ECON202 Module 9 Quizzes

To maintain a monopoly, a firm must have a) few competitors b) marginal revenue equal to demand c) a perfectly inelastic demand d) an insurmountable barrier to entry

an insurmountable barrier to entry

If a firm shuts down in the short run, a) its total revenue is not large enough to cover its fixed cost b) it makes zero economic profit c) its loss equals zero d) its loss equals its fixed cost

its loss equals its fixed cost

When firms exit a perfectly competitive industry, the market supply curve shifts to the left. (T/F)

True

If a typical firm in a perfectly competitive industry is earning profits, then a) new firms will enter in the long run causing market supply to decrease, market price to rise, and profits to increase b) new firms will enter in the long run causing market supply to increase, market price to fall, and profits to decrease c) the number of firms in the industry will remain constant in the long run d) all firms will continue to earn profits

new firms will enter in the long run causing market supply to increase, market price to fall, and profits to decrease

Which of the following is an implicit cost of production? a) wages paid to labor plus the cost of carrying benefits for workers b) rent that could have been earned on a building owned and used by the firm c) the utility bill paid to water, electricity, and natural gas companies d) interest paid on a loan to a bank

rent that could have been earned on a building owned and used by the firm

If, for a given output level, a perfectly competitive firm's price is less than its average variable cost, then the firm a) should increase price b) should increase output c) should shut down d) is earning a proft

should shut down

In analyzing the decision to shut down in the short run we assume that the firm's fixed costs are a) sunk costs b) implicit costs c) nonmonetary opportunity costs d) capital costs

sunk costs

Which of the following statements is false? a) When marginal cost is greater than average total cost, average total cost will rise. b) Marginal cost will equal average total cost when marginal cost is at its lowest point. c) When marginal cost is less than average total cost, average total cost will fall. d) Marginal cost will equal average total cost when average total cost is at its lowest point.

Marginal cost will equal average total cost when marginal cost is at its lowest point.

The minimum point on the average variable cost curve is called a) the point of diminishing returns b) the loss-minimizing point c) the break-even point d) the shutdown point

the shutdown point

A teenage babysitter is similar to a firm in a perfectly competitive industry in that, for both a) there are many other suppliers of similar goods or services b) average costs of production do not change when their industry expands c) the implicit costs of production exceed the explicit costs of production d) fixed costs are lower than variable costs

there are many other suppliers of similar goods or services

If the total cost of producing 20 units of output is $1,000 and the average variable cost os $35, what is the firm's average fixed cost at that level of output? a) $65 b) $50 c) $15 d) It is impossible to determine without additional information.

$15

Letters are used to represent the terms used to answer this question: price (P), quantity of output (Q), total cost (TC) and average total cost (ATC). Which of the following equations is equal to a firm's profit? a) (P x Q) - (P x ATC) b) (P x Q) - TC c) P - ATC d) P - TC

(P x Q) - TC

In recent years, Amazon has lowered its profits by offering some of its customers free shipping on books and building more warehouses to hold its book inventories. Which of the following explains Amazons actions? a) Amazon was forced to take these actions because of the bargaining power of its suppliers. b) Amazon took these actions to deter entry into its market by new online booksellers. c) Amazon took these actions to compete more effectively with existing online booksellers. d) Amazon feared government regulation if its profits were too high.

Amazon took these actions to compete more effectively with existing online booksellers.

Which of the following statements is false? a) Economic costs include both accounting costs and implicit costs. b) An implicit cost is a nonmonetary opportunity cost. c) Economists consider all costs to be implicit costs. d) An explicit cost is a cost that involves spending money.

Economists consider all costs to be implicit costs.

If marginal cost is above the average variable cost, then average variable cost is decreasing. (T/F)

False

If price is equal to average variable cost, then a perfectly competitive firm breaks even. (T/F)

False

Which of the following statements best describes the economic short run? a) It is a period during which firms are free to vary all of their inputs. b) It is a period during which fixed inputs become variable inputs because of depreciation c) It is a period of one year or less. d) It is a period during which at least of one of the firm's inputs is fixed.

It is a period during which at least one of the firm's inputs is fixed.

