Econ 202 exam 3

Refer to the graph, which shows a total revenue curve for a monopolist. The firm's marginal revenue curve must be A. downsloping. B. constant. C. upsloping. D. U-shaped.

A. downsloping

Other things equal, in which of the following cases would economic profit be the greatest? A. an unregulated monopolist that is able to engage in price discrimination B. an unregulated, nondiscriminating monopolist C. a regulated monopolist charging a price equal to average total cost D. a regulated monopolist charging a price equal to marginal cost

A. an unregulated monopolist that is able to engage in price discrimination

Allocative efficiency is achieved when the production of a good occurs where A. P = minimum ATC. B. P = MC. C. P = minimum AVC. D. total revenue is equal to TFC.

B. P = MC

In the short run, a purely competitive firm that seeks to maximize profit will produce A. where the demand and the ATC curves intersect. B. where total revenue exceeds total cost by the maximum amount. C. that output at which economic profits are zero. D. at any point where the total revenue and total cost curves intersect.

B. where total revenue exceeds total cost by the maximum amount.

Which of the following is correct? A. Both purely competitive and monopolistic firms are "price takers." B. Both purely competitive and monopolistic firms are "price makers." C. A purely competitive firm is a "price taker," while a monopolist is a "price maker." D. A purely competitive firm is a "price maker," while a monopolist is a "price taker."

C. A purely competitive firm is a "price taker," while a monopolist is a "price maker."

A purely competitive seller is A. both a "price maker" and a "price taker." B. neither a "price maker" nor a "price taker." C. a "price taker." D. a "price maker."

C. a "price taker."

Pure monopoly refers to A. any market in which the demand curve for the firm is downsloping. B. a standardized product being produced by many firms. C. a single firm producing a product for which there are no close substitutes. D. a large number of firms producing a differentiated product.

C. a single firm producing a product for which there are no close substitutes.

The demand curve faced by a purely competitive firm A. has unitary elasticity. B. yields constant total revenues even when price changes. C. is identical to the market demand curve. D. is the same as its marginal revenue curve.

D. is the same as its marginal revenue curve.

Suppose that an industry's long-run supply curve is downsloping. This suggests that A. it is an increasing-cost industry. B. relevant inputs have become more expensive as the industry has expanded. C. technology has become less efficient as a result of the industry's expansion. D. it is a decreasing-cost industry.

D. it is a decreasing-cost industry

True or False: A monopolist can use its pricing strategy as a barrier to entry by other firms.

True

A competitive firm faces fixed costs even if it produces zero output. If it starts producing and selling some output, which of the following would happen? A. The firm's total costs would increase, and its losses may become larger. B. The firm would earn revenues and will therefore earn positive profits. C. The firm's total costs would decrease, allowing it to possibly earn profits. D. The firm would earn revenues that are greater than its costs.

A. The firm's total costs would increase, and its losses may become larger.

The fact that the life expectancy of a US business is rather short—just 10.2 years—is a reflection of the consequences of A. competition and creative destruction. B. producer and consumer surplus. C. productive and allocative efficiency. D. short-run and long-run equilibrium

A. competition and creative destruction.

Productive efficiency refers to A. cost minimization, where P = minimum ATC. B. production at a level where P = MC. C. maximizing profits by producing where MR = MC. D. setting TR = TC.

A. cost minimization, where P = minimum ATC.

The long-run supply curve under pure competition will be A. downward-sloping in a decreasing-cost industry and upward-sloping in an increasing-cost industry. B. horizontal in a constant-cost industry and downward-sloping in an increasing-cost industry. C. vertical in a constant-cost industry and upward-sloping in a decreasing-cost industry. D. upward-sloping in an increasing-cost industry and vertical in a constant-cost industry.

