ECON-200 Exam 2

If a firm has total revenues of $100 million, explicit costs of $90 million, and implicit costs of $20 million, its pure economic profit is A) $80 million. B) $10 million. C) -$10 million D) $70 million.

-$10 million

Using the table cost schedule in Table 3, what is the average cost of producing 3 units of output? A) 48 B) 16 C) 14 D) 7

16

In table 4, if the quantity sold by the firm rises from 14 to 20, its marginal revenue is A) 10 B) 6 C) 2 D) 0

2

From the above demand schedule for a monopolist, what is the marginal revenue associated with the sale of the fourth unit? A) $10 B) $20 C) $30 D) $40

$30

If MR = MC

Changing Q would lower profit

The government breaks large monopolies into smaller competing firms because: A) Competition is the best way to achieve efficiency B) Regulation is the best way to achieve efficiency C) Public ownership is the best way to achieve efficiency D) Increasing market power is the best way to achieve efficiency

Competition is the best way to achieve efficiency

The government breaks large monopolies into smaller competing firms because: A)Regulation is the best way to achieve efficiency B)Increasing market power is the best way to achieve efficiency C)Competition is the best way to achieve efficiency D)Public ownership is the best way to achieve efficiency

Competition is the best way to achieve efficiency

The marginal product of labor A) Equals the change in total product divided by the increase in the quantity demanded B) Always decrease as more workers are hired C) Equals the increase in cost when another worker is hired D) Equals the change in total product divided by the change in quantity of labor

Equals the change in total product divided by the change in quantity of labor

A perfectly competitive firm sells its output for $50 a unit. At 500 units of output, its marginal cost is $50 and is decreasing, average variable cost is $55 per unit, and average total cost is $65 per unit. To maximize profit, what should the firm do? A) maintain its current rate of output B) increase output C) Insufficient information is given for an answer to be reached. D) decrease output or shut down temporarily

Increase output

Economies of scale

Long-run average total cost falls as the quantity of output increases (because of specialization, etc.)

Diseconomies of scale

Long-run average total cost rises as the quantity of output increases (because of coordination problem, etc.

Constant returns to scale

Long-run average total cost stays the same as the quantity of output increases

In perfect competition when P < ATC A) Positive Profit B) Loss C) Breakeven point D) Shut down point

Loss

In a monopoly MR is A) MR < P B) MR > P C) MR = P

MR < P

Firms choose to produce at a quantity where A) MR > MC B) MR < MC C) MR = MC

MR = MC

If the firm are price takers MR = ?

MR = P

Which of the following is NOT correct about monopoly? A) There is no close substitute for a monopoly's product B) A monopolist generally faces a downward sloping demand curve C) MR curve above the demand curve D) MR curve below the demand curve

MR curve above the demand curve

Which of the following is NOT correct about patents? A)Patents stimulate innovation. B)A patent is a barrier to entry. C)Patents enable a firm to be a permanent monopoly. D)Patents encourage the invention of new products.

Patents enable a firm to be a permanent monopoly

In perfect competition when P = AVC A) Positive Profit B) Loss C) Breakeven point D) Shut down point

Shut down point

______________ include all of the costs of production that increase with the quantity produced. A)Fixed costs B)Variable costs C)Average costs D)Average variable costs

Variable costs

____________________________ occur when the marginal gain in output diminishes as each additional unit of input is added. A) Diminishing variable returns B) Diminishing average returns C) Diminishing marginal returns D) Diminishing marginal costs

Diminishing marginal returns

In economics, products are considered "differentiated" only if A) they are physically or chemically different B) sellers decide that they are different C) buyers think that they are different D) the government determines that they are different

buyers think that they are different

Firms in monopolistic competition and perfect competition typically A) are price takers B) produce identical products C) earn zero economic profit in the long run D) face a downward-sloping demand curve

earn zero economic profit in the long run

What is the economic profit in the long run for perfect competition markets

economic profit = 0

An industry with three-firms control the 95 percent of the market. This is an example of A)Perfect competition B)monopolistic competition. C)pure monopoly D)oligopoly.

oligopoly

Economies to scale refer to A) the fact that in the long run, fixed costs remain constant as output increases. B) a feature of short-run production functions but not long-run production functions. C) the point at which marginal cost equals average cost. D) the range of output over which the long-run average cost falls as output increases.

the range of output over which the long-run average cost falls as output increases.

The break-even point is defined as occurring at an output rate at which A) marginal revenue equals marginal cost. B) total revenue equals total opportunity cost. C) economic profit is maximized. D) total cost is minimized.

total revenue equals total opportunity cost.

Total revenue for a monopolist is greatest where A) Marginal revenue is positive B) Marginal revenue is zero C) Marginal revenue is negative D) Demand is perfectly elastic

Marginal revenue is zero

Primary Objective of a firm is to: A)Maximize economic profit B)Avoid an economic loss C)Maximize total revenue D)Maximize accounting profit

Maximize economic profit

Productive efficiency

Means producing at a lowest ATC (Q∗ at Minimum ATC)

Allocative efficiency

Means the social benefits received from producing a good are in line with the social costs of production (Q∗ at P = M C )

Which of the following market types has the fewest number of firms? A)perfect competition B)monopoly C)monopolistic competition D)oligopoly

Monopoly

Suppose that the tomato industry is perfectly competitive. In the short run, tomato firms are earning economic profits. What will happen in the long run? A)The costs of the firms will increase, eventually eliminating the profit B)More firms will enter the market, thereby decreasing the industry supply and raising the market price C)More firms will enter the market, thereby increasing the industry supply and lowering the market price D)The existence of profits will lead to a decrease in the demand for tomatos

More firms will enter the market, thereby increasing the industry supply and lowering the market price

In a monopolistic competition Allocative and productive efficiency are A) realized B) not realized

Not realized

In economics, the term "free rider" refers to A) A person who evades taxes B) A supervisor who delegates menial time-consuming activities to others C) One who volunteers her services D) One who waits for others to produce a good and then enjoys its benefits without paying for it.

One who waits for others produce a good and then enjoys its benefits without paying for it

Using Figure 2, which of the following statement is true? A)The firm is making a profit. B)The firm is in loss. C)The firm is making a zero profit. D)Insufficient information to make any prediction.

The firm is in loss

The primary characteristic of oligopoly which is rare in other market structures is A) Product differentiation B) Strong barriers to entry C) Strong competition D) The interdependence of firms

The interdependence of firms

A negative externality exists if A)there are quantity controls in a market. B)the marginal social cost of producing a good or service exceeds the private cost C)there are price controls in a market. D)the marginal private cost of producing a good or service exceeds the social cost.

The marginal social cost of producing a good or service exceeds the private cost

Recently in a small city, building contractors lobbied the city council to pass a law requiring all people working on residential dwellings be licensed by the city. Why would the contractors lobby for this requirement? A)to reduce the cost of building dwellings B)There is no good explanation for this type of lobbying. C)to guarantee that work on dwellings is of high quality D)to create a legal barrier to entry

To create a legal barrier to entry

In microeconomics, the term ___________________ is synonymous with decreasing returns of scale. A) monopoly B) economies of scale C) diminishing returns D) diseconomies of scale

diseconomies of scale

Using the total cost schedule in Table 3, what is the fixed cost of the firm? A) 24 B) 61 C) 33 D) unknown

24

In the table above, if a firm sells 20 units of output, what is the total revenue? A) 10 B) 20 C) 30 D) 40

40

Using the total cost schedule in Table 3, What is the marginal cost of producing the fifth unit of output? A) 61 B) 12.20 C) 7 D) 24

7

If the social benefit of consuming a good or a service exceeds the private benefit A) A negative externality exists B) The market achieves economic efficiency C) A positive externality exists D) The sum of consumer surplus and producer surplus is maximized

A positive externality exists

Which of the following is LEAST likely to be a monopoly? A) the sole owner of an occupational license B) a pharmaceutical company with a patent on a drug C) a store in a large shopping mall D) the utility company your town

A store in a large shopping mall

If in the short run MC < ATC A) ATC is falling B) ATC stays the same C) ATC is rising

ATC is falling

If in the short run MC > ATC A) ATC stays the same B) ATC is rising C)ATC is falling

ATC is rising

In perfect competition when P = ATC A) Positive Profit B) Loss C) Breakeven point D) Shut down point

Breakeven Point

What is a market failure? A)It refers to the inability of the market to allocate resources efficiently up the point where marginal social benefits equal marginal social cost. B)It refers to the inability of the market to allocate resources efficiently up to the point where marginal social benefits equal marginal private cost C)It refers to a situation where an entire sector of the economy collapses because of some unforeseen event D)It refers to a breakdown in a market economy because of widespread corruption in government

It refers to the inability of the market to allocate resources efficiently up the point where marginal social benefits equal marginal social cost

At present output levels, a firm in a perfectly competitive industry is in the following position: output = 200 units, market price = $4, total cost = $420, fixed cost = $200, marginal cost = $4. To achieve optimum output, the firm should: A) Increase its selling price B) Reduce output but keep producing C) Leave output unchanged D) Reduce output to zero

Leave output unchanged

Which of the following describes the market structure of perfect competition? A)A few firms producing similar products, significant barriers to entry, and some control over price B)Many firms, low barriers to entry, some control over price, and product differentiation C)Useful because it demonstrates how market structure can affect resource allocation, prices, and output D)Many firms, no or low barriers to entry, no control over price, and identical products with no differentiation

Many firms, no or low barriers to entry, no control over price, and identical products with no differentiation

Which of the following describes the market structure of perfect competition? A)Many firms, low barriers to entry, some control over price, and product differentiation B)Many firms, no or low barriers to entry, no control over price, and identical products with no differentiation C)A few firms producing similar products, significant barriers to entry, and some control over price D)Useful because it demonstrates how market structure can affect resource allocation, prices, and output

Many firms, no or low barriers to entry, no control over price, and identical products with no differentiation

The term _____________ is used to describe the additional cost of producing one more unit. A)average cost B)fixed cost C)variable cost D)marginal cost

Marginal cost

In perfect competition when P > ATC A) Positive Profit B) Loss C) Breakeven point D) Shut down point

Positive Profit

For a perfectly competitive firm, which of the following equalities is always true? A)Price < marginal revenue B)Price = marginal revenue C)Price > marginal revenue D)Price ≠ marginal revenue

Price = marginal revenue

A firm will choose to shut down in the short run when: A) Price is above the minimum point of AVC but below the minimum point at ATC B) Price is below the minimum point of AVC C) Marginal cost begins to increase D) Total revenue is not sufficient to cover total cost

Price is below the minimum point of AVC

Profit Maximization Rule:

Produce at the quantity (Q), where MR = MC (Marginal analysis)

The supply curve of a product is based on A)Consumer behavior B)Producer behavior C)Government regulation D)Market structure

Producer Behavior

Based on the information illustrated in the graph, which of the following is correct? A)marginal cost line must intersect the average cost line at the middle point of the average cost curve B)marginal cost of production is below the average cost for producing previous units C)producing one more unit is reducing average costs overall D)producing a marginal unit is increasing average costs overall

Producing a marginal unit is increasing average costs overall

If MR < MC

Profitable to produce less

If MR > MC

Profitable to produce more

In the short run as AFC goes down A)Q increases B)Q decreases C)Q stays the same

Q increases

in the short run as MC increases A)Q stays the same B)Q decreases C)Q stays increases

Q increases

Which of the following activities create a negative externality? A) Keeping your yard clean B) Graduating from college C) Getting Covid-19 vaccine D) Texting while driving

Texting while driving

Which of the following is true of a natural monopoly? A) The firm can supply the entire market at a lower cost than could two or more firms. B) Its average total cost curve slopes upward as it intersects the demand curve. C) The firm is not protected by any barrier to entry. D) Economies of scale exist to only a very low level of output.

The firm can supply the entire market at a lower cost than could two or more firms

An externality is defined as A)the additional amount consumers have to pay to consume an additional amount of a good or service. B)an additional cost imposed by the government on producers. C)a cost or benefit that arises from production and falls on someone other than the producer, or a cost or benefit that arises from consumption and falls on someone other than the consumer. D)an additional gain received by consumers from decisions made by the government.

a cost or benefit that arises from production and falls on someone other than the producer, or a cost or benefit that arises from consumption and falls on someone other than the consumer.

Which of the following describes the market structure of oligopoly? A) many firms with some control over price, differentiated products, and strong barriers to entry B) many firms with no control over price, identical products, and very weak barriers to entry C) a few firms with some control over price and strong barriers to entry D) a few firms with no control over price and very weak barriers to entry

a few firms with some control over price and strong barriers to entry

An example of a variable resource in the short run is A) an employee. B) capital equipment. C) land. D) a building.

an employee

In the short run where does MC cross ATC and AVC

at their minimums

Explicit costs differ from implicit costs in that A) explicit costs are paid in money, but implicit costs are often non-paid opportunity costs. B) explicit costs are what an accountant would consider costs and are usually less than implicit costs. C) explicit costs are more important than implicit costs. D) implicit costs always present while some firms do not have any explicit costs.

explicit costs are paid in money, but implicit costs are often non-paid opportunity costs.

Which of the following is a NOT a source of market failure? A)the good is non-excludable and non-rival B)firms exit the market due to loss. C)third party benefits from the economic transaction D)sellers have more information than the buyers E)firms are price maker

firms exit the market due to loss

In perfect competition, a firm maximizes profit in the short run by deciding A)what price to charge B)whether or not to enter a market C)how much output to produce D)how much capital to use

how much output to produce

The market structure of monopolistic competition is best described as A) a few firms with some control over price, producing highly differentiated products B) many firms with no control over price, producing identical products with no differentiation C) a market in which competition and entry are restricted by the granting of a government license D) many firms with some control over price, and some product differentiation

many firms with some control over price, and some product differentiation

The market structure of monopolistic competition is best described as A)many firms with some control over price, and some product differentiation B)many firms with no control over price, producing identical products with no differentiation C)a few firms with some control over price, producing highly differentiated products

many firms with some control over price, and some product differentiation

When a tornado is sighted in Rock Island, sirens go off to warn people to seek shelter. The sound of the siren is .........................and _........................._________________. A) Excludable; rival B) Non-excludable; rival C) Excludable; non-rival D) Non-excludable; non-rival

non-excludable; non-rival

Monopolistic competition is similar to A) perfect competition, in that firms face downward-sloping demand curves and earn zero long-run economic profit B) pure monopoly because it can earn economic profits both in the short run and in the long run C) pure monopoly, in that firms face downward-sloping demand curves, and similar to perfect competition, in that long-run economic profit is zero

pure monopoly in that firms face downward sloping demand curves, and similar to perfect competition, in that long run economic profit is zero

Which of the following should typically be ignored because spending has already been made and cannot be changed? A)variable costs B)sunk costs C)marginal costs D)average marginal costs

sunk costs

The primary distinction between the short run and the long run is that in the short run A)firms make profits, but in the long run no firm makes economic profits B)profits are maximized, but in the long run all costs are maximized C)some costs of production are fixed, but in the long run all costs are fixed D)some costs of production are fixed, but in the long run all costs are variable

some costs of production are fixed, but in the long run all costs are variable