A firm could continue to operate for years without ever earning a profit as long as it is producing an output where a) ATC > AVC b) MR > AVC c) AFC < AVC d) MR < ATC

MR > AVC

Peet's Coffee and Teas produces some flavorful varieties of Peet's brand coffee. Is Peet's a monopoly? a) Yes, there are no substitutes to Peet's coffee. b) No, although Peet's coffee is a unique product, there are many different brands of coffee that are very close substitutes c) No, Peet's is not a monopoly because there are many branches of Peet's d) Yes, Peet's is the only supplier of Peet's coffee in a market where there are high barriers to entry

No, although Peet's coffee is a unique product, there are many different brands of coffee that are very close substitutes

Which of the following offers the best reason why restaurants are not considered to be perfectly competitive firms? a) Restaurants have significant liability costs that perfectly competitive firms do not have; for example, customers may sue if they suffer from food poisoning. b) Restaurants usually have entry barriers in the form of zoning restrictions and health regulations. c) Restaurants do not sell identical products. d) Restaurants compete in small market areas - neighborhoods and cities - rather than in regional or national markets. Therefore, restaurants are not small relative to their market size.

Restaurants do not sell identical products.

Adam spent $10,000 on new equipment for his small business, "Adam's Fitness Studio." Membership at his fitness center is very low and at this rate, Adam needs an additional $12,000 per year to keep his studio open. Which of the following is true? a) The $10,000 Adam spent on equipment is a fixed cost of business and the $12,000 he'll need to continue operations is a variable cost. b) The fixed cost of running the studio is $22,000. c) The $10,000 Adam spent on equipment is the total cost of starting the business and the $12,000 he'll need to continue operations is a marginal cost. d) The variable cost of running the studio is $22,000.

The $10,000 Adam spent on equipment is a fixed cost of business and the $12,000 he'll need to continue operations is a variable cost.

Assume that the 4K and OLED television sets industry is perfectly competitive. Suppose a producer develops a successful innovation that enables it to lower its cost of production. What happens in the short run and in the long run? a) Initially, the firm will be able to increase its profit significantly, but in the long run its profits will still be greater than zero but lower than its short-run profits because other firms would also innovate. b) This firm will be able to earn above normal profits indefinitely if it obtains a patent for its innovation. c) The firm will be able to increase its economic profits temporarily, but in the long run its economic profits will be eliminated as other firms copy the innovation. d) The firm will probably incur losses temporarily because of the high cost of the innovation, but in the long run it will start earning positive profits.

The firm will be able to increase its economic profits temporarily, but in the long run its economic profits will be eliminated as other firms copy the innovation.

In the long run which of the following is true? a) total cost = fixed cost + variable cost. b) The firm can vary its explicit costs but not its implicit costs. c) The size of a firm's physical plant can be changed but the firm cannot adopt new technology. d) There are no fixed costs.

There are no fixed costs.

For a natural monopoly, the marginal cost of producing an additional unit of its product is relatively small (T/F)

True

If a firm shuts down in the short run, it avoids its variable cost but not its fixed cost. (T/F)

True

Assume a hypothetical case where an industry begins as perfectly competitive and then becomes a monopoly. Which of the following statements regarding economic surplus in each market structure is true? a) Under perfectly competitive conditions, economic surplus is maximized. Under monopoly conditions, economic surplus is less than under perfect competition and there is a deadweight loss. b) Under perfectly competitive conditions, economic surplus in this industry is maximized. Under monopoly conditions, economic surplus is minimized. b) Under perfectly competitive conditions, economic surplus in this industry equals consumer surplus plus producer surplus. Under monopoly conditions, some consumer surplus is transferred to producer surplus, but economic surplus is the same as it was under perfectly competitive conditions. d) Under perfectly competitive conditions, economic surplus is equal to consumer surplus; there is no producer surplus because firms are price takers. Under monopoly conditions, economic surplus is equal to producer surplus.

Under perfectly competitive conditions, economic surplus is maximized. Under monopoly conditions, economic surplus is less than under perfect competition and there is a deadweight loss.

Which of the following is an example of a long-run adjustment? a) Ford Motor Company lays off 2,000 assembly line workers. b) your university offers Saturday morning classes next fall. c) Walmart builds another Supercenter. d) A soybean farmer turns on the irrigation system after a month long dry spell

Walmart builds another Supercenter.

Which of the following statements is false? a) Firms often refer to the process of lowering average fixed cost as "spreading the overhead." b) the difference between average total cost and average fixed cost is average variable cost. c) The marginal cost curve intersects the average variable cost curve and the average total cost curve at their minimum points d) When marginal cost equals average total cost, average total cost is at its highest value.

When marginal cost equals average total cost, average total cost is at its highest value.

