Econ. Practice Questions

Much of the work on game theory stems from attempts to understand and analyze: a. business cycles-booms and busts. b. national political parties and decision-making during the election cycle. c. the cold war and subsequent international weapon systems and political military decisions. d. the overuse of common resources, externalities, global warming and other environmental situations. e. antitrust policy specifically and government regulation in general.

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When a competitive firm decides to shut down, it is most likely because: a. its fixed costs exceeded its variable costs. b. its marginal revenue is negative. c. it can no longer make an economic profit. d. its average cost is greater than its average revenue. e. its expected losses would exceed its fixed costs if it kept on its current course of producing/selling.

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Which of the following costs of publishing Mankiw's text is not like the other four? a. the author's royalties ( ~ 5% of the net price per copy sold) b. outlays for paper and binding c. shipping and handling costs to get the text to bookstores and onto shelves d. composition, copy-editing, typesetting, and cover-design outlays e. the salaries and other labor costs of Cengage representatives who call on faculty and beg for adoptions

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Because the goods offered for sale in a competitive market are largely the same: a. a new firm won't have any incentive to enter the market and compete with everyone else. b. sellers will have little reason or incentive to charge less than the going market price. c. being able to advertise and interject some product differentiation would be profitable for any firm. d. no firm can make a profit, so there will be economic losses and widespread exit from the industry. e. marginal revenue and average revenue will be less than marginal cost and average cost.

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Which one of the following was not the subtitle of one of our readings from The Economist in this section? a. Jean Tirole has won the Nobel prize in economics for his work on competition. b. Two economists win the Nobel prize for their work on the theory of contracts c. Bright minds in Chicago worry about the state of competition in America. d. Big firms in the United States have never had it so good. Time for more competition. e.It's time to prohibit price discrimination in the marketplace.

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Chicago is doubling the parking rate to $4 an hour for about 1,100 meters around Wrigley Field during Cubs games and concerts. This practice of making people pay more during heavy demand is known as: a. price discrimination; b. predatory pricing; c. dynamic pricing; d. marginal-cost pricing; e. bundling or tying; f. price gouging.

c. dynamic pricing

For a profit-maximizing monopolist operating in equilibrium we would expect that: a. MR=MC; b. P = MR; c. P= MC; d. demand is inelastic; e. consumer surplus = 0.

a. MR = MC

___________________ elevated agreements among conspiring oligopolists from an unenforceable contract to a criminal conspiracy. a. The Sherman Act b. The Nash Act c. The Clayton Act d. The Federal Trade Commission e. The Resale Price Agreement

a. The Sherman Act

A defining characteristic of a natural monopoly is: a. average cost exceeds marginal cost over the relevant range of output b. government protection - like a patent or copyright c. that it can take advantage of huge economics of scope d. that the market is not contestable e. the firm faces an inelastic demand curve over the entire range of output

a. average cost exceeds marginal cost over the relevant range of output

From reading Mankiw and listening to lectures for this section of Econ 100, you might come away with the view that ____________ represent(s) or illustrate(s) the best approach of public policy toward monopolies. a. doing nothing b. public ownership c. enforcing all existing antitrust laws d. more regulation e. breaking up large firms

a. doing nothing

In an oligopoly market, the Nash equilibrium: a. is a stable outcome despite providing a lower total profit level b. produces an equilibrium - in terms of price and profit - as a monopolist would c. will maintain the total quantity produced at the exact same level as a monopolist would d. produces an outcome the same as when all players have no dominant strategy e. is just as effective - and as stable - in the short run as it is in the long run

a. is a stable outcome despite providing a lower total profit level

A competitive firm's short-run supply curve is: a. vertical (completely inelastic) in the short run but horizontal in the long run. b. the same thing as its demand curve. c. likely to slope downward, then be horizontal, and finally (at larger levels of output) become vertical. d. the portion of its MC curve that lies above its average variable cost. e. undefined.

d. the portion of its MC curve that lies above its average variable cost

The fundamental source of a monopolist's market power is: a. being able to escape sanctions of our antitrust laws and other governments regulations b. substantial economies of scale c. that it faces a downward-sloping demand curve d. the presence of some barriers to entry into the industry e. no close substitutes for its products

d. the presence of some barriers to entry into the industry

If a firm in an antitrust case is accused of monopolizing an industry, the firm would hire an economist and get him/her to try to show that: a. the income elasticity of demand is > 1 (and hopefully a lot greater). b. the cross-price elasticity of demand between this firm's product(s) and another firm's (or firms') output is positive and large. c. the HHI in the industry is large. d. when the price of the firm's product goes up, the quantity it sells decreases. e. there are significant economies of scale in the industry.

