Micro-Economics 152-80B Final Exam

Suppose a perfectly competitive firm is experiencing zero economic profits. In an effort to increase profits, the firm decides to initiate an advertising campaign for it's product. The most likely short-run results of this campaign, ceteris paribus, would be a) Economic losses for the firm b) the ability to sell more at higher price c) the ability to sell more at a lower price d) the ability to sell more at the existing market price

a) Economic losses for the firm

A firm should shut down production if a) P < minimum AVC b) P = minimum ATC c) P > minimum AVC d) P = MC

a) P < minimum AVC

Which of the following prohibits price discrimination, certain types of mergers, an interlocking boards of directors among competing companies? a) The Clayton act b) the Federal Trade Commission Act c) The Full Employment and Balanced Growth Act d) The Sherman Act

a) The Clayton act

In a perfectly competitive market economy, business failures can benefit society by a) a reallocation of resources to better uses b) an increase in market power for remaining firms c) a decline in market prices as remaining firms attempt to increase sales and stay in business d) an increase in the number of jobs for bankruptcy lawyers and accountants

a) a reallocation of resources to better uses

cost efficiency refers to a) amount of output associated with an additional dollar spent on input b) ability to produce at a level of output where the wage rate is equal to or less than the MRP. c) MPP of labor divided by the product price d) effectiveness of labor in reducing production costs

a) amount of output associated with an additional dollar spent on input

A polluting company can be billed in proportion to its pollution through a) emission charges b) privatization c) higher user fees d) tradable pollution permits

a) emission charges

a monopolists marginal revenue will a) fall as more units are sold b) be the same as the price c) increase as more units are sold d) stay constant as more units are sold

a) fall as more units are sold

If price is above the long-run competitive equilibrium level a) firms will enter the market b) firms will shut down c) firms will incur losses d) the market supply will shift to the left

a) firms will enter the market

Marginal cost pricing means that a) goods are offered for sale at prices equal to marginal cost b) firms produce where marginal cost equals zero c) firms produce where marginal cost equals marginal revenue d) Goods are offered for sale at prices equal to average total cost

a) goods are offered for sale at prices equal to marginal cost

Price-discriminating firms charge higher prices to those who a) have lower price elasticities of demand b) want the product less c) have many substitutes available to them d) have greater income

a) have lower price elasticities of demand

Kip will work fewer hours if his salary increases. For Kip, the _____ effect must outweigh the _________ effect a) income, substitution b) income, utitlity c) utility, substitution d) substitution, income

a) income, substitution

If a firm has market power a) it faces a downward sloping demand curve b) it cannot influence the price of the product c) it faces a horizontal demand curve d) its marginal revenue is equal to its price

a) it faces a downward sloping demand curve

One of the benefits of monopoly is a) the production of a large quantity of output b) a monopolist can afford to spend more on research and development c) a monopoly price is established by supply and demand in the market d) a monopolist is forced to reduce costs of production

b) a monopolist can afford to spend more on research and development

High training costs make it more costly for consumers to switch products. this is an example of a) Contestable markets b) barriers to entry c) cartels d) government regulation

b) barriers to entry

Which of the following is not characteristic of monopolistic competition? a) some market power b) firms have zero control over price c) many firms in an industry d) low concentration ratios

b) firms have zero control over price

output under monopoly a) is equal to what output would be if the industry were competitive b) is less than what output would be if the industry were competitive c) is greater than what output would be if the industry were competitive d) has no consistent relationship with competitive industries

b) is less than what output would be if the industry were competitive

Investment decisions are made on the basis of the relationship of price to a) short-run marginal cost b) long-run average total cost c) short-run average total cost d) long-run fixed cost

b) long-run average total cost

If a firm that pollutes wants to maximize profits, it will produce where a) private and social costs are equal b) marginal revenue and private marginal cost are equal c) social benefits exceed social costs d) the social value of production equals the social cost of production

b) marginal revenue and private marginal cost are equal

Market share is the percentage of total a) industry profit earned by a single firm b) market output produced by a single firm c) market output produced by the four largest firms in an industry d) market output produced by the largest firm in an industry

b) market output produced by a single firm

Economies of scale over the entire range of market output a) mean that as the size of a firm increases, it's minimum average total costs rise b) mean that the long-run average total cost curve is downwards sloping c) lead to higher levels of competition d) become a low barrier to entry, preventing a market from being contestable

b) mean that the long-run average total cost curve is downwards sloping

If the wage rate increases, there will be a a) movement down the labor supply curve to the left b) movement up the labor supply curve to the right c) leftward shift of the labor supply curve d) rightwards shift of the labor supply curve

b) movement up the labor supply curve to the right

When a labor supply curve is backward-bending, the elasticity of labor supply in the backwards-bending portion is a) greater than 1 b) negative c) zero d) positive but less than 1

b) negative

When the MPP of labor is zero, ceteris paribus, a) Employment can be increased only by offering a higher wage rate b) no further increases in output can be achieved by using additional units of labor c) MRP is at a maximum d) Additional units of labor must be employed because other factors of production are being wasted

b) no further increases in output can be achieved by using additional units of labor

