14 and 15 Combo

2 SECTION: 14.2 8. At its current level of production a profit-maximizing firm in a competitive market receives $12.50 for each unit it produces, and faces an average total cost of $10. At the market price of $12.50 per unit, the firm's marginal cost curve crosses the marginal revenue curve at an output level of 1000 units. What is the firm's current profit? What is likely to occur in this market and why?

$2,500; firms are likely to enter this market since existing firms are earning economic profits. TYPE: S

2 SECTION: 15.3 7. What is the deadweight loss due to profit-maximizing monopoly pricing under the following conditions: The price charged for goods produced is $10. The intersection of the marginal revenue and marginal cost curves occurs where output is 100 units and marginal revenue is $5. The socially efficient level of production is 110 units. The demand curve is linear and downward sloping and the marginal cost curve is linear and upward sloping.

$25 TYPE: S

2 SECTION: 14.3

...

2 SECTION: 15.5

...

2 SECTION: 15.2 5. Explain how a profit-maximizing monopolist chooses its level of output and the price of its goods.

A profit-maximizing monopolist chooses the output level where MR = MC and chooses the corresponding price off of the market demand curve. TYPE: S

2 SECTION: 15.2 6. Graphically depict the deadweight loss caused by a monopoly. How is this similar to the deadweight loss from taxation?

A profit-maximizing monopolist will choose to produce Q0 units of output and sell at price P0. However, marginal cost is MC0. This is identical to the deadweight loss of taxation when the tax forces a wedge between market price and marginal cost. TYPE: S

3 SECTION: 15.3 10. Let's assume that a monopolist decides to maximize revenue, rather than profit. How does this operating objective change the size of the deadweight loss? If you are a "benevolent" manager of a monopoly firm and are interested in reducing the deadweight loss of monopoly, should you maximize profits or maximize revenue? Carefully explain your answer.

A revenue maximizer operates where MR = 0. This solution moves the monopolist closer to the socially optimal competitive outcome, and reduces deadweight loss. Revenue maximization is potentially a more "socially" optimal objective for monopoly markets than profit maximization. TYPE: S

2 SECTION: 15.4 9. In many countries, the government chooses to "internalize" the monopoly by owning monopoly providers of goods and services. (In some cases these firms are "nationalized" and the government actually buys or confiscates firms that operate in monopoly markets). What would be the advantages and disadvantages of such an approach to ensuring the "best interest of society" is promoted in these markets? Carefully explain your answer.

As long as the government "owner" pursues a production and pricing policy that approaches a competitive outcome, social well-being can be enhanced. In this case the government ownership would benefit society. However, in most cases, government owners operate much like private sector monopolists. The political economy of government institutions does not ensure that government owners will pursue socially optimal policy. TYPE: S

2 SECTION: 14.3 SHORT ANSWER 1. Describe the difference between average revenue and marginal revenue. Why are both of these revenue measures important to a profit-maximizing firm?

Average revenue is total revenue divided by the amount of output. Marginal revenue is the change in total revenue from the sale of each additional unit of output. Marginal revenue is used to determine the profit-maximizing level of production and average revenue is used to help determine the level of profits. TYPE: S

2 SECTION: 15.4 13. Explain the benefits and costs of antitrust laws.

Benefits: Promote competition by preventing mergers and breaking-up companies. Costs: May increase cost of operating by restricting synergy mergers. TYPE: S

1 SECTION: 14.1 8. A firm must be participating in a competitive market for average revenue to equal price.

F TYPE: TF

1 SECTION: 14.2 19. A distinctive feature of the average total cost curve is that it is upward sloping at every point.

F TYPE: TF

1 SECTION: 15.1 3. The De Beers Diamond company is not worried about differentiating their product from all the other gemstones.

F TYPE: TF

1 SECTION: 15.1 5. If the government deems a newly invented drug to be truly original, the pharmaceutical company is given the exclusive right to manufacture and sell the drug for 50 years.

F TYPE: TF

1 SECTION: 15.2 8. For a monopoly, marginal revenue is often greater than the price they charge for their good.

F TYPE: TF

1 SECTION: 15.5 17. Movie theatres charge different prices to different groups of people based on the differing marginal costs that exist from group to group.

F TYPE: TF

1 SECTION: 15.5 23. Firms with substantial monopoly power are quite common, because many goods are truly unique.

F TYPE: TF

2 SECTION: 14.1 2. When individual firms in competitive markets increase their production, it is likely that the market price will fall.

F TYPE: TF

2 SECTION: 14.1 6. The assumption of free entry and exit is necessary for firms in a competitive market to be price takers.

F TYPE: TF

2 SECTION: 14.1 7. To answer the question, "How much revenue does the farm receive for the typical gallon of milk?" a dairy farmer must be able to calculate sunk cost.

F TYPE: TF

2 SECTION: 14.2 10. In making a short-run profit-maximizing production decision, the firm must consider both fixed and variable cost.

F TYPE: TF

2 SECTION: 14.2 12. A profit-maximizing firm in a competitive market will earn zero accounting profits in the long run.

F TYPE: TF

2 SECTION: 14.2 14. A firm will shut down in the short run if revenue is not sufficient to cover all of its fixed costs of production.

F TYPE: TF

2 SECTION: 14.2 15. The supply curve of a firm in a competitive market is the average variable cost curve, above the minimum of marginal cost.

F TYPE: TF

2 SECTION: 14.2 23. All of the following conditions are consistent with a firm's decision to shut down: TR < VC, TR/Q < VC/Q, and P < MR. (TR = total revenue, VC = variable cost, Q = level of production, P = price, and MR = marginal revenue.)

F TYPE: TF

2 SECTION: 14.2 25. A miniature golf course is a good example of where fixed costs become relevant to the decision of when to open and when to close for the season.

F TYPE: TF

2 SECTION: 14.3 29. A competitive market will typically experience entry and exit until all accounting profits are zero.

F TYPE: TF

2 SECTION: 14.3 32. The short-run supply curve in a competitive market must be more elastic than the long-run supply curve.

F TYPE: TF

2 SECTION: 14.4 TRUE/FALSE 1. In competitive markets, firms that raise their prices are typically rewarded with larger profits.

F TYPE: TF

3 SECTION: 15.2 4. There has been much discussion of deregulating electricity and natural gas delivery companies in the United States. Using your understanding of monopolies, discuss the likely effect of deregulation on prices in these two industries.

If deregulation leads to increased competition then production and prices should move toward the competitive equilibrium. If deregulation does not lead to increased competition then the monopoly production and price outcome is likely. The success of deregulation movements hinges on their ability to use markets to promote competitive market outcomes. TYPE: S

2 SECTION: 14.2 6. News reports from the western United States occasionally report incidents of cattle ranchers slaughtering a large number of newborn calves and burying them in mass graves rather than transport them to markets. Assuming that this is rational behavior by profit-maximizing "firms," explain what economic factors may influence such behavior.

If the selling price is not sufficient to cover the variable cost of sending them to market this behavior would make sense. TYPE: S

2 SECTION: 14.1 4. Use a graph to demonstrate the circumstances that would prevail in a competitive market where firms are earning economic profits. Can this scenario be maintained in the long run? Carefully explain your answer.

In a competitive market where firms are earning economic profits, new firms will have an incentive to enter the market. This entry will expand the number of firms, increase the quantity of the good supplied, and drive down prices and profits. TYPE: S

2 SECTION: 15.1 3. In the market for "home heating" consumers typically have several options (i.e., electricity, heating fuel, natural gas, propane, etc.) yet we often think of firms in this industry as behaving like monopolists. Using your understanding of monopoly, discuss the context in which your electricity provider is a monopolist. Is this characterization universally applicable? Carefully explain your answer.

In this case, the firms are monopolists in the short run when consumers are unable to change their "home heating" systems. In the long run, consumers can change from electric appliances to natural gas appliances, and thus lessen the monopoly power of utility providers. As long as consumers are able to substitute, in the long run the monopoly power is reduced. TYPE: S

2 SECTION: 14.1 3. Why would a firm in a perfectly competitive market always choose to set its price equal to the current market price? If a firm set its price below the current market price, what effect would this have on the market?

It could not sell any more of its product at the lower price than it could sell at the higher price. As a result, it would needlessly forgo revenue if it set a price below the going price. TYPE: S

2 SECTION: 15.4 14. Why do economists usually prefer private ownership to public ownership of natural monopolies?

Private owners have an incentive to minimize cost as long as they reap part of the benefit in the form of higher profit. By contrast, government bureaucrats have no incentive to reduce costs and the losers are customers and taxpayers, whose only recourse is the political system. TYPE: S

2 SECTION: 14.2 9. Give two reasons why the long-run industry supply curve may slope upward. Use an example to demonstrate your reasons.

Some resource used in production may be available only in limited quantities and firms may have different cost structures. The example provided in the text for the first reason is the market for farm products. As more people become farmers, the price of land is bid up since its supply is limited. As the price of farm land is bid up, the cost of all farmers in the market rises. The example used to support the second reason is the market for painters. Anyone can enter the market for painting services, but not everyone has the same costs because some painters work faster than others. TYPE: S

1 SECTION: 14.1 4. Firms in competitive markets are said to be price takers.

T TYPE: TF

1 SECTION: 14.1 5. For a firm in a competitive market, marginal revenue is always equal to average revenue.

T TYPE: TF

1 SECTION: 14.2 20. Marginal adjustments to production end when firms in competitive markets experience a price equal to marginal revenue.

T TYPE: TF

1 SECTION: 15.1 2. The De Beers Diamond company advertises heavily to promote the sale of all diamonds, not just its own. This is evidence that they have a monopoly position to some degree.

T TYPE: TF

1 SECTION: 15.1 4. The amount of power that a monopoly has is a function of whether there are close substitutes for its product.

T TYPE: TF

1 SECTION: 15.1 6. Declining average total cost with increased production is one of the defining characteristics of a natural monopoly.

T TYPE: TF

1 SECTION: 15.1 7. Average revenue for a monopoly is the total revenue divided by the quantity produced.

T TYPE: TF

1 SECTION: 15.2 10. It doesn't make sense to talk about a monopolist's supply curve.

T TYPE: TF

1 SECTION: 15.2 11. During the life of a drug patent, the monopoly pharmaceutical firm maximizes profit by producing the quantity at which marginal revenue equals marginal cost.

T TYPE: TF

1 SECTION: 15.2 12. Antitrust laws give the Justice Department the authority to challenge potential merges between companies, in an effort to safeguard society from monopoly power.

T TYPE: TF

1 SECTION: 15.2 9. Like monopolies, competitive firms choose to produce a quantity in which marginal revenue equals marginal cost.

T TYPE: TF

1 SECTION: 15.4 13. Some companies merge in order to lower costs through efficient joint production.

T TYPE: TF

1 SECTION: 15.4 14. A common solution to monopoly in Europeans countries is public ownership.

T TYPE: TF

1 SECTION: 15.4 15. The proper level of government intervention is ambiguous when dealing with a monopoly.

T TYPE: TF

1 SECTION: 15.4 16. By selling hardcover books to die-hard fans and paperback books to less enthusiastic readers, the publisher is able to price discriminate and raise its profit.

T TYPE: TF

1 SECTION: 15.5 18. Airlines often separate their customers into business travelers and personal travelers by giving a discount to those travelers who stay over a Saturday night.

T TYPE: TF

1 SECTION: 15.5 19. University financial aid can be viewed as a type a price discrimination.

T TYPE: TF

1 SECTION: 15.5 20. By offering lower prices to customers who buy a large quantity, a monopoly is price discriminating.

T TYPE: TF

1 SECTION: 15.5 21. The NCAA has convinced most observers that it is morally wrong to pay college athletes for their services.

T TYPE: TF

1 SECTION: 15.5 22. Goods that do not have close substitutes face downward-sloping demand curves.

T TYPE: TF

2 SECTION: 14.1 3. In a competitive market, firms are unable to differentiate their product from that of other producers.

T TYPE: TF

2 SECTION: 14.1 9. A profit-maximizing firm in a competitive market will increase production when average revenue exceeds marginal cost.

T TYPE: TF

2 SECTION: 14.2 11. The marginal firm in a competitive market will earn zero economic profits in the long run.

T TYPE: TF

2 SECTION: 14.2 13. A firm will shut down in the short run if revenue is not sufficient to cover its variable costs of production.

T TYPE: TF

2 SECTION: 14.2 16. A firm in a competitive market will maximize profit when the level of production is such that marginal cost equals price.

T TYPE: TF

2 SECTION: 14.2 17. By comparing the marginal revenue and marginal cost from each unit produced, a firm in a competitive market can determine the profit-maximizing level of production.

T TYPE: TF

2 SECTION: 14.2 18. A firm's incentive to compare marginal revenue and marginal cost is an application of the principle that rational people think at the margin.

T TYPE: TF

2 SECTION: 14.2 21. When a profit-maximizing firm in a competitive market experiences rising prices, it will respond with an increase in production.

T TYPE: TF

2 SECTION: 14.2 22. For a farmer facing a long-run decision of whether to exit the market or not, the cost of her land is not considered to be sunk.

T TYPE: TF

2 SECTION: 14.2 24. Because nothing can be done about sunk costs they are irrelevant to decisions about business strategy.

T TYPE: TF

2 SECTION: 14.2 26. In the long run, when price is less than average total cost for all possible levels of production, a firm in a competitive market will choose to exit (or not enter) the market.

T TYPE: TF

2 SECTION: 14.2 27. The long-run equilibrium in a competitive market characterized by firms with identical costs is generally characterized by firms operating at efficient scale.

T TYPE: TF

2 SECTION: 14.3 28. When a resource used in the production of a good sold in a competitive market is available in only limited quantities, the long-run supply curve is likely to be upward sloping.

T TYPE: TF

2 SECTION: 14.3 30. In the long run, a competitive market with 1,000 identical firms will experience an equilibrium price equal to the minimum of each firm's average total cost.

T TYPE: TF

2 SECTION: 14.3 31. At the end of the process of entry and exit, it is possible that some firms in a competitive market are making a positive economic profit.

T TYPE: TF

2 SECTION: 14.3 33. When a firm experiences zero-profit equilibrium, the firm's revenue must be sufficient to cover all opportunity costs.

T TYPE: TF

2 SECTIONS: all TRUE/FALSE 1. When a monopoly charges a higher price, fewer of its goods are sold.

T TYPE: TF

2 SECTION: 15.4 15. One example of price discrimination occurs in the publishing industry when a publisher initially releases an expensive hardcover edition of a popular novel, and later releases a cheaper paperback edition. Use this example to demonstrate the benefits and potential pitfalls of a price discrimination pricing strategy.

The answer should address the three basic lessons of price discrimination. First, price discrimination is a rational strategy that can lead to higher monopoly profits. Second, price discrimination requires an ability to separate customers according to their willingness to pay. Third, price discrimination can raise economic welfare. TYPE: S

2 SECTION: 15.1 2. What is the defining characteristic of a natural monopoly? Give an example of a natural monopoly.

The defining characteristic of a natural monopoly is when a firm can supply a good or service to an entire market at a smaller cost than could two or more firms. It may also be defined when goods are excludable, but non rival (see Chapter 11). The examples provided in the text include a water distribution system and a bridge. TYPE: S

1 SECTION: 15.4 SHORT ANSWER 1. Describe how government is involved in creating a monopoly. Why might the government create one? Give an example.

The government can create a monopoly by giving a single firm the exclusive right to produce some good. Monopolies are created for many reasons; one important one is the recognition that a single firm in industries characterized by high fixed costs can usually supply the entire market at a lower cost than having multiple firms in the industry. Examples include most utility companies. The government also grants sole ownership of inventions through patent laws in order to help eliminate the market failure that is likely to otherwise occur in the markets for those goods. TYPE: S

2 SECTION: 14.2 7. Use a graph to demonstrate the circumstances that would prevail in a perfectly competitive market where firms are experiencing economic losses. Identify costs, revenue, and the economic losses on your graph. Using your graph, determine whether this firm will shut down in the short run, or choose to remain in the market. Explain your answer.