Which of the following is the best example of a short-run adjustment? a) Smith University completed negotiations to acquire a large piece of land to build its new library. b) A local bakery purchases another commercial oven as part of its capacity expansion. c) Your local Walmart hires two more associates. d) Toyota builds new assembly plant in Texas.

Your local Walmart hires two more associates.

Which of the following is the best example of a perfectly competitive firm? a) the Ford Motor Com[any b) a Taco Bell restaurant c) United Parcel Service (UPS) d) a corn farmer in Illinois

a corn farmer in Illinois

A price maker is a) a firm that is able to sell any quantity at the highest possible price. b) a consumer who participates in an auction where she announces her willingness to pay for a product. c) a firm that has some control over the price of the product it sells. d) a person who actively seeks out the best price for a product that he or she wishes to buy.

a firm that has some control over the price of the product it sells.

Which one of the following about a monopoly is false? a) a monopoly could break even in the long run b) a monopoly status could be temperary c) a monopoly could make profits in the long run d) a monopoly must have some kind of government privilege or government imposed barrier to maintain its monopoly

a monopoly must have some kind of government privilege or government imposed barrier to maintain its monopoly

Which of the following would be categorized as an opportunity cost? a. not being able to spend your $10,000 savings if you sink b. the cost of purchasing supplies for your house-cleaning business c. the cost of purchasing auto insurance for your dry-cleaning delivery business a) a only b) a and c only c) b and c only d) all of the above

a only

Marginal cost is the a) change in the price of inputs if a firm buys more inputs to produce an additional unit of output b) change in average cost when an additional unit of output is produced c) additional output when total cost is increased by one dollar d) additional cost of producing an additional unit of output

additional cost of producing an additional unit of output

A characteristic of the long run is a) all inputs can be varied b) plant capacity cannot be increased or decreased. c) there are both fixed and variable inputs d) there are fixed inputs

all inputs can be varied

Which of the following describes a situation in which every good or service is produced up to the point where the last unit provides a marginal benefit to consumers equal to the marginal cost of producing it? a) allocative efficiency b) productive efficiency c) profit maximization d) marginal efficiency

allocative efficiency

Which of the following is not true for a firm in perfect competition? a) price equals average revenue b) average revenue is greater than marginal revenue c) marginal revenue equals the change in total revenue from selling one more unit d) profit equals total revenue minus total cost

average revenue is greater than marginal revenue

Microsoft hires marketing and sales specialists to decide what prices it should set for its products, whereas a wealthy corn farmer in Iowa, who sells his output in the world commodity market, does not. Why is this so? a) because unlike Microsoft, the wealthy corn farmer is probably a monopolist b) because Microsoft could potentially lose sales if it sets prices indiscriminately c) because Microsoft is large enough to hire the best people in the field d) because the wealthy corn farmer is a price maker who sets his price independently of the market price, but Microsoft's optimal output depends on the price it selects

because Microsoft could potentially lose sales if it sets prices indiscriminately

Why does a monopoly cause a deadweight loss? a) because it stops producing output at a point where price is above marginal cost b) because it does not produce some output for which demand exceeds supply c) because it increases producer surplus at the expense of consumer surplus d) because it appropriates a portion of consumer surplus for itself

because it stops producing output at a point where price is above marginal cost

The De Beers Company, one of the longest-lived monopolies, is facing increasing competition. One source of competition comes from people who might resell their previously owned diamonds. Why is De Beers worried that people might resell their previously owned diamonds? a) because the availability of previously owned diamonds would make the market demand curve for diamonds more inelastic and force De Beers to lower its price b) because previously owned diamonds would be a close substitute to newly mined diamonds and would therefore reduce De Beers' market power c) because De Beers will not be able to guarantee the quality of previously owned diamonds and fears that its reputation might be harmed d) because the availability of previously owned diamonds would increase the market demand for diamonds and dilute De Beers' monopoly

because previously owned diamonds would be a close substitute to newly mined diamonds and would therefore reduce De Beers' market power

If the market price is $25 in a perfectly competitive market, the marginal revenue from selling the fifth unit is a) $5 b) 12.50 c) $25 d) $125

c) $25

A natural monopoly is most likely to occur in which of the following industries? a) the diamond mining and marketing industry because one firm can control a key resource b) the pharmaceutical industry because the development and approval of new drugs through the Food and Drug Administration can take more than 10 years c) an industry where fixed costs are very large relative to variable costs d) the software industry because of the importance of network externalities

c) an industry where fixed costs are very large relative to variable costs

Marginal cost is calculated for a particular increase in output by a) multiplying the change in total cost by the change in output. b) dividing the total cost by the change in output c) dividing the change in total cost by the change in output d) multiplying the total cost by the change in output

dividing the change in total cost by the change in output

Both buyers and sellers are price takers in a perfectly competitive market because a) each buyer and seller knows it is illegal to conspire to affect price b) both buyers and sellers in a perfectly competitive market are concerned for the welfare of others. c) the price is determined by the government intervention and dictated to buyers and sellers. d)each buyer and seller is too small relative to others to independently affect the market price

each buyer and seller is too small relative to others to independently affect the market price

