C211 Second Attempt Practice Competency 3

a. more popcorn and less Pepsi.

A consumer consumes two normal goods, popcorn and Pepsi. The price of Pepsi rises. The substitution effect, by itself, suggests that the consumer will consume a. more popcorn and less Pepsi. b. more popcorn and more Pepsi. c. less popcorn and less Pepsi. d. less popcorn and more Pepsi. Hide Feedback

b. B, C, or D only (the budget constraint line)

A consumer who chooses to spend all of her income could be at which point(s) on the figure? a. A, B, C, or D only b. B, C, or D only c. A only d. E only

b. implicit costs do not require a direct monetary outlay by the firm, whereas explicit costs do.

A difference between explicit and implicit costs is that a. explicit costs must be greater than implicit costs. b. implicit costs do not require a direct monetary outlay by the firm, whereas explicit costs do. c. implicit costs must be greater than explicit costs. d. explicit costs do not require a direct monetary outlay by the firm, whereas implicit costs do.

a. explicit costs + implicit costs.

A firm's opportunity costs of production are equal to its a. explicit costs + implicit costs. b. implicit costs only. c. explicit costs + implicit costs + total revenue. d. explicit costs only.

b. the government gives a firm the exclusive right to sell some good or service.

A government-created monopoly arises when a. government spending in a certain industry gives rise to monopoly power. b. the government gives a firm the exclusive right to sell some good or service. c. the government collects taxes in a particular industry. d. the government exercises its market control by encouraging competition among sellers.

d. producers sell nearly identical products

A key characteristic of a competitive market is that a. firms have price setting power. b. firms minimize total costs. c. government antitrust laws regulate competition. d. producers sell nearly identical products

b. the quantity of output to produce, but the price of its output is determined by demand.

A monopolistically competitive firm chooses a. the price, but competition in the market determines the quantity. b. the quantity of output to produce, but the price of its output is determined by demand. c. the price, but output is determined by a cartel production quota. d. the quantity of output to produce, but all firms in the market agree upon a single price.

d. can maintain a price such that total revenues will exceed total costs.

A monopoly can earn positive profits because it a. takes the market price as given and can sell unlimited quantities. b. can set the price it charges for its output but faces a horizontal demand curve. c. can sell unlimited quantities at any price it chooses. d. can maintain a price such that total revenues will exceed total costs.

a. prevent mergers that would decrease competition and raise the costs of production.

Antitrust laws have economic benefits that outweigh the costs if they a. prevent mergers that would decrease competition and raise the costs of production. b. allow mergers that would decrease competition regardless of what happens to the costs of production. c. prevent mergers that would decrease competition and lower the costs of production. d. allow mergers that would decrease competition and raise the costs of production.

b. constant returns to scale.

At levels of output between M and N, the firm experiences a. both the benefits of specialization and diminishing marginal productivity. b. constant returns to scale. c. economies of scale. d. diseconomies of scale.

b. long-run average total costs fall as output increases.

Economies of scale occur when a. average fixed costs are constant. b. long-run average total costs fall as output increases. c. long-run average total costs rise as output increases. d. average fixed costs are falling.

c. exactly triple.

If a firm in a perfectly competitive market triples the quantity of output sold, then total revenue will a. be reduced by one third. b. more than triple. c. exactly triple. d. less than triple.

b. marginal revenue is less than the price of the product

If a profit-maximizing monopolist faces a downward-sloping market demand curve, its a. average revenue is less than the price of the product. b. marginal revenue is less than the price of the product. c. marginal revenue is greater than the price of the product. d. average revenue is less than marginal revenue.

d. $7

If the consumer's income is $140, then what is the price of a CD? a. $3 b. $5 c. $9 d. $7

b. increase by exactly $15.

If the firm doubles its output from 3 to 6 units, total revenue will a. Total revenue cannot be determined from the information provided. b. increase by exactly $15. c. increase by less than $15. d. increase by more than $15.

a. has many competitors.

