Module 5: Practice Quiz

Refer to Figure 13-1. The graph illustrates a typical

production function.

If a pharmaceutical company discovers a new drug and successfully patents it, patent law gives the firm

sole ownership of the right to sell the drug for a limited number of years.

When a firm has a natural monopoly, the firm's

average total cost curve is downward sloping.

Figure 13-6 The following figure depicts average total cost functions for a firm that produces automobiles. Refer to Figure 13-6. At levels of output between K and L, the firm experiences

constant returns to scale.

If a firm produces nothing, which of the following costs will be zero?

Variable cost

Which of the following statements is correct?

If duopolists successfully collude, then their combined output will be equal to the output that would be observed if the market were a monopoly.

Scenario 15-1 A monopoly firm maximizes its profit by producing Q = 500 units of output. At that level of output, its marginal revenue is $40, its average revenue is $80, and its average total cost is $44. Refer to Scenario 15-1. At Q = 500, the firm's profit is

$18,000.

Refer to Figure 14-2. If the market price is $10, what is the firm's total revenue?

$50

Suppose that Christian and Aneesha are duopolists in the music industry. In June, they agree to work together as a monopolist, charging the monopoly price for their music and producing the monopoly quantity of songs. By July, each singer is considering breaking the agreement. What would you expect to happen next?

Christian and Aneesha will each break the agreement. Both singers' profits will decrease.

Which of the following is not a characteristic of a competitive market?

Entry is limited.

Refer to Figure 16-2. Which of the following will occur in the long run in this industry? Figure 16-2 This figure depicts a situation in a monopolistically competitive market.

Firms will enter this industry.

Which of the following statements regarding a competitive firm is correct?

For all firms, average revenue equals the price of the good.

Which of the following is a necessary characteristic of a monopoly?

The firm is the sole seller of its product.

Raiman's Shoe Repair produces custom-made shoes. When Mr. Raiman produces 12 pairs per week, the marginal cost of the 12th pair is $84, and the marginal revenue of the 12th pair is $70. What would you advise Mr. Raiman to do?

Produce fewer custom-made shoes

Pete owns a shoe-shine business. His accountant most likely includes which of the following costs on his financial statements?

Shoe polish and rent on the shoe stand

Which of the following represents the firm's short-run condition for shutting down?

Shut down if TR < VC

Refer to Table 13-5 The Wooden Chair Factory experiences diminishing marginal product of labor with the addition of which worker?

The sixth worker

Refer to Table 17-9. If Tyler chooses not to clean, then Matthew will

not clean, and Matthew's payoff will be 10.

Suppose a monopolist is able to charge each customer a price equal to that customer's willingness-to-pay for the product. Then the monopolist is engaging in

perfect price discrimination.

When a market is monopolistically competitive, the typical firm in the market is likely to experience a

positive or negative profit in the short run and a zero profit in the long run.

Consider a market served by a monopolist, Firm A. A new firm, Firm B, enters the market and, as a result, Firm A lowers its price to try to drive Firm B out of the market. This practice is known as

predatory pricing.

A government-created monopoly arises when

the government gives a firm the exclusive right to sell some good or service.

One problem with government operation of monopolies is that

the government typically has little incentive to reduce costs.

If a firm uses labor to produce output, the firm's production function depicts the relationship between

the number of workers and the quantity of output.

The short-run supply curve for a firm in a perfectly competitive market is

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

Table 13-7 The following table shows the production costs for The Flying Elvis Copter Rides. Refer to Table 13-7. What is the value of B?

$100

The Bow Wow company produced and sold 350 dog beds. The average cost of production per dog bed was $35. Each dog bed can be sold for a price of $45. Bow Wow's total costs are

$12,250.

Refer to Table 14-2. For this firm, the average revenue from selling 4 units is

$15.

Refer to Table 13-7. What is the value of F?

$150

In a competitive market the price is $8. A typical firm in the market has ATC = $6, AVC = $5, and MC = $8. How much economic profit is the firm earning in the short run?

$2 per unit

Refer to Scenario 13-2. If Kachina can work additional hours at either job, what is the opportunity cost if she spends one hour reading a novel?

$25

Scenario 15-1 A monopoly firm maximizes its profit by producing Q = 500 units of output. At that level of output, its marginal revenue is $40, its average revenue is $80, and its average total cost is $44. Refer to Scenario 15-1. At Q = 500, the firm's total revenue is

$40,000.

Nathan makes candles. If he charges $20 for each candle, his total revenue will be

$500 if he sells 25 candles.

Figure 14-2 Suppose a firm operating in a competitive market has the following cost curves:

$6.