Which of the following does not function as a barrier to entry into an oligopoly market? a) control of distribution outlets b) predatory pricing c) patents d) the expense involved in nonprice competition

b) predatory pricing

A perfectly competitive market results in efficiency because a) Zero economic profit is achieved b) price is driven down to minimum ATC c) price rises high enough to equal marginal cost d) MC < P

b) price is driven down to minimum ATC

The kinked demand curve explains the observation that in oligopoly markets a) rivals match price increases b) prices may not change even in the face of cost increases c) practice product differentiation d) rivals do not match price reductions

b) prices may not change even in the face of cost increases

Competitive markets achieve allocative efficiency by a) producing the maximum output from the available resources b) producing goods and services that consumers want c) restricting entry d) encouraging technological innovation

b) producing goods and services that consumers want

The elasticity of labor supply measures the a) magnitude of the substitution effect of labor b) responsiveness of labor supplied to changes in the wage rate c) Opportunity cost of labor d) responsiveness of the wage rate to changes in the labor supplied

b) responsiveness of labor supplied to changes in the wage rate

If a firm finds that its marginal cost is greater than its price, it a) is maximizing it's profit b) should reduce production c) should increase production d) is maximizing its total revenue

b) should reduce production

Profit per unit is maximized when the firm produces the output where a) The MC is minimized b) the ATC is minimized c) MC equals MR d) Demand equals MC

b) the ATC is minimized

When a monopolistically competitive firm advertises, it is attempting to increase a) the demand and increase the price elasticity of demand for its product b) the demand and decrease the price elasticity of demand for its product c) market demand d) long-run profits

b) the demand and decrease the price elasticity of demand for its product

Technological innovations in an industry cause a) market supply curve to shift to the left b) the marginal cost curve to shift to the right c) the equilibrium price to rise d) the average total cost curve to rise

b) the marginal cost curve to shift to the right

A payoff matrix shows a) the losses from strategic decisions of two countries b) the risks and rewards of alternative decision options c) the payoffs of one firm always choosing to price low d) what companies will do no matter what the other firm does

b) the risks and rewards of alternative decision options

The market supply curve is a) the equilibrium quantity sold in the market b) the sum of marginal cost curves of all the firms in the market c) the sum of the average total cost curves of all the firms in the market d) equal to the market demand curve

b) the sum of marginal cost curves of all the firms in the market

The potential for maximizing total industry profits is greater in oligopolies than in perfect competition because a) firms in an oligopoly are more profitable b) there are fewer firms and each is dependent on the actions or rivals c) perfectly competitive firms can easily cooperate to restrict supply d) there are independent firms in an oligopoly

b) there are fewer firms and each is dependent on the actions or rivals

Which of the following is not true when it comes to a pure monopoly? a) there are barriers to entry b) there are many substitutes for the monopolist's products c) monopolist have control over price d) monopolist face a downward sloping demand curve.

b) there are many substitutes for the monopolist's products

According to the text, which of the following is a form of water pollution? a) the greenhouse effect b) thermal pollution c) smog d) slaughter waste

b) thermal pollution

The labor supply curve will be negatively sloped if the substitution effect of wages is a) stronger that the income effect of wages b) weaker than the income effect of wages c) equal to the income effect of wages d) negative

b) weaker than the income effect of wages

If catfish farmers expect catfish prices to fall in the future, then right now a) There will be a movement down along the market supply curve for catfish b) There will be a movement up along the market supply curve for catfish c) The market supply cur e for catfish will shift to the right d) The market supply curve for catfish will shift to the left.