The loss and revenue are identified on the individual firm's graph. Total cost is equal to the sum of the losses and revenue. The decision about whether this firm shuts down or remains in the market depends upon the position of average variable cost. If average variable cost is below P0 at output level Q0, the firm will remain in the market. If average variable cost is above P0 at output level Q0 the firm will shut down in the short run. TYPE: S

2 SECTION: 15.3 8. Why might economists prefer private ownership of monopolies over public ownership of monopolies?

The private monopolist is governed by the market. Even though the market solution is sub-optimal, it may be better than outcomes generated by publicly owned monopolies. Publicly owned monopolies may restrict output to levels below the private market outcome and thus generate an even lower level of social surplus than a private profit-maximizing monopolist. They also may not work to reduce costs. TYPE: S

2 SECTION: 14.1 2. List and describe the characteristics of a perfectly competitive market.

There are many buyers and sellers in the market. The goods offered by the various sellers are largely the same. Firms can freely enter or exit the market. TYPE: S

3 SECTION: 15.4 12. What are the four ways that government policymakers can respond to the problem of monopoly?

Trying to make monopolized industries more competitive. Regulating the behavior of monopolies. Turning some private monopolies into public enterprises. Do nothing. TYPE: S

3 SECTION: 15.5 213. If the monopoly firm perfectly price discriminates, then consumer surplus amounts to a. $0. b. $250. c. $500. d. $1,000.

a. $0. TYPE: M

3 SECTION: 15.5 215. If the monopoly firm perfectly price discriminates, then the deadweight loss amounts to a. $0. b. $100. c. $200. d. $500.

a. $0. TYPE: M

2 SECTION: 14.2 114. At Q = 999, the firm's total cost amounts to a. $10,985. b. $10,990. c. $10,995. d. $10,999.

a. $10,985. TYPE: M

2 SECTION: 15.2 114. If a monopolist sells 100 units at $8 per unit and realizes an average total cost of $6 per unit, what is the monopolist's profit? a. $200 b. $400 c. $600 d. $800

a. $200 TYPE: M

1 SECTION: 15.1 8. To define a monopoly, we cite the following characteristics: (i) The firm is the sole seller of its product. (ii) The firm's product does not have close substitutes. (iii) The firm generates a large economic profit. (iv) The firm is located in a small geographic market. a. (i) and (ii) b. (i) and (iii) c. (ii) and (iv) d. All of the above are correct.

a. (i) and (ii) TYPE: M

2 SECTION: 15.2 77. A monopolist's marginal revenue is less than price because (i) to sell additional units of the good, the price charged on all units must decrease. (ii) with the sale of an additional unit, the monopolist receives less revenue for each of the previous units it planned to sell. (iii) of the upward-sloping average revenue curve. a. (i) and (ii) b. (ii) and (iii) c. (i) and (iii) d. All of the above are correct.

a. (i) and (ii) TYPE: M

2 SECTION: 15.3 151. Selling a good at a price determined by the intersection of the demand curve and the marginal cost curve is consistent with (i) the socially-optimal level of output. (ii) the market solution for profit-maximizing competitive firms. (iii) the market solution for a profit-maximizing monopoly firm. a. (i) and (ii) b. (ii) and (iii) c. (i) and (iii) d. All of the above are correct.

a. (i) and (ii) TYPE: M

2 SECTION: 15.5 210. Price discrimination adds to social welfare in the form of (i) increased total surplus. (ii) increased profits to the monopolist. (iii) increased consumer surplus. a. (i) and (ii) b. (ii) and (iii) c. (i) and (iii) d. All of the above are correct.

a. (i) and (ii) TYPE: M

2 SECTION: 15.5 219. Compared to the monopoly outcome with a single price, imperfect price discrimination (i) sometimes raises economic welfare. (ii) sometimes lowers economic welfare. (iii) always leads to a lower quantity of output. a. (i) and (ii) b. (ii) and (iii) c. (i) and (iii) d. Any of these outcomes is possible.

a. (i) and (ii) TYPE: M

4 SECTION: 15.3 145. Economic well-being is generally measured by (i) total surplus. (ii) the sum of consumer surplus and producer surplus. (iii) marginal revenue to the producer minus the average cost to the consumer. a. (i) and (ii) b. (ii) and (iii) c. (i) and (iii) d. (ii) only

a. (i) and (ii) TYPE: M

2 SECTION: 15.1 5. Which of the following statements is (are) true of a monopoly? (i) A monopoly has the ability to set the price of its product at whatever level it desires. (ii) A monopoly's total revenue will always increase when it increases the price of its product. (iii) A monopoly can earn unlimited profits. a. (i) only b. (ii) only c. (i) and (ii) d. (ii) and (iii)

a. (i) only TYPE: M

2 SECTION: 15.1 6. Young Johnny inherited the only local cable TV company in town after his father passed away. The company is completely unregulated by the government and is therefore free to operate as it wishes. Assuming that Johnny understands the true power of his new monopoly, he is probably most excited about which of the following statements? (i) He will be able to set the price of cable TV service at whatever level he wishes. (ii) The customers will be forced to purchase cable TV service at whatever price he wants to set. (iii) He will be able to achieve any profit level that he desires. a. (i) only b. (ii) only c. (i) and (iii) d. All of the above are correct.

a. (i) only TYPE: M

2 SECTION: 15.2 101. What happens to the price and quantity sold of a drug when its patent runs out? (i) The price will fall. (ii) The quantity sold will fall. (iii) The marginal cost of producing the drug will rise. a. (i) only b. (i) and (ii) c. (ii) and (iii) d. All of the above are correct.

a. (i) only TYPE: M

2 SECTION: 15.2 87. Profit can always be increased by increasing the level of output by one unit if the monopolist is currently operating at (i) Q0 . (ii) Q1. (iii) Q2. (iv) Q3. a. (i) or (ii) b. (i), (ii) or (iii) c. (iii) or (iv) d (iv) only

a. (i) or (ii) TYPE: M

2 SECTION: 15.2 The figure below reflects the cost and revenue structure for a monopoly firm. Use it to answer questions 82 through 89. 82. The demand curve for a monopoly firm is depicted by curve a. A. b. B. c. C. d. D.

a. A. TYPE: M

2 SECTION: 14.3 176. A long-run supply curve that is flatter than a short-run supply curve results from which of the following? a. Firms can enter and exit a market more easily in the long run than in the short run. b. Long-run supply curves are sometimes downward sloping. c. Competitive firms have more control over demand in the long run. d. Firms in a competitive market face identical cost structures.

a. Firms can enter and exit a market more easily in the long run than in the short run. TYPE: M

2 SECTION: 15.2 62. For a profit-maximizing monopolist, a. P > MR = MC. b. P = MR = MC. c. P > MR > MC. d. MR < MC < P.

a. P > MR = MC. TYPE: M

2 SECTION: 15.2 The figure below reflects the cost and revenue structure for a monopoly firm. Use it to answer questions 94 through 98. 94. A profit-maximizing monopoly's total revenue is equal to a. P3 × Q2. b. P2 × Q4. c. (P3 - P0) × Q2. d. (P3 - P0) × Q4.

a. P3 × Q2. TYPE: M

3 SECTION: 15.5 229. Which of the following statements is false? a. Part of the deadweight loss associated with monopoly is measured by the monopolist's economic profit. b. Marginal cost is always less than average total cost in a natural monopoly. c. Discount coupons available free to the public are a type of price discrimination. d. Anti-trust laws make it harder for firms to create synergies.

a. Part of the deadweight loss associated with monopoly is measured by the monopolist's economic profit. TYPE: M

2 SECTION: 14.2 133. Which of the following expressions is correct? a. Profit = (Price of output - Average total cost) × Quantity of output. b. Profit = (Price of output × Quantity of output) - Average total cost. c. Profit = Total revenue - (Average total cost/Quantity of output). d. Profit = Total revenue - (Average variable cost × Quantity of output).

a. Profit = (Price of output - Average total cost) × Quantity of output. TYPE: M

1 SECTION: 15.1 42. Which of the following items is a primary source of barriers to entry? a. The costs of production make a single firm more efficient than a large number of firms. b. A single firm hires all the people who have the management skills that are important in the industry. c. Contracts among firms prohibit them from competing with one another in the production and sale of certain products. d. All of the above are correct.

a. The costs of production make a single firm more efficient than a large number of firms. TYPE: M

1 SECTION: 15.5 209. Which of the following may eliminate some or all of the inefficiency that results from monopoly pricing? a. The government can regulate the monopoly. b. The monopoly can be prohibited from price discriminating. c. The monopoly can be forced to operate at a point where its marginal revenue is equal to its marginal cost. d. All of the above are correct.

a. The government can regulate the monopoly. TYPE: M

2 SECTION: 14.3 173. When a competitive market experiences an increase in demand that induces an increase in producer costs, which of the following is most likely to arise? a. The long-run market supply curve will be upward sloping. b. The condition of free entry into the market will be violated. c. Producer profits must fall in the long run. d. All of the above are likely to arise.

a. The long-run market supply curve will be upward sloping. TYPE: M

2 SECTION: 14.2 106. If a competitive firm is currently producing a level of output at which marginal revenue exceeds marginal cost, then a. a one-unit increase in output will increase the firm's profit. b. a one-unit decrease in output will increase the firm's profit. c. total revenue exceeds total cost. d. total cost exceeds total revenue.

a. a one-unit increase in output will increase the firm's profit. TYPE: M

3 SECTION: 15.3 165. The social problem caused by monopoly is a. an inefficiently low quantity of output. b. an inefficiently high value of marginal cost. c. excessive monopoly profits. d. excessive producer surplus.

a. an inefficiently low quantity of output. TYPE: M

2 SECTION: 15.1 49. It is possible for a natural monopoly to evolve into a competitive market a. as a market expands. b. as patent and copyright laws change. c. as technological advances give rise to economies of scale. d. None of the above are correct; it is not possible for a natural monopoly to evolve into a competitive market.

a. as a market expands. TYPE: M

2 SECTION: 15.3 138. For a profit-maximizing monopolist, output should be increased to enhance economic well-being as long as a. average revenue exceeds marginal cost. b. average revenue exceeds average total cost. c. marginal revenue exceeds marginal cost. d. marginal revenue exceeds average total cost.

a. average revenue exceeds marginal cost. TYPE: M

2 SECTION: 15.1 37. The laws governing patents and copyrights a. can lead to monopolies. b. are intended to serve private interests, not the public interest. c. have costs, but no benefits. d. All of the above are correct.

a. can lead to monopolies. TYPE: M

2 SECTION: 15.4 180. Since natural monopolies have a declining average cost curve, regulating natural monopolies by setting price equal to marginal cost would a. cause the monopolist to operate at a loss. b. result in a less than optimal total surplus. c. maximize producer surplus. d. All of the above are correct.

a. cause the monopolist to operate at a loss. TYPE: M

2 SECTION: 15.2 54. A natural monopolist's ability to price its product is a. constrained by the market demand curve. b. constrained by market supply. c. not affected by market demand. d. enhanced by regulatory control of the government.

a. constrained by the market demand curve. TYPE: M

2 SECTION: 15.3 146. Consumers' willingness to pay for a good minus the amount they actually pay for it equals a. consumer surplus. b. consumer benefit. c. price discriminant. d. quantity demanded.

a. consumer surplus. TYPE: M

2 SECTION: 15.1 31. The shape of the average total cost curve in the figure suggests an opportunity for a profit-maximizing monopolist to take advantage of a. economies of scale. b. diseconomies of scale. c. diminishing marginal product. d. increasing marginal cost.

a. economies of scale. TYPE: M

2 SECTION: 15.1 28. Authors are allowed to be monopolists in the sale of their books in order to a. encourage authors to write more and better books. b. correct for the negative externalities that the internet and television impose. c. satisfy literary advocacy groups that exercise their lobbying power. d. promote a society in which people think for themselves and learn from whichever books they please.

a. encourage authors to write more and better books. TYPE: M

2 SECTION: 14.3 178. A market might have an upward-sloping long-run supply curve if a. firms have different costs. b. consumers exercise market power over producers. c. all factors of production are essentially available in unlimited supply. d. All of the above are correct.

a. firms have different costs. TYPE: M

2 SECTION: 15.2 132. A monopoly does not a. have a supply curve. b. have an average total cost curve. c. choose the price for which it sells its output. d. benefit from barriers to entry.

a. have a supply curve. TYPE: M

2 SECTION: 14.3 Use the figures below to answer questions 164 through 168. 164. When the market is in long-run equilibrium at point A in panel (b), the firm represented in panel (a) will a. have a zero economic profit. b. have a negative accounting profit. c. exit the market. d. All of the above are correct.

a. have a zero economic profit. TYPE: M

3 SECTION: 14.2 136. A firm in a competitive market has the following cost structure: Output Total Cost 0 $5 1 $10 2 $12 3 $15 4 $24 5 $40 This firm will shut down a. if price falls below $3.33 and exit if it falls below $5. b. if price falls below $5 and exit if it falls below $3.33. c. if price falls below $7 and exit if it falls below $10. d. and exit if price falls below $5.

a. if price falls below $3.33 and exit if it falls below $5. TYPE: M

2 SECTION: 15.5 228. If one were to compare a competitive market to a monopoly that engages in perfect price discrimination, one could say that a. in both cases, total social welfare is the same. b. total social welfare is maximized in the competitive market, but not in the perfectly discriminating monopoly. c. in both cases, some potentially mutually beneficial trades do not occur. d. consumer surplus is the same in both cases.

a. in both cases, total social welfare is the same. TYPE: M

2 SECTION: 14.3 191. Consider a competitive market with a large number of identical firms. The firms in this market do not use any resources that are available only in limited quantities. In this market, an increase in demand will a. increase price in the short run, but not in the long run. b. increase price in the long run, but not in the short run. c. increase price both in the short and the long run. d. not affect price in either the short or the long run.

a. increase price in the short run, but not in the long run. TYPE: M

2 SECTION: 14.3 183. Entry into a market by new firms will a. increase the supply of the good. b. increase profits of existing firms. c. increase the price of the good. d. all of the above.

a. increase the supply of the good. TYPE: M

2 SECTION: 15.5 211. Perfect price discrimination describes a situation in which the monopolist a. knows the exact willingness to pay of each of its customers. b. charges exactly two different prices to exactly two different groups of customers. c. maximizes consumer surplus. d. experiences a zero economic profit.

a. knows the exact willingness to pay of each of its customers. TYPE: M

2 SECTION: 15.2 117. Suppose a certain firm has a monopoly on electricity. To sell the 100th unit of electricity, the firm must experience a. less marginal revenue on the 100th unit of electricity than it experienced on the 99th unit. b. more average revenue on the 100th unit of electricity than it experienced on the 99th unit. c. more total revenue on the 100 units of electricity than it experienced on the first 99 units. d. All of the above are correct.

a. less marginal revenue on the 100th unit of electricity than it experienced on the 99th unit. TYPE: M

2 SECTION: 15.2 121. A monopolist's profit-maximizing quantity of output is determined by the intersection of the a. marginal revenue curve and the marginal cost curve. b. marginal revenue curve and the average total cost curve. c. demand curve and the marginal cost curve. d. demand curve and the average total cost curve.

a. marginal revenue curve and the marginal cost curve. TYPE: M

2 SECTION: 15.2 125. For a monopoly, it is sometimes meaningful to consider negative values for a. marginal revenue. b. average revenue. c. marginal cost. d. average total cost.

a. marginal revenue. TYPE: M

2 SECTION: 15.4 191. A perfectly price-discriminating monopolist is able to a. maximize profit and produce a socially-optimal level of output. b. maximize profit, but not produce a socially-optimal level of output. c. produce a socially-optimal level of output, but not maximize profit. d. exercise illegal preferences regarding the race and/or gender of its employees.

a. maximize profit and produce a socially-optimal level of output. TYPE: M

2 SECTION: 15.2 113. For a monopolist, when does marginal revenue exceed average revenue? a. never b. when output is less than the profit-maximizing level of output c. when output is greater than the profit-maximizing level of output d. when price is subject to the Law of Demand

a. never TYPE: M

2 SECTION: 15.5 201. A rational pricing strategy for a profit-maximizing monopolist is a. price discrimination. b. price segregation. c. synergy pricing. d. average cost pricing.

a. price discrimination. TYPE: M

2 SECTION: 14.3 149. In a market that allows free entry and exit, the process of entry and exit ends when, for the typical firm in the market, a. profit is zero. b. total revenue is equal to average total cost. c. average revenue exceeds marginal cost. d. All of the above are correct.

a. profit is zero. TYPE: M

2 SECTION: 14.3 151. When new firms enter a perfectly competitive market, a. profits of existing firms will fall. b. entering firms will earn zero profit as soon as they enter. c. existing firms will see their costs rise. d. consumers will likely observe increasing prices.

a. profits of existing firms will fall. TYPE: M

2 SECTION: 15.5 202. Price discrimination requires the firm to a. separate customers according to their willingness to pay. b. differentiate between different units of its product. c. engage in arbitrage. d. All of the above are correct.

a. separate customers according to their willingness to pay. TYPE: M

2 SECTION: 14.2 129. Which of these types of costs can be ignored when an individual or a firm is making decisions? a. sunk costs b. marginal costs c. variable costs d. information costs

a. sunk costs TYPE: M

2 SECTION: 14.3 163. When entry and exit behavior of firms in an industry does not affect a firm's cost structure, a. the long-run market supply curve must be horizontal. b. the long-run market supply curve must be upward-sloping. c. the long-run market supply curve must be downward-sloping. d. we can't tell anything about the shape of the long-run market supply curve.

a. the long-run market supply curve must be horizontal. TYPE: M

2 SECTION: 14.2 111. For a certain firm, the 100th unit of output that the firm produces has a marginal revenue of $10 and a marginal cost of $7. It follows that a. the production of the 100th unit of output increases the firm's profit by $3. b. the production of the 100th unit of output increases the firm's average total cost by $7. c. the firm's profit-maximizing level of output is less than 100 units. d. All of the above are correct.

a. the production of the 100th unit of output increases the firm's profit by $3. TYPE: M

2 SECTION: 14.3 180. The assumption of a fixed number of firms is appropriate for analysis of a. the short run, but not the long run. b. the long run, but not the short run. c. both the short run and the long run. d. neither the short run nor the long run.

a. the short run, but not the long run. TYPE: M

3 SECTION: 15.3 11. One solution to the problems of marginal cost pricing of a regulated monopolist is average cost pricing. In this model, the monopolist is allowed to price its production at average total cost. How does average cost pricing differ from marginal cost pricing? Does this solution maximize social well-being?

average cost pricing always guarantees that the monopolist earns zero economic profits, but does not ensure a socially optimal market solution. TYPE: S

2 SECTION: 15.2 126. A monopoly firm can sell 200 units of output for $36.00 per unit. Alternatively, it can sell 201 units of output for $35.80 per unit. The marginal revenue of the 201st unit of output is a. $-35.80. b. $-4.20. c. $4.20. d. $35.80.

b. $-4.20. TYPE: M

2 SECTION: 14.2 Refer to the following information to answer Questions 113 through 116. Assume a certain firm is producing 1,000 units of output (so Q = 1,000). At Q = 1,000, the firm's marginal cost equals $15 and its average total cost equals $11. The firm sells its output for $12 per unit. 113. At Q = 1,000, the firm's profit amounts to a. $-200. b. $1,000. c. $3,000. d. $4,000.

b. $1,000. TYPE: M

2 SECTION: 14.2 134. Assume a firm is producing 800 units of output, and it sells each unit for $6. Its average total cost is $4. Its profit is a. $-1,600. b. $1,600. c. $3,200. d. $8,000.

b. $1,600. TYPE: M

2 SECTION: 14.3 141. When 100 identical firms participate in this market, at what price will 15,000 units be supplied to this market? a. $1.00 b. $1.50 c. $2.00 d. It cannot be determined from the information provided.

b. $1.50 TYPE: M

2 SECTION: 15.2 130. The firm's maximum profit is a. $2,000. b. $3,000. c. $4,000. d. $6,000.

b. $3,000. TYPE: M

2 SECTION: 15.2 131. At Q = 500, the firm's marginal cost is a. less than $30. b. $30. c. $34. d. greater than $34.

b. $30. TYPE: M

1 SECTION: 14.2 130. Suppose you bought a ticket to a football game for $30, and that you place a $35 value on seeing the game. If you lose the ticket, then what is the maximum price you should pay for another ticket? a. $30 b. $35 c. $60 d. $65

b. $35 TYPE: M

2 SECTION: 14.2 126. A firm's marginal cost has a minimum value of $2; its average variable cost has a minimum value of $4; and its average total cost has a minimum value of $5. Then the firm will shut down if the price of its product falls below a. $2. b. $4. c. $5. d. There is not enough information given to answer the question.