Economic costs of production differ from accounting costs in that a) economic costs add the opportunity costs of the firm using its own resources while accounting costs do not. b) economic costs include expenditures for hired resources while accounting costs do not. c) accounting costs are always larger than economic cost. d) accounting costs include expenditures for hired resources while economic costs do not.

economic costs add the opportunity costs of a firm using its own resources while accounting costs do not.

If fixed costs do NOT change, then marginal cost a) also remains constant b) equals the change in variable cost divided by the change in output c) equals the change in average variable cost divided by the change in output d) equals the change in average fixed cost divided by the change in output

equals the change in variable cost divided by the change in output

A perfectly competitive industry achieves allocative efficiency when a) goods and services are produced at the lowest possible cost b) it produces where market price equals marginal production cost c) firms carry production surpluses d) goods and services are produced up to the point where the last unit provides a marginal benefit to consumers equal to the marginal cost of producing it

goods and services are produced up to the point where the last unit provides a marginal benefit to consumers equal to the marginal cost of producing it

A patent or copyright is a barrier to entry based on a) widespread network externalities b) ownership of a key necessary raw material c) large economies of scale as output increases d) government action to protect a producer

government action to protect a producer

A profit-maximizing monopoly's price is a) the same as the price that would prevail if the industry was perfectly competitive. b) less than the price that would prevail if the industry was perfectly competitive. c) greater than the price that would prevail if the industry was perfectly competitive. d) not consistently related to price that would prevail if the market was perfectly competitive.

greater than the price that would prevail if the industry was perfectly competitive.

A public franchise a) results from ownership of a key raw material b) is an unregulated monopoly necessary for the public good c) is a corporation that is owned by stockholders d) is a government designation that a private firm is the only legal producer of a good or service

is a government designation that a private firm is the only legal producer of a good or service

If a perfectly competitive firm's price is above its average total cost, the firm a) is earning a profit b) should shut down c) is breaking even d) is incurring a loss

is earning a profit

A perfectly competitive firm's marginal revenue a) is less than price because a firm must lower its price to sell more b) is greater than its price c) is equal to its price d) may be either greater or less than its price, depending on the quantity sold.

is equal to its price

If a perfectly competitive firm's price is less than its average total cost but greater than its average variable cost, the firm a) should shut down b) is incurring a loss c) is breaking even d) is earning a profit

is incurring a loss

Compared to perfect competition, the consumer surplus in a monopoly a) is higher because price is higher and output is the same. b) is unchanged because price and output are the same. c) is lower because price is higher and output is lower. d) is eliminated.

is lower because price is higher and output is lower.

A monopoly firm's demand curve a) is perfectly inelastic. b) is more inelastic than the demand curve for the product. c) is the same as the market demand curve. d) is inelastic at high prices and elastic at lower prices.

is the same as the market demand curve.

A supplier of an input is unlikely to have bargaining power if a) the input supplied is specialized. b) many firms can supply the input. c) it has a patent on the input. d) it is the sole supplier of the input.

many firms can supply the input.

If a theatre company expects $250,000 in ticket revenue from five performances and $288,000 in ticket revenue if it adds a sixth performance, the a) marginal revenue of the sixth performance is $38,000. b) company will be making a loss on the sixth performance because its ticket sales will be less than the average revenue received from the previous five. c) marginal revenue of the sixth performance is $288,000. d) cost of staging the sixth performance is probably higher than the cost of staging the previous five.

marginal revenue of the sixth performance is $38,000.