c) The market supply cur e for catfish will shift to the right

for a natural monopoly to exist a) a firm must continually buy up rivals b) a firms long run average cost curve must exhibit diseconomies of scale c) a firms long run average cost curve must exhibit economies of scale d) a firm must have a patent or copyright

c) a firms long run average cost curve must exhibit economies of scale

Which of the following is a barrier to entry in a monopoly market? a) economic profits greater than zero for the monopolist b) a rising long run average total cost curve c) a patent on a new product d) a vertical supply curve

c) a patent on a new product

If economic profits are earned in a competitive market, then over time a) equilibrium price will rise as more firms enter b) the market supply curve will shift to the left c) additional firms will enter the market d) normal profit will fall to zero as more firms enter

c) additional firms will enter the market

If economic profits are earned in a competitive market, then over time a) normal profit will fall to zero as more firms enter b) the market supply curve will shift to the left c) additional firms will enter the market d) equilibrium price will rise as more firms enter

c) additional firms will enter the market

other things being equal, which of the following would increase the market demand for labor? a) a decrease in the cost-effectiveness of labor relative to other inputs b) a fall in the wage rate c) an increase in the marginal productivity or labor d) a decrease in the market demand for the firm's output

c) an increase in the marginal productivity or labor

One in the News article titled, recycling waste money suggests that the government has decided to intervene by a) imposing user fees b) levying emission charges c) bypassing the market d) privatizing pollution

c) bypassing the market

Economic profits a) cause the market supply curve to shift left b) cause the equilibrium price in the market to rise c) cause new firms to enter the market d) cause the market demand curve to shift to the right

c) cause new firms to enter the market

A five-cent container deposit on bottles a) has no impact on the price of recycled materials b) increases the price of recycled materials and thus discourage recycling c) decreases the price of recycled materials and thus encourages recycling' d) increases the price of containers that do not use recycled materials

c) decreases the price of recycled materials and thus encourages recycling'

In the long-run, an oligopolist is most likely to a) produce at the most technically efficient output level due to long-run competition b) face a straight demand curve c) experience economic profits when sufficient barriers to entry are present d) experience zero economic profits because barriers to entry do not exist in the long run

c) experience economic profits when sufficient barriers to entry are present

Both a competitive industry and a monopoly a) use marginal cost pricing b) maximize profit per unit where P = MC c) face downward-sloping market demand curves d) produce products that have man identical substitutes

c) face downward-sloping market demand curves

The kinked oligopoly demand curve does not describe the demand curve for monopolistic competition because in monopolistically competitive markets, a) firms have no market power b) there is no nonprime competition c) firms are not as interdependent as oligopolistic firm d) there is not as much product differentiation as in oligopoly

c) firms are not as interdependent as oligopolistic firm

The competitive dimension of monopolistic competition is that a) consumers view each firm's products as interchangeable b) each firm in the industry will lose all of its customers it it raises its price c) low barriers to entry tend to push economic profits towards zero d) high barriers to entry tend to push economic profits toward zero

c) low barriers to entry tend to push economic profits towards zero

a monopolist maximizes profit at an output level where a) price equals marginal revenue b) total revenue is maximized c) marginal revenue is equal to marginal cost d) marginal revenue is above marginal cost

c) marginal revenue is equal to marginal cost

In monopolistic competition there is allocative inefficiency because a) price is greater than the minimum ATC b) production is not at the minimum ATC c) price is greater than MC d) of excess capacity

c) price is greater than MC

A concentration ratio measures the a) proportion of industry output produced by all firms b) dollar value of total industry output produced by all firms c) proportion of total industry output produced by the largest firms d) dollar value of total industry output produced by the largest firms

c) proportion of total industry output produced by the largest firms

The exit of firms from a market a) shifts the market supply curve to the right b) reduces profits of exiting firms in the market c) reduces the equilibrium output in the market d) all the answers are correct

c) reduces the equilibrium output in the market

Long-run competitive markets are characterized by all of the following except a) easy entry of firms b) normal profits c) rising prices d) easy exit of firms

c) rising prices

Requiring that a firm engage in pollution abatement will likely do all of the following except a) reduce profits for the firm b) reduce the amount of output the firm produces c) shift the firm's ATC curve downward d) shift the firm's MC curve upward

c) shift the firm's ATC curve downward

If Lauren's substitution effects outweigh her income effects, her labor supply curve will a) appear vertical b) bend backward c) slope upward d) appear horizontal

c) slope upward

In order to maximize social welfare, a firm's production of a good should occur at the output where a) marginal revenue equals price b) all pollution is entirely eliminated c) social marginal cost equals social marginal benefits d) price equals social marginal revenue

c) social marginal cost equals social marginal benefits

For a monopolist, marginal revenue equals a) the change in quantity divided by the change in total revenue b) price times quantity c) the change in total revenue divided by the change in quantity d) price