b. $4. TYPE: M

2 SECTION: 15.5 195. What is the deadweight loss associated with the nondiscriminating pricing policy compared to the price discriminating policy? a. $375,000 b. $400,000 c. $475,000 d. It cannot be determined from the information provided.

b. $400,000 TYPE: M

3 SECTION: 15.2 135. A monopolist faces the following demand curve: Price Quantity Demanded $10 5 $9 10 $8 16 $7 23 $6 31 $5 49 $4 52 $3 60 The monopolist has total fixed costs of $40 and a constant marginal cost of $5. At the profit-maximizing level of output, the monopolist's average total cost is a. $9.00 b. $7.50 c. $6.74 d. $5.82

b. $7.50 TYPE: M

2 SECTION: 15.3 144. Consider a profit-maximizing monopoly pricing under the following conditions: The profit-maximizing price charged for goods produced is $16.The intersection of the marginal revenue and marginal cost curves occurs where output is 10 units and marginal cost is $8. The socially efficient level of production is 12 units. The demand curve and marginal cost curves are linear. What is the deadweight loss? a. $4 b. $8 c. $16 d. $64

b. $8 TYPE: M

2 SECTION: 14.3 170. A competitive market is comprised of firms that face identical cost structures. The firms experience an increase in demand that results in positive profits for the firms. Which of the following events are then most likely to occur? (i) New firms will enter the market. (ii) In the short run, price will rise; in the long run, price will rise further. (iii) In the long run, all firms will be producing at their efficient scale. a. (i) and (ii) only b. (i) and (iii) only c. (ii) and (iii) only d. (i), (ii) and (iii)

b. (i) and (iii) only TYPE: M

2 SECTION: 15.2 103. Name brand drugs are able to continue capitalizing on their market power even after generic drugs enter the market because (i) almost all people fear the generic drug companies are devoting too few resources to research and development. (ii) some people fear that generic drugs are inferior. (iii) some people are loyal to the name brand. a. (i) and (ii) b. (ii) and (iii) c. (i) and (iii) d. All of the above are correct.

b. (ii) and (iii) TYPE: M

2 SECTION: 15.3 140. The problem with monopolies is their ability (i) to do away with barriers to entry. (ii) to price their product at a level that exceeds marginal cost. (iii) to restrict output below the socially efficient level of production. a. (i) and (iii) b. (ii) and (iii) c. (iii) only d. All of the above are correct.

b. (ii) and (iii) TYPE: M

1 SECTION: 15.1 2. Assuming that Jerry's Bicycle Shop operates in a competitive market for bicycles, which of the following statements is(are) true? (i) He chooses the price at which he sells his bicycles. (ii) He chooses the quantity of bicycles that he supplies. (iii) His market is characterized by one or more barriers to entry. a. (i) only b. (ii) only c. (i) and (ii) only d. (ii) and (iii) only

b. (ii) only TYPE: M

2 SECTION: 15.1 12. An industry is a natural monopoly when (i) government assists the firm in maintaining the monopoly. (ii) a single firm owns a key resource. (iii) a single firm can supply a fixed number of goods or services at a smaller cost than could two or more firms. a. (i) only b. (iii) only c. (i) and (ii) d. (ii) and (iii)

b. (iii) only TYPE: M

2 SECTION: 15.2 63. Because a monopolist is the sole producer in its market, it can necessarily alter the price of its good (i) without affecting the quantity sold. (ii) without affecting its average total cost. (iii) by adjusting the quantity it supplies to the market. a. (ii) only b. (iii) only c. (i) and (ii) d. (i) and (iii)

b. (iii) only TYPE: M

2 SECTION: 15.3 167. To maximize its profit, a monopolist would choose which of the following outcomes? a. 100 units of output and a price of $10 per unit b. 100 units of output and a price of $20 per unit c. 150 units of output and a price of $15 per unit d. 200 units of output and a price of $20 per unit

b. 100 units of output and a price of $20 per unit TYPE: M

2 SECTION: 15.2 Use the following table of numbers to answer questions 71 through 75. Total Average Marginal Quantity Price Revenue Revenue Revenue 1 35 35 2 64 32 29 3 29 4 17 5 23 11 6 120 7 17 -1 8 -7 9 99 11 -13 10 8 80 71. If the monopolist sells 8 units of its product, how much total revenue will it receive from the sale? a. 40 b. 112 c. 164 d. It cannot be determined from the information provided.

b. 112 TYPE: M

2 SECTION: 15.2 74. What is the marginal revenue for the monopolist for the sixth unit sold? a. 3 b. 5 c. 11 d. 17

b. 5 TYPE: M

Chapter 15 Monopoly MULTIPLE CHOICE 1. Which of the following statements is correct? a. A competitive firm is a price maker and a monopoly is a price taker. b. A competitive firm is a price taker and a monopoly is a price maker. c. Both competitive firms and monopolies are price takers. d. Both competitive firms and monopolies are price makers.

b. A competitive firm is a price taker and a monopoly is a price maker. TYPE: M

2 SECTION: 15.2 122. The profit-maximization problem for a monopolist differs from that of a competitive firm in which of the following ways? a. A competitive firm maximizes profit at the point where marginal revenue equals marginal cost; a monopolist maximizes profit at the point where marginal revenue exceeds marginal cost. b. A competitive firm maximizes profit at the point where average revenue equals marginal cost; a monopolist maximizes profit at the point where average revenue exceeds marginal cost. c. For a competitive firm, marginal revenue at the profit-maximizing level of output is equal to marginal revenue at all other levels of output; for a monopolist, marginal revenue at the profit-maximizing level of output is smaller than it is for larger levels of output. d. For a profit-maximizing competitive firm, thinking at the margin is much more important than it is for a profit-maximizing monopolist.

b. A competitive firm maximizes profit at the point where average revenue equals marginal cost; a monopolist maximizes profit at the point where average revenue exceeds marginal cost. TYPE: M

2 SECTION: 15.2 90. Which of the following statements is true of a monopoly firm? a. A monopoly firm is a price taker and has no supply curve. b. A monopoly firm is a price maker and has no supply curve c. A monopoly firm is a price maker and has a downward-sloping supply curve. d. A monopoly firm is a price maker and has an upward-sloping supply curve.

b. A monopoly firm is a price maker and has no supply curve TYPE: M

1 SECTION: 15.2 83. The marginal revenue curve for a monopoly firm is depicted by curve a. A. b. B. c. C. d. D.

b. B. TYPE: M

2 SECTION: 14.2 135. Susan quit her job as a teacher, which paid her $36,000 per year in order to start her own catering business. She spent $12,000 of her savings, which had been earning 10 percent interest per year, on equipment for her business. She also borrowed $12,000 from her bank at 10 percent interest, which she also spent on equipment. For the past several months she has spent $1,000 per month on ingredients and other variable costs. Also for the past several months she has taken in $3,500 in monthly revenue. a. In the short run, Susan should shut down her business and in the long run she should exit the industry. b. In the short run, Susan should continue to operate her business, but in the long run she should exit the industry. c. In the short run, Susan should continue to operate her business, but in the long run she will probably face competition from newly entering firms. d. In the short run, Susan should continue to operate her business, and she is also in long-run equilibrium.

b. In the short run, Susan should continue to operate her business, but in the long run she should exit the industry. TYPE: M

2 SECTION: 15.2 88. If the monopoly firm wants to maximize its profit, it should operate at a level of output equal to a. Q1. b. Q2. c. Q3. d. Q4.

b. Q2. TYPE: M

2 SECTION: 15.4 178. The legislation passed by Congress in 1890 to reduce the market power of large and powerful "trusts" is called the a. Morgan Act. b. Sherman Act. c. Clayton Act. d. 14th Amendment.

b. Sherman Act. TYPE: M

2 SECTION: 15.1 22. Suppose only one resident owns all the wells in town. Which of the following statements is most likely going to be true of the market for water? a. The price of a gallon of water will be driven to equal its marginal cost. b. The price of a gallon of water will exceed its marginal cost. c. Since water is a necessity of life, there will be no decline in the quantity of water consumed, regardless of how high the price is raised. d. The seller will be able to earn unlimited profit.

b. The price of a gallon of water will exceed its marginal cost. TYPE: M

2 SECTION: 14.3 192. Which of the following statements is false? a. In long-run equilibrium, marginal firms make zero economic profit. b. To maximize profit, firms should produce at a level of output where price equals marginal revenue. c. The amount of gold in the world is limited. Therefore, the gold jewelry market probably has a long-run supply curve that is upward sloping. d. Long-run supply curves are typically more elastic than short-run supply curves.

b. To maximize profit, firms should produce at a level of output where price equals marginal revenue. TYPE: M

2 SECTION: 15.3 142. Monopoly pricing prevents some mutually beneficial trades from taking place. These unrealized mutually beneficial trades are a. of little concern to society. b. a deadweight loss to society. c. a sunk cost to society. d. also observed in competitive markets.

b. a deadweight loss to society. TYPE: M

2 SECTION: 14.3 152. In a competitive market that is characterized by free entry and exit, a. all firms will operate at efficient scale in the short run. b. all firms will operate at efficient scale in the long run. c. the price of the product will differ across firms. d. the number of sellers in the market will steadily decrease over time.

b. all firms will operate at efficient scale in the long run. TYPE: M

2 SECTION: 14.3 165. Assume that the market starts in equilibrium at point A in panel (b). An increase in demand from Demand0 to Demand1 will result in a. a new market equilibrium at point D. b. an eventual increase in the number of firms in the market and a new long-run equilibrium at point C. c. rising prices and falling profits for existing firms in the market. d. falling prices and falling profits for existing firms in the market.

b. an eventual increase in the number of firms in the market and a new long-run equilibrium at point C. TYPE: M

2 SECTION: 15.5 204. A market force that can prevent firms from price discriminating is a. fluctuating resource prices. b. arbitrage. c. high fixed costs. d. All of the above are correct.

b. arbitrage. TYPE: M

2 SECTION: 15.1 38. The De Beers diamond monopoly is a classic example of a monopoly that a. is government-created. b. arises from the ownership of a key resource. c. results in very little advertising of the product that the monopolist produces. d. was broken up by the government a long time ago.

b. arises from the ownership of a key resource. TYPE: M

2 SECTION: 15.1 4. A monopoly's marginal cost will a. be less than its average fixed cost. b. be less than the price per unit of its product. c. exceed its marginal revenue. d. equal its average total cost.

b. be less than the price per unit of its product. TYPE: M

2 SECTION: 15.2 67. When a monopolist decreases the price of its good, consumers a. continue to buy the same amount. b. buy more. c. buy less. d. may buy more or less, depending on the price elasticity of demand.

b. buy more. TYPE: M

2 SECTION: 15.3 143. The difference in total surplus between a socially efficient level of production and a monopolist's level of production is a. offset by regulatory revenues. b. called a deadweight loss. c. usually small and insignificant. d. All of the above are correct.

b. called a deadweight loss. TYPE: M

2 SECTION: 15.2 70. Which of the following is an impossible feat for a monopolist to accomplish? a. control the price of its good b. charge a higher price and continue to sell the same quantity c. operate at a point on the upper half of the demand curve d. All of the above are correct.

b. charge a higher price and continue to sell the same quantity TYPE: M

2 SECTION: 15.5 199. In theory, perfect price discrimination a. decreases the monopolist's profits. b. decreases consumer surplus. c. increases deadweight loss. d. All of the above are correct.

b. decreases consumer surplus. TYPE: M

1 SECTION: 15.2 105. As a monopolist increases the quantity of output it sells, the price consumers are willing to pay for the good a. is unaffected. b. decreases. c. increases. d. There is not enough information given in answer the question.

b. decreases. TYPE: M

2 SECTION: 15.2 51. The market demand curve for a monopolist is typically a. unitary elastic at the point of profit maximization. b. downward sloping. c. horizontal. d. vertical.

b. downward sloping. TYPE: M

2 SECTION: 15.2 65. Monopoly firms have a. downward-sloping demand curves and they can sell as much output as they desire at the market price. b. downward-sloping demand curves and they can sell only a limited quantity of output at each price. c. horizontal demand curves and they can sell as much output as they desire at the market price. d. horizontal demand curves and they can sell only a limited quantity of output at each price.

b. downward-sloping demand curves and they can sell only a limited quantity of output at each price. TYPE: M

2 SECTION: 14.3 144. When new firms have an incentive to enter a competitive market, their entry will a. increase the price of the product. b. drive down profits of existing firms in the market. c. shift the market supply curve to the left. d. All of the above are correct.

b. drive down profits of existing firms in the market. TYPE: M

2 SECTION: 15.1 14. The defining characteristic of a natural monopoly is a. constant marginal cost over the relevant range of output. b. economies of scale over the relevant range of output. c. constant returns to scale over the relevant range of output. d. diseconomies of scale over the relevant range of output.

b. economies of scale over the relevant range of output. TYPE: M

2 SECTION: 15.1 43. A firm that has a monopoly on water (which is a necessity) can charge a high price for water a. only if the marginal cost of producing water is high. b. even if the marginal cost of producing water is low. c. only if the firm is a natural monopoly. d. even if the demand for water is low.

b. even if the marginal cost of producing water is low. TYPE: M

2 SECTION: 15.4 173. For a typical natural monopoly, average total cost is a. falling and marginal cost is above average total cost. b. falling and marginal cost is below average total cost. c. rising and marginal cost is below average total cost. d. rising and marginal cost is above average total cost.

b. falling and marginal cost is below average total cost. TYPE: M

2 SECTION: 14.3 166. If the market starts in equilibrium at point C in panel (b), a decrease in demand will ultimately lead to a. more firms in the industry, but lower levels of production for each firm. b. fewer firms in the market. c. a new long-run equilibrium at point D in panel (b). d. None of the above are correct.

b. fewer firms in the market. TYPE: M

2 SECTION: 15.5 225. Price discrimination explains why Ivy League universities often set rules that determine prices of admission based on students' a. age. b. financial resources. c. high school GPA. d. sex.

b. financial resources. TYPE: M

2 SECTION: 14.2 103. One of the most important determinants of the success of free-market capitalism is a. enlightened governments selecting firms that should not be allowed to exit a market. b. free entry and exit in markets. c. government regulation of market participants. d. having a few large firms rather than thousands of small ones.

b. free entry and exit in markets. TYPE: M

2 SECTION: 15.1 16. Patent and copyright laws are major sources of a. natural monopolies. b. government-created monopolies. c. resource monopolies. d. None of the above are correct.

b. government-created monopolies. TYPE: M

2 SECTION: 15.4 183. Reduced competition through merging of companies will raise social welfare a. if the cost from the synergies exceeds the benefit of increased market power. b. if the benefit from the synergies exceeds the social cost of increased market power. c. Always. d. Never.

b. if the benefit from the synergies exceeds the social cost of increased market power. TYPE: M

2 SECTION: 14.3 158. The entry of new firms into a competitive market will a. increase market supply and increase market prices. b. increase market supply and decrease market prices. c. decrease market supply and increase market prices. d. decrease market supply and decrease market prices.

b. increase market supply and decrease market prices. TYPE: M

3 SECTION: 14.3 190. Consider a competitive market with a large number of identical firms. The firms in this market do not use any resources that are available only in limited quantities. In long-run equilibrium, market price a. is determined by demand. b. is determined by the minimum point on the firms' average total cost curve. c. is determined by the minimum point on the firms' average variable cost curve. d. depends on how many firms exist in the industry.

b. is determined by the minimum point on the firms' average total cost curve. TYPE: M

2 SECTION: 15.4 174. One problem with regulating a monopolist on the basis of cost is that a. regulators are unable to effectively control prices and/or production. b. it does not provide an incentive for the monopolist to reduce its cost. c. a monopolist's costs, by definition, are higher than costs of perfectly competitive firms. d. a monopolist is still able to generate excessive economic profits.

b. it does not provide an incentive for the monopolist to reduce its cost. TYPE: M

2 SECTION: 15.5 207. A firm cannot price discriminate if a. its marginal revenue is constant for all levels of output. b. it operates in a competitive market. c. it cannot group buyers according to their willingness to pay. d. All of the above are correct.

b. it operates in a competitive market. TYPE: M

2 SECTION: 15.1 44. Suppose most people regard emeralds, rubies, and sapphires as close substitutes for diamonds. Then DeBeers, the large diamond company, has a. less incentive to advertise than it would otherwise have. b. less market power than it would otherwise have. c. more control over the price of diamonds than it would otherwise have. d. higher profits than it would otherwise have.

b. less market power than it would otherwise have. TYPE: M

2 SECTION: 14.3 177. The market for craft art used in home decoration is a very competitive market. In this market, costs vary since some people work faster than others and have more artistic talent in producing craft art. In this competitive market, we would expect to observe a. firms that are generally unresponsive to change in demand. b. little exit and entry. c. a short-run supply curve more elastic than the market's long-run supply curve. d. an upward sloping long-run supply curve.

b. little exit and entry. TYPE: M

2 SECTION: 15.3 150. If the monopoly operates at an output level below Q0, then an increase in output toward Q0 (but not so large an increase as to exceed Q0) would a. raise the price and raise total surplus. b. lower the price and raise total surplus. c. raise the price and lower total surplus. d. lower the price and lower total surplus.

b. lower the price and raise total surplus. TYPE: M

3 SECTION: 15.2 107. The monopolist's profit-maximizing quantity of output is determined by the intersection of which of the following two curves? a. marginal cost and demand b. marginal cost and marginal revenue c. average total cost and marginal revenue d. average variable cost and average revenue

b. marginal cost and marginal revenue TYPE: M

2 SECTION: 15.2 120. For a monopolist, a. average revenue is always greater than the price of the good. b. marginal revenue is always less than the price of the good. c. marginal cost is always greater than average total cost. d. All of the above are correct.

