ECON Final Exam

There is only one gas station within hundreds of miles. The owner finds that when she charges $3 a gallon, she sells 199 gallons a day, and when she charges $2.99 a gallon, she sells 200 gallons a day. The marginal revenue of the 200th gallon of gas is:

$1.

In a purely competitive industry, each firm:

Can easily enter or exit the industry

Suppose an oil cartel has an agreement to restrict members' production in order to maintain a price of $30 per barrel. A single cartel member may want to cheat and exceed its quota so that it can:

earn a bigger profit.

Entry of new firms will occur in a monopolistic competitive industry until:

economic profit equals zero.

In the long run in monopolistic competition,

economic profits are zero.

The goal of any monopolist is to maximize:

economic profits.

At any point where a monopolist's marginal revenue is positive, the downward-sloping straight-line demand curve is:

elastic, but not perfectly elastic.

To the economist, total cost includes:

explicit and implicit costs, including a normal profit.

Monopolistic competition is inefficient because:

firms have excess capacity in the long run.

An increase in marginal cost that remains within the gap of the marginal revenue curve of a kinked demand oligopolist will:

keep price and output the same.

An industry is said to be a natural monopoly when:

long-run average cost continues to decline as the quantity of output increases.

The monopolistic competition market structure is characterized by:

many firms and differentiated products.

A monopolistically competitive market is characterized by:

many small sellers selling a differentiated product.

The theory of monopolistic competition predicts that in long-run equilibrium a monopolistically competitive firm will:

produce the output level at which price equals long-run average cost.

The demand curve in monopolistic competition slopes downward because of:

product differentiation.

Supporters of advertising claim that it:

promotes better quality products.

Product differentiation:

refers to the attempt of firms to make real or apparent differences in essentially substitutable products look different in the minds of the consumers.

The demand curve for a monopolist is

the demand curve for the industry.

Implicit and explicit costs are different in that

the former refer to non-expenditure costs and the latter to monetary payments.

Marginal product is:

the increase in total output attributable to the employment of one more worker.

If a variable input is added to some fixed input, beyond some point the resulting extra output will decline. This statement describes:

the law of diminishing returns.

Which of the following is a distinction between perfectly competitive and monopolistic competition?

Perfectly competitive firms confront a perfectly elastic demand curve; monopolistically competitive firms face a downward-sloping demand curve.

A monopolist will operate in the short run if which of the following is above average variable cost?

Price.

Which idea is inconsistent with pure competition?

Product differentiation

Which is a feature of a purely competitive market?

Products are standardized or homogeneous

If a firm has at least some control over the price of its product, then the firm cannot be in which market model:

Pure competition

The production of agricultural products such as wheat or corn would best be described by which market model?

Pure competition

Farmer Jones is producing wheat, and must accept the market price of $6.00 per bushel. At this time, her average total costs and her marginal costs both equal $8.00 per bushel. Her average variable costs are $5 per bushel. In choosing her optimal output, farmer Jones should:

Reduce output but continue production

The kinked demand curve:

applies when competitors match price decreases but not price increases.

In the short run the Sure-Screen T-Shirt Company is producing 500 units of output. Its average variable costs are $2.00 and its average fixed costs are $.50. The firm's total costs:

are $1,250.

The law of diminishing returns indicates that:

as extra units of a variable resource are added to a fixed resource, marginal product will decline beyond some point.

The basic difference between the short run and the long run is that:

at least one resource is fixed in the short run, while all resources are variable in the long run.

An explicit cost is:

a money payment made for resources not owned by the firm itself.

A natural monopoly is a market where:

a single large firm can produce the entire market output at a lower per-unit cost than a group of smaller firms.

The law of diminishing returns results in:

a total product curve that eventually increases at a decreasing rate.

Compared to the perfectly competitive outcome, monopolistically competitive markets will result in:

a wider variety of products and higher prices.

When a perfectly competitive firm or a monopolistically competitive firm is making zero economic profit,

no firms will want to enter or exit.

Under which one of the following market structures are sellers most likely to consider the reaction of rival sellers when they set the price of their product?

Oligopoly.

A purely competitive firm currently producing 20 units of output earns marginal revenues of $12 from each extra unit of output it sells. If it sells 30 units, then its total revenues would be:

$360

The total revenue of a purely competitive firm from 8 units of output is $48. Based on this information, total revenue for 9 units of output must be:

$54

Sam owns a firm that produces tomatoes in a purely competitive market. The firm's demand curve is:

A horizontal line

The short-run equilibrium for a monopolistically competitive firm is at P = $28.47, ATC = $22.13, and MC = MR = $17.47. Which of the following is true?

Additional firms will be attracted into the industry.