Billy's Bean Bag Emporium produced 300 bean bag chairs but sold only 245 of the units it produced. The average cost of production for each unit of output produced was $100. The price for each of the 245 units sold was $90. Total profit for Billy's Bean Bag Emporium would be

-$2,450.

A monopolist can sell 300 units of output for $50 per unit. Alternatively, it can sell 301 units of output for $49.60 per unit. The marginal revenue of the 301st unit of output is

-$70.40.

Refer to Table 16-4. What is the profit-maximizing output for Beatrice's Birthday Cakes?

4 cakes

​Refer to Table 14-6. In order to maximize profits, the firm will produce

5 units of output because marginal revenue equals marginal cost.

Refer to Table 13-9. What is the marginal product of the third worker?

60 units

Refer to Scenario 16-1. How many double scoop ice cream cones should Hassan sell per day to maximize his profit?

80

Which of the following examples illustrates an oligopoly market?

A city with two firms who are licensed to sell school uniforms for the local schools

Which of the following firms is the closest to being a perfectly competitive firm?

A grain farmer in Illinois

Refer to Figure 14-7. Suppose a firm in a competitive market, like the one depicted in graph (a), observes market price rising from P1 to P2. Which of the following could explain this observation?

An increase in market demand from D0 to D1.

Refer to Figure 16-7. Which of the following areas represents the profit for this profit maximizing monopolistically competitive firm?

BCIJ

Which of the following statements about oligopolies is not correct?

Unlike monopolies and monopolistically competitive markets, oligopolies prices do not exceed their marginal costs.

Suppose a market is initially perfectly competitive with many firms selling an identical product. Over time, however, suppose the merging of firms results in the market being served by only three or four firms selling this same product. As a result, we would expect

a decrease in market output and an increase in the price of the product.

When an oligopoly market reaches a Nash equilibrium,

a firm will have chosen its best strategy, given the strategies chosen by other firms in the market.

If a competitive firm is currently producing a level of output at which marginal cost exceeds marginal revenue, then

a one-unit decrease in output will increase the firm's profit.

Refer to Figure 16-5. As the figure is drawn, the firm is in

a short-run equilibrium as well as a long-run equilibrium.

Suppose that Ngoc and Zima are duopolists. Ngoc is producing 480 units of output, and Zima is producing 890 units of output. When Zima produces 890 units, Ngoc maximizes profit by producing 480 units. When Ngoc produces 480 units of output, Zima maximizes profit by producing 890 units. Ngoc and Zima are

at a Nash equilibrium.

For a monopolistically competitive firm,

at the profit-maximizing quantity of output, marginal revenue equals marginal cost.

Refer to Table 17-6. Increasing the size of its store and parking lot is a dominant strategy for

both stores.

Haidy consumes Pepsi exclusively. She claims that there is a clear taste difference and that competing brands of cola leave an unsavory taste in her mouth. In a blind taste test, Haidy is found to prefer Pepsi to store-brand cola nine out of ten times. The results of Haidy's taste test would refute claims by critics of brand names that

brand names cause consumers to perceive differences that do not really exist.

In the prisoners' dilemma game, self-interest leads

each prisoner to confess.

If long-run average total cost decreases as the quantity of output increases, the firm is experiencing

economies of scale.

Figure 16-5 The figure is drawn for a monopolistically competitive firm. Refer to Figure 16-5. The quantity of output at which the MC and ATC curves cross is the

efficient scale of the firm.

When new firms enter a perfectly competitive market,

existing firms may see their costs rise if more firms compete for limited resources.

A firm's opportunity costs of production are equal to its

explicit costs + implicit costs.

A monopolist's profits with price discrimination will be

higher than if the firm charged just one price because the firm will capture more consumer surplus.

The equilibrium quantity in markets characterized by oligopoly is

higher than in monopoly markets and lower than in perfectly competitive markets.

Refer to Table 14-1. If the firm doubles its output from 6 to 12 units, total revenue will

increase by exactly $90.

Suppose that a "doggie day care" firm uses only two inputs: hourly workers (labor) and a building (capital). In the short run, the firm most likely considers

labor to be variable and capital to be fixed.

Firms may experience diseconomies of scale when

large management structures are bureaucratic and inefficient.

An example of an explicit cost of production would be the

lease payments for the land on which a firm's factory stands.

Suppose most people regard emeralds, rubies, and sapphires as close substitutes for diamonds. Then DeBeers, a large diamond company, has

less market power than it would otherwise have.

Economies of scale occur when

long-run average total costs fall as output increases.