e. there are significant economies of scale in the industry

Which of the following equations could be used to calculate the firm's profits? a. MR-MC; b. (P-MC) x Q; c. (P-ATC) x Q; d. (P-MC) x Q; e. P x Q-ATC

c. (P-MC)xQ

The demand curve for a monopolist is: a. downward sloping; b. inelastic; c. vertical; d. doesn't exist; e. negative in its inelastic portion, positive in its elastic portion, and zero when it's unit-elastic.

a. downward sloping

At the profit-maximizing level of output for any firm, its marginal revenue: a. equals marginal cost; b. equals average cost; c. will be greater than marginal cost; d. is constant; e. equals average revenue; f. equals the price.

a. equals marginal cost

Most firms in the U.S.: a. have some degree of market power. b. are organized as corporations. c. take advantage of their customers. d. price discriminate. e. are not trying to maximize profits.

a. have some degree of market power

The difference between accounting profit and economic profit is/are: a. implicit costs b. fixed costs c. variable costs d. explicit costs e. sunk costs

a. implicit costs

The prisoner's dilemma is an important game-theory model to study because: a. it identifies the fundamental difficulty in maintaining cooperative agreements. b. it illustrates how monopolistically competitive firms become monopolies. c. it demonstrates that other firms' decisions are largely irrelevant for any one competitor. d. the type of business organization in the U.S.- proprietorship, partnership, corporation- depends on it. e.we can test the economist's assumptions about rationality and profit-maximization behaviors.

a. it identifies the fundamental difficulty in maintaining cooperative agreements

The Sherman Act: a. made cooperative agreements among/between firms a criminal conspiracy. b. prohibits price discrimination when the intent it to harm competitors. c. is a product of the pro-business Ronald Reagan administration. d. banned cigarette and hard-liquor advertising on television. e. allowed vertical and conglomerate mergers but outlawed horizontal ones.

a. made cooperative agreements among/between firms a criminal conspiracy

At the profit-maximizing level of output, a. marginal revenue equals marginal cost. b. average total revenue equals average total cost. c. MR could be >MC, <MC, or =MC in the short run; but in the long run MC = MR. d. TR will be greater than TC in the short run for a monopolist but will equal TC for a competitive firm. e.diminishing returns will not as yet set in.

a. marginal revenue equals marginal cost

A production function is the relationship between ___________ and _____________ . a. output; inputs; b. revenues; costs; c. profits; costs; d. output; profits; e. explicit costs; economic profit.

a. outputs; inputs

The production function for a firm represents the relationship between the: a. quantity of inputs and quantity of output. b. quantity of inputs and total costs. c. quantity of inputs and explicit costs. d. quantity of output and total costs. e. inputs, costs, output, revenues, and profits.

a. quantity of inputs and quantity of output

Adam Smith used the famous example of a pin factory to illustrate: a. specialization and economies of scale. b. the law of diminishing returns. c. principal-agent problems. d. sunk costs. e.market power in an industry.

a. specialization and economies of scale

The deadweight loss that arises from a monopoly is a consequence of the fact that: a. the monopolist's quality of output is lower than the socially-optimal quantity b. the monopolist earns economic profits c. the monopolist can often practice price discrimination d. the monopolist produces where MR=MC e. it employs arbitrage

a. the monopolist's quantity of output is lower than the socially-optimal quantity

As the number of firms in an oligopoly increases, a. the price approaches marginal cost and the quantity approaches the socially optimal level. b. the price effect exceeds the output effect. c. they will achieve the Nash equilibrium. d. the temptation to form and operate as a cartel will be harder to resist. e. peer pressure forces them to operate according to the group's interest and not in their own self-interest.

a. the price approaches marginal cost and the quantity approaches the socially optimal level

When the marginal product of an input declines as the quantity of it increases, a. the production function is exhibiting diseconomies of scale. b. the production function is exhibiting diseconomies of scope. c. the firm in question is likely a proprietorship. d. the firm should employ less of that input. e. None of the above is necessarily true.

a. the production function is exhibiting diseconomies of scale

marginal cost equals: a. the slope of the total cost curve b. the change in revenue minus the change in cost c. the amount that output increase when labor is increased by one d. total cost minus fixed cost e. average total cost minus average variable cost

a. the slope of the total cost curve

(P-ATC) x Q = a. total economic profit: b. a positive number; c. TR; d. zero; e. implicit costs.

a. total economic profit

In theory, price discrimination: a. transforms consumer surplus and deadweight losses into a firm's profits. b. creates excess capacity and thus increases deadweight losses. c. lowers output and decreases the number of consumers who can afford to buy the product. d. is practiced by monopolies and oligopolists but not by other firms on the industrial spectrum. e. is also known as, or treated as, dynamic or surge pricing.