c) the change in total revenue divided by the change in quantity

If there is an increase in immigration into a specific labor market, then a) the equilibrium wage will rise and the quantity of labor hired will fall b) the demand for labor will increase and the equilibrium wage rises c) the supply of labor shifts rightward, and the equilibrium wage will fall d) the supply of labor shifts leftward, and the equilibrium wages will increase

c) the supply of labor shifts rightward, and the equilibrium wage will fall

The market supply curve in a perfectly competitive market is usually a) horizontal b) vertical c) upward sloping d) downward sloping

c) upward sloping

The labor supply curve will be negatively sloped if the substitution effect of wages is a) stronger than the income effect of wages b) equal to the income effect of wages c) weaker than the income effect of wages d) negative

c) weaker than the income effect of wages

Price discrimination occurs a) when two firms agree to set the same price b) when a firm deliberately keeps a product off of the market c) when a firm sets different prices for different consumers for the same product d) when the government sets the price the firm must ask

c) when a firm sets different prices for different consumers for the same product

In a perfectly competitive industry, economic profit a) will always be negative in the long run because of ease of entry b) can persist in the long run because of barriers to entry c) will approach zero in the long run as more firms enter the market d) can persist ion the long run because of homogeneous products

c) will approach zero in the long run as more firms enter the market

Which of the following was the first to prohibit "conspiracies in restraint of trade? a) The Federal Trade Commission Act b) The Clayton Act c) The Gramm-Rodman Act d) The Sherman Act

d) The Sherman Act

High profits in a particular industry indicate that a) consumers want less of that industry's goods b) producers are satisfied with the level of production of that industry's goods c) consumers are satisfied with the level of production of that industry's goods d) consumers want more of that industry's goods

d) consumers want more of that industry's goods

In a competitive market, if the market price is equal to the minimum point of the firm's ATC curve, the firm may seek to earn economic profits by: a) increasing price b) producing at the rate of output where price equals demand c) decreasing price d) decreasing production costs through technological improvements

d) decreasing production costs through technological improvements

The constant quest for profits in competitive markets results in all of the following except a) zero economic profit in the long run b) goods and services being produced that consumers demand c) efficiency in production d) economic profits in the long run

d) economic profits in the long run

If long-run economic losses are being experienced in a competitive market, a) normal profit will fall to zero as firms enter b) more firms will enter the market c) the market supply curve will shift to the right d) equilibrium price will rise as firms exit

d) equilibrium price will rise as firms exit

Which of the following is not a characteristic of a perfectively competitive long-run equilibrium? a) firms are making zero economic profits b) price equals marginal costs c) price equals long run minimum average cost d) firms are producing on the downward sloping portions of their average total cost curves

d) firms are producing on the downward sloping portions of their average total cost curves

In a monopolistically competitive market with negative economic profits a) firms will enter until accounting profits are zero b) firms will enter until economic profits are zero c) no entry or exit will occur d) firms will exit until economic profits are zero

d) firms will exit until economic profits are zero

Marginal costs is the increase in total cost associated with a one-unit a) increase in input usage b) decrease in input usage c) decrease in production d) increase in production

d) increase in production

If a firm in an oligopoly expands its market share at prevailing prices, its competitors a) increase their market share b) ignore the expansion c) increase their profits d) lose market share

d) lose market share

If a monopolist is producing a level of output where MR is less than MC, then it should a) increase its output b) shift its marginal cost curve upward c) lower its price d) lower its output

d) lower its output

Marginal cost pricing in competitive markets result in all but which one of the following a) The information necessary for consumers to make rational choices between alternative goods and services b) an efficient mix of goods and services being produced c) output being produced where price equals the opportunity cost of the last unit being produced. d) maximization of consumer utility

d) maximization of consumer utility

In a perfectly competitive market in the long run, which of the following is not correct? a) there are no better uses for the firm's resources b) economic profits are zero c) firms are attempting to maximize profit d) prices are maximizing total revenue

d) prices are maximizing total revenue

To keep a market from being contested, firms might a) practice price discrimination b) march price reductions by rivals c) increase their concentration ratio d) seek to obtain a monopoly franchise from the government

d) seek to obtain a monopoly franchise from the government

External costs are the difference between a) average and marginal costs b) benefits and costs c) marginal social benefits and marginal social costs d) social costs and private costs

d) social costs and private costs

Which of the following industries has the highest concentration ratio? a) wheat production b) used car sales c) sugar production d) soft drinks

d) soft drinks

cross price elasticity measures a) how sensitive quantity demanded is to a change in price b) how complements and substitutes differ from one another c) the change in quantity demanded when income changes d) the change in quantity demanded for one good relative to a change in the price of another good