Selling the same good at different prices to different customers is known as

price discrimination.

Refer to Table 17-7. The dominant strategy for Wonka is to

produce a good quality product, and the dominant strategy for Gekko is to produce a good quality product.

The deadweight loss associated with a monopoly occurs because the monopolist

produces an output level less than the socially optimal level.

In the short run, a firm operating in a monopolistically competitive market

produces an output where marginal revenue equals marginal cost, and the price is determined by demand.

Refer to Table 17-6. Suppose the owners of Lopes and HomeMax meet for a friendly game of golf one afternoon and happen to discuss a strategy to optimize growth related profit. They should both agree to

refrain from increasing their store and parking lot sizes.

The manufacturer of South Face sells jackets to retail stores for $120 each, and it requires the retail stores to charge customers $150 per jacket. Any retailer that charges less than $150 would violate its contract with South Face. What do economists call this business practice?

resale price maintenance

Refer to Figure 16-6. In response to the situation represented by the figure, we would expect

some of the firms that are currently in the market to exit.

In monopolistically competitive markets, economic losses

suggest that some existing firms will exit the market.

Farmer McDonald sells wheat to a broker in Kansas City, Missouri. Because the market for wheat is generally considered to be competitive, Mr. McDonald maximizes his profit by choosing

the quantity at which market price is equal to Mr. McDonald's marginal cost of production.

As the number of sellers in an oligopoly becomes very large,

the quantity of output approaches the socially efficient quantity.

A natural monopoly occurs when

there are economies of scale over the relevant range of output.

The competitive firm's long-run supply curve is that portion of the marginal cost curve that lies above average

total cost.

When regulators use a marginal-cost pricing strategy to regulate a natural monopoly, the regulated monopoly

will experience a loss.

Refer to Figure 16-3. Assume the firm in the figure is currently producing 20 units of output and charging $925. The firm

will increase its profits if it lowers its price and expands its production level.

Whenever a cartel in a duopoly breaks down,​

​total output in the market will rise.

Refer to Scenario 14-1 At Q = 1,000, the firm's profits equal

$1,000.

Jack's Car Wash has average variable costs of $2 and average fixed costs of $3 when it produces 300 units of output (car washes). The firm's total cost is

$1,500.

Refer to Table 17-6. When this game reaches a Nash equilibrium, annual profit will grow by

$1.5 million for HomeMax and by $1.0 million for Lopes.

Figure 14-4 In the following figure, graph (a) depicts the linear marginal cost (MC) of a firm in a competitive market, and graph (b) depicts the linear market supply curve for a market with a fixed number of identical firms. Refer to Figure 14-4. When 100 identical firms participate in this market, at what price will 15,000 units be supplied to this market?

$1.50

Taylor sells 400 candy bars at $0.50 each. Her total costs are $125. Her profits are

$75.00.

Refer to Figure 16-3. What price will the monopolistically competitive firm charge in this market?

$800

Refer to Table 17-6 . Pursuing its own best interest, Lopes will

increase the size of its store and parking lot regardless of the decision made by HomeMax.

Refer to Scenario 13-3. What is the total opportunity cost of the day that Farmer Ziva spent in the field planting brocolli?

$360

Scenario 13-3 Ziva is an organic brocolli farmer, but she also spends part of her day as a professional organizing consultant. As a consultant, Ziva helps people organize their houses. Due to the popularity of her home-organization services, Farmer Ziva has more clients requesting her services than she has time to help if she maintains her farming business. Farmer Ziva charges $40 an hour for her home-organization services. One spring day, Ziva spends 9 hours in her fields planting $130 worth of seeds on her farm. She expects that the seeds she planted will yield $300 worth of brocolli.

$490.

Refer to Figure 16-6. In order to maximize its profit, the firm will choose to produce

100 units of output.

​Refer to Table 14-1. Over what range of output is marginal revenue declining?

Marginal revenue is constant over the entire range of output.

In the long run,

inputs that were fixed in the short run become variable.

Refer to Figure 16-3. The firm in this figure is monopolistically competitive and maximizing profit. This firm

is earning a short-run economic profit.

A firm that shuts down temporarily has to pay

its fixed costs but not its variable costs.

A monopolistically competitive industry is characterized by

many firms, differentiated products, and free entry.

Refer to Figure 13-1. As the number of workers increases,

marginal product decreases.

A perfectly price-discriminating monopolist is able to

maximize profit and produce a socially optimal level of output.

If the distribution of water is a natural monopoly, then

multiple firms would likely each have to pay large fixed costs to develop their own network of pipes.