a. transforms consumer surplus, and deadweight losses into a firm's profits

Katya owns and operates a math-tutoring business. Her accountant most likely includes which of the following costs on her financial statement? (i)workbooks containing practice problems (ii)rent for the lease on her store (iii)wages Katya could have earned as a bookkeeper if she hadn't started her own new business (iv)interest that Katya's money was earning before she spent those savings on her new business a. (i) only; b. (i) and (ii) only; c. (i), (ii), and (iii); d.(i) and (iii) only; e. The accountant would include all four outlays plus her profits from the tutoring business.

b. (i) and (ii) only

............is the study of how firms' decisions about P & Q depend on market conditions they face. a. Microeconomics b. Industrial organization c. Producer theory d. Welfare economics e. Firm theory f. Market theory

b. Industrial organization

Emily is a self-employed "pet-sitter." She can handle 20 house calls a day. If she hired her sister Rachel to work with her, together they could cover 35 houses a day. Thus one could say that: a. there appear to be some economies of scale in the pet-sitting business. b. Rachel's marginal product is 15 units. c. Emily should not hire Rachel. d. Rachel would represent an implicit cost for Emily. e. Emily's profits would decline if she employed her sister.

b. Rachel's marginal product is 15 units

We can measure the profits of a profit-maximizing firm in a competitive industry as: a. (MR - MC) x Q; b. TR - TC; c. (P - AVC) x Q; d. P x Q - AFC - AVC; e. This is a trick or misleading question because profits are zero in a competitive industry.

b. TR - TC

Winona's Fudge Shoppe is currently maximizing its profits by producing 1,000 pounds of fudge a day. If her fixed costs unexpectedly increase-like the owner of the shop raises her rent-and the market price for fudge remains constant, then in the short run: a. Winona should produce less than 1,000 pounds of fudge. b. Winona should still produce 1,000 pounds a day. c. Winona should expand her operations to more than 1,000 pounds to cover her increased costs. d. Winona should shut down and exit the fudge market. e. Winona should raise the price of her fudge. f. Winona should think about expanding her operations to include more items than just fudge.

b. Winona should still produce 1,000 pounds a day

If marginal cost is equal to average total cost, then: a. the firm is just breaking even-no profits, no losses. b. average total cost is at its minimum point. c. there are no fixed costs. d. diminishing returns have not yet set in. e. average variable cost is falling.

b. average total cost is at its minimum point

Whenever a perfectly competitive firm chooses to change its level of output, its marginal revenue: a. increases if it is raising its output, decreases if it reduces output b. does not change c. will increase in the short run but decrease in the long run because of economics of scale d. will rise at first but then fall as more and more output is put on the market e. "trick" or misleading question because a competitive firm cannot change its costs or revenues

b. does not change

The demand curve for each seller's products in perfect competition is perfectly elastic because: a. of antitrust laws and other forms of government intervention. b. each seller is too small to affect the market price. c. collusion on the part of sellers that result in an agreed-upon uniform price. d. there are no good substitutes for the product. e. the individual demand curve has the same shape as the market demand curve.

b. each seller is too small to affect the market price

The defining characteristic of a natural monopoly is: a. some government protection or approval in the form of a patent, trademark, or copyright. b. economies of scale over the relevant range of a firm's output. c. that production requires some use of a scarce natural resource. d. that fixed costs are generally a very small portion of a firm's total costs. e. that they are not subject to barriers to entry (that is, it's a contestable market).

b. economies of scale over the relevant range of a firm's output

The typical firm in the U.S. economy: a. is organized as a corporation b. has some degree of market power c. operates in an oligopolistic industry or market d. is a price taker e. operates in an inelastic portion of its demand curve and thus is able to price discriminate

b. has some degree of market power

The fundamental source of monopoly or market power is: a. economies of scale and scope that produce declining ATC over the whole range of output. b. having a product without close substitutes. c. low -or even non-existent- fixed costs as a proportion of total costs. d. its downward-sloping demand curve. e. barriers to entry in the industry.

b. having a product without close substitutes

The Nash equilibrium: a. produces the same price and output combination that would have been achieved by a well-oiled cartel. b. is a stable outcome despite providing a lower total profit level for the industry / oligopoly members. c. results in an output level that falls short of what a monopoly would produce. d. is the outcome that will occur when players do not have a dominant strategy. e. turns the oligopoly output into what would have been produced by a monopolist acting alone.

b. is a stable outcome despite providing a lower total profit level for the industry / oligopoly members

A firm will continue to produce in the short run, even if it's losing money, as long as: a.it can cover its fixed costs. b. its revenues are greater than its variable costs. c. it isn't encountering any diminishing returns or diseconomies of scale. d. MR = MC. e. it can block entry into the industry.

b. its revenues are greater than its fixed costs

A firm's efficient scale is to produce at the level of output such that: a. marginal product is maximized. b. minimizes average total costs. c. profits are maximized. d. the firm's marginal costs are minimized. e. consumer surplus is maximized.