In both perfect competition and monopolistic competition, each firm a. has many competitors. b. faces a downward-sloping demand curve for its product. c. has some monopoly power. d. sells a product that is at least slightly different from those of other firms.

a. inputs that were fixed in the short run become variable.

In the long run, a. inputs that were fixed in the short run become variable. b. variable inputs are rarely used. c. inputs that were fixed in the short run remain fixed. d. inputs that were variable in the short run become fixed.

b. each prisoner to confess.

In the prisoners' dilemma game, self-interest leads a. each prisoner to stay silent. b. each prisoner to confess. c. to an outcome that is better for both prisoners. d. to the follow-through of any agreement that the prisoners might have made before being questioned.

c. a consumer's preferences.

Indifference curves illustrate a. a consumer's budget. b. a firm's profits. c. a consumer's preferences. d. the prices of two goods.

d. the price of Y decreases.

It would be possible for the consumer to reach I 3 if a. the price of Y increases. b. the price of X increases. c. income decreases. d. the price of Y decreases.

a. average total cost is at its minimum.

Marginal cost is equal to average total cost when a. average total cost is at its minimum. b. average fixed cost is rising. c. average variable cost is falling. d. marginal cost is at its minimum.

d. above marginal cost.

Monopolies are socially inefficient because the price they charge is a. equal to marginal revenue. b. equal to demand. c. above demand. d. above marginal cost.

d. downward-sloping demand curves, so they can sell only the specific price-quantity combinations that lie on the demand curve.

Monopoly firms face a. horizontal demand curves, so they can sell as much output as they desire at the market price. b. horizontal demand curves, so they can sell only a limited quantity of output at each price. c. downward-sloping demand curves, so they can sell as much output as they desire at the market price. d. downward-sloping demand curves, so they can sell only the specific price-quantity combinations that lie on the demand curve.

c. Average revenue is equal to price over the entire range of output.

Over which range of output is average revenue equal to price? a. 3 to 7 units b. 5 to 9 units c. Average revenue is equal to price over the entire range of output. d. 1 to 5 units

d. increased total surplus.

Price discrimination adds to social welfare in the form of a. decreased total surplus b. reduced costs of production. c. increased consumer surplus and decreased producer surplus. d. increased total surplus.

c. selling the same good at different prices to different customers.

Price discrimination is the business practice of a. bundling related products to increase total sales. b. pricing above marginal cost. c. selling the same good at different prices to different customers. d. hiring marketing experts to increase consumers' brand loyalty.

d. average total costs that are less than market price.

Profit-maximizing firms enter a competitive market when existing firms in that market have a. average total costs that exceed average revenue. b. total revenues that exceed fixed costs. c. total revenues that exceed total variable costs. d. average total costs that are less than market price.

c. she can reach a higher indifference curve.

Suppose Jamie can choose between consuming two goods. If we observe that Jamie's budget constraint has moved outward, then we know for certain that a. she will be indifferent between the two goods. b. her income must have increased. c. she can reach a higher indifference curve. d. the price of one or both of the goods must have decreased.

a. price × quantity.

Total revenue equals a. price × quantity. b. output − input. c. (price × quantity) − total cost. d. price/quantity.

c. Bieber and Rihanna will each break the agreement. Both singers' profits will decrease.

Suppose that Bieber and Rihanna are duopolists in the music industry. In May, they agree to work together as a monopolist, charging the monopoly price for their music and producing the monopoly quantity of songs. By June, each singer is considering breaking the agreement. What would you expect to happen next? a. Bieber and Rihanna will each break the agreement. The new equilibrium quantity of songs will increase, and the new equilibrium price also will increase. b. Bieber and Rihanna will each break the agreement. Both singers' profits will increase. c. Bieber and Rihanna will each break the agreement. Both singers' profits will decrease. d. Bieber and Rihanna will determine that it is in each singer's self-interest to maintain the agreement.

b. always declines with increased levels of output.

The average fixed cost curve a. declines as long as it is above marginal cost. b. always declines with increased levels of output. c. always rises with increased levels of output. d. declines as long as it is below marginal cost.

d. produces an output level less than the socially optimal level.

