is TRUE? A. High profits in an industry give entrepreneurs an incentive to enter that industry. B. Entry and exit from an industry depend on the firm's market share. C. A firm should enter an industry if average costs are less than producer surplus. D. Fixed costs fall as firms produce more output, the so-called "spreading of the costs."
A.
(Figure: Maximum Willingness to Pay) Refer to the figure. What is the maximum price that the consumer is willing to pay for 100 units? A. $80 B. $100 C. $75 D. $90
B.
(Figure: Monopolistic Competition) Refer to the figure. Suppose the figure represents a firm that operates in a monopolistic competitive market. In this market, in the long run you would expect: A. both demand and price to increase as unprofitable firms leave the industry. B. demand to decrease and price to fall to the point that P = AC. C. demand to shift left and decrease price to the point that P = MC. D. both demand and price to stay the same.
B.
(Figure: Price-Discriminating Monopolist) Refer to the figure. In order to maximize profits, the monopolist should charge a: A. uniform price of $6 in both markets. B. price of $16 in Market A and $10 in Market B. C. price of $16 in Market A and $6 in Market B. D. price of $14 in Market A and $9 in Market B.
B.
(Figure: Profits and Competitive Firms) Refer to the four panels in the figure. Which panel shows a competitive firm making zero economic profits? A. Panel C B. Panel B C. Panel A D. Panel D
B.
A top-performing used-car salesman is able to sell his cars to each customer at their maximum willingness to pay, a practice known as: A. insightful pricing. B. perfect price discrimination C. price tying. D. pricing market-to-market.
B.
As more firms enter a monopolistically competitive market, the individual firm's demand curve: A. increases, shifts to the right. B. decreases, shifts to the left. C. stays the same. D. It will vary greatly depending on the industry.
B.
If a firm has revenues of $100, explicit costs of $50, and implicit costs of $50, its economic profit is: A. $100. B. $0. C. $500. D. $50.
B.
If consumers observe a lot of advertising for a product, they can infer that the producer: A. needs to rely on misinformation to get people to try the product. B. expects the product to be successful. C. thinks the product is of poor quality. D. does not want his brand name associated with that product.
B.
Monopolistically competitive firms earn zero profits on average because: A. they price at marginal cost. B. positive profits cause competitors to enter the market, decreasing demand for each individual firm. C. new firms cannot enter the market. D. they price above marginal cost.
B.
Price discrimination can be defined as: A. selling different products to the same consumers in the same market. B. selling the same product at two different prices in two different markets. C. selling the same product in two different markets. D. exporting goods to foreign countries.
B.
Refer to the figure. Deadweight loss caused by monopoly pricing is represented by the area: A. abd. B. def. C. acdf. D. bcdf.
B.
Suppose that you own two farms on which to grow corn. In order to lower the cost of production, you determine to increase production on Farm 1 and reduce it on Farm 2. This implies that the marginal cost of production on Farm 1 is: A. The difference of the marginal costs between the two farms cannot be determined. B. less than the marginal cost of production on Farm 2. C. equal to the marginal cost of production on Farm 2. D. greater than the marginal cost of production on Farm 2.
B.
The more inelastic the demand curve for a product is, the: A. more responsive buyers are to a change in the price. B. higher is the monopolist's price markup. C. less chance monopolists will have to earn above-normal profits. D. smaller is the monopolist's price markup.
B.
To maximize profit the monopolist should set a: A. lower price in markets with more inelastic demand. B. higher price in markets with more inelastic demand. C. lower price in markets with less elastic demand. D. higher price in markets with more elastic demand.
B.
What is the Invisible Hand Property 1? A. Central planners can achieve lower costs of production than self-interested profit-seeking firms. B. In a free market, the total costs of producing output are minimized because each firm produces up to the point where P = MC. C. Firms enter industries whenever P > AC. D. Firms shut down whenever revenues are insufficient to cover variable costs.
B.
Which of the following is the best example of a monopolistic competitive market? A. milk B. restaurants C. diamonds D. produce
B.
(Table: Barrels of Oil 2) Refer to the table. How many barrels of oil should the company produce to maximize profit? A. 6 B. 9 C. 8 D. 7
C.
(Table: Barrels of Oil 2) Refer to the table. The maximum profit available to the company is: A. $184. B. $266. C. $224. D. $210.
C.
(Table: Oil Pumps) Refer to the table. Suppose that we want to produce seven barrels of oil. To minimize costs, we should produce: A. one barrel of oil from Oil Pump One and six barrels of oil from Oil Pump Two. B. all seven barrels of oil from Oil Pump Two. C. three barrels of oil from Oil Pump One and four barrels of oil from Oil Pump Two. D. all seven barrels of oil from Oil Pump One.
C.
A perfectly competitive industry exists under which of the following conditions? I. The product sold is similar across firms. II. There are many sellers, each small relative to the total market. III. There are many sellers, each with total assets less than $2 million. IV. The threat of competition exists from potential sellers that have not yet entered the market. A. I, II, and III only B. I, III, and IV only C. I, II, and IV only D. I and II only
C.