b. minimizes average total cost

Under which of the following market structures do barriers to entry not pose problems or are prevalent? a. cartels; b. monopolistic competition; c. oligopoly market; d. monopoly; e. partnerships

b. monopolistic competition

Which market structure would have both a low concentration ratio and differentiated products? a. perfect competition b.monopolistic competition c. oligopoly d. corporation e. monopoly

b. monopolistic competition

The short-run supply curve in an industry is generally portrayed as upward sloping because: a. at higher prices firms will want to produce and sell more output. b. of the law of diminishing returns. c. inherent common resource problems, moral hazard and prisoner's dilemma situations among firms. d. most markets are dominated by corporations instead of smaller individual proprietorships. e. at some point diseconomies of scale kick in.

b. of the law of diminishing returns

Mankiw faults firms in monopolistic competition for all of the following except: a. excess capacity. b. product variety. c. the price exceeds marginal cost. d. firms not operating at an output level that minimizes average costs. e. their production decision with respect to the quantity of output creates deadweight losses.

b. product variety

Adam Smith thought there were economies of scale, largely due to specialization, in: a.farming; b.the production of pins; c. lumber mills; d. utilities in general, and elec tricity and water in particular; e. public transportation.

b. the production of pins

Most markets are not monopolistic in the real world because: a. all firms face downward-sloping demand curves and upward-sloping supply curves b. there are reasonable substitutes for most goods c. of antitrust laws and other government regulations of business practices d. not all firms can easily be organized as corporations e. most firms don't face inelastic demand curves

b. there are reasonable substitutes for most goods

Movie theaters routinely sell discount tickets to "senior citizens" because: a. of equity concerns -the elderly are poorer than other people- and for "goodwill" purposes or gestures. b. they (that is, the theaters) are profit maximizers. c. of arbitrage. d. they want to offset or reduce principal-agent problems. e. to take advantage of economies of scope and scale.

b. they (that is, the theaters) are profit maximizers

In trying to estimate how much market power a firm has, the economist's usual rule of thumb might be: a. to look at its organization-is it a proprietorship or a corporation? b. to attempt to estimate how far a firm's prices are above, or in relation to, the marginal cost. c. to look at the firm's ledgers and find out how large it is, based on revenues, sales, or employment. d. to see how much money it is spending on advertising. e. to determine its marginal tax rate, the taxes it paid, and how much in profits are being held ab road.

b. to attempt to estimate how far a firm's prices are above, or in relation to, the marginal cost

Which of the following statements is incorrect? a. Implicit costs are non-monetary opportunity costs. b. When the marginal product of a variable factor is decreasing, marginal costs increase. c. Economies of scope means that the long-run ATC declines as output increases. d. There are no fixed costs in the long run. e. The law of diminishing returns is a short-run concept.

c. Economics of scope means that the long-run ATC declines as output increases

Which of the following statements is incorrect? a. Implicit costs are non-monetary opportunity costs. b. When the marginal product of a variable factor is decreasing, marginal costs increase. c. Economies of scope means that the long-run ATC falls as output increases. d. There are no fixed costs in the long run. e. The law of diminishing returns is a short-run concept.

c. Economies of scope means that the long-run ATC falls as output increases

A competitive firm's short-run supply curve is a portion or segment of which of the following curves? a. AR; b. MR; c. MC; d. ATC; e. AVC

c. MC

With regard to competitive markets, your author and instructor would disagree over which characteristic? a. Firms are price takers. b. Goods produced and offered for sale are largely the same. c. There must be a large number of firms in the industry. d. There are no barriers to entry; firms can enter and exit the market. e. There may be short-run profits or losses, but in the long run economic profits will disappear.

c. There must be a large number of firms in the industry

In the prisoners' dilemma game, all of the following are true except: a. When there are repeated games, the prisoners are more likely to maintain cooperation. b.Self-interest leads to breakdowns of prior agreements. c. This is a game in which neither party has a dominant strategy. d. An "arms race" between countries is similar to a prisoners' dilemma situation. e. Self-interest leads to an outcome that is not particularly favorable for either prisoner.

c. This is a game in which neither party has a dominant strategy

Advertising: a. occurs mostly in perfectly competitive markets. b. constitutes about 20 percent of the typical firm's costs in the U.S. economy as a whole. c. and brand-name products signal quality to consumers and increase competition. d. reduces deadweight losses associated with monopolistic competition. e. that uses celebrity endorsements are intended to deceive consumers about the product and prices.

c. and brand-name products signal quality to consumers and increase competition

Fixed costs can be defined as: a. opportunity costs. b. costs that vary in direct proportion to output. c. costs that are incurred even if nothing is produced. d. long-run costs that are independent of output. e. implicit costs-forgone earnings or revenues- of doing business.