The deadweight loss associated with a monopoly occurs because the monopolist a. produces an output level greater than the socially optimal level. b. maximizes profits. c. equates marginal revenue with marginal cost. d. produces an output level less than the socially optimal level.

d. profit is maximized.

The intersection of a firm's marginal revenue and marginal cost curves determines the level of output at which a. total revenue is equal to variable cost. b. total revenue is equal to total cost. c. total revenue is equal to fixed cost. d. profit is maximized.

c. demand for a firm's product.

The theory of consumer choice provides the foundation for understanding the a. profitability of a firm. b. structure of a firm. c. demand for a firm's product. d. supply of a firm's product.

a. MC intersects the demand curve.

To maximize total surplus with a monopoly firm, a benevolent social planner would choose the level of output where a. MC intersects the demand curve. b. MR exceeds MC by the greatest amount. c. MR intersects the demand curve. d. MR = MC.

d. Regardless of the strategy pursued by Acme, Pinnacle's best strategy is to produce a good quality product, and for that reason producing a good quality product is a dominant strategy for Pinnacle.

Two companies, Acme and Pinnacle, each decide whether to produce a good quality product or a poor quality product. In the figure, the dollar amounts are payoffs and they represent annual profits (in millions of dollars) for the two companies. Which of the following statements is correct? a. The highest possible combined profit for the two firms occurs when both produce a poor quality product, and for that reason producing a poor quality product is a dominant strategy for both firms. b. Our knowledge of game theory suggests that the most likely outcome of the game, if it is played only once, is for one firm to produce a poor quality product and for the other firm to produce a good quality product. c. Acme can potentially earn its highest possible profit if it produces a good quality product, and for that reason it is a dominant strategy for Acme to produce a good quality product. d. Regardless of the strategy pursued by Acme, Pinnacle's best strategy is to produce a good quality product, and for that reason producing a good quality product is a dominant strategy for Pinnacle.

b. increase the size of its store and parking lot regardless of the decision made by Lopes.

Two home-improvement stores (Lopes and HomeMax) in a growing urban area are interested in expanding their market share. Both are interested in expanding the size of their store and parking lot to accommodate potential growth in their customer base. The following game depicts the strategic outcomes that result from the game. Increases in annual profits (in millions of dollars) of the two home-improvement stores are shown in the following figure. Pursuing its own best interest, HomeMax will a. increase the size of its store and parking lot only if Lopes does not increase the size of its store and parking lot. b. increase the size of its store and parking lot regardless of the decision made by Lopes. c. increase the size of its store and parking lot only if Lopes also increases the size of its store and parking lot. d. not increase the size of its store and parking lot regardless of the decision made by Lopes.

a. it cannot adjust the quantity of fixed inputs.

When a factory is operating in the short run, a. it cannot adjust the quantity of fixed inputs. b. it cannot alter variable costs. c. average fixed cost rises as output increases. d. total cost and variable cost are usually the same.

b. the firm may be incurring economic losses

When a profit-maximizing firm in a monopolistically competitive market charges a price higher than marginal cost, a. the firm must be earning a positive economic profit. b. the firm may be incurring economic losses c. society benefits due to the firm's excess capacity. d. new firms will enter the market in the long run.

b. monopolistically competitive if the firms sell differentiated products, but it is perfectly competitive if the firms sell identical products.

When an industry has many firms, the industry is a. an oligopoly if the firms sell differentiated products, but it is perfectly competitive if the firms sell identical products. b. monopolistically competitive if the firms sell differentiated products, but it is perfectly competitive if the firms sell identical products. c. an oligopoly if the firms sell differentiated products, but it is monopolistically competitive if the firms sell identical products. d. perfectly competitive if the firms sell differentiated products, but it is monopolistically competitive if the firms sell identical products.

a. prefers bundle E because it lies on a higher indifference curve.

When comparing bundle A to bundle E, the consumer a. prefers bundle E because it lies on a higher indifference curve. b. prefers bundle A because it contains more donuts. c. is indifferent between the two bundles. d. prefers bundle E because it contains more donuts.

d. average total cost is falling.