A. downward-sloping in a decreasing-cost industry and upward-sloping in an increasing-cost industry.

The MR = MC rule can be restated for a purely competitive seller as P = MC because A. each additional unit of output adds exactly its price to total revenue. B. the firm's average revenue curve is downsloping. C. the market demand curve is downsloping. D. the firm's marginal revenue and total revenue curves will coincide

A. each additional unit of output adds exactly its price to total revenue.

If a pure monopolist is producing at that output where P = ATC, then A. its economic profits will be zero. B. it will be realizing losses. C. it will be producing less than the profit-maximizing level of output. D. it will be realizing an economic profit

A. its economic profits will be zero.

A natural monopoly occurs when A. long-run average costs decline continuously through the range of demand. B. a firm owns or controls some resource essential to production. C. long-run average costs rise continuously as output is increased. D. economies of scale are obtained at relatively low levels of output.

A. long-run average costs decline continuously through the range of demand.

Large minimum efficient scale of plant combined with limited market demand may lead to A. natural monopoly. B. patent monopoly. C. government franchise monopoly. D. shared monopoly.

A. natural monopoly

Society suffers a deadweight loss in a pure-monopoly market because A. output is less, while price is more, than is socially optimal. B. output is more, while price is less, than is socially optimal. C. both output and price are higher than is socially optimal. D. both output and price are lower than is socially optimal.

A. output is less, while price is more, than is socially optimal.

Which of the following is a barrier to entry? A. patents and licenses B. buyers' incomes C. close substitutes D. diminishing marginal returns

A. patents and licenses

The MR = MC rule applies A. to firms in all types of industries. B. only when the firm is a "price taker." C. only to monopolies. D. only to purely competitive firms

A. to firms in all types of industries

A pure monopolist A. will realize an economic profit if price exceeds ATC at the profit-maximizing/loss-minimizing level of output. B. will realize an economic profit if ATC exceeds MR at the profit-maximizing/loss-minimizing level of output. C. will realize an economic loss if MC intersects the downsloping portion of MR. D. always realizes an economic profit.

A. will realize an economic profit if price exceeds ATC at the profit-maximizing/loss-minimizing level of output.

Creative destruction is least beneficial to A. workers in the "destroyed" industries. B. workers in the "created" industries. C. consumers. D. society as a whole

A. workers in the "destroyed" industries.

Which of the following is an example of creative destruction? A. An economic recession forces firms out of business. B. Automobile production causes the wagon industry to shut down. C. Apple earns more economic profits than other manufacturers of MP3 players. D. Starbucks shuts down stores to create greater demand for its remaining outlets.

B. Automobile production causes the wagon industry to shut down.

What do economies of scale, the ownership of essential raw materials, and patents have in common? A. They must all be present before price discrimination can be practiced. B. They are all barriers to entry. C. They all help explain why a monopolist's demand and marginal revenue curves coincide. D. They all help explain why the long-run average cost curve is U-shaped.

B. They are all barriers to entry.

Which of the following is not a barrier to entry? A. patents B. X-inefficiency C. economies of scale D. ownership of essential resources

B. X-inefficiency

An increasing-cost industry is associated with A. a perfectly elastic long-run supply curve. B. an upsloping long-run supply curve. C. a perfectly inelastic long-run supply curve. D. an upsloping long-run demand curve.

B. an upsloping long-run supply curve.

Which of the following is a characteristic of pure monopoly? A. close substitute products B. barriers to entry C. the absence of market power D. "price taking"

B. barriers to entry

Under pure competition, in the long run A. neither allocative efficiency nor productive efficiency is achieved. B. both allocative efficiency and productive efficiency are achieved. C. productive efficiency is achieved, but allocative efficiency is not. D. allocative efficiency is achieved, but productive efficiency is not.

B. both allocative efficiency and productive efficiency are achieved

Under pure competition, in the long run A. neither allocative efficiency nor productive efficiency is achieved. B. both allocative efficiency and productive efficiency are achieved. C. productive efficiency is achieved, but allocative efficiency is not. D. allocative efficiency is achieved, but productive efficiency is not

B. both allocative efficiency and productive efficiency are achieved.

Barriers to entry A. usually result in pure competition. B. can result from government regulation. C. exist in economic theory but not in the real world. D. are typically the result of wrongdoing on the part of a firm.