A profit-maximizing firm in the short run will expand output:

As long as marginal revenue is greater than marginal cost

Which of the following is true under natural monopoly?

Economies of scale exist.

In pure competition, the demand for the product of a single firm is perfectly:

Elastic because many other firms produce the same product

A purely competitive firm is producing at the point where its marginal cost equals the price of its product. If the firm increases its output, then total revenue will:

Increase and profits will decrease

The purely competitive firm's supply curve:

Is upsloping when some inputs are fixed

A purely competitive firm does not try to sell more of its product by lowering its price below the market price because:

It can sell all it wants to at the market price

A purely competitive firm's output is currently such that its marginal cost is $4 and marginal revenue is $5. Assuming profit maximization, the firm should:

Leave price unchanged and raise output

Which of the following is a characteristic of the monopolistic competition market structure?

Many firms and differentiated products.

A firm should increase the quantity of output as long as its:

Marginal revenue is greater than its marginal cost

Which is necessarily true for a purely competitive firm in short-run equilibrium?

Marginal revenue less marginal cost equals zero

Which of the following statements best describes the price, output, and profit conditions of monopolistic competition?

Marginal revenue will equal marginal cost at the short run, profit-maximizing level of output; in the long run, economic profit will be zero.

Which of the following is true for perfect competition, monopolistic competition, and monopoly?

Short-run profits are maximized when marginal cost equals marginal revenue.

T-Shirt Enterprises is selling in a purely competitive market. It is producing 3000 units, selling them for $2.00 each. At this level of output, the average total cost is 2.50 and the average variable cost is $2.20. Based on these data, the firm should:

Shut down in the short run

Which of the following is a market structure of monopoly?

Single firm that is a price maker.

Which of the following best explains why the monopolist's marginal revenue is less than the selling price?

To sell more units, the monopolist must reduce price on all units sold.

In the standard model of pure competition, a profit-maximizing entrepreneur will shut down in the short run if:

Total revenue is less than total variable costs

In a graph for a firm in pure competition with the quantity of output measured on the horizontal axis, the total revenue curve is:

Upward-sloping

Which of the following factors is not a barrier limiting the entry of potential competitors into a market?

an inelastic demand for a product

For most producing firms:

average total costs decline as output is carried to a certain level, and then begin to rise.

At the long-run equilibrium level of output, the monopolist's marginal cost will:

be less than price.

For a monopolist, marginal revenue is always:

below market price.

Assume a monopolist charges a price corresponding to the intersection of the marginal cost and marginal revenue curves. If this price is between its average variable cost and average total cost curves, the firm will:

continue to operate in the short run.

Average fixed cost:

declines continually as output increases.

An oligopolist operating with a kinked demand curve would expect rivals to match its price:

decreases.

Firms in a monopolistically competitive industry produce:

differentiated products.

In the long run, a monopolistically competitive firm will set price:

higher than the competitive level, but lower than the monopoly price.

To economists, the main difference between the short run and the long run is that:

in the long run all resources are variable, while in the short run at least one resource is fixed.

If marginal costs increase, a monopolist will:

increase price and decrease output.

If in the short run a firm's total product is increasing, then its:

marginal product could be either increasing or decreasing.

Under monopoly, a firm:

maximizes profit by setting marginal cost equal to marginal revenue.

Marginal product:

may initially increase, then diminish, and ultimately become negative.

A characteristic of an oligopoly is:

mutual interdependence in pricing decisions.

Pricing and output determination under an oligopoly is more complicated than pricing and output determinations in other industries. The primary reason for the complication is the:

mutual interdependence of firms.

An industry in which total costs are kept to a minimum because only one firm serves the whole market is called a:

natural monopoly.

Diseconomies of scale arise primarily because:

of the difficulties involved in managing and coordinating a large business enterprise

Mutual interdependence applies to actions of:

oligopolists.

The conclusion arrived at from a kinked-demand oligopoly model is that:

oligopoly firms should keep prices at their current level.

In long-run equilibrium, output is expanded to the minimum long-run average total cost by:

perfectly competitive firms but not by monopolistically competitive firms.

For both a monopolist and a monopolistically competitive firm:

price is above marginal revenue.

Suppose that R. J. Reynolds raises the price of cigarettes by 10 percent. Although they have no requirement or agreement to do so, the other cigarette firms decide to raise their prices accordingly. This situation is best described as:

price leadership.

A kink in the demand curve facing an oligopolist is caused by:

the tendency of competitors to follow price reductions but not price increases.

The amount of calendar time associated with the long run:

varies from industry to industry.

Economies and diseconomies of scale explain:

why the firm's long-run average total cost curve is U-shaped.