b. marginal revenue is always less than the price of the good. TYPE: M

1 SECTION: 15.1 32. In view of what we know about the relationship between average total cost and marginal cost, the marginal cost curve for this firm a. must lie entirely above the average total cost curve. b. must lie entirely below the average total cost curve. c. must be upward sloping. d. does not exist.

b. must lie entirely below the average total cost curve. TYPE: M

2 SECTION: 15.1 Use the figure to answer question 30 and 31 30. The shape of the average total cost curve reveals information about the nature of the barrier to entry that might exist in a monopoly market. Which of the following monopoly types best coincides with the figure? a. ownership of a key resource by a single firm b. natural monopoly c. government-created monopoly d. None of the above are correct.

b. natural monopoly TYPE: M

1 SECTION: 15.1 18. When a firm's average total cost curve continually declines, the firm is a a. government-created monopoly. b. natural monopoly. c. revenue monopoly. d. All of the above are correct.

b. natural monopoly. TYPE: M

3 SECTION: 14.3 143. When existing firms in a competitive market are profitable, an incentive exists for a. new firms to seek government subsidies that would allow them to enter the market. b. new firms to enter the market, even without government subsidies. c. existing firms to raise prices. d. existing firms to increase production.

b. new firms to enter the market, even without government subsidies. TYPE: M

2 SECTION: 15.5 206. A firm cannot price discriminate if it a. has perfect information about consumer demand. b. operates in a competitive market c. faces a downward-sloping demand curve. d. is regulated by the government.

b. operates in a competitive market TYPE: M

3 SECTION: 15.2 79. For a monopoly firm, which of the following equalities is true? a. price = marginal revenue b. price = average revenue c. price = total revenue d. None of the above are correct.

b. price = average revenue TYPE: M

2 SECTION: 15.5 198. The practice of selling the same goods to different customers at different prices, but with the same marginal cost, is known as a. price segregation. b. price discrimination. c. arbitrage. d. monopoly pricing.

b. price discrimination. TYPE: M

2 SECTION: 14.3 Use the following information to answer questions 155 and 156. In March of 2000 a study sponsored by the Food Consumer Safety Board found that consumption of irradiated grapefruit increased the health of laboratory rats. As a result of national press coverage of the report, the demand for irradiated grapefruit increased dramatically. Organic farmers were able to switch from organic production of grapefruit to irradiated production with no additional cost. Assume that the grapefruit market satisfies all of the attributes of perfect competition. 155. As a result of the increase in the demand for grapefruit, we would predict that in the short run the a. production of grapefruit would be at efficient scale. b. price of grapefruit would rise. c. total cost for existing irradiated grapefruit producers must rise. d. All of the above are correct.

b. price of grapefruit would rise. TYPE: M

3 SECTION: 14.2 137. A firm in a competitive market has the following cost structure: Output Total Cost 0 $5 1 $10 2 $12 3 $15 4 $24 5 $40 If the market price is $4, this firm will a. produce two units in the short run and exit in the long run. b. produce three units in the short run and exit in the long run. c. produce four units in the short run and exit in the long run. d. shut down in the short run and exit in the long run.

b. produce three units in the short run and exit in the long run. TYPE: M

2 SECTION: 15.2 55. Economists assume that monopolists behave as a. cost minimizers. b. profit maximizers. c. price maximizers. d. All of the above are correct.

b. profit maximizers. TYPE: M

2 SECTION: 15.3 154. Inefficiency arises from a monopoly because a. the monopoly firm earns an excessively large profit. b. some buyers will refrain from buying the good, due to the high price. c. consumers who buy the goods feel exploited. d. All of the above are correct.

b. some buyers will refrain from buying the good, due to the high price. TYPE: M

2 SECTION: 14.2 122. A firm that shuts down temporarily a. still has to pay its variable costs, but not its fixed costs. b. still has to pay its fixed costs, but not its variable costs. c. still has to pay both its variable costs and its fixed costs. d. has to pay neither its variable costs nor its fixed costs.

b. still has to pay its fixed costs, but not its variable costs. TYPE: M

2 SECTION: 15.3 161. When the government creates a monopoly, the social loss may include a. falling marginal cost. b. the cost of lawyers and lobbyists to convince lawmakers to continue its monopoly. c. high monopoly profits. d. All of the above are correct.

b. the cost of lawyers and lobbyists to convince lawmakers to continue its monopoly. TYPE: M

2 SECTION: 14.3 167. When a firm in a competitive market, like the one depicted in panel (a), observes market price rising from P1 to P2, it is most likely the result of a. entrance of new firms into the market. b. the exit of existing firms in the market. c. an increase in market supply from Supply0 to Supply1. d. an increase in market demand from Demand0 to Demand1.

b. the exit of existing firms in the market. TYPE: M

2 SECTION: 14.3 148. If the figure in panel (a) reflects the long-run equilibrium of a profit-maximizing firm in a competitive market, the figure in panel (b) most likely reflects a. perfectly inelastic long-run market supply. b. the idea that free entry and exit of firms in the market lead to only one market price in the long run. c. the product of the individual supply curves for all firms in the market. d. the fact that zero profits cannot be sustained in the long run.

b. the idea that free entry and exit of firms in the market lead to only one market price in the long run. TYPE: M

2 SECTION: 14.3 175. Regardless of the cost structure of firms in a competitive market, in the long run a. firms will experience rising demand for their products. b. the marginal firm will earn zero economic profit. c. firms will experience a less competitive market environment. d. exit and entry is likely to lead to a horizontal long-run supply curve.

b. the marginal firm will earn zero economic profit. TYPE: M

2 SECTION: 15.2 124. When a monopoly increases its output and sales, a. both the output effect and the price effect work to increase total revenue. b. the output effect works to increase total revenue and the price effect works to decrease total revenue. c. the output effect works to decrease total revenue and the price effect works to increase total revenue. d. both the output effect and the price effect work to decrease total revenue.

b. the output effect works to increase total revenue and the price effect works to decrease total revenue. TYPE: M

2 SECTION: 15.3 158. In comparison to the price a competitive firm charges, monopoly pricing has the effect of causing a. the level of output to be higher. b. the price of output to be higher. c. consumer surplus to be larger. d. All of the above are correct.

b. the price of output to be higher. TYPE: M

2 SECTION: 14.3 150. When new firms enter a perfectly competitive market, a. demand increases. b. the short-run market supply curve shifts right. c. the short-run market supply curve shifts left. d. existing firms will increase prices in response to the entry of the new firms.

b. the short-run market supply curve shifts right. TYPE: M

1 SECTION: 15.1 47. A natural monopoly arises when a. there are constant returns to scale over the relevant range of output. b. there are economies of scale over the relevant range of output. c. one firm owns a key natural resource. d. the government gives a single firm the exclusive right to produce a particular good or service.

b. there are economies of scale over the relevant range of output. TYPE: M

2 SECTION: 15.1 11. A natural monopoly occurs when a. the product is sold in its natural state (such as water or diamonds). b. there are economies of scale over the relevant range of output. c. the firm is characterized by a rising marginal cost curve. d. production requires the use of free natural resources, such as water or air.

b. there are economies of scale over the relevant range of output. TYPE: M

2 SECTION: 15.1 40. C.R. Evans may continue to be a monopolist in the subway transportation industry only if a. population growth leads to an overcrowding of the subway cars. b. there are no new entrants to the market. c. demand for transportation services decreases. d. All of the above are correct.

b. there are no new entrants to the market. TYPE: M

2 SECTION: 15.4 184. In the United States, in the majority of cases where there is a natural monopoly, the government usually deals with the problem a. by splitting the natural monopoly into smaller companies. b. through regulation. c. by turning the natural monopoly into a public enterprise. d. All of the above are correct.

b. through regulation. TYPE: M

2 SECTION: 15.3 The figure below depicts the demand, marginal revenue and marginal cost curves of a profit-maximizing monopolist. Use the figure to answer questions 155 and 156. 155. Which of the following areas represents the deadweight loss due to monopoly pricing? a. triangle bde b. triangle bge c. rectangle acdb d. rectangle cfgd

b. triangle bge TYPE: M

2 SECTION: 15.3 156. Total surplus lost due to monopoly pricing is reflected in a. triangle bde. b. triangle bge. c. rectangle acdb. d. rectangle cfgd.

b. triangle bge. TYPE: M

2 SECTION: 14.3 172. When some resources used in production are only available in limited quantities, it is likely that the long-run supply curve in a competitive market is a. downward sloping. b. upward sloping. c. horizontal. d. vertical.

b. upward sloping. TYPE: M

2 SECTION: 14.2 56. When calculating marginal cost, what must the firm know? a. sunk cost b. variable cost c. fixed cost d. All of the above are correct.

b. variable cost TYPE: M

2 SECTION: 14.2 128. The complete description of a competitive firm's short-run supply curve is as follows: The competitive firm's short-run supply curve is that portion of the marginal cost curve that lies above average a. fixed cost. b. variable cost. c. total cost. d. revenue.

b. variable cost. TYPE: M

3 SECTION: 14.3 10. If identical firms that remain in a competitive market over the long run make zero economic profit, why do these firms choose to remain in the market?

because a normal rate of return on their investment is included as part of the opportunity cost of production. TYPE: S

2 SECTION: 14.2 5. Explain how a firm in a competitive market identifies the profit-maximizing level of production. When should the firm raise production, and when should the firm lower production?

by selecting the level of output at which marginal revenue is equal to marginal cost. If MR > MC, profit will increase if the firm increases Q. If MR < MC, profit will increase if the firm decreases Q. TYPE: S

2 SECTION: 15.5 The figure below depicts the demand, marginal revenue and marginal cost curves of a profit-maximizing monopolist. Use the figure to answer questions 212 through 217. 212. If the monopoly firm is NOT allowed to price discriminate, then consumer surplus amounts to a. $0. b. $500. c. $1,000. d. $2,000.

c. $1,000. TYPE: M

3 SECTION: 14.2 115. At Q = 999, the firm's profit amounts to a. $993. b. $997. c. $1,003. d. $1,007.

c. $1,003. TYPE: M

2 SECTION: 15.2 110. What is the monopolist's profit under the following conditions? The profit-maximizing price charged for goods produced is $16. The intersection of the marginal revenue and marginal cost curves occurs where output is 10 units and marginal cost is $8. Average total cost for 10 units of output is $6. a. $20 b. $80 c. $100 d. $160

c. $100 TYPE: M

3 SECTION: 15.5 216. Monopoly profit without price discrimination equals a. $500. b. $1,000. c. $2,000. d. $4,000.

c. $2,000. TYPE: M

2 SECTION: 15.2 129. At Q = 500, the firm's total revenue is a. $15,000. b. $17,500. c. $20,000. d. $22,500.

c. $20,000. TYPE: M

2 SECTION: 15.3 169. The deadweight loss caused by a profit-maximizing monopoly amounts to a. $150. b. $200. c. $250. d. $300.

c. $250. TYPE: M

2 SECTION: 15.2 127. A monopoly firm can sell 150 units of output for $12.00 per unit. Alternatively, it can sell 151 units of output for $11.95 per unit. The marginal revenue of the 151st unit of output is a. $-11.95. b. $-4.45. c. $4.45. d. $11.95.

c. $4.45. TYPE: M

3 SECTION: 14.3 189. The widget industry has three types of firms. The cost structure for each type is as follows: Total Cost Output Type A Type B Type C 0 $5 $5 $5 1 $10 $12 $8 2 $12 $14 $10 3 $15 $18 $12 4 $24 $30 $20 5 $40 $50 $30 If this is a competitive market and it is in long-run equilibrium, what must the price be if all three types of firms are producing? a. $4 b. $5 c. $6 d. $7

c. $6 TYPE: M

2 SECTION: 15.5 194. If Black Box Cable TV is able to price discriminate, what would be the maximum amount of profit it could generate? a. $500,000 b. $600,000 c. $850,000 d. $925,000

c. $850,000 TYPE: M

2 SECTION: 15.2 96. A profit-maximizing monopoly's profit is equal to a. P3 × Q2. b. P2 × Q4. c. (P3 - P0) × Q2. d. (P3 - P0) × Q4.

c. (P3 - P0) × Q2. TYPE: M

1 SECTION: 14.3 181. In a particular market, there are 500 firms. Each firm has a marginal cost of $30 when it produces 200 units of output. One point on the market supply curve is a. (Quantity = 200, Price = $30). b. (Quantity = 500, Price = $30). c. (Quantity = 100,000, Price = $30). d. (Quantity = 100,000, Price = $15,000).

c. (Quantity = 100,000, Price = $30). TYPE: M

2 SECTION: 15.1 Use the information below to answer questions 39 and 40. Consider a transportation corporation named C.R. Evans that has just completed the development of a new subway system in a medium-sized town in the Northwest. Currently, there are plenty of seats on the subway, and it is never crowded. Its capacity far exceeds the needs of the city. After just a few years of operation, the shareholders of C.R. Evans experienced incredible rates of return on their investment, due to the profitability of the corporation. 39. Which of the following statements are most likely to be true? (i) New entrants to the market know they will earn a smaller piece of the market than C.R. Evans currently has. (ii) C.R. Evans is most likely experiencing increasing average total cost. (iii) C.R. Evans is a natural monopoly. a. (i) and (ii) b. (ii) and (iii) c. (i) and (iii) d. All of the above are correct.

c. (i) and (iii) TYPE: M

2 SECTION: 15.1 34. If the distribution of water is a natural monopoly, then (i) multiple firms will each have to pay large fixed costs to develop their own network of pipes. (ii) allowing for competition among different firms in the water-distribution industry is efficient. (iii) a single firm can serve the market at the lowest possible average total cost. a. (i) and (ii) b. (ii) and (iii) c. (i) and (iii) d. (i) only

c. (i) and (iii) TYPE: M

2 SECTION: 15.2 80. The marginal revenue curve for a monopoly firm starts at the same point on the vertical axis as the (i) average revenue curve. (ii) marginal cost curve. (iii) demand curve. a. (i) only b. (i) and (ii) c. (i) and (iii) d. (ii) only

c. (i) and (iii) TYPE: M

2 SECTION: 15.2 92. For a monopoly firm, the shape and position of the demand curve play a role in determining (i) the profit-maximizing price. (ii) the shape and position of the marginal cost curve. (iii) the shape and position of the marginal revenue curve. a. (i) and (ii) b. (ii) and (iii) c. (i) and (iii) d. All of the above are correct.

c. (i) and (iii) TYPE: M

2 SECTION: 14.2 101. When a restaurant stays open for lunch service even though few customers patronize the restaurant for lunch, which of the following principles is (are) best demonstrated? (i) Fixed costs are sunk in the short run. (ii) In the short run, only fixed costs are important to the decision to stay open for lunch. (iii) If revenue exceeds variable cost, the restaurant owner is making a profitable strategic decision to remain open for lunch. a. (i) and (ii) only b. (ii) and (iii) only c. (i) and (iii) only d. All are demonstrated.

c. (i) and (iii) only TYPE: M

2 SECTION: 15.3 Refer to the diagram below to answer Questions 166 through 169. 166. To maximize total surplus, a benevolent social planner would choose which of the following outcomes? a. 100 units of output and a price of $10 per unit b. 150 units of output and a price of $10 per unit c. 150 units of output and a price of $15 per unit d. 200 units of output and a price of $10 per unit

c. 150 units of output and a price of $15 per unit TYPE: M

2 SECTION: 15.2 134. A monopolist faces the following demand curve: Price Quantity Demanded $51 1 $47 2 $42 3 $36 4 $29 5 $21 6 $12 7 The monopolist has total fixed costs of $60 and has a constant marginal cost of $15. What is the profit-maximizing level of production? a. 2 units b. 3 units c. 4 units d. 5 units

c. 4 units TYPE: M

2 SECTION: 15.2 72. If the monopolist wants to maximize its revenue, how many units of its product should it sell? a. 4 b. 5 c. 6 d. 8

c. 6 TYPE: M

3 SECTION: 15.2 119. Competitive firms and monopolists differ in which of the following ways? a. A competitive firm cannot choose its level of output; a monopolist chooses its level of output. b. A competitive firm's short-run profit is always zero; a monopolist can have a positive short-run profit. c. A competitive firm's marginal revenue curve is horizontal; a monopolist's marginal revenue curve is downward sloping. d. All of the above are correct.

c. A competitive firm's marginal revenue curve is horizontal; a monopolist's marginal revenue curve is downward sloping. TYPE: M

1 SECTION: 15.1 19. Which of the following scenarios best represents a monopoly situation? a. Bill and Tom work separately from one another but both sell a very rare form of the same diamond. They are the only sellers of this type of diamond in town. b. Tom owns a fishing tackle shop in Miami, Florida, in which he sells the top-of-the-line fishing equipment. c. Bill owns the only grocery store in a small community that lies 200 miles from the nearest city. d. None of the above adequately represents a monopoly.

c. Bill owns the only grocery store in a small community that lies 200 miles from the nearest city. TYPE: M

2 SECTION: 15.2 84. The marginal cost curve for a monopoly firm is depicted by curve a. A. b. B. c. C. d. D.

c. C. TYPE: M

2 SECTION: 15.1 3. Angelo is a wholesale meatball distributor. He sells his meatballs to all the finest Italian restaurants in town. Nobody can make meatballs like Angelo. As a result, his is the only business in town that sells meatballs to restaurants. Assuming that Angelo is maximizing his profit, which of the following statements is true? a. Meatball prices will be less than marginal cost. b. Meatball prices will equal marginal cost. c. Meatball prices will exceed marginal cost. d. Meatball prices will be a function of supply and demand and will therefore oscillate around marginal costs.

c. Meatball prices will exceed marginal cost. TYPE: M

2 SECTION: 15.2 95. A profit-maximizing monopoly's total cost is equal to a. (P1 - P0) × Q2. b. P0 × Q1. c. P0 × Q2. d. P0 × Q3.

c. P0 × Q2. TYPE: M

2 SECTION: 15.2 75. Assume this monopolist's marginal cost is constant at $11. What quantity of output (Q) will it produce and what price (P) will it charge? a. Q = 4, P = $27 b. Q = 4, P = $25 c. Q = 5, P = $23 d. Q = 7, P = $17

c. Q = 5, P = $23 TYPE: M

2 SECTION: 15.3 164. Which of the following statements is correct? a. The benefits that accrue to a monopoly firm's owners are equal to the costs that are incurred by consumers of that firm's product. b. The deadweight loss that arises in monopoly stems from the fact that the profit-maximizing monopoly firm produces a quantity of output that exceeds the socially-efficient quantity. c. The deadweight loss caused by monopoly is similar to the deadweight loss caused by a tax on a product. d. The main social problem caused by monopoly is monopoly profit.