If a firm has an average product that is not much better than what other firms produce they may wish to focus their advertising on: A. deceiving customers. B. quality. C. price. D. product information.
C.
In competitive markets, the demand curve faced by the individual firm is: A. perfectly inelastic. B. downward sloping. C. perfectly elastic. D. equal to the market demand curve.
C.
The oil industry is an increasing cost industry because: A. because oil is a necessity good. B. All of these statements are correct. C. expanding output requires firms to use more expensive production methods to find and extract oil from less desirable locations. D. people buy more oil at lower prices.
C.
What condition is necessary in a constant cost industry? A. Prices of the industry's inputs rise as the industry expands. B. Prices of the industry's inputs decline as the industry expands. C. Prices of the industry's inputs do not change as the industry expands. D. There are barriers that prevent new firms from entering such an industry.
C.
What is the main difference between a perfectly competitive industry and a monopolistically competitive firm? A. the number of firms in the market B. no barriers to entry C. product differentiation D. zero economic profit
C.
When a single firm can supply the entire market at lower cost than two or more firms, we say that the industry is: A. profit maximizing. B. a natural competitor. C. a natural monopoly. D. a bilateral monopoly.
C.
When comparing a monopoly with a competitive industry, monopoly quantity: A. and monopoly price will be higher than that of a competitive firm. B. and monopoly price will be lower than that of a competitive firm. C. will be lower, and monopoly price will be higher, than that of a competitive firm. D. will be higher, and monopoly price will be lower, than that of a competitive firm
C.
Which of the following represents the nature of a monopolist's deadweight loss? A. Unlike competitive markets, there are consumers with unsatisfied wants. B. It is not possible to equate price with marginal cost when demand is inelastic. C. Some consumers are willing to pay more than the monopolist's marginal cost of production, but the monopolist does not produce these units. D. It is a fact that people are willing to spend a lot of money for small improvements in quality.
C.
(Figure: Costs) Use the figure. At a price of $20, the firm earns profit of: A. $225. B. $300. C. $0, because P = MC at P = $20. D. $75.
D.
(Figure: Maximum Willingness to Pay) Refer to the figure. What is the profit-maximizing quantity for this monopolist? A. 75 B. 125 C. 100 D. 110
D.
(Figure: Monopolistic Competition) Refer to the figure. Suppose the figure represents a firm that operates in a monopolistic competitive market. In the long run you would expect prices in this market to: A. stay the same. B. increase as unprofitable firms leave the industry. C. decrease to the point that <i>P</i> = <i>MC</i>. D. decrease to the point that <i>P</i> = <i>AC</i>.
D.
(Figure: Monopolistic Competition) Refer to the figure. Suppose the figure represents a firm that operates in a monopolistically competitive market. In the long run you would expect: A. less quality and innovation. B. prices to increase. C. demand to become more inelastic. D. more firms to enter the market.
D.
(Table: Barrels of Oil 2) Refer to the table. What is the marginal cost of producing the seventh barrel of oil A. 126 B. 50 C. 90 C. 36
D.
(Table: Oil Pumps) Refer to the table. An oil producer owns two pumps: Oil Pump One and Oil Pump Two. If the market price of oil is $20 per barrel, how many barrels of oil get produced? A. 4 B. 14 C. 6 D. 10
D.
A student trying to maximize her semester GPA already studies as many hours as possible but can perhaps use that time more efficiently. A marginal hour spent studying economics will raise her GPA by 0.05. A marginal hour spent studying literature will raise her GPA by 0.02. Should she reallocate her time? A. She should spend more time studying literature and less time studying economics. B. With the given information, it is impossible to determine whether she should reallocate her time. C. She should not reallocate her study time at all. D. She should spend more time studying economics and less time studying literature.
D.
Airlines try to differentiate their customers by willingness to pay based on: A. a person's weight. B. the ethnicity of a person's last name. C. All of the answers are correct. D. how long in advance a person books their flight.
D.
If an industry is highly profitable, it is an indication that: A. labor and, to a limited extent, capital are being exploited. B. firms are using high-value inputs to create low-value outputs. C. the marginal value of resources is low, and resources need to flow out of the industry. D. the marginal value of resources is high, and more resources need to flow into the industry.
D.
In a competitive equilibrium, firms earn ______ economic profits. A. abnormal B. positive C. negative D. zero
D.
Price advertising typically: A. raises prices and lowers output for consumers. B. is wasteful advertising. C. raises prices for consumers, as the cost of advertising is simply passed off to consumers. D. lowers prices and increases consumer welfare.
D.
To maximize profits, a firm in a highly competitive industry should set its price: A. lower than the market price. B. it depends: sometimes at the market price but sometimes higher or lower. C. higher than the market price. D. at the market price.
D.
Why might the benefits of monopolistic competition outweigh the inefficiencies? A. In monopolistic competition, firms do not produce at their minimum average cost. B. In monopolistic competition, firms do not price at marginal cost. C. Monopolistic competition has higher deadweight loss than monopoly. D. If we had perfect competition instead of monopolistic competition, we would not have all the variety and innovation that we have today.
D.