B. can result from government regulation.

A purely competitive firm A. must earn a normal profit in the short run. B. cannot earn economic profit in the long run. C. may realize either economic profit or losses in the long run. D. cannot earn economic profit in the short run.

B. cannot earn economic profit in the long run.

Creative destruction is illustrated by which of the following pairs of products? A. bicycles and helmets B. digital cameras and film C. DVD players and DVDs D. Netflix and iPads

B. digital cameras and film

A purely monopolistic firm A. has no entry barriers. B. faces a downsloping demand curve. C. produces a product or service for which there are many close substitutes. D. earns only a normal profit in the long run.

B. faces a downsloping demand curve.

A constant-cost industry is one in which A. a higher price per unit will not result in an increased output. B. if 100 units can be produced for $100, then 150 can be produced for $150, 200 for $200, and so forth. C. the demand curve and therefore the unit price and quantity sold seldom change. D. the total cost of producing 200 or 300 units is no greater than the cost of producing 100 units.

B. if 100 units can be produced for $100, then 150 can be produced for $150, 200 for $200, and so forth

A decreasing-cost industry is one in which A. contraction of the industry will decrease unit costs. B. input prices fall or technology improves as the industry expands. C. the long-run supply curve is perfectly elastic. D. the long-run supply curve is upsloping

B. input prices fall or technology improves as the industry expands.

Network effects and simultaneous consumption tend to foster the development of A. pure competition. B. monopoly power. C. net social benefits. D. allocative efficiency.

B. monopoly power.

One major barrier to entry under pure monopoly arises from A. the availability of close substitutes for a product. B. ownership of essential resources. C. the price taking ability of the firm. D. diseconomies of scale.

B. ownership of essential resources

The demand schedule or curve confronted by the individual, purely competitive firm is A. relatively elastic, that is, the elasticity coefficient is greater than unity. B. perfectly elastic. C. relatively inelastic, that is, the elasticity coefficient is less than unity. D. perfectly inelastic.

B. perfectly elastic.

Economic profit in the long run is A. possible for both a pure monopoly and a pure competitor. B. possible for a pure monopoly but not for a pure competitor. C. impossible for both a pure monopolist and a pure competitor. D. only possible when barriers to entry are nonexistent.

B. possible for a pure monopoly but not for a pure competitor

A firm is producing an output such that the benefit from one more unit is more than the cost of producing that additional unit. This means the firm is A. producing more output than allocative efficiency requires. B. producing less output than allocative efficiency requires. C. achieving productive efficiency. D. producing an inefficient output, but we cannot say whether output should be increased or decreased.

B. producing less output than allocative efficiency requires.

On a per-unit basis, economic profit can be determined as the difference between A. marginal revenue and product price. B. product price and average total cost. C. marginal revenue and marginal cost. D. average fixed cost and product price

B. product price and average total cost.

Which of the following is not a barrier to entry in an industry? A. economies of scale B. profit maximization C. strategic pricing D. government licensing

B. profit maximization

Creative destruction is most often associated with A. international trade. B. technological advance. C. government spending. D. private consumption.

B. technological advance.

Creative destruction is A. the process by which large firms buy up small firms. B. the process by which new firms and new products replace existing dominant firms and products. C. a term coined many years ago by Adam Smith. D. applicable to planned economies but not to market economies.

B. the process by which new firms and new products replace existing dominant firms and products.

A purely competitive firm's short-run supply curve is A. perfectly elastic at the minimum average total cost. B. upsloping and equal to the portion of the marginal cost curve that lies above the average variable cost curve. C. upsloping and equal to the portion of the marginal cost curve that lies above the average total cost curve. D. upsloping only when the industry has constant costs

B. upsloping and equal to the portion of the marginal cost curve that lies above the average variable cost curve.

A pure monopolist is producing an output such that ATC = $4, P = $5, MC = $2, and MR = $3. This firm is realizing A. a loss that could be reduced by producing more output. B. a loss that could be reduced by producing less output. C. an economic profit that could be increased by producing more output. D. an economic profit that could be increased by producing less output.