c. The deadweight loss caused by monopoly is similar to the deadweight loss caused by a tax on a product. TYPE: M

2 SECTION: 14.2 121. Which of the following statements is correct regarding a firm's decisionmaking? a. The decision to shut down and the decision to exit are both short-run decisions. b. The decision to shut down and the decision to exit are both long-run decisions. c. The decision to shut down is a short-run decision, whereas the decision to exit is a long-run decision. d. The decision to exit is a short-run decision, whereas the decision to shut down is a long-run decision.

c. The decision to shut down is a short-run decision, whereas the decision to exit is a long-run decision. TYPE: M

2 SECTION: 14.2 120. To begin, a competitive firm is selling its output for $10 per unit and it is maximizing its profit. Now, the price rises to $14 and the firm makes whatever adjustments are necessary to maximize its profit at the now-higher price. Once the firm has adjusted, which of the following statements is correct? a. The firm's marginal revenue is lower than it was previously. b. The firm's marginal cost is lower than it was previously. c. The firm's quantity of output is higher than it was previously. d. All of the above are correct.

c. The firm's quantity of output is higher than it was previously. TYPE: M

2 SECTION: 14.2 107. If a competitive firm is currently producing a level of output at which marginal cost exceeds marginal revenue, then a. average revenue exceeds marginal cost. b. the firm is earning a positive profit. c. a one-unit decrease in output would increase the firm's profit. d. All of the above are correct.

c. a one-unit decrease in output would increase the firm's profit. TYPE: M

2 SECTION: 15.3 157. Monopoly firms exert their market power by charging a price that is a. above average revenue. b. below average total cost. c. above marginal cost. d. below marginal cost.

c. above marginal cost. TYPE: M

2 SECTION: 15.5 208. The process of buying a good in one market at a low cost and selling the good in another market for a higher cost in order to profit from the price difference is known as a. sabotage. b. conspiracy. c. arbitrage. d. collusion.

c. arbitrage. TYPE: M

2 SECTION: 15.2 112. A monopolist will choose to increase output when a. market price increases. b. at all levels of output, marginal cost increases. c. at the present level of output, marginal revenue exceeds marginal cost. d. All of the above are correct.

c. at the present level of output, marginal revenue exceeds marginal cost. TYPE: M

2 SECTION: 14.3 171. When firms in a perfectly competitive market face the same costs, in the long run they must be operating a. under diseconomies of scale. b. with small, but positive, levels of profit. c. at their efficient scale. d. All of the above are correct.

c. at their efficient scale. TYPE: M

2 SECTION: 15.2 98. At the profit-maximizing level of output, a. marginal revenue is equal to P3. b. marginal cost is equal to P3. c. average revenue is equal to P3. d. None of the above are correct.

c. average revenue is equal to P3. TYPE: M

1 SECTION: 15.1 48. When a firm has a natural monopoly, the firm's a. marginal cost always exceeds its average total cost. b. total cost curve is horizontal. c. average total cost curve is downward sloping. d. All of the above are correct.

c. average total cost curve is downward sloping. TYPE: M

2 SECTION: 15.1 9. A fundamental source of monopoly market power arises from a. perfectly elastic demand. b. perfectly inelastic demand. c. barriers to entry. d. availability of "free" natural resources, such as water or air.

c. barriers to entry. TYPE: M

2 SECTION: 15.4 182. In order for antitrust laws to raise social welfare, the government must a. disallow synergy benefits from accruing to monopolists. b. disallow any mergers from taking place. c. be able to determine which mergers are desirable and which are not. d. always attempt to keep markets in their most competitive form.

c. be able to determine which mergers are desirable and which are not. TYPE: M

2 SECTION: 15.2 52. When a firm operates under conditions of monopoly, its price is a. not constrained. b. constrained by marginal cost. c. constrained by demand. d. constrained only by its social agenda.

c. constrained by demand. TYPE: M

2 SECTION: 15.5 197. If a monopolist is able to perfectly price discriminate, a. consumer surplus is always increased. b. total surplus is always decreased. c. consumer surplus and deadweight losses are transformed into monopoly profits. d. the price effect dominates the output effect on monopoly revenue.

c. consumer surplus and deadweight losses are transformed into monopoly profits. TYPE: M

2 SECTION: 15.3 160. The inefficiency of a deadweight loss stems from the fact that a. high monopoly prices take money from consumers' pockets and put it in the pocket of the monopoly owners. b. consumers who still buy the product at the high price are worse off than they would be if they paid a lower price. c. consumers buy fewer units due to the monopoly price, which exceeds the socially-optimal price. d. All of the above are correct.

c. consumers buy fewer units due to the monopoly price, which exceeds the socially-optimal price. TYPE: M

2 SECTION: 15.3 148. For a monopoly market, total surplus can be defined as the value of the good to a. producers minus the cost incurred by consumers. b. producers plus the cost incurred by consumers. c. consumers minus the costs of producing the good. d. consumers plus the cost of producing the good.

c. consumers minus the costs of producing the good. TYPE: M

3 SECTION: 14.2 116. To maximize its profit, the firm should a. increase its output. b. continue to produce 1,000 units. c. decrease its output, but continue to produce. d. shut down.

c. decrease its output, but continue to produce. TYPE: M

1 SECTION: 14.3 160. The exit of existing firms from a competitive market will a. increase market supply and increase market prices. b. increase market supply and decrease market prices. c. decrease market supply and increase market prices. d. decrease market supply and decrease market prices.

c. decrease market supply and increase market prices. TYPE: M

1 SECTION: 15.2 68. When a monopolist increases the amount of output that it produces and sells, the price of its output a. stays the same. b. increases. c. decreases. d. may increase or decrease depending on the price elasticity of demand.

c. decreases. TYPE: M

2 SECTION: 15.3 141. The socially efficient level of production occurs where the marginal cost curve intersects which of the following curves? a. average variable cost b. average total cost c. demand d. marginal revenue

c. demand TYPE: M

2 SECTION: 15.2 104. In a market characterized by monopoly, the market demand curve is a. upward sloping. b. horizontal. c. downward sloping. d. vertical.

c. downward sloping. TYPE: M

2 SECTION: 14.3 146. In a perfectly competitive market, the process of entry and exit will end when, for firms in the market, a. price is equal to average variable cost. b. marginal revenue is equal to average variable cost. c. economic profits are zero. d. All of the above are correct.

c. economic profits are zero. TYPE: M

2 SECTION: 15.1 45. A benefit to society of the patent and copyright laws is that those laws a. help to keep prices down. b. help to prevent a single firm from acquiring ownership of a key resource. c. encourage creative activity. d. discourage excessive amounts of output of certain products.

c. encourage creative activity. TYPE: M

2 SECTION: 15.1 27. Drug companies are allowed to be monopolists in the drugs they discover in order to a. allow drug companies to charge a price that is equal to their marginal cost. b. discourage new firms from entering the drug market. c. encourage research. d. All of the above are correct.

c. encourage research. TYPE: M

3 SECTION: 15.3 170. One method used to control the ability of firms to capture monopoly profit in the United States is through a. government purchase of products produced by monopolists. b. government distribution of a monopolist's excess production. c. enforcement of antitrust laws. d. regulation of firms in highly competitive markets.

c. enforcement of antitrust laws. TYPE: M

2 SECTION: 14.3 182. One consideration that applies to the analysis of the long run, but not to the analysis of the short run, is a. changes in the price of the product. b. changes in firms' profits. c. entry and exit of firms. d. All of the above are correct.

c. entry and exit of firms. TYPE: M

2 SECTION: 15.3 The figure below depicts the demand and marginal cost curves of a profit-maximizing monopolist. Use the figure to answer questions 149 and 150. 149. A benevolent social planner would cause the monopoly firm to operate at an output level a. below Q0. b. above Q0. c. equal to Q0. d. equal to zero.

c. equal to Q0. TYPE: M

2 SECTION: 15.2 56. A monopolist's average revenue is always a. equal to marginal revenue. b. greater than the price of its product. c. equal to the price of its product. d. less than the price of its product.

c. equal to the price of its product. TYPE: M

3 SECTION: 14.2 138. A competitive market is in long-run equilibrium. If demand decreases, we can be certain that price will a. fall in the short run. All firms will shut down and some of them will exit the industry. Price will then rise. b. fall in the short run. No firms will shut down, but some of them will exit the industry. Price will then rise. c. fall in the short run. All, some, or no firms will shut down, and some of them will exit the industry. Price will then rise. d. not fall in the short run because firms will exit to maintain the price.

c. fall in the short run. All, some or no firms will shut down, and some of them will exit the industry. Price will then rise. TYPE: M

3 SECTION: 15.2 137. A monopoly market a. always maximizes total economic well-being. b. always minimizes consumer surplus. c. generally fails to maximize total economic well-being. d. generally fails to maximize producer surplus.

c. generally fails to maximize total economic well-being. TYPE: M

1 SECTION: 15.1 17. Encouraging firms to invest in research and development and individuals to engage in creative endeavors such as writing novels is one justification for a. resource monopolies. b. natural monopolies. c. government-created monopolies. d. breaking up monopolies into smaller firms.

c. government-created monopolies. TYPE: M

2 SECTION: 15.5 200. For a firm to price discriminate, it must a. be a natural monopoly. b. be regulated by the government. c. have some market power. d. None of the above are correct.

c. have some market power. TYPE: M

2 SECTION: 14.3 188. There are 500 identical firms in a competitive market. The firms do not use any resources that are available in limited quantities, and all of them have the following cost structure: Output Total Cost 0 $5 1 $10 2 $12 3 $15 4 $24 5 $40 The long-run supply curve for this market is a. positively sloped. b. horizontal at a price of $3.33. c. horizontal at a price of $5. d. horizontal at a price of $7.

c. horizontal at a price of $5. TYPE: M

2 SECTION: 15.2 64. Competitive firms have a. downward-sloping demand curves and they can sell as much output as they desire at the market price. b. downward-sloping demand curves and they can sell only a limited quantity of output at each price. c. horizontal demand curves and they can sell as much output as they desire at the market price. d. horizontal demand curves and they can sell only a limited quantity of output at each price.

c. horizontal demand curves and they can sell as much output as they desire at the market price. TYPE: M

2 SECTION: 15.4 190. In a natural monopoly, a. society would be better off if anti-trust laws were used to create many different firms in the market. b. the marginal cost curve is positively sloped. c. if the government requires marginal cost pricing, it must pay the monopolist a subsidy. d. the marginal revenue curve is horizontal.

c. if the government requires marginal cost pricing, it must pay the monopolist a subsidy. TYPE: M

2 SECTION: 15.2 86. If the monopoly firm is currently producing Q3 units of output, then a decrease in output will necessarily cause profit to a. remain unchanged. b. decrease. c. increase as long as the new level of output is at least Q2. d. increase as long as the new level of output is at least Q1.

c. increase as long as the new level of output is at least Q2. TYPE: M

2 SECTION: 15.3 153. If a monopoly sells a quantity of its good that is smaller than the socially-optimal level, the price will be a. socially efficient. b. inefficiently low. c. inefficiently high. d. inefficiently low or inefficiently high; either case can prevail.

c. inefficiently high. TYPE: M

2 SECTION: 15.3 162. If a social planner were running a monopoly, that planner could achieve an efficient outcome by charging the price that is determined by the a. minimum point on the average total cost curve. b. intersection of the average total cost curve and the demand curve. c. intersection of the marginal cost curve and the demand curve. d. intersection of the marginal cost curve and the marginal revenue curve.

c. intersection of the marginal cost curve and the demand curve. TYPE: M

2 SECTION: 15.5 224. OPEC often holds oil production below capacity in an effort to a. create a shift in the demand for oil. b. compel consumers to search for oil substitutes. c. keep prices above the competitive level. d. compel consumers to conserve oil.

c. keep prices above the competitive level. TYPE: M

2 SECTION: 15.2 53. In order to sell more of its product, a monopolist must a. sell to the government. b. sell in international markets. c. lower its price. d. use its market power to force up the price of complementary products.

c. lower its price. TYPE: M

2 SECTION: 14.2 127. The complete description of a competitive firm's supply curve is as follows: The competitive firm's short-run supply curve is that portion of the a. average variable cost curve that lies above marginal cost. b. average total cost curve that lies above marginal cost. c. marginal cost curve that lies above average variable cost. d. marginal cost curve that lies above average total cost.

c. marginal cost curve that lies above average variable cost. TYPE: M

2 SECTION: 14.2 109. At the profit-maximizing level of output, a. marginal revenue = average total cost. b. marginal revenue = average variable cost. c. marginal revenue = marginal cost. d. average revenue = average total cost.

c. marginal revenue = marginal cost. TYPE: M

3 SECTION: 15.2 61. A profit-maximizing monopolist will produce the level of output at which a. average revenue is equal to average total cost. b. average revenue is equal to marginal cost. c. marginal revenue is equal to marginal cost. d. total revenue is equal to opportunity cost.

c. marginal revenue is equal to marginal cost. TYPE: M

2 SECTION: 15.2 57. If a profit-maximizing monopolist faces a downward-sloping market demand curve, its a. average revenue is less than the price of the product. b. average revenue is less than marginal revenue. c. marginal revenue is less than the price of the product. d. marginal revenue is greater than the price of the product.

c. marginal revenue is less than the price of the product. TYPE: M

2 SECTION: 14.3 179. When new entrants to a competitive market have higher costs than existing firms, a. accounting profits will be the primary signal for entrance. b. sunk costs become an important determinant of short-run entrance strategy. c. market price must be rising. d. None of the above are correct.

c. market price must be rising. TYPE: M

2 SECTION: 15.2 81. Marginal revenue can become negative for a. both competitive and monopoly firms. b. competitive firms, but not for monopoly firms. c. monopoly firms, but not for competitive firms. d. neither competitive nor monopoly firms.

c. monopoly firms, but not for competitive firms. TYPE: M

2 SECTION: 15.2 60. For a monopolist, marginal revenue is a. positive when the demand effect is greater than the supply effect. b. positive when the monopoly effect is greater than the competitive effect. c. negative when the price effect is greater than the output effect. d. negative when the output effect is greater than the price effect.

c. negative when the price effect is greater than the output effect. TYPE: M

3 SECTION: 15.2 136. A reduction in a monopolist's fixed costs would a. decrease the profit-maximizing price and increase the profit-maximizing quantity produced. b. increase the profit-maximizing price and decrease the profit-maximizing quantity produced. c. not effect the profit-maximizing price or quantity. d. possibly increase, decrease or not effect profit-maximizing price and quantity, depending on the elasticity of demand.

c. not effect the profit-maximizing price or quantity. TYPE: M

2 SECTION: 14.3 154. When all firms and potential firms in a market have the same cost curves, the long-run equilibrium of a competitive market with free entry and exit will be characterized by firms a. earning small levels of economic profit. b. facing the prospect of future losses. c. operating at efficient scale. d. that band together to raise market prices.

c. operating at efficient scale. TYPE: M

2 SECTION: 15.2 66. Because many good substitutes exist for a competitive firm's product, the demand curve that it faces is a. unit-elastic. b. perfectly inelastic. c. perfectly elastic. d. inelastic only over a certain region.

c. perfectly elastic. TYPE: M

1 SECTION: 15.5 Use the following information to answer questions 193 through 195. Black Box Cable TV is able to purchase an exclusive right to sell a premium movie channel (PMC) in its market area. Let's assume that Black Box Cable pays $150,000 a year for the exclusive marketing rights to PMC. Since Black Box has already installed cable to all of the homes in its market area, the marginal cost of PMC to subscribers is zero. The manager of Black Box needs to know what price to charge for the PMC service to maximize her profit. Before setting price, she hires an economist to estimate demand for the PMC service. The economist discovers that there are two types of subscribers who value premium movie channels. First are the 4,000 die-hard TV viewers who will pay as much as $150 a year for the new PMC premium channel. Second, the PMC channel will appeal to about 20,000 occasional TV viewers who will pay as much as $20 a year for a subscription to PMC. 193. If Black Box Cable TV is unable to price discriminate, what price will it choose to maximize its profit and what is the amount of the profit? a. price = $20; profit = $400,000 b. price = $20; profit = $330,000 c. price = $150; profit = $450,000 d. price = $150; profit = $600,000

c. price = $150; profit = $450,000 TYPE: M

2 SECTION: 15.5 205. Which of the following can eliminate the inefficiency inherent in monopoly pricing? a. arbitrage b. cost-plus pricing c. price discrimination d. regulations that force monopolies to reduce their levels of output

c. price discrimination TYPE: M

2 SECTION: 14.3 187. A competitive market has a horizontal long-run supply curve and is in long-run equilibrium. If demand decreases, we can be certain that in the short-run, a. at least some firms will shut down. b. price will fall below marginal cost. c. price will fall below average total cost. d. at least some firms will exit the industry.

c. price will fall below average total cost. TYPE: M

2 SECTION: 14.3 145. When firms have an incentive to exit a competitive market, their exit will a. lower market price. b. necessarily raise the costs of firms that remain in the market. c. raise profits for firms that remain in the market. d. All of the above are correct.

c. raise profits for firms that remain in the market. TYPE: M

2 SECTION: 14.3 169. When managers of firms in a competitive market observe falling profits, they are likely to infer that the market is characterized by a. a violation of conventional market forces. b. over-investment. c. rising prices. d. too few firms in the market.

c. rising prices. TYPE: M

2 SECTION: 15.2 108. A monopolist is a price a. taker, and therefore has no supply curve. b. setter, and therefore has no demand curve. c. setter, and therefore has no supply curve. d. setter, and therefore has no variable cost curve.

c. setter, and therefore has no supply curve. TYPE: M

2 SECTION: 15.2 99. When a pharmaceutical company discovers a new drug, patent law gives the monopoly a. partial ownership of the right to sell the drug for a limited number of years. b. partial ownership of the right to sell the drug for an unlimited number of years. c. sole ownership of the right to sell the drug for a limited number of years. d. sole ownership of the right to sell the drug for an unlimited number of years.