d) the change in quantity demanded for one good relative to a change in the price of another good

which of the following is not a determinate of market power? a) the number of producers b) the size of each firm c) the availability of substitute goods d) the profitability of each firm

d) the profitability of each firm

A nationwide concentration ratio is likely to understate market power when a) There is extensive foreign competition b) A market is perfectly contestable c) firms sell nationally d) the true markets are local and small

d) the true markets are local and small

Ceteris paribus, all of the following result when the minimum wage is raised and is above the equilibrium in a competitive market, except a) there are fewer jobs available b) some workers lose their jobs c) workers with a marginal revenue product below the minimum wage are worse off d) there are fewer workers available to work

d) there are fewer workers available to work

The market supply curve in a perfectly competitive market is usually a) downward sloping b) horizontal c) vertical d) upward sloping

d) upward sloping

The Herfindahl-Hirshman index is a) an example of government failure b) a barrier to entry c) a way to account for the combined market share of the top four firms d) used to identify cases worthy of antitrust concern

d) used to identify cases worthy of antitrust concern

All of the following are examples of nonprice competition except a) quality differences b) advertising c) differentiation of service d) zero economic profit

d) zero economic profit

Sophisticated waste treatment plants can reduce organic pollution by up to __________ percent a) 99 b) 75 c) 25 d) 95

a) 99

According to the text, one argument in favor of concentration of market power is that a) large firms can sometimes produce more efficiently that small firms because of economies of scale in production b) the exercise of market power provides a more desirable mix of output c) market power results in higher prices and lower quantities d) market power always increases incentives for innovation and invention

a) large firms can sometimes produce more efficiently that small firms because of economies of scale in production

A monopolist will find that its marginal revenue curve a) lies below its demand curve and is steeper than its demand curve b) is the same as its demand curve c) lies below its demand curve and has the same slope as the demand curve d) lies above its demand curve and is flatter than its demand curve

a) lies below its demand curve and is steeper than its demand curve

The behavior expected in a competitive market includes: a) marginal cost pricing b) very little entry and exit c) aggressive behavior among competitors to control prices d) little technological growth

a) marginal cost pricing

The goal of an oligopoly is to maximize a) market share to achieve long-run economic profit b) short-run profit to achieve long-run maximum revenue c) short-run profit to achieve long-run market share d) profit in the short run and to minimize cost in the long run

a) market share to achieve long-run economic profit

If firms were charged the full social opportunity cost of the resources they used, there would be a) no external costs b) government failure c) a need for government intervention d) market failure

a) no external costs

Sky-High Skywriters temporarily reduces its price when a new firm called The Sky's the Limit Skywriting enters the industry. Sky-High Skywriters is practicing a) predatory pricing b) cartel pricing c) retaliation d) price leadership

a) predatory pricing

Which of the following characteristics a firm that is in the long-run perfectly competitive equilibrium where profits are maximized? a) price equals minimum ATC b) price exceeds marginal cost c) price equals marginal cost d) positive economic profit

a) price equals minimum ATC

The elasticity of labor supply measures the a) responsiveness of labor supplied to changes in the wage rate b) responsiveness of the wage rate to changes in the labor supplied c) opportunity cost of labor d) magnitude of the substitution effect of labor

a) responsiveness of labor supplied to changes in the wage rate

If a firm finds that its marginal cost is greater than its price, it a) should reduce production b) should increase production c) is maximizing its total revenue d) is maximizing its profit

a) should reduce production

The Herfindahl-Hirschman Index is the sum of the a) squared market shares of the firms in the market b) market shares of all the firms in the market c) squared concentration ratios for the firms in the market d) market shares of the top four firms in the market

a) squared market shares of the firms in the market

Perfect competition differs from monopoly insofar as a) the perfectly competitive firm sells at the equilibrium price set by the market b) a monopolist charged multiple prices set by what the market will bear whereas competitive markets set a single price c) a monopolist produces a larger quantity or output than a perfectly competitive firm d) a perfectly competitive market has higher barriers to entry than a monopolist

a) the perfectly competitive firm sells at the equilibrium price set by the market

marginal cost pricing results in the most desirable mix of goods and services from the consumer's standpoint because a) the prices consumers pay are a reflection of the value of the goods and services given up b) prices are forced down to the lowest possible level c) economic profits are zero d) firms are forced to produce at the most technically efficient output level

a) the prices consumers pay are a reflection of the value of the goods and services given up