When marginal cost is less than average total cost, a. average total cost is rising. b. average variable cost must be falling. c. marginal cost must be falling. d. average total cost is falling.

b. Dairy farming

Which of the following industries is most likely to exhibit the characteristic of free entry? a. Municipal water and sewer b. Dairy farming c. Nuclear power d. Airport security

a. The firm is the sole seller of its product.

Which of the following is a necessary characteristic of a monopoly? a. The firm is the sole seller of its product. b. The firm is located in a small geographic market. c. The firm's product has many close substitutes. d. The firm generates a large economic profit.

c. Antitrust laws allow the government to shut down a firm if the government believes the firm has monopoly power.

Which of the following is not one of the ways that antitrust laws promote competition? a. Antitrust laws allow the government to break up big companies into smaller ones. b. Antitrust laws prevent companies from coordinating their activities in ways that make markets less competitive. c. Antitrust laws allow the government to shut down a firm if the government believes the firm has monopoly power. d. Antitrust laws allow the government to prevent mergers.

b. It can earn an economic profit in the short run, but not the long run.

Which of the following is true about a monopolistically competitive firm? a. It cannot earn an economic profit in either the short or long run. b. It can earn an economic profit in the short run, but not the long run. c. It can earn an economic profit in the long run, but not the short run. d. It can earn an economic profit in the short run and the long run.

d. Monopolistic competition features many sellers.

Which of the following is unique to a monopolistically competitive firm when compared to an oligopoly? a. Monopolistic competition features many buyers. b. The monopolistically competitive firm advertises. c. The monopolistically competitive firm produces a quantity of output that falls short of the socially optimal level. d. Monopolistic competition features many sellers.

d. Unlike monopolies and monopolistically competitive markets, oligopolies prices do not exceed their marginal costs.

Which of the following statements about oligopolies is not correct? a. An oligopolistic market has only a few sellers. b. The actions of any one seller can have a large impact on the profits of all other sellers. c. Oligopolistic firms are interdependent in a way that competitive firms are not. d. Unlike monopolies and monopolistically competitive markets, oligopolies prices do not exceed their marginal costs.

c. Assuming that implicit costs are positive, accounting profit is greater than economic profit.

Which of the following statements is correct? a. Assuming that explicit costs are positive, economic profit is greater than accounting profit. b. Assuming that explicit costs are positive, accounting profit is equal to economic profit. c. Assuming that implicit costs are positive, accounting profit is greater than economic profit. d. Assuming that implicit costs are positive, economic profit is positive.

b. Both monopolistic competition and perfect competition are characterized by product differentiation.

Which of the following statements is not correct? a. Monopolistic competition is different from monopoly because monopolistic competition is characterized by free entry, whereas monopoly is characterized by barriers to entry. b. Both monopolistic competition and perfect competition are characterized by product differentiation. c. Both monopolistic competition and oligopoly fall in between the more extreme market structures of competition and monopoly. d. Monopolistic competition is different from oligopoly because each seller in monopolistic competition is small relative to the market, whereas each seller can affect the actions of other sellers in an oligopoly.

b. When a monopoly firm sells an additional unit of output, its revenue increases by an amount less than the price.

Which of the following statements is true? a. Average revenue is the same as price for monopoly firms but not competitive firms. b. When a monopoly firm sells an additional unit of output, its revenue increases by an amount less than the price. c. When a competitive firm sells an additional unit of output, its revenue increases by an amount less than the price. d. Average revenue is the same as price for competitive firms but not monopoly firms.

a. For all firms, average revenue equals the price of the good.

Which of the following statements regarding a competitive firm is correct? a. For all firms, average revenue equals the price of the good. b. Because each firm faces a downward sloping demand, if a firm increases its level of output, the firm will have to charge a lower price to sell the additional output. c. If a firm raises its price, the firm may be able to increase its total revenue even though it will sell fewer units. d. By lowering its price below the market price, the firm will benefit from selling more units at the lower price than it could have sold by charging the market price.