c. sole ownership of the right to sell the drug for a limited number of years. TYPE: M

2 SECTION: 14.3 168. An increase in market supply from Supply0 to Supply1 is most likely the result of a. existing firms changing their cost structure. b. existing firms in the market increasing their level of production beyond Q1. c. the entrance of new firms in the market. d. All of the above are correct.

c. the entrance of new firms in the market. TYPE: M

2 SECTION: 15.1 25. A government-created monopoly arises when a. government spending in a certain industry gives rise to monopoly power. b. the government exercises its market control by encouraging competition among sellers. c. the government gives a firm the exclusive right to sell some good or service. d. All of the above could qualify as government-created monopolies.

c. the government gives a firm the exclusive right to sell some good or service. TYPE: M

2 SECTION: 15.4 172. One problem with government regulation of monopolies is that a. a benevolent government is likely to be interested in generating profits for political gain. b. regulated industries typically have rising average costs. c. the government typically has little incentive to reduce costs. d. a government-regulated outcome will increase the profitability of the monopoly.

c. the government typically has little incentive to reduce costs. TYPE: M

2 SECTION: 14.2 117. Which of these curves is the competitive firm's supply curve? a. the average variable cost curve above marginal cost b. the average total cost curve above marginal cost c. the marginal cost curve above average variable cost d. the average fixed cost curve

c. the marginal cost curve above average variable cost TYPE: M

2 SECTION: 14.2 118. A competitive firm's marginal cost curve is regarded as its supply curve because a. the position of the marginal cost curve determines the price for which the firm should sell its product. b. among the various cost curves, the marginal cost curve is the only one that slopes upward. c. the marginal cost curve determines the quantity of output the firm is willing to supply at any price. d. the firm is aware that marginal revenue must exceed marginal cost in order for profit to be maximized.

c. the marginal cost curve determines the quantity of output the firm is willing to supply at any price. TYPE: M

2 SECTION: 14.3 157. In long-run equilibrium of a competitive market, the number of firms in the market adjusts so that all of the market demand is satisfied at a price equal to a. sunk cost. b. the maximum value of marginal cost. c. the minimum value of average total cost. d. the minimum value of average variable cost.

c. the minimum value of average total cost. TYPE: M

2 SECTION: 15.5 220. Many movie theaters allow discount tickets to be sold to senior citizens because a. senior-citizen laws mandate such discounts. b. efforts of goodwill show community respect and win loyal patrons. c. the theaters are profit maximizers. d. senior citizens usually comprise a solid portion of those who voice their opinions.

c. the theaters are profit maximizers. TYPE: M

2 SECTION: 15.1 36. Additional firms often do not try to compete with a natural monopoly because a. they fear retaliation in the form of pricing wars from the natural monopolist. b. they are unsure of the size of the market in general. c. they know they cannot achieve the same low costs that the monopolist enjoys. d. the natural monopoly doesn't make a huge profit.

c. they know they cannot achieve the same low costs that the monopolist enjoys. TYPE: M

2 SECTION: 14.2 132. The competitive firm's long-run supply curve is that portion of the marginal cost curve that lies above average a. fixed cost. b. variable cost. c. total cost. d. revenue.

c. total cost. TYPE: M

2 SECTION: 15.2 118. For a monopoly firm, the level of output at which marginal revenue equals zero is also the level of output at which a. average revenue is zero. b. profit is maximized. c. total revenue is maximized. d. marginal cost is zero.

c. total revenue is maximized. TYPE: M

2 SECTION: 14.2 124. A firm will shut down in the short run if the total revenue that it would get from producing and selling its output is less than its a. opportunity costs. b. fixed costs. c. variable costs. d. total costs.

c. variable costs. TYPE: M

3 SECTION: 15.5 214. If the monopoly firm is NOT allowed to price discriminate, then the deadweight loss amounts to a. $50. b. $100. c. $500. d. $1,000.

d. $1,000. TYPE: M

2 SECTION: 15.5 217. Monopoly profit with perfect price discrimination equals a. $500. b. $1,000. c. $2,000. d. $4,000.

d. $4,000. TYPE: M

2 SECTION: 15.2 Refer to the information below to answer Questions 128 through 131. A monopoly firm maximizes its profit by producing 500 units output (so Q = 500). At that level of output, its marginal revenue is $30, its average revenue is $40, and its average total cost is $34. 128. The firm's profit-maximizing price is a. $30. b. between $30 and $34. c. between $34 and $40. d. $40.

d. $40. TYPE: M

2 SECTION: 15.2 115. What is the monopolist's profit under the following conditions? The profit-maximizing price charged for goods produced is $12. The intersection of the marginal revenue and marginal cost curves occurs where output is 10 units, marginal cost is $8, and average total cost is $7. a. Not enough information is given to determine the answer. b. $10 c. $40 d. $50

d. $50 TYPE: M

3 SECTION: 15.2 78. Which of the following statements is true? (i) When a competitive firm sells an additional unit of output, its revenue increases by an amount less than the price. (ii) When a monopoly firm sells an additional unit of output, its revenue increases by an amount less than the price. (iii) Average revenue is the same as price for both competitive and monopoly firms. a. (i) only b. (iii) only c. (i) and (ii) d. (ii) and (iii)

d. (ii) and (iii) TYPE: M

2 SECTION: 14.3 In the figure below, panel (a) depicts the linear marginal cost of a firm in a competitive market and panel (b) depicts the linear market supply curve for a market with a fixed number of identical firms. Use the figure to answer questions 140 through 142. 140. If there are 200 identical firms in this market, what level of output will be supplied to the market when price is $1.00? a. 2,000 b. 5,000 c. 10,000 d. 20,000

d. 20,000 TYPE: M

2 SECTION: 15.2 73. When 4 units of output are produced and sold, what is average revenue? a. 17 b. 21 c. 23 d. 26

d. 26 TYPE: M

2 SECTION: 14.3 142. If at a market price of $1.75, 52,500 units of output are supplied to this market, how many identical firms are participating in this market? a. 75 b. 100 c. 250 d. 300

d. 300 TYPE: M

2 SECTION: 15.5 226. A monopolist faces the following demand curve: Price Quantity Demanded $8 300 $7 400 $6 500 $5 600 $4 700 $3 800 $2 900 $1 1000 The monopolist has fixed costs of $1000 and has a constant marginal cost of $2 per unit. If the monopolist were able to perfectly price discriminate, how many units would it sell? a. 400 b. 500 c. 700 d. 900

d. 900 TYPE: M

1 SECTION: 15.2 106. Competitive firms differ from monopolies in which of the following ways? (i) Competitive firms do not have to worry about the price effect lowering their total revenue. (ii) Marginal revenue for a competitive firm equals price, while marginal revenue for a monopoly is less than the price it is able to charge. (iii) Monopolies must lower their price in order to sell more of their product, while competitive firms do not. a. (i) and (ii) b. (ii) and (iii) c. (i) and (iii) d. All of the above are correct.

d. All of the above are correct. TYPE: M

2 SECTION: 14.2 104. A profit-maximizing firm in a competitive market is currently producing 100 units of output. It has average revenue of $10, and its average total cost is $8. It follows that the firm's a. average total cost curve intersects the marginal cost curve at an output level of less than100 units. b. average variable cost curve intersects the marginal cost curve at an output level of less than 100 units. c. profit is $200. d. All of the above are correct.

d. All of the above are correct. TYPE: M

2 SECTION: 14.2 112. A certain competitive firm sells its output for $20 per unit. The 50th unit of output that the firm produces has a marginal cost of $22. It follows that the production of the 50th unit of output a. increases the firm's total revenue by $20. b. increases the firm's total cost by $22. c. decreases the firm's profit by $2. d. All of the above are correct.

d. All of the above are correct. TYPE: M

2 SECTION: 14.2 119. To begin, a competitive firm is selling its output for $20 per unit and it is maximizing its profit, which is positive. Now, the price rises to $25 and the firm makes whatever adjustments are necessary to maximize its profit at the now-higher price. Once the firm has adjusted, which of the following statements is correct? a. The firm's quantity of output is higher than it was previously. b. The firm's average total cost is higher than it was previously. c. The firm's average revenue is higher than it was previously. d. All of the above are correct.

d. All of the above are correct. TYPE: M

2 SECTION: 14.2 125. A firm will shut down in the short run if, for all positive levels of output, a. its loss exceeds its fixed costs. b. its total revenue is less than its variable costs. c. the price of its product is less than its average variable cost. d. All of the above are correct.

d. All of the above are correct. TYPE: M

2 SECTION: 14.2 131. A firm will exit a market if, for all positive levels of output, a. its total revenue is less than its total cost. b. its profit is negative. c. the price of its product is less than its average total cost. d. All of the above are correct.

d. All of the above are correct. TYPE: M

2 SECTION: 14.3 159. When calculating economic profit, total costs include a. opportunity costs. b. fixed costs. c. variable costs. d. All of the above are correct.

d. All of the above are correct. TYPE: M

2 SECTION: 14.3 162. When firms are neither entering nor exiting a perfectly competitive market, a. total cost must equal total revenue. b. economic profits must be zero. c. average revenue must equal average total cost. d. All of the above are correct.

d. All of the above are correct. TYPE: M

2 SECTION: 14.3 184. At the end of a process of entry and exit, for the marginal firm a. price is equal to average total cost. b. total revenue is equal to total cost. c. economic profit is zero. d. All of the above are correct.

d. All of the above are correct. TYPE: M

2 SECTION: 14.3 186. In the long-run equilibrium of a market with free entry and exit, marginal firms are operating a. at the point where average total cost equals marginal cost. b. at the minimum point on their average total cost curves. c. at their efficient scale. d. All of the above are correct.

d. All of the above are correct. TYPE: M

2 SECTION: 15.1 10. Because monopoly firms do not have to compete with other firms, the outcome in a market with a monopoly is often a. not in the best interest of society. b. one that fails to maximize total economic well-being. c. inefficient. d. All of the above are correct.

d. All of the above are correct. TYPE: M

2 SECTION: 15.1 23. Assume that Jack is the sole owner of all the wells in town. He decides to move to a more suitable climate and sells the wells to a couple of dozen different town residents. a. The town residents will likely be better off. b. The price of water is likely to fall. c. The individual water sellers will not have as much pricing power as Jack had. d. All of the above are correct.

d. All of the above are correct. TYPE: M

2 SECTION: 15.1 24. In practice, monopolies rarely arise from exclusive ownership of a resource because a. actual economies are quite large. b. the natural scope of many such markets is often worldwide. c. few firms own a resource for which there are no close substitutes. d. All of the above are correct.

d. All of the above are correct. TYPE: M

2 SECTION: 15.1 26. Allowing an inventor to have the exclusive rights to market her new invention will lead to (i) a product that is priced higher than it would be without the exclusive rights. (ii) desirable behavior in the sense that inventors are encouraged to invent. (iii) higher profits for the inventor. a. (i) and (ii) b. (ii) and (iii) c. (i) and (iii) d. All of the above are correct.

d. All of the above are correct. TYPE: M

2 SECTION: 15.1 29. Which of the following statements is true about patents and copyrights? (i) They both have benefits and costs. (ii) They lead to higher prices. (iii) They enhance the ability of monopolists to earn above-average profits. a. (i) and (ii) b. (ii) and (iii) c. (ii) only d. All of the above are correct.

d. All of the above are correct. TYPE: M

2 SECTION: 15.1 35. A firm that is a natural monopoly a. is not likely to be concerned about new entrants eroding its monopoly power. b. is taking advantage of economies of scale. c. would experience a higher average total cost if more firms entered the market. d. All of the above are correct.

d. All of the above are correct. TYPE: M

2 SECTION: 15.1 7. Which of the following is an example of a barrier to entry? (i) A key resource is owned by a single firm. (ii) The costs of production make a single producer more efficient than a large number of producers. (iii) The government has given the existing monopoly the exclusive right to produce the good. a. (i) and (ii) b. (ii) and (iii) c. (i) only d. All of the above are correct.

d. All of the above are correct. TYPE: M

2 SECTION: 15.2 109. For a monopolist, profit is determined by which of the following equations? a. Profit = Total Revenue - Total Cost b. Profit = (Average Revenue - Average Total Cost) x Quantity c. Profit = (Price - Average Total Cost) x Quantity d. All of the above are correct.

d. All of the above are correct. TYPE: M

2 SECTION: 15.2 116. For a monopoly firm, the average revenue curve a. starts at the same point on the vertical axis as the marginal revenue curve. b. is downward sloping. c. is the same as the demand curve. d. All of the above are correct.

d. All of the above are correct. TYPE: M

2 SECTION: 15.2 59. Which of the following statements is (are) true of monopolies? a. Monopolies are constrained by market demand. b. Monopolies benefit from barriers to entry. c. Monopolies have the ability to set the prices of their products. d. All of the above are correct.

d. All of the above are correct. TYPE: M

2 SECTION: 15.3 159. Total economic loss due to monopoly pricing is equal to the a. deadweight loss. b. loss to consumer and producer surplus combined. c. loss to total surplus. d. All of the above are correct.

d. All of the above are correct. TYPE: M

2 SECTION: 15.3 163. The deadweight loss that arises in monopoly is a consequence of the fact that the monopoly a. price is higher than the price that would achieve efficiency. b. price exceeds marginal cost. c. output is lower than the level of output that would achieve efficiency. d. All of the above are correct.

d. All of the above are correct. TYPE: M

2 SECTION: 15.4 175. When regulators use a marginal cost pricing strategy to regulate a natural monopoly, the regulated monopoly a. will experience a loss. b. will experience a price below average total cost. c. may rely on a government subsidy to remain in business. d. All of the above are correct.

d. All of the above are correct. TYPE: M

2 SECTION: 15.4 179. Antitrust laws allow the government to a. prevent mergers. b. break up companies. c. promote competition. d. All of the above are correct.

d. All of the above are correct. TYPE: M

2 SECTION: 15.4 185. When regulating a natural monopoly, one of the problems with setting price equal to average cost is that a. there is no incentive for the monopolist to lower its costs. b. consumer surplus is not maximized. c. total surplus is not optimized. d. All of the above are correct.

d. All of the above are correct. TYPE: M

2 SECTION: 15.4 187. Government-run monopolies may lead to undesirable outcomes in the form of a. special interest groups that attempt to block cost reductions. b. customers and taxpayer losses when the monopoly operates inefficiently. c. the political system as the only form of recourse for customers. d. All of the above are correct.

d. All of the above are correct. TYPE: M

2 SECTION: 15.5 203. When deciding what price to charge consumers, the monopolist may choose to charge them different prices based on the customers' a. geographical location. b. age. c. income. d. All of the above are correct.

d. All of the above are correct. TYPE: M

2 SECTION: 15.5 221. Round-trip airline tickets are usually cheaper if you stay over a Saturday night before you fly back. What is the reason for this price discrepancy? a. Airlines are practicing imperfect price discrimination to raise their profits. b. Airlines charge a different rate based on the different nature of peoples' travel needs. c. Airlines are attempting to charge people based on their willingness to pay. d. All of the above are correct.

d. All of the above are correct. TYPE: M

2 SECTION: 15.5 223. Discount coupons have the ability to help a grocery store a. price discriminate. b. target its customers based on their individual willingness to pay. c. maximize its profit. d. All of the above are correct.

d. All of the above are correct. TYPE: M

2 SECTION: 15.2 85. The average total cost curve for a monopoly firm is depicted by curve a. A. b. B. c. C. d. D.

d. D. TYPE: M

2 SECTION: 15.5 227. It is not uncommon to find that prescription drugs sell for more in the United States than they do in other countries. Which of the following statements about this issue is most likely to be true? a. Drug companies are engaging in price discrimination, and this practice certainly reduces global social welfare. b. Global social welfare could be improved if the price in the United States were reduced to the price charged in other countries. c. Global social welfare could be improved if the price in the other countries were increased to the price charged in the United States. d. Drug companies are engaging in price discrimination, but this might improve global social welfare if it gives more people access to the drugs.

d. Drug companies are engaging in price discrimination, but this might improve global social welfare if it gives more people access to the drugs. TYPE: M

2 SECTION: 15.4 188. Policymakers are discussing various proposals regarding how to deal with natural monopolies. Senator Huff wants to regulate natural monopolies by equating price with average total cost. Huff contends that such a policy will ensure that monopolies make every effort to reduce costs. Senator Puff wants the government to own natural monopolies. Puff argues that government-owned monopolies usually do a better job of holding down costs than privately owned monopolies. Which senator's argument is correct? a. Senator Huff b. Senator Puff c. both Senators d. neither Senator

d. Neither Senator TYPE: M

3 SECTION: 14.2 108. If a competitive firm is currently producing a level of output at which profit is not maximized, then it must be true that a. marginal revenue exceeds marginal cost. b. marginal cost exceeds marginal revenue. c. total cost exceeds total revenue. d. None of the above are correct.

d. None of the above are correct. TYPE: M

2 SECTION: 15.2 111. What is the monopolist's profit under the following conditions? The profit-maximizing price charged for goods produced is $12. The intersection of the demand curve and the marginal cost curve occurs where output is 15 units and marginal cost is $6. a. $90 b. $100 c. $180 d. Not enough information is given to determine the answer.

d. Not enough information is given to determine the answer. TYPE: M

3 SECTION: 15.2 123. Let P = price; MR = marginal revenue; and MC = marginal cost. For a profit-maximizing monopolist, a. P = MR = MC. b. P = MR < MC. c. P = MR > MC. d. P > MR = MC.

d. P > MR = MC. TYPE: M

2 SECTION: 15.2 97. Profit on a typical unit sold for a profit-maximizing monopoly would equal a. P2 - P1. b. P2 - P0. c. P3 - P2. d. P3 - P0.

d. P3 - P0. TYPE: M

2 SECTION: 15.2 89. Profit will be maximized by charging a price equal to a. P0. b. P1. c. P2. d. P3.

d. P3. TYPE: M

1 SECTION: 15.1 Use the following information to answer question 21 through 23. Consider the market for water in a small town in the Old West. Assume that the only source of water is the underground aquifer that lies directly below the town. Wells are used to supply water to the entire town. 21. If dozens of residents have their own wells, which of the following statements most adequately describes the behavior of sellers of water? a. Since water is a necessity of life, there will be no decline in the quantity of water consumed, regardless of how high the price is raised. b. Sellers will be able to charge a premium for the water. c. The price of a gallon of water will exceed its marginal cost. d. The price of a gallon of water will be driven to equal its marginal cost.