C. an economic profit that could be increased by producing more output.

Barriers to entering an industry A. encourage allocative efficiency. B. encourage productive efficiency. C. are the basis for monopoly. D. apply only to purely monopolistic industries.

C. are the basis for monopoly.

The marginal revenue curve for a monopolist A. is a straight, upsloping curve. B. rises at first, reaches a maximum, and then declines. C. becomes negative when output increases beyond some particular level. D. is a straight line, parallel to the horizontal axis.

C. becomes negative when output increases beyond some particular level.

So-called creative destruction leads to all of the following except A. new products and low-cost production techniques. B. more efficient use of society's scarce resources. C. benefits to everyone in society. D. hardship to some producers and workers.

C. benefits to everyone in society.

If for a firm P = minimum ATC = MC, then A. neither allocative efficiency nor productive efficiency is being achieved. B. productive efficiency is being achieved, but allocative efficiency is not. C. both allocative efficiency and productive efficiency are being achieved. D. allocative efficiency is being achieved, but productive efficiency is not.

C. both allocative efficiency and productive efficiency are being achieved.

The MR = MC rule applies A. in the short run but not in the long run. B. in the long run but not in the short run. C. in both the short run and the long run. D. only to a purely competitive firm.

C. in both the short run and the long run.

Pure monopolists may obtain economic profits in the long run because A. of advertising. B. marginal revenue is constant as sales increase. C. of barriers to entry. D. of rising average fixed costs.

C. of barriers to entry

The fact that a purely competitive firm's total revenue curve is linear and upsloping to the right implies that A. product price increases as output increases. B. product price decreases as output increases. C. product price is constant at all levels of output. D. marginal revenue declines as more output is produced.

C. product price is constant at all levels of output

Local electric or gas utility companies mostly operate in which market structure? A. monopolistic competition B. pure competition C. pure monopoly D. oligopoly

C. pure monopoly

A constant-cost industry is one in which A. resource prices fall as output is increased. B. resource prices rise as output is increased. C. resource prices remain unchanged as output is increased. D. small and large levels of output entail the same total costs.

C. resource prices remain unchanged as output is increased.

For an imperfectly competitive firm, A. total revenue is a straight, upsloping line because a firm's sales are independent of product price. B. the marginal revenue curve lies above the demand curve because any reduction in price applies to all units sold. C. the marginal revenue curve lies below the demand curve because any reduction in price applies to all units sold. D. the marginal revenue curve lies below the demand curve because any reduction in price applies only to the extra unit sold.

C. the marginal revenue curve lies below the demand curve because any reduction in price applies to all units sold.

The term productive efficiency refers to A. any short-run equilibrium position of a competitive firm. B. the production of the product mix most desired by consumers. C. the production of a good at the lowest average total cost. D. fulfilling the condition P = MC

C. the production of a good at the lowest average total cost.

The term productive efficiency refers to A. any short-run equilibrium position of a competitive firm. B. the production of the product mix most desired by consumers. C. the production of a good at the lowest average total cost. D. fulfilling the condition P = MC.

C. the production of a good at the lowest average total cost.

The term allocative efficiency refers to A. the level of output that coincides with the intersection of the MC and AVC curves. B. minimization of the AFC in the production of any good. C. the production of the product mix most desired by consumers. D. the production of a good at the lowest average total cost.

C. the production of the product mix most desired by consumers.

The MR = MC rule A. applies only to pure competition. B. applies only to pure monopoly. C. does not apply to pure monopoly, because price exceeds marginal revenue. D. applies both to pure monopoly and pure competition

D. applies both to pure monopoly and pure competition

One explanation for the existence of an increasing-cost industry is that A. increasing marginal returns to labor occur. B. firms produce beyond the point of minimum long-run average total costs. C. perfectly elastic long-run supply schedules are observed in the industry. D. as the industry expands, prices are bid up for some factors of production.