c. costs that are incurred even if nothing is produced

In a perfectly competitive market a. a firm can earn economic profits in both the short run and the long run b. there are many buyers and many sellers c. firms sell virtually identical products d. buyers have more power than sellers, and thus they are price makers instead of price takers e. firms will be able to minimize their costs at any chosen level of output

c. firms sell virtually identical products

Excess capacity is most closely associated with: a. the entry of new competitive firms in an already crowded market. b. the corporate form of business. c. inefficiencies in monopolistically competitive markets. d. diseconomies of scale and scope. e. marginal revenue being larger (or higher) than marginal cost.

c. inefficiencies in monopolistically competitive markets

If the market price elasticity of demand is -0.3, an individual potato grower's corresponding elasticity is: a. also -0.3; b. between -0.3 and -1.0; c. infinite; d. positive; e. maybe -2 or -3.

c. infinite

In the short-run, the supply curve of a perfectly competitive firm: a. is horizontal b. is vertical, but it will slope downward in the very long run c. is that portion of its MC curve than lies above the minimum point on its AVC curve d. cannot be determined because in competitive markets firms are price takers, and thus it will be determined by factors external to the firm e. falls at first, then rises

c. is that portion of its MC curve than lies above the minimum point on its AVC curve

For a monopolist, the level of output at which MR = 0 is also the output level at which: a. demand is perfectly inelastic (that is, elasticity = 0). b. its profits are maximized. c. its total revenue is maximized. d. marginal cost is also zero. e. it achieves a Nash equilibrium.

c. its total revenue is maximized

The market for contemporary fiction - romance novels, spy thrillers, legal intrigue - is: a. akin to monopoly because of the copyright protection authors are granted b. basically just a perfect competitive market - free entry, exit, and essentially identical products c. monopolistic competition d. oligopoly e. one with a high concentration ratio

c. monopolistic competition

The marginal product of labor is defined as the change in: a. profit divided by the change in labor b. labor divided by the change in output c. output divided by the change in labor d. revenue divided by the wage rate e. revenue minus the change in cost

c. output divided by the change in labor

For your instructor, in which of the following market structures does the usual "large number of firms" descriptor and requirement need not apply? a. oligopoly; b. monopoly; c. perfect competition; d. proprietorships; e. monopolistic competition; f. corporations.

c. perfect competition

A monopoly reducing its price below cost in an attempt to maintain its monopoly and drive out competitors would be an example of: a. the prisoners' dilemma. b. following a tit-for-tat strategy. c. predatory pricing. d. a principal-agent strategy. e. a dominant firm's strategic behavior.

c. predatory pricing

The business practice of selling the same good or service at different prices to different customers is called: a. dynamic pricing; b. marginal-cost pricing; c. price discrimination; d. arbitrage; e. distribution pricing; f. predatory pricing.

c. price discrimination

Waterboarding - an interrogation practice, interpreted as torture by critics, to extract potential valuable information from a suspected terrorist - might be considered the ultimate in: a. monopoly power b. sunk costs c. price discrimination d. diminishing returns e. a contestable market

c. price discrimination

A key characteristic of a perfectly competitive market is that: a. government antitrust laws and other regulations keep it that way. b. there are a lot of firms in the industry and each one is to some extent a price searcher not maker. c. producers sell nearly identical products. d. the actions of any single buyer or seller will affect the equilibrium price but not the quantity. e. firms have the flexibility and freedom to choose their own price and level of output.

c. producers sell nearly identical products

The practice of manufacturers selling products to retailers but then requiring them to charge a specific price for the product is called: a. tying; b. predatory pricing; c.resale price maintenance; d. cost-plus pricing; e. tit-for-tat statutes; f. tying arrangements.

c. resale price maintenance

The 2017 Economist on "Six Big Ideas" featured the late Chicago scholar Ronald Coase for his work on: a. pricing behaviors-price discrimination, surge pricing, price gouging, and dynamic pricing . b. contract theory. c. the theory of the firm (that is, why firms even exist). d. monopolistic competition. e. the dynamics and important characteristics behind contestable v. non-contestable market distinctions.

c. the theory of the firm (that is, why firms even exist)

As a group, oligopolists earn the highest (or largest) profit when: a. they achieve a Nash equilibrium. b. they follow a tit-for-tat strategy. c.they produce a total quantity that falls short of the Nash-equilibrium quantity of output. d. they follow a dominant strategy. e. they produce in the inelastic portion of their demand curves

c. they produce a total quantity that falls short of the Nash-equilibrium quantity of output

As a group, oligopolists would earn the highest profit if: a. they reached a Nash equilibrium. b. they each operated according to its own individual self-interest. c. they were to charge the same price that a monopolist would charge if it were a monopoly market. d. they followed a Dominant Strategy. e. they could enforce resale price agreements.

c. they were to charge the same price that a monopolist would charge if it were a monopoly market

For this course your instructor employs approximately one TA per 30 enrolled students. Thus TA salaries (or expenditures on TAs) could be thought of as: a. not subject to diminishing returns. b. fixed costs. c. variable costs. d.implicit costs. e.a sunk cost.

c. variable cost

One would expect the price elasticity of demand for a monopoly producer of a good with virtually no substitutes to be approximately: a. zero; b.-0.2; c.-1.0; d.-2.0 e.-5.0.

d. -2.0

When oligopolistic firms, interacting with one another, each chooses its best strategy given the strategies chosen by the other firms in the market, we have: a. a cartel b. a group of oligopolists behaving just like a monopoly c. a contestable market d. a Nash equilibrium e. predation (that is, strategic predatory pricing game theoretic behavior)

d. a Nash equilibrium

Which one of the following would your instructor most like to see the government address and prohibit? a. arbitrage; b. natural monopolies; c.vertical mergers; d. cartel agreements; e.dynamic pricing; f. price discrimination

d. cartel agreements

Price discrimination converts _____________________ into _______________________ . a. rent-seeking; normal profit. b. efficiencies; deadweight losses. c. natural monopolies; legal monopolies. d. consumer surplus; economic profit. e. oligopolies; monopolies.

d. consumer surplus; economic profit

The fundamental reason that marginal costs eventually arise as output increases is because of: a. the profit motive, which drives output higher and higher until it is no longer efficient. b. diseconomies of scale. c. firms gaining market power. d. diminishing marginal product. e. market contestability coupled with higher and higher concentration of production.

d. diminishing marginal product

The fundamental reason that the short-run supply curve is upward sloping is due to: a. the for-profit goal of the owner or producer rather than other objectives. b. diseconomies of scale. c. diseconomies of scope. d. diminishing marginal product. e. the presence of fixed costs, which would then not be true in the long run.

d. diminishing marginal product

A production function describes: a. the point on the market spectrum from competitive to monopoly in which a given firm operates b. the calculus or process the firm employs in its attempt to maximize profits c. the relationship between cost, output, revenues, and profit for a firm d. how a firm converts inputs into outputs e. the distinctions between fixed, variable, and marginal costs for a firm

d. how a firm converts inputs into outputs

Industrial organization ("IO" to economists) is the study of: a. the determination of optimal firm structures, such as proprietorships, partnerships or corporations. b. what makes for, and how to train, successful CEOs, managers, financial officers, etc. c. firms' production functions and cost structures, and handling economies of scale and scope. d. how firms' decisions about prices and quantities are affected by the market conditions they face. e. how individual supply and demand considerations apply at the firm level.

d. how firms' decisions about prices and quantities are affected by the market conditions they face

Principal-agent problems are more likely to occur: a. when firms practice price discrimination. b. when the firm is making excess (or economic) profits. c. in an oligopoly. d. in a corporation than with a partnership or proprietorship. e. when the supply curve is upward sloping.

d. in a corporation than with a partnership or proprietorship

A restaurant has market power when/if: a.it is organized as a for-profit corporation. b. it faces no barriers to entry and exit. c. it can hire as many workers as it wants at the prevailing wage rate. d. it can influence the market price of the meals it sells. e.it has a low HHI.

d. it can influence the market price of the meals it sells

Economists assume that a person starting, owning and operating a business does so with the intention of: a. minimizing costs. b. maximizing revenues. c. maximizing sales. d. maximizing profits. e. charging the highest price possible for the firm's goods or services.

d. maximizing profits

Economists assume that the typical person who starts his/her own business does so with the intention of: a. first and foremost, trying to best serve the community-customers and any employees-well. b. finding ways to minimize the costs of production, and taking into consideration environmental costs. c. selling as much as possible and expanding to eventually gain as much industrial control as possible. d. maximizing profits, even if that means incurring higher costs or reducing output. e. maximizing its total revenues from production and sales.

d. maximizing profits, even if that means incurring higher costs or reducing output

One would describe the market for contemporary novels (that is, writing popular fiction/mysteries) as: a. perfectly competitive; b. oligopolistic; c. monopsonistic; d. monopolistically competitive; e. having a high HHI; f. price takers.

d. monopolistically competitive

In terms of entry barriers, interdependence of firms in the industry, and long-run profitability, in market structure monopolistic competition is most like: a. a proprietorship; b. a corporation; c. oligopoly; d. perfect competition; e. a contrived monopoly; f. a natural monopoly.

d. perfect competition

In a corporation, stockholders are: a. the entrepreneurs; b. counted by accountants as implicit costs; c. people who have unlimited liability; d. principals; e. deadweight costs.

d. principals

The deadweight loss associated with a monopoly occurs because the monopolist: a. price discriminates. b. earns economic profits. c. equates marginal cost with marginal revenue. d. produces at an output level less than the socially optimal level. e. doesn't have a supply curve to worry about.

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

Monopolistic competition and perfectly competitive markets differ mainly due to: a. the number of sellers as conventionally described. b. barriers to entry in one but not in the other. c. the fact that one can earn and maintain its economic profits in the long run while the other can't. d. product differentiation. e. different cost structures.

d. product differentiation

When you hear the term "limited liability" what should come to mind? a. too little governmental oversight and regulation of the firm(s) b. likely principal-agent problems c. oligopolies and monopolies d. the corporate form of business organization e. contestable markets

d. the corporate form of business organization

One usual criterion for or definition of a competitive market-a large number of firms-may not have to hold if: a. there is limit pricing. b. there are significant scale economies. c. firms are not organized as corporations. d. the market is contestable. e. firms can price discriminate.

d. the market is contestable

The nature of a firm's costs fixed v. variable depend on: a. whether we're talking about implicit costs or explicit costs. b. its organizational structure (that is, proprietorship v. partnership v. corporation v. non-profit status). c. whether the firm is making profits or sustaining losses in its operations. d. the time horizon (or period) under consideration. e. whether there are economies of, or diseconomies of, scale and scope.

d. the time horizon (or period) under consideration

For a monopoly, the level of output at which MR equals zero is also the level of output at which: a. the market is no longer considered contestable b. demand is perfectly inelastic c. MC is also zero d. total revenue is maximized e. the firm's average revenue is also zero

d. total revenue is maximized

A firm in a monopolistically competitive market: a. faces a horizontal (or perfectly elastic) demand curve because there are so many firms in the industry. b. earns profits or losses in the short run but will earn profits in the long run - or it will exit the market. c. wastes resources and has higher prices because of excessive advertising. d. will have a price that exceeds its marginal cost at its profit-maximizing quantity of output. e. chooses the quantity of output to produce, but the market will determine the price.

d. will have a price that exceeds its marginal cost at its profit-maximizing quantity of output

Which of the following statements is not correct? a. The fundamental source of monopoly power is barriers to entry. b. The typical monopolistically competitive firm's demand curve slopes downward because of some product differentiation. c. In the real world there are relatively few pure monopolies because there are reasonable substitutes for most goods. d. The defining characteristic of a natural monopoly is economies of scale over the entire range of output. e. Being able to have (or face) an inelastic demand curve is a huge advantage for a monopolist.

e. Being able to have (or face) an inelastic demand curve is a huge advantage for a monopolist

"If markets are so good at directing resources, why do firms exist?" That statement reflects the thinking of: a.Nash; b. Tirole; c. Chapman; d. Hart & Holmstrom; e. Coase.

e. Coase

Which of the following statements is correct? a. The short-run supply curve for a firm in a competitive market is horizontal (that is, perfectly elastic). b. If a firm in a competitive industry shuts down in the short run it can avoid paying its fixed costs. c. When fixed costs are irrelevant to a firm's decisions, they are called sunk costs. d. In the long run, a firm will exit the industry when its marginal costs exceeds its marginal revenue. e. In the short run, a firm's supply curve is the same as its marginal cost curve.

e. In the short run, a firm's supply curve is the same as its marginal cost curve

Under which market structure would at least some customers pay the highest price for a product? a. a cartel b. monopolistic competitiion c. oligopoly d. monopoly e. a perfectly price discriminating monopolist f. natural monopoly

e. a perfectly price discriminating monopolist

In a long-run equilibrium, the marginal firm: a. has its price just equal to its average total cost b. has total revenue equal to total cost c. its making zero economic profit d. it operating at its efficient scale e. all of the above are correct

e. all of the above are correct

For a firm to price discriminate it must: a. face downward-sloping demand curve b. be able to prevent arbitrage c. have some market power d. be able to separate buys according to their willingness to pay e. all of the above are true

e. all of the above are true

Bubba is a shrimp fisherman who could earn $5,000 a month as a tour guide. Instead, he is a full-time fisherman. In calculating his economic profits from his shrimp business, the $5,000 should be counted as: a. an explicit cost; b. Bubba's marginal costs; c. a sunk cost; d. an accounting cost; e. an implicit cost; f. a variable cost.

e. an implicit cost

The value of a business-owner's time is an example of: a. fixed costs; b. an explicit cost; c. an accounting cost; d. a sunk cost; e. an opportunity cost.

e. an opportunity cost

Buying and selling something, like an asset, so as to profit from prices between out of line (that is, not in equilibrium) with each other in different markets or settings is the usual definition of: a. price discrimination; b.predatory behavior; c. a contestable market; d. a dominant strategy; e. arbitrage; f. dynamic pricing.

e. arbitrage

An agreement among firms in an industry about the quantities to produce and the prices to charge is called: a. a resale price maintenance agreement. b. a Nash equilibrium. c. a tit-for-tat arrangement. d. a dominant strategy. e. collusion.

e. collusion

The Chicago Cubs charge higher prices for games against their long-standing rival St. Louis Cardinals than they do for games against the woeful San Diego Padres. This is a reflection of, or an example of, a. an elastic demand for the Cardinals and an elastic demand for the Padres. b. economies of scope. c. price discrimination. d. arbitrage. e. dynamic pricing.

e. dynamic pricing

In which type of industry on the market spectrum will a firm produce where MR equals MC? a. monopoly b. oligopoly c. monopolistic competition d. perfect competition e. for any of these situations

e. for any of these situations

The typical firm in the United States: a. is organized as a corporation. b. sells its product for a price that is equal to the marginal cost of producing the last unit. c.is basically a price taker. d. an oligopolist. e.has some degree of market power.

e. has some degree of market power

Many economists, including those at Chicago, argue that resale price maintenance agreements: a. are basically price fixing and thus should be prohibited by law or on antitrust grounds. b. are likely to turn into predation if they are allowed to go unchecked. c. are simply just disguised forms of implicit collusion among firms in the industry. d. are an example of strategic decision-making in a prisoners' dilemma situation. e. have a legitimate purpose of stopping discount retailers from free-riding in many instances.

e. have a legitimate purpose of stopping discount retailers from free-riding in many instances

The passage from David Bodanis's book "The Secret House" Mr. Sanderson read in class mostly dealt with: a. the role - and power - of advertising in molding consumer demand b. the division and distinction between fixed and variable costs in the production and supply processes c. the ways in which households are "mini suppliers"" themselves and thus competitors with actual firms d. game theory - what to buy, negotiating prices, colluding & other strategic decisions individuals make e. how the lack of entry barriers will obviate the profitability of many/most firms in the long run

e. how the lack of entry barriers will obviate the profitability of many/most firms in the long run

If the BP gas station in Hyde Park (52nd & Lake Park) were to increase its price, ceteris paribus, by 20%, a. it would still sell about the same amount of gas- people have to get to work and the grocery store. b. its sales would drop to zero; after all, it's a perfectly competitive firm in a competitive industry. c. its sales would fall modestly, perhaps in the 4-5% range. d. it would make even greater profits. e. its sales of gasoline would drop substantially because it has little if any market power.

e. its sales of gasoline would drop substantially because it has little if any market power

Your instructor would regard which of the following as not very important for getting and maintaining a monopoly? a. a patent, trademark or copyright; b. predatory pricing; c. barriers to entry; d. economies of scale; e. merging with a supplier or a firm in an unrelated market

e. merging with a supplier or a firm in an unrelated market

The term "excess capacity" is most often associated with: a. proprietorships b. natural monopoly c. a highly contestable market d. oligopoly e. monopolistic competition

e. monopolistic competition

Which market structure would have the highest HHI? a. perfect competition; b. monopolistic competition; c. a corporation; d. oligopoly; e. monopoly; f. a contestable market

e. monopoly

Mr. Sanderson's Chicago Life column "The Price Is right" is largely about: a. marginal cost pricing. b. comparing prices and pricing decisions in perfectly competitive v. imperfectly competitive markets. c. confusion over prices and pricing policies that are efficient v. those that are fair. d. prices charged that reflect all costs - fixed v. variable and sunk costs v. opportunity costs. e. price discrimination.

e. price discrimination

Economists would be more inclined to object most to which one of these issues or business practices? a. vertical mergers b. surge pricing c. perfect price discrimination d. resale price maintenance agreements among firms in the same industry e. price fixing

e. price fixing

Which of the following is a key feature or condition, or something applied to, monopolistic competition? a. price taking; b. economic profits in the long run; c. barriers to entry; d. game theory; e. product differentiation; f. a high HHI

e. product differentiation

People tend to overuse common resources. This is an example or extension of: a. limited liability. b. principal-agent problems. c.tit-for-tat strategies. d. contestable market equilibria. e.the prisoners' dilemma.

e. the prisoners' dilemma

Most markets are not monopolies in the real world because: a. governments won't permit them. b. firms face downward-sloping demand curves. c. of the law of diminishing marginal returns (or marginal product). d. of diseconomies of scale. e. there are reasonable substitutes for most goods.

e. there are reasonable substitutes for most goods

"Car Dealerships Face Conundrum: Get Big or get Out." So read a recent newspaper headline. The article went on to say that small to mid-size dealer groups are selling their businesses to auto retail giants or consolidating dealerships into the hands of fewer owners. Deep down this is the issue of: a. economies of scope; b. natural monopoly; c. predation (predatory pricing); d. diminishing returns; e. game theory; f. economies of scale.

f. economies of scale