d. The price of a gallon of water will be driven to equal its marginal cost. TYPE: M

2 SECTION: 15.4 189. Which of the following is the most likely reason the city council in New York City consistently denies licenses to independent van drivers selling rides to the public? a. Allowing the vans to operate would reduce social welfare. b. The van drivers engage in price discrimination. c. Allowing the vans to operate would allow them to unfairly take advantage of poor residents. d. The vans are a threat to the public transit monopoly, which makes campaign contributions to the city council members.

d. The vans are a threat to the public transit monopoly, which makes campaign contributions to the city council members. TYPE: M

3 SECTION: 15.1 33. When an industry is a natural monopoly, a. it is characterized by constant returns to scale. b. it is characterized by diseconomies of scale. c. a larger number of firms may lead to a lower average cost. d. a larger number of firms will lead to a higher average cost.

d. a larger number of firms will lead to a higher average cost. TYPE: M

2 SECTION: 15.4 177. The collection of statutes aimed at curbing monopoly power is called a. the 14th amendment. b. the Clayton Act. c. the Sherman Act. d. antitrust law.

d. antitrust law. TYPE: M

2 SECTION: 15.1 15. Natural monopolies differ from other forms of monopoly because they a. are not subject to barriers to entry. b. are not regulated by government. c. generally don't make a profit. d. are generally not worried about competition eroding their monopoly position in the market.

d. are generally not worried about competition eroding their monopoly position in the market. TYPE: M

2 SECTION: 15.1 41. The fundamental cause of monopoly is a. incompetent management in competitive firms. b. the zero-profit feature of long-run equilibrium in competitive markets. c. advertising. d. barriers to entry.

d. barriers to entry. TYPE: M

2 SECTION: 15.3 168. The monopolist's maximum profit a. is $800. b. is $1,000. c. is $1,250. d. cannot be determined from the diagram.

d. cannot be determined from the diagram. TYPE: M

2 SECTION: 15.2 76. Marginal revenue for a monopolist is computed as a. average revenue divided by quantity sold. b. average revenue times quantity divided by price. c. total revenue divided by quantity sold. d. change in total revenue per one unit increase in quantity sold.

d. change in total revenue per one unit increase in quantity sold. TYPE: M

2 SECTION: 15.3 139. The economic inefficiency of a monopolist can be measured by the a. number of consumers who are unable to purchase the product because of its high price. b. excess profit generated by monopoly firms. c. poor quality of service offered by monopoly firms. d. deadweight loss.

d. deadweight loss. TYPE: M

2 SECTION: 15.2 93. In a competitive market, a firm's supply curve dictates the amount it will supply. In a monopoly market the a. same is true. b. supply curve conceptually makes sense, but in practice is never used. c. supply curve will have limited predictive capacity. d. decision about how much to supply is impossible to separate from the demand curve it faces.

d. decision about how much to supply is impossible to separate from the demand curve it faces. TYPE: M

2 SECTION: 15.2 69. When a monopolist increases the amount of output that it produces and sells, its average revenue a. increases and its marginal revenue increases. b. increases and its marginal revenue decreases. c. decreases and its marginal revenue increases. d. decreases and its marginal revenue decreases.

d. decreases and its marginal revenue decreases. TYPE: M

2 SECTION: 15.4 181. The debate concerning the tradeoffs between "market failure" and "political failure" in the American economy provides support for which of the following solutions to the problems of monopolies? a. public ownership of monopolies b. government regulation of monopolies c. government incentives to promote competition in monopolized industries d. doing nothing at all

d. doing nothing at all TYPE: M

2 SECTION: 14.3 185. In the long-run equilibrium of a market with free entry and exit, a. marginal cost exceeds average total cost. b. the price of the good exceeds average total cost. c. average total cost exceeds the price of the good. d. firms are operating at their efficient scale.

d. firms are operating at their efficient scale. TYPE: M

2 SECTION: 14.2 123. A firm that exits its market a. still has to pay its variable costs, but not its fixed costs. b. still has to pay its fixed costs, but not its variable costs. c. still has to pay both its variable costs and its fixed costs. d. has to pay neither its variable costs nor its fixed costs.

d. has to pay neither its variable costs nor its fixed costs. TYPE: M

2 SECTION: 15.4 176. The key issue in determining the efficiency of public versus private ownership of a monopoly is a. the tendency for efficient management of publicly owned enterprises. b. the inability of private monopolies to get rid of managers that are doing a bad job. c. the propensity of private monopolies to generate excessive profits. d. how ownership of the firm affects the cost of production.

d. how ownership of the firm affects the cost of production. TYPE: M

2 SECTION: 14.3 156. If the increased production of irradiated grapefruit caused a rise in the marginal transportation costs of moving irradiated grapefruit to market, the a. short-run market supply curve for irradiated grapefruit would be affected, but not the long-run market supply. b. long-run market supply curve for irradiated grapefruit would be perfectly elastic. c. long-run market supply of irradiated grapefruit would be downward sloping. d. long-run market supply of irradiated grapefruit would be upward sloping.

d. long-run market supply of irradiated grapefruit would be upward sloping. TYPE: M

3 SECTION: 14.2 105. A profit-maximizing firm in a competitive market is able to sell its product for $9. At its current level of output the firm's average total cost is $11. Its marginal cost curve crosses the marginal revenue curve at an output level of 10 units. Then the firm experiences a a. profit of more than $20. b. profit of exactly $20. c. loss of more than $20. d. loss of exactly $20.

d. loss of exactly $20. TYPE: M

2 SECTION: 15.4 186. Private ownership of a monopoly may benefit society because the monopoly will have an incentive to a. charge a price that is consistent with that of a benevolent social planner. b. charge a price that prevents some people from buying. c. price its good according to the intersection of marginal cost and average revenue. d. lower its costs so that it can earn more profit.

d. lower its costs so that it can earn more profit. TYPE: M

2 SECTION: 15.3 152. A monopoly firm chooses to supply the market with a quantity of their goods that is determined by the intersection of the a. marginal cost and demand curves . b. average total cost and demand curves. c. marginal revenue and average total cost curves. d. marginal revenue and marginal cost curves.

d. marginal revenue and marginal cost curves. TYPE: M

1 SECTION: 15.1 46. When a single firm can supply a product to an entire market at a smaller cost than could two or more firms, the industry is called a a. resource industry. b. exclusive industry. c. government monopoly. d. natural monopoly.

d. natural monopoly. TYPE: M

2 SECTION: 15.1 13. When a natural monopoly exists, it is a. always cost effective for government-owned firms to produce the product. b. never cost effective for one firm to produce the product. c. always cost effective for two or more private firms to produce the product. d. never cost effective for two or more private firms to produce the product.

d. never cost effective for two or more private firms to produce the product. TYPE: M

2 SECTION: 15.2 91. Supply curves tell us how much producers are willing to supply at any given price. Hence, monopoly firms have a. vertical supply curves. b. steeper supply curves than competitive firms c. flatter supply curves than competitive firms. d. no supply curves.

d. no supply curves. TYPE: M

2 SECTION: 15.2 133. For a monopoly, the supply curve is a portion of its a. marginal revenue curve. b. marginal cost curve. c. average total cost curve. d. none of the above; a monopoly does not have a supply curve.

d. none of the above; a monopoly does not have a supply curve. TYPE: M

2 SECTION: 15.5 218. In reality, perfect price discrimination is a. used by about 75 percent of all monopolies. b. used by about 50 percent of all monopolies. c. seldom used by monopolies because it leads to lower profits. d. not possible.

d. not possible. TYPE: M

2 SECTION: 15.2 58. When a monopolist increases the number of units it sells, there are two effects on revenue. They are the a. demand effect and the supply effect. b. competition effect and the cost effect. c. competitive effect and the monopoly effect. d. output effect and the price effect.

d. output effect and the price effect. TYPE: M

2 SECTION: 15.1 20. The simplest way for a monopoly to arise is for a single firm to a. decrease its prices without consulting other firms. b. decrease production to increase demand for its product. c. jointly make pricing decisions with other firms. d. own a key resource.

d. own a key resource. TYPE: M

2 SECTION: 15.5 222. When a local grocery store offers discount coupons in the Sunday paper it is most likely trying to a. reduce prices for all customers. b. offer their customers a reward for reading the paper. c. gain some pricing power over the other grocery stores in town. d. price discriminate.

d. price discriminate. TYPE: M

2 SECTION: 15.5 192. When a monopolist is able to sell its product at different prices, it is engaging in a. distribution pricing. b. quality adjusted pricing. c. price differentiation. d. price discrimination.

d. price discrimination. TYPE: M

2 SECTION: 15.3 147. The amount that producers receive for a good minus their costs of producing it equals a. quantity supplied. b. supply price. c. producer gain. d. producer surplus.

d. producer surplus. TYPE: M

2 SECTION: 14.2 110. The intersection of a firm's marginal revenue and marginal cost curves determines the level of output at which a. total revenue is equal to variable cost. b. total revenue is equal to fixed cost. c. total revenue is equal to total cost. d. profit is maximized.

d. profit is maximized. TYPE: M

2 SECTION: 14.3 161. The entry and exit decisions of firms in a competitive market are signaled by a. high or low demand for a firm's product. b. high capital costs. c. low capital costs. d. profits and losses.

d. profits and losses. TYPE: M

2 SECTION: 15.4 171. Antitrust laws may a. enhance the ability of firms to capture profits from a concentration of market power. b. enhance the ability of firms to reduce economic losses. c. restrict the ability of firms to operate at the socially efficient level of production. d. restrict the ability of firms to merge.

d. restrict the ability of firms to merge. TYPE: M

2 SECTION: 14.3 174. When firms in a competitive market have different costs, it is likely that a. free entry and exit in the market is likely to be violated. b. the market will no longer be considered competitive. c. long-run market supply will be downward sloping. d. some firms will earn economic profits in the long run.

d. some firms will earn economic profits in the long run. TYPE: M

3 SECTION: 14.2 139. In a market with 1,000 identical firms, the short-run market supply is the a. marginal cost curve (above average variable cost) for a typical firm in the market. b. quantity supplied by the typical firm in the market. c. sum of the prices charged by each of the 1,000 individual firms. d. sum of the quantities supplied by each of the 1,000 individual firms.

d. sum of the quantities supplied by each of the 1,000 individual firms. TYPE: M

2 SECTION: 14.2 75. When economists refer to a production cost that has already been committed and cannot be recovered, they use the term a. implicit cost. b. explicit cost. c. variable cost. d. sunk cost.

d. sunk cost. TYPE: M

2 SECTION: 14.3 153. If all existing firms and all potential firms have the same cost curves, there are no inputs in limited quantities, and the market is characterized by free entry and exit, then the long-run a. market supply curve is equal to the sum of marginal cost. b. supply curve for the market must slope downward. c. market supply curve must slope upward. d. supply curve for the market is horizontal and equal to the minimum of long-run average cost for each firm.

d. supply curve for the market is horizontal and equal to the minimum of long-run average cost for each firm. TYPE: M

2 SECTION: 14.3 Use the figures below to answer questions 147 and 148. 147. If the figure in panel (a) reflects the long-run equilibrium of a profit-maximizing firm in a competitive market, the figure in panel (b) is most likely to reflect long-run market a. strategy. b. production capacity. c. demand. d. supply.

d. supply. TYPE: M

1 SECTION: 15.2 100. Due to the nature of the patent laws on pharmaceuticals, the market for such drugs a. always remains a competitive market. b. always remains a monopolistic market. c. switches from competitive to monopolistic once the firm's patent runs out. d. switches from monopolistic to competitive once the firm's patent runs out.

d. switches from monopolistic to competitive once the firm's patent runs out. TYPE: M

2 SECTION: 15.2 102. Generic drugs enter the pharmaceutical drug market once a. the ingredients to the name brand drug have been discovered. b. 10 years have passed. c. they are patented. d. the patent on the name brand drug expires.

d. the patent on the name brand drug expires. TYPE: M

2 SECTION: 15.1 50. The key difference between a competitive firm and a monopoly firm is the ability to select a. the level of competition in the market. b. the level of production. c. inputs in the production process. d. the price of its output.

d. the price of its output. TYPE: M

2 SECTION: 15.5 196. Price discrimination is a rational strategy for a profit-maximizing monopolist when a. the monopolist finds itself able to produce only limited amounts of output. b. consumers are unable to be segmented into identifiable markets. c. the monopolist wishes to increase the deadweight loss that results from profit-maximizing behavior. d. there is no opportunity for arbitrage across market segmentations.

d. there is no opportunity for arbitrage across market segmentations. TYPE: M

2 SECTION: 14.1 and 14.3 193. The production decisions of perfectly competitive firms follow the principle of economics, which states that rational people a. consider sunk costs. b. equate prices to the average costs of production. c. will eventually leave markets that experience zero profit. d. think at the margin.

d. think at the margin. TYPE: M

2 SECTION: 14.2 102. In the long run, a profit-maximizing firm will choose to exit a market when a. average fixed cost is falling. b. variable costs exceed sunk costs. c. marginal cost exceeds marginal revenue at the current level of production. d. total revenue is less than total cost.

d. total revenue is less than total cost. TYPE: M

2 SECTION: 14.1 39. Total profit for a firm is calculated by a. marginal revenue minus average cost. b. average revenue minus average cost. c. marginal revenue minus marginal cost. d. total revenue minus total cost.

d. total revenue minus total cost. TYPE: M

2 SECTION: 14.2 69. When price is below average variable cost, a firm in a competitive market will a. shut down and incur fixed costs. b. shut down and incur both variable and fixed costs. c. continue to operate as long as average revenue exceeds marginal cost. d. continue to operate as long as average revenue exceeds average fixed cost.

a. shut down and incur fixed costs. TYPE: M

1 SECTION: 14.1 Use the following information to answer questions 27 through 29. As part of an estate settlement Mary received $1 million. She decided to use the money to purchase a small business in Anywhere, USA. If Mary would have invested the $1 million in a risk-free bond fund she could have made $100,000 each year. She also quit her job with Lucky.Com Inc. to devote all of her time to her new business; her salary at Lucky.Com Inc. was $75,000 per year. 27. At the end of the first year of operating her new business, Mary's accountant reported an accounting profit of $150,000. What was Mary's economic profit? a. $25,000 loss b. $50,000 loss c. $25,000 profit d. $150,000 profit

a. $25,000 loss TYPE: M

2 SECTION: 14.2 43. The maximum profit available to this firm is a. $5. b. $4. c. $3. d. $2.

a. $5. TYPE: M

2 SECTION: 14.2 74. This firm will exit the market for any price on the line segment a. AB. b. BC. c. CD. d. None of the above are correct.

a. AB. TYPE: M

2 SECTION: 14.2 The figure below depicts the cost structure of a firm in a competitive market. Use the figure to answer questions 89 through 91. 89. When market price is P1, a profit-maximizing firm's total revenue can be represented by the area a. P1 × Q2. b. P2 × Q2. c. P3 × Q2. d. P1 × Q3.

a. P1 × Q2. TYPE: M

2 SECTION: 14.1 2. When a firm has little ability to influence market prices it is said to be in what kind of a market? a. a competitive market b. a strategic market c. a thin market d. a power market

a. a competitive market TYPE: M

1 SECTION: 14.1 13. When firms are said to be price takers, it implies that if a firm raises its price, a. buyers will go elsewhere. b. buyers will pay the higher price in the short run. c. competitors will also raise their prices. d. firms in the industry will exercise market power.

a. buyers will go elsewhere. TYPE: M

1 SECTION: 14.1 8. For a firm in a perfectly competitive market, the price of the good is always a. equal to marginal revenue. b. equal to total revenue. c. greater than average revenue. d. All of the above are correct.

a. equal to marginal revenue. TYPE: M

1 SECTION: 14.1 3. In a competitive market, the actions of any single buyer or seller will a. have a negligible impact on the market price. b. have little effect on overall production but will ultimately change final product price. c. cause a noticeable change in overall production and a change in final product price. d. adversely affect the profitability of more than one firm in the market.

a. have a negligible impact on the market price. TYPE: M

2 SECTION: 14.1 37. If a competitive firm is (i) selling 1,000 units of its product at a price of $9 per unit and (ii) earning a positive profit, then a. its total cost is less than $9,000. b. its marginal revenue is less than $9. c. its average revenue is greater than $9. d. All of the above are correct.

a. its total cost is less than $9,000. TYPE: M

2 SECTION: 14.1 38. When a competitive firm triples the amount of output it sells, a. its total revenue triples. b. its average revenue triples. c. its marginal revenue triples. d. All of the above are correct.

a. its total revenue triples. TYPE: M

2 SECTION: 14.1 15. In a competitive market, no single producer can influence the market price because a. many other sellers are offering a product that is essentially identical. b. consumers have more influence over the market price than producers do. c. government intervention prevents firms from influencing price. d. producers agree not to change the price.

a. many other sellers are offering a product that is essentially identical. TYPE: M

2 SECTION: 14.2 51. As a general rule, profit-maximizing producers in a competitive market produce output at a point where a. marginal cost is increasing. b. marginal cost is decreasing. c. marginal revenue is increasing. d. price is less than marginal revenue.

a. marginal cost is increasing. TYPE: M

1 SECTION: 14.1 31. In a competitive market, a. no single buyer or seller can influence the price of the product. b. there is a small number of sellers. c. the goods offered by the different sellers are markedly different. d. All of the above are correct.

a. no single buyer or seller can influence the price of the product. TYPE: M

2 SECTION: 14.2 83. In the long run all of a firm's costs are variable. In this case the exit criterion for a profit-maximizing firm is a. price < average total cost. b. price > average total cost. c. average revenue > average fixed cost. d. average revenue > marginal cost.

a. price < average total cost. TYPE: M

2 SECTION: 14.2 81. A profit-maximizing firm will shut down in the short run when a. price < average variable cost. b. price < average total cost. c. average revenue > marginal cost. d. average revenue > average fixed cost.