The price of a seller's product in perfect competition is determined by a) market demand and market supply b) the individual demander c) a few of the sellers d) the individual seller

market demand and market supply

For a perfectly competitive firm, which of the following is not true at profit maximization? a) price equals marginal cost b) market price is greater than marginal cost c) marginal revenue equals marginal cost d) total revenue minus total cost is maximized

market price is greater than marginal cost

Which of the following describes a situation in which a good or service is produced at the lowest possible cost? a) productive efficiency b) marginal efficiency c) profit maximization d( allocative effieciency

productive efficiency

If a typical firm in a perfectly competitive industry is incurring losses, then a) some firms will enter in the long run, causing market supply to increase and market price to rise, increasing profit for all firms b) some firms will exit in the long run, causing market supply to decrease and market price to fall, increasing losses for the remaining firms c) some firms will exit in the long run, causing market supply to decrease and market price to rise, increasing profits for the remaining firms d) all firms will continue to lose money

some firms will exit in the long run, causing market supply to decrease and market price to rise, increasing profits for the remaining firms

In the long run, a perfectly competitive market will a) supply whatever amount consumers demand at a price determined by the minimum point on the typical firm's average total cost curve b) supply whatever amount consumers will buy at a price which earns the market an economic profit c) generate a long-run equilibrium where the typical firm operates at a loss d) produce only the quantity of output that yields a long-run profit for the typical firm

supply whatever amount consumers demand at a price determined by the minimum point on the typical firm's average total cost curve

The processes a firm uses to turn inputs into outputs of goods and services is called a) positive economic analysis b) technological change c) marginal analysis d) technology

technology

In 2017, the Educational Testing Service (ETS) charged $54.50 to take the Scholastic Aptitude Test (SAT) but $205 to take the Graduate Record Exam (GRE). One reason for this difference in price is a) more people took the SAT than the GRE in 2015. b) the ETS faces competition in the market for the SAT but no competition for the GRE. c) the GRE is a longer test with more questions. d) an average, those who take the GRE have higher incomes than those who take the SAT.

the ETS faces competition in the market for the SAT but no competition for the GRE.

Which of the following is an example of a factor that a firm's owners and managers can control in making the firm successful? a) the number of competitors in the market b) a rise in the price of a key input, for example, a rise in the price of oil leads to higher energy costs c) changing consumer tastes d) the ability to produce the product at a lower cost

the ability to produce the product at a lower cost

Of the factors that are within the control of the firm's owners, the most important factors that make a firm successful are a) lobbying government to erect or enforce entry barriers in its markets and the marketing of its products as widely as possible. b) the selection of the prices of its products and the selection of the most productive and loyal employees. c) the differentiation of its products and the production of products at a lower average cost than competing firms. d) the establishment of trademarks for its products and the aggressive defense of those trademarks.

the differentiation of its products and the production of products at a lower average cost than competing firms.

What is always true at the quantity where a firm's average total cost equals average revenue? a) the firm's profit is maximized b) the firm breaks even c) marginal cost equals marginal revenue d) the firm's revenue is maximized

the firm breaks even

Suppose the equilibrium price in a perfectly competitive industry is $15 and a firm in the industry charges $21. Which of the following will happen? a) the firm will sell more output than its competitiors b) the firm's profits will increase c) the firm's revenue will increase d) the firm will not sell any output

the firm will not sell any output

A monopoly is characterized by all of the following except a) entry barriers are high b) the firm has market power c) there are no close substitutes to the firm's product d) there are only a few sellers, each selling a unique product

there are only a few sellers, each selling a unique product

Which of the following is not a characteristic of a perfectly competitive market structure? a) There are restrictions on exit of firms b) There are no restrictions to entry by new firms. c) All firms sell identical products. d) There are a very large number of firms that are small compared to the market

there are restrictions on exit of firms

If a monopolist's marginal revenue is $35 per unit and its marginal cost is $25, then a) to maximize profit the firm should decrease output. b) to maximize profit the firm should continue to produce the output it is producing. c) to maximize profit the firm should increase output. d) Not enough information is given to say what the firm should do to maximize profit.

to maximize profit the firm should increase output.

Average total cost is equal to a) total cost divided by the level of output b) average fixed cost minus average variable cost c) total cost divided by the number of workers d) marginal cost plus variable cost

total cost divided by the level of output

Which of the following costs will NOT change as output changes> a) marginal cost b) average variable cost c) total variable cost d) total fixed cost e) average fixed cost

total fixed cost

A monopolist's profit-maximizing price and output correspond to the point on a graph a) where marginal revenue equals marginal cost and charging the price on the market demand curve for that output. b) where average total cost is minimized. c) where total costs are the smallest relative to price. d) where price is as high as possible.

where marginal revenue equals marginal cost and charging the price on the market demand curve for that output.

A monopoly is the only seller of a product a) with many substitutes b) with a perfectly inelastic demand c) without a close substitute d) without a well-defined demand curve

without a close substitute