D. as the industry expands, prices are bid up for some factors of production.

After long-run adjustments, a purely competitive market achieves A. productive efficiency but not necessarily allocative efficiency. B. allocative efficiency but not necessarily productive efficiency. C. either productive efficiency or allocative efficiency, but not both. D. both productive and allocative efficiency

D. both productive and allocative efficiency

After long-run adjustments, a purely competitive market achieves A. productive efficiency but not necessarily allocative efficiency. B. allocative efficiency but not necessarily productive efficiency. C. either productive efficiency or allocative efficiency, but not both. D. both productive and allocative efficiency.

D. both productive and allocative efficiency.

Marginal revenue is the A. change in product price associated with the sale of one more unit of output. B. change in average revenue associated with the sale of one more unit of output. C. difference between product price and average total cost. D. change in total revenue associated with the sale of one more unit of output.

D. change in total revenue associated with the sale of one more unit of output.

The process by which new firms and new products replace existing dominant firms and products is called A. monopolistic competition. B. mergers and acquisitions. C. process innovation. D. creative destruction.

D. creative destruction.

An industry that has increasing returns to scale and fixed factor prices will have a long-run supply curve that is A. vertical. B. horizontal. C. upward-sloping. D. downward-sloping.

D. downward-sloping.

When there is allocative efficiency in a purely competitive market for a product, the minimum price producers are willing to accept is A. less than marginal benefit. B. greater than marginal cost. C. equal to the amount of efficiency or deadweight losses. D. equal to the maximum price consumers are willing to pay.

D. equal to the maximum price consumers are willing to pay.

If there is allocative efficiency in a purely competitive market for a product, the maximum price consumers are willing to pay is A. less than marginal benefit. B. greater than marginal cost. C. equal to the amount of efficiency or deadweight losses. D. equal to the minimum price producers are willing to accept

D. equal to the minimum price producers are willing to accept

For a purely competitive firm, total revenue A. is price times quantity sold. B. increases by a constant absolute amount as output expands. C. graphs as a straight upsloping line from the origin. D. has all of these characteristics.

D. has all of these characteristics.

The pure monopolist's demand curve is relatively elastic A. in the price range where total revenue is declining. B. at all points where the demand curve lies above the horizontal axis. C. in the price range where marginal revenue is negative. D. in the price range where marginal revenue is positive.

D. in the price range where marginal revenue is positive

Economists use the term imperfect competition to describe A. all industries that produce standardized products. B. any industry in which there is no nonprice competition. C. a pure monopoly only. D. those markets that are not purely competitive

D. those markets that are not purely competitive

The representative firm in a purely competitive industry A. will always earn a profit in the short run. B. may earn either an economic profit or a loss in the long run. C. will always earn an economic profit in the long run. D. will earn zero economic profit in the long run.

D. will earn zero economic profit in the long run.

True or False: Creative destruction is something that our society should try to avoid, through government regulation of business

False

True or False: Efficiency or deadweight losses occur in purely competitive markets when P = MC = lowest ATC.

False

True or False: Productive efficiency refers to a condition where marginal cost is equal to marginal revenue in the long run

False

True or False: Productive efficiency refers to a condition where marginal cost is equal to marginal revenue in the long run.

False

True or False: The basic difference between pure competition and monopolistic competition is in the number of firms in the industry.

False

True or False: The costs of competition's creative destruction are often widespread, while the benefits often accrue to only a few

False

True or False: Creative destruction entails both costs as well as benefits to society.

True

True or False: Marginal cost is a measure of the alternative goods that society forgoes in using resources to produce an additional unit of some specific product.

True

True or False: Marginal revenue is the addition to total revenue resulting from the sale of one more unit of output.

True

True or False: The long-run supply curve for a decreasing-cost industry is downsloping

True

True or False: The process by which new firms and new products destroy existing dominant firms and their products is called creative destruction.

True