a. price < average variable cost. TYPE: M

2 SECTION: 14.2 80. Shrimp Galore, a shrimp harvesting business in the Pacific Northwest, has a 30-year loan on its shrimp harvesting boat. The annual loan payment is $25,000 and the boat has a market (salvage) value that exceeds its outstanding loan balance. Prior to the 2001 shrimp harvesting season, Shrimp Galore's accountant predicted that at expected market prices for shrimp, Shrimp Galore would have a net loss of $75,000 dollars after paying all 2001 expenses (including the annual loan payment). In this case, Shrimp Galore should a. produce nothing and experience a loss of $25,000. b. produce nothing and experience a loss of $75,000. c. continue to operate because expected profits will rise in the future. d. continue to operate even though it predicts a loss of $75,000.

a. produce nothing and experience a loss of $25,000. TYPE: M

2 SECTION: 14.2 70. In 1999, sheepherders in the western United States slaughtered 10,000 sheep and buried them in large open pits rather than truck them to the market to be sold. This behavior is most likely explained by a. sheepherders making a shut-down decision to save the variable cost of transporting sheep to a slaughter house. b. sheepherders making an exit decision to recover the fixed cost of raising the sheep. c. the rising marginal cost of producing sheep. d. irrational behavior of sheepherders.

a. sheepherders making a shut-down decision to save the variable cost of transporting sheep to a slaughter house. TYPE: M

2 SECTION: 14.2 66. When a firm makes a short-run decision not to produce anything during a specified period of time because of current market conditions, the firm is said to a. shut down. b. exit. c. withdraw. d. leave the industry.

a. shut down. TYPE: M

2 SECTION: 14.2 100. Assume that Sarah places a $70 value on seeing her college football team play in the Rose Bowl. She purchases a ticket to the game for $50 but when she arrives at the game she discovers that her ticket is missing. A ticket scalper outside the stadium is selling tickets for $65 dollars. If Sarah purchases a ticket from one of the scalpers for $65, she is best demonstrating the principle that a. sunk costs are irrelevant to many personal decisions. b. the price of tickets cannot be explained by economic principles. c. the assumption of rational behavior does not easily apply to the purchase of college football game tickets. d. rational consumers do not always respond to incentives.

a. sunk costs are irrelevant to many personal decisions. TYPE: M

1 SECTION: 14.1 23. Changes in the output of a perfectly competitive firm, without any change in the price of the product, will change the firm's a. total revenue. b. marginal revenue. c. average revenue. d. All of the above are correct.

a. total revenue. TYPE: M

1 SECTION: 14.2 76. A profit-maximizing firm in a competitive market produces small rubber balls. When the market price for small rubber balls falls below the minimum of its average total cost, but still lies above the minimum of average variable cost, the firm a. will experience losses but it will continue to produce rubber balls. b. will shut down. c. will be earning both economic and accounting profits. d. should raise the price of its product.

a. will experience losses but it will continue to produce rubber balls. TYPE: M

2 SECTION: 14.1 19. When a firm in a competitive market receives $500 in total revenue, it has a marginal revenue of $10. What is the average revenue, and how many units were sold? a. $5 and 100 b. $10 and 50 c. $10 and 100 d. The answer cannot be determined from the information given.

b. $10 and 50 TYPE: M

2 SECTION: 14.2 91. When market price is P1, a profit-maximizing firm's total profit or loss can be represented by which area? a. P1 × Q3; profit b. (P3 - P1) × Q2 ; loss c. (_P2 - P1) × Q1; loss d. We can't tell because we don't know fixed costs.

b. (P3 - P1) × Q2 ; loss TYPE: M

2 SECTION: 14.2 47. Comparison of marginal revenue to marginal cost (i) reveals the contribution of the last unit of production to total profit. (ii) is helpful in making profit-maximizing production decisions. (iii) tells a firm whether its fixed costs are too high. a. (i) only b. (i) and (ii) only c. (ii) and (iii) only d. All of the above are correct.

b. (i) and (ii) only TYPE: M

2 SECTION: 14.1 17. Of the following characteristics of competitive markets, which are necessary for firms to be price takers? (i) There are many sellers. (ii) Firms can freely enter or exit the market. (iii) Goods offered for sale are largely the same. a. (i) and (ii) only b. (i) and (iii) only c. (ii) only d. All are necessary.

b. (i) and (iii) only TYPE: M

2 SECTION: 14.2 41. At which quantity of output is marginal revenue equal to marginal cost? a. 3 b. 6 c. 8 d. All of the above are correct.

b. 6 TYPE: M

1 SECTION: 14.1 33. If ABC Company sells its product in a competitive market, then a. the price of that product depends on the quantity of the product that ABC Company produces and sells. b. ABC Company's total revenue is proportional to its quantity of output. c. ABC Company's total cost is proportional to its quantity of output. d. ABC Company's total revenue is equal to its average revenue.

b. ABC Company's total revenue is proportional to its quantity of output. TYPE: M

2 SECTION: 14.2 96. The irrelevance of sunk costs is best described by which of the following business decisions? a. New airlines enter the market and earn profits. b. Airlines continue to sell tickets even though they are reporting large losses. c. Airlines exit the market when they report losses. d. All of the above are correct.

b. Airlines continue to sell tickets even though they are reporting large losses. TYPE: M

1 SECTION: 14.1 11. Which of the following is NOT a characteristic of a perfectly competitive market? a. Firms are price takers. b. Firms have difficulty entering the market. c. There are many sellers in the market. d. Goods offered for sale are largely the same.

b. Firms have difficulty entering the market. TYPE: M

2 SECTION: 14.2 77. Which of the following statements best reflects the production decision of a profit-maximizing firm in a competitive market when price falls below the minimum of average variable cost? a. The firm will continue to produce to attempt to pay fixed costs. b. The firm will immediately stop production to minimize its losses. c. The firm will stop production as soon as it is able to pay its sunk costs. d. The firm will continue to produce in the short run but will likely exit the market in the long run.

b. The firm will immediately stop production to minimize its losses. TYPE: M

1 SECTION: 14.2 Use the information for a competitive firm in the table below to answer questions 40 through 45. Quantity Total Revenue Total Cost 0 $ 0 $ 10 1 9 14 2 18 19 3 27 25 4 36 32 5 45 40 6 54 49 7 63 59 8 72 70 9 81 82 40. At a production level of 4 units which of the following is true? a. Marginal cost is $6. b. Total revenue is greater than variable cost. c. Marginal revenue is less than marginal cost. d. All of the above are correct.

b. Total revenue is greater than variable cost. TYPE: M

2 SECTION: 14.1 30. The Wheeler Wheat Farm sells wheat to a grain broker in Seattle, Washington. Since the market for wheat is generally considered to be competitive, the Wheeler Farm does not a. choose the quantity of wheat to produce. b. choose the price at which it sells its wheat. c. have any fixed costs of production. d. All of the above are correct.

b. choose the price at which it sells its wheat. TYPE: M

1 SECTION: 14.2 79. The Wheeler Wheat Farm has a long-term lease on 5,000 acres of land in South Dakota. The annual lease payment is $250,000. Prior to planting in the spring of 2001, the Wheeler Farm economist predicted that the Farm would have $135,000 dollars left after paying all of its costs except the annual lease payment. In this case, the Wheeler Wheat Farm should a. continue to operate because total revenue exceeds total cost. b. continue to operate even though it predicts an accounting loss of $115,000. c. shut down and experience an accounting loss of $135,000. d. exit the market and experience an accounting loss of $250,000.

b. continue to operate even though it predicts an accounting loss of $115,000. TYPE: M

1 SECTION: 14.2 21. Whenever a perfectly competitive firm chooses to change its level of output, holding the price of the product constant, its marginal revenue a. increases if MR < ATC and decreases if MR > ATC. b. does not change. c. increases. d. decreases.

b. does not change. TYPE: M

2 SECTION: 14.2 55. When the price is P2 and the firm maximizes its profit or minimizes its loss, the firm a. experiences a positive profit. b. experiences a zero profit. c. experiences a loss, but continues to operate. d. shuts down.

b. experiences a zero profit. TYPE: M

1 SECTION: 14.2 67. Firms that shut down in the short run still have to pay their a. variable costs. b. fixed costs. c. total cost. d. All of the above are correct.

b. fixed costs. TYPE: M

2 SECTION: 14.1 25. As a general rule, when accountants calculate profit they account for explicit costs but usually ignore a. certain outlays of money by the firm. b. implicit costs. c. operating costs. d. fixed costs.

b. implicit costs. TYPE: M

2 SECTION: 14.1 7. If the firm doubles its output from 3 to 6 units, total revenue will a. increase by less than $39. b. increase by exactly $39. c. increase by more than $39. d. It cannot be determined from the information provided.

b. increase by exactly $39. TYPE: M

2 SECTION: 14.2 45. If the firm finds that its marginal cost is $5, it should a. reduce fixed costs by lowering production. b. increase production to maximize profit. c. decrease production to maximize profit. d. maintain its current level of production to maximize profit.

b. increase production to maximize profit. TYPE: M

2 SECTION: 14.1 24. When a profit-maximizing firm in a competitive market has zero economic profit, accounting profit a. is negative (accounting losses). b. is positive. c. is also zero. d. could be positive, negative or zero.

b. is positive. TYPE: M

2 SECTION: 14.2 60. When price rises from P3 to P4, the firm finds that a. fixed costs are lower at a production level of Q4. b. it can earn a positive profit by increasing production to Q4. c. profit is maximized at a production level of Q3. d. average revenue exceeds marginal revenue at a production level of Q4.

b. it can earn a positive profit by increasing production to Q4. TYPE: M

2 SECTION: 14.2 99. By comparing marginal revenue and marginal cost, a firm in a competitive market is able to adjust production to the level that achieves its objective, which we assume to be a. maximization of total revenue. b. maximization of profit. c. minimization of variable cost. d. minimization of average total cost.

b. maximization of profit. TYPE: M

2 SECTION: 14.2 49. When marginal revenue equals marginal cost, the firm a. should increase the level of production to maximize its profit. b. may be minimizing its losses, rather than maximizing its profit. c. must be generating economic profits. d. must be generating economic losses.

b. may be minimizing its losses, rather than maximizing its profit. TYPE: M

1 SECTION: 14.1 22. If a firm in a competitive market reduces its output by 20 percent, then as a result the price of its output is likely to a. increase. b. remain unchanged. c. decrease by less than 20 percent. d. decrease by more than 20 percent.

b. remain unchanged. TYPE: M

2 SECTION: 14.1 29. How large would Mary's accounting profits need to be to allow her to attain zero economic profit? a. $100,000 b. $125,000 c. $175,000 d. $225,000

c. $175,000 TYPE: M

2 SECTION: 14.1 18. When a firm in a competitive market produces 10 units of output, it has a marginal revenue of $8.00. What would be the firm's total revenue when it produces 6 units of output? a. $4.80 b. $6.00 c. $48.00 d. $60.00

c. $48.00 TYPE: M

2 SECTION: 14.2 92. When a profit-maximizing firm is earning profits, those profits can be identified by a. P × Q. b. (MC - AVC) × Q. c. (P - ATC) × Q. d. (P - AVC) × Q.

c. (P - ATC) × Q. TYPE: M

2 SECTION: 14.2 The figure below depicts the cost structure of a firm in a competitive market. Use the figure to answer questions 86 through 88. 86. When market price is P5, a profit-maximizing firm's profits can be represented by the area a. P5 × Q3. b. (P5 - P3) × Q2. c. (P5 - P4) × Q3. d. When market price is P5 there are no profits.

c. (P5 - P4) × Q3. TYPE: M

Chapter 14 Firms in Competitive Markets MULTIPLE CHOICE 1. A market is competitive if (i) firms have the flexibility to price their own product. (ii) each buyer is small compared to the market. (iii) each seller is small compared to the market. a. (i) and (ii) only b. (i) and (iii) only c. (ii) and (iii) only d. All of the above are correct.

c. (ii) and (iii) only TYPE: M

2 SECTION: 14.2 The figure below depicts the cost structure of a profit-maximizing firm in a competitive market. Use the figure to answer questions 73 and 74. 73. Which line segment best reflects the long-run supply curve for this firm? a. AB b. BC c. CD d. None of the above, the long-run supply curve requires knowledge of the average variable cost structure.

c. CD TYPE: M

2 SECTION: 14.2 61. Which of the following statements best reflects the situation faced by the firm when price falls from P4 to P2? a. Average total cost is lower than at the previous level of output so it increases production. b. The firm will earn profit equal to (P4 - P2) × Q2. c. Marginal revenue is lower than marginal cost at the previous level of output, so it decreases production. d. Marginal revenue is higher than marginal cost at the previous level of output, so it increases production.

c. Marginal revenue is lower than marginal cost at the previous level of output, so it decreases production. TYPE: M

2 SECTION: 14.2 90. When market price is P4, a profit-maximizing firm's total cost can be represented by the area a. P4 × Q1 b. P4 × Q4 c. P2 × Q4 d. Total costs cannot be determined from the information in the figure.

c. P2 × Q4 TYPE: M

2 SECTION: 14.2 87. Firms would be encouraged to enter this market for all prices that exceed a. P1. b. P2. c. P3. d. None of the above are correct.

c. P3. TYPE: M

2 SECTION: 14.2 The graph below depicts the cost structure for a firm in a competitive market. Use the graph to answer questions 52 through 55. Note: On the above diagram, change the vertical-axis labels from MC1 to P1, MC2 to P2, etc. 52. When price is equal to P3, the profit-maximizing firm will produce what level of output? a. Q1 b. Q2 c. Q3 d. Q4

c. Q3 TYPE: M

2 SECTION: 14.1 Use the information in the table below to answer questions 4 through 7. Quantity Price 1 13 2 13 3 13 4 13 5 13 6 13 7 13 8 13 9 13 4. The price and quantity relationship in the table is most likely that faced by a firm in a a. monopoly. b. concentrated market. c. competitive market. d. strategic market.

c. competitive market. TYPE: M

1 SECTION: 14.1 9. If a firm in a perfectly competitive market triples the number of units of output sold, then total revenue will a. more than triple. b. less than triple. c. exactly triple. d. All of the above are potentially true.

c. exactly triple. TYPE: M

2 SECTION: 14.2 The graph below depicts the cost structure for a firm in a competitive market. Use the graph to answer questions 58 through 61. 58. When price rises from P2 to P3, the firm finds that a. marginal cost exceeds marginal revenue at a production level of Q2. b. if it produces at output level Q3 it will earn a positive profit. c. expanding output to Q4 would leave the firm with losses. d. All of the above are correct.

c. expanding output to Q4 would leave the firm with losses. TYPE: M

2 SECTION: 14.2 53. When market price is at P2, a firm producing output level Q1 would experience a. profits equal to (P2 - P1) × Q1. b. losses equal to (P2 - P1) × Q1. c. losses because P2 < ATC at output level Q1. d. zero profits.

c. losses because P2 < ATC at output level Q1. TYPE: M

2 SECTION: 14.2 98. For any given price, a firm in a competitive market will maximize profit by selecting the level of output at which price intersects the a. average total cost curve. b. average variable cost curve. c. marginal cost curve. d. marginal revenue curve.

c. marginal cost curve. TYPE: M

2 SECTION: 14.2 84. When profit-maximizing firms in competitive markets are earning profits, a. market demand must exceed market supply at the market equilibrium price. b. market supply must exceed market demand at the market equilibrium price. c. new firms will enter the market. d. the most inefficient firms will be encouraged to leave the market.

c. new firms will enter the market. TYPE: M

2 SECTION: 14.2 65. When a perfectly competitive firm makes a decision to shut down, it is most likely that a. marginal cost is above average variable cost. b. marginal cost is above average total cost. c. price is below the minimum of average variable cost. d. fixed costs exceed variable costs.

c. price is below the minimum of average variable cost. TYPE: M

1 SECTION: 14.2 68. When total revenue is less than variable costs, a firm in a competitive market will a. continue to operate as long as average revenue exceeds marginal cost. b. continue to operate as long as average revenue exceeds average fixed cost. c. shut down. d. always exit the industry.

c. shut down. TYPE: M

2 SECTION: 14.2 78. When fixed costs are ignored because they are irrelevant to a business's production decision, they are called a. explicit costs. b. implicit costs. c. sunk costs. d. opportunity costs.

c. sunk costs. TYPE: M

2 SECTION: 14.2 63. When price is greater than marginal cost for a firm in a competitive market, a. marginal cost must be falling. b. the firm must be minimizing its losses. c. there are opportunities to increase profit by increasing production. d. the firm should decrease output to maximize profit.

c. there are opportunities to increase profit by increasing production. TYPE: M

2 SECTION: 14.2 94. When a profit-maximizing firm's fixed costs are considered sunk in the short run, then the firm a. can set price above marginal cost. b. must set price below average total cost. c. will never show losses. d. can safely ignore fixed costs when deciding how much output to produce.

d. can safely ignore fixed costs when deciding how much output to produce. TYPE: M

2 SECTION: 14.1 28. What are Mary's opportunity costs of operating her new business? a. $25,000 b. $75,000 c. $100,000 d. $175,000

d. $175,000 TYPE: M

2 SECTION: 14.2 42. If this firm chooses to maximize profit it will choose a level of output where marginal cost is equal to a. 6. b. 7. c. 8. d. 9.

d. 9. TYPE: M

1 SECTION: 14.1 14. Which of the following statements best reflects a price-taking firm? a. If the firm were to charge more than the going price, it would sell none of its goods. b. The firm has no incentive to charge less than the going price. c. The firm can sell as much as it wants to sell at the going price. d. All of the above are correct.

d. All of the above are correct. TYPE: M

1 SECTION: 14.1 32. In a competitive market, a. each seller can sell all he wants to sell at the going price. b. buyers and sellers are price takers. c. the goods offered by the different sellers are largely the same. d. All of the above are correct.

d. All of the above are correct. TYPE: M

2 SECTION: 1.41 34. Which of the following expressions is correct for a competitive firm? a. Profit = Total revenue - Total cost. b. Marginal revenue = (Change in total revenue)/(Change in quantity of output). c. Average revenue = Total revenue/Quantity of output. d. All of the above are correct.

d. All of the above are correct. TYPE: