TOTAL ULTIMATE REVIEW
What of the following statements regarding perfect competition and perfect monopoly is correct?
A monopolist has market power while a perfect competitor does not.
Which of the following is true of the relationship between accounting profit and economic profit?
Economic profit is less than accounting profit if implicit costs exist.
How does a monopoly differ from a perfectly competitive industry with the same costs? I. It produces a smaller quantity II. It charges a higher price III. It earn normal profits in the long run
I and II only
The long run refers to the period of time for which:
all inputs are variable.
If a monopolistically competitive firm is in long-run equilibrium, we can assume that price ________.
equals marginal cost.
With perfect price discrimination, consumer surplus
equals zero
All of the following are examples of price discrimination except:
generally lower prices at Wal-Mart than at Target.
Marginal revenue for a monopolist is:
less than price.
The scarcity problem:
persists because economic wants exceed available productive resources
A collusive agreement to fix prices among firms in an oligopolistic industry is most likely to be broken under which of the following conditions?
It is easy for new firms to enter into the industry.
Oligopoly is a market structure characterized by:
strategic behavior between rival firms.
When perfect price discrimination is used
There is no deadweight loss.
When Theo earns a normal profit in his bookstore, economists understand that
total revenue equals the sum of explicit and implicit costs.
A point inside a PPC best illustrates:
unemployment
Which of the following government actions is the most common for a natural monopoly in the United States?
use price regulation
After the first unit sold, the marginal revenue a monopolist receives from selling one more unit of a good is less than the price at which that unit is sold because of:
a downward-sloping demand curve
Other things equal, which of the following would shift an economy's PPC to the left?
a law requiring mandatory retirement from the labor force at age 55
A price discriminating monopolist will charge a higher price to consumers with
a more inelastic demand curve
In order to maximize profits, an airline will offer ________ prices to customers with ________ demand.
higher; inelastic
Suppose that each of two firms has the independent choice of advertising its product or not advertising. If neither advertises, each gets $10 million in profit; if both advertise, their profits will be $5 million each; and if one advertises while the other does not, the advertiser gets profit of $15 million while the other gets profit of $2 million. According to game theory, the Nash equilibrium is:
both will advertise.
Price discrimination
can lead to increased efficiency in the market
Price discrimination is the practice of:
charging different prices to buyers of the same good.
The study of economics is primarily concerned with:
choices that are made in seeking the best use of resources
In an input question, the country that produces a good at a lower opportunity cost compared to another country has...
comparative advantage
Zoe's Bakery determines that P < ATC and P > AVC. Zoe should:
continue to operate even though she is experiencing an economic loss.
Which of the following is most likely to be higher for a regulated natural monopoly than for an unregulated natural monopoly?
deadweight loss
The average total cost curve in the short run slopes upward due to:
diminishing returns
The demand curve for a perfectly competitive industry is:
downward sloping
Which of the following best describes a monopolistic competitor's demand curve?
downward sloping
If the PPC is a straight, downhill sloping line:
economic resources are perfectly substitutable between the production of the two products
In a monopoly in the long run:
entry will not occur.
A cost that does not change with the level of output produced is called a:
fixed cost
Since a monopolistically competitive firm faces a downward-sloping demand curve for its product, its price will be:
greater than marginal revenue.
A perfectly competitive industry with constant costs is initially operating in long-run equilibrium. When demand increases, one will observe that:
in the short run, prices and profits will be higher, but in the long run, price will fall back to its original level and firms will again earn a normal profit.
A competitive firm operating in the short run is producing at the output level at which ATC is at a minimum. If ATC = $8 and MR = $9, in order to maximize profits (or minimize losses), this firm should:
increase output
If Marie's Marionettes is operating under conditions of diminishing marginal product, the marginal costs will be:
increasing
When an additional unit of a variable input adds more to total product than the previous unit, the firm must be experiencing:
increasing marginal returns.
The marginal revenue received by a firm in a perfectly competitive market:
is constant and equal to the market price.
A monopolist is inefficient from society's point of view because
it underproduces output and charges a price above marginal cost
The marginal cost curve intersects the average variable cost curve at:
its lowest point.
In a market economy, most choices about production and consumption are made by which of the following?
many individuals and firms
Which of the following is a characteristic of monopolistic competition?
many sellers
When more labor is hired and the total product of labor curve is rising at an increasing rate, it must be the case that
marginal product of labor is greater than zero and rising.
The Production Possibilities Curve:
shows the maximum amount of two goods that can be produced at a given time from a fixed quantity of resources.
Which of the following characteristics is necessary in order for a firm to price discriminate?
some control over price
when one country chooses to focus their efforts on ONE product instead of another for cost reasons
specialization
Which of the following statements is not correct? A typical production possibilities curve:
specifies how much of each product society should produce
Which of the following is a positive statement?
The temperature is 92 degrees today.
Which of the following will not cause the demand for product K to change?
a change in the price of K
If a firm produces 10 units of output and incurs $35 in average total cost, and $5 in average fixed cost, average variable cost is:
$30.00
Suppose Cyd knows the average cost of producing 9 scones is $5, while the average cost of producing 10 scones is $5.20. What is the marginal cost of the 10th unit?
$7
Until recently Rosemarie worked as an accountant, earning $30,000 annually. Then she inherited a piece of commercial real estate that had been renting for $12,000 annually. Rosemarie decided to leave her job and operate a Peruvian restaurant in the space she inherited. At the end of the first year, her books showed total revenues of $260,000 and total costs of $240,000 for food, utilities, cooks, and other supplies. Her economic profit at the end of one year is:
-$22,000
An effective price ceiling will:
result in a product shortage.
A firm's total cost at 0 units of output is $15. The firm's total cost at 2 units of output is $35. What is the firm's average variable cost at 2 units of output?
10
Mark and Julie. are going to sell brownies and cookies for their third annual bake sale fundraiser. In one day, Mark can make 40 brownies or 20 cookies and Julie can make 15 brownies or 15 cookies. With specialization, how many brownies and cookies will be made in one day for the bake sale?
40 brownies and 15 cookies
The first Pepsi yields Craig 18 units of utility and the second yields him an additional 12 units of utility. His total utility from three Pepsis is 38 units of utility. The marginal utility of the third Pepsi is:
8 utils
Which of the following is true of a natural monopoly?
ATC is lower if there is a single firm in the market.
A production possibilities curve illustrates:
scarcity
Assume the price of a candy bar is $2 and the price of a bag of chips is $3. Assume Lilly's marginal utility from consuming an additional candy bar is 10 utils and her marginal utility from consuming an additional bag of chips is 12 utils. If Lilly is spending her fixed weekly allowance on candy bars and bags of chips, which of the following actions will maximize Lilly's total utility?
Buying more candy bars and fewer bags of chips.
The Orlando, Florida, theme-park industry tends to follow a price leadership model. This means that:
Disney, the largest firm, often sets a price and rival theme parks then follow with similar, if not identical, prices.
In an oligopolistic market structure, collusion between firms usually leads to higher profits than noncooperative behavior. Which of the following statements accurately describes why formal, overt collusion doesn't usually occur in the United States?
Formal Collusion is Illegal
Which of the following statements is true of a monopoly as compared to a perfectly competitive market with the same costs? I. Consumer surplus is smaller II. Profit is smaller III. Deadweight loss is smaller
I only
Which of the following results is possible for monopolistic competition in the short run? I. positive economic profit II. normal profit III. loss
I, II, and III
Which of the following results is possible for monopolistic competition in the long run? I. positive economic profit II. normal profit III. loss
II only
Which of the following is correct?
If marginal utility is diminishing and is a positive amount, total utility will increase.
Which of the following statements is correct?
If supply increases and demand decreases, equilibrium price will fall.
Like a monopolist, cartel members will find that an increase in price will:
Increased Revenue only if the price is inelastic
Which of the following statements is true for both a monopolistically competitive firm and a perfectly competitive firm in long-run profit-maximizing equilibrium?
Marginal revenue equals marginal cost, and profits are positive.
Two kids are responsible for chores around the house. It takes Eli 4 hours to clean his room and 1 hour to mow the lawn. It takes Max 5 hours to clean his room and 2 hours to mow the lawn.
Max should specialize in cleaning his room and Eli should specialize in mowing the lawn
In the short run, a monopoly is experiencing a loss if...
P < ATC.
A perfectly competitive industry is currently in a state of long-run equilibrium. Which of the following must be true?
P = MR = MC = ATC
When a single-price monopolist sells output along a demand curve that is downward-sloping, we know that:
P > MR.
Assume a consumer is spending all her income on two goods: X and Y. At the current consumption combination of the two goods, if the marginal utility per dollar spent on the last unit of good X exceeds that of the marginal utility per dollar spent on the last unit of good Y, what should the consumer do to maximize utility?
Purchase more units of X and less units of Y.
A monopolistically competitive firm is currently producing the profit-maximizing level of output. If the price of a variable input increases, which of the following will occur?
The firm's average total cost and marginal cost curves will shift upward.
In an output question, the country that produces the HIGHER number of a given good always has...
absolute advantage
Which of the following describes opportunity cost?
all of the monetary and non-monetary costs of what must be given up to obtain a good.
A firm's average total fixed cost:
alls as the firm produces more output in the longrun
If ATC is equal to MC, then one is operating:
at the minimum point of ATC.
Which of the following is not an economic resource?
money
The city bus system charges lower fares to senior citizens than to other passengers. Assuming that this pricing strategy increases the profits of the bus system, we can conclude that senior citizens must have a(n) ________ for bus service than other passengers.
more elastic demand
Rebecca knows that Becca Furniture's marginal cost curve is below the average total cost curve. This means Becca Furniture's average total cost curve:
must be falling.
Brenda says, "You would have to pay me $50 to attend that pro wrestling event." For Brenda, the marginal utility of the event is:
negative
if a legal price ceiling for a product is set above the equilibrium price:
neither the equilibrium price not equilibrium quantity will be affected.
Most of the disagreement among economics involves:
normative statements
If the three largest widget producers control 85 percent of the total widget market, then these producers are operating in
oligopoly
Marginal utility can be:
positive, negative, or zero.
The law of demand states that:
price and quantity demanded are inversely related.
If a monopoly is producing at the profit-maximizing level of output, then we can assume that at that level of output, demand is:
price-elastic
If a monopoly is producing at the profit-maximizing level of output, then we can assume that at that level of output, demand is:
price-elastic.
The construction of demand and supply curves assumes that the primary variable influencing decisions to produce and purchase goods is:
price.
Other things equal, if the price of a key resource used to produce product X falls, the:
product supply curve of X will shift to the right.
In the circular flow model, the government controlled portion of the economy is called the...
public sector
A monopolist's marginal cost curve shifts up, but the firm's demand curve remains the same and the firm does not shut down. Compared to before the increase in marginal costs, the monopolist will ________ its price and ________ its level of production.
raise; decrease
An action is a dominant strategy when it is a player's best action:
regardless of the actions by other players.
Other things equal, which of the following might shift the demand curve for gasoline to the left?
the development of a low-cost electric automobile
If the marginal revenue received from a good is equal to the marginal cost of production, then:
the firm cannot increase profit by changing output
Which of the following is an economic explanation for why most college-aged movie stars do not attend college.
the opportunity cost in terms of reduced income is too great
At the point where the demand and supply curves for a product intersect:
the quantity that consumers want to purchase and the amount producers choose to sell are the same.
Which of the following will not produce an outward shift of the PPC?
the reduction of unemployment
When perfect price discrimination is used,
there is no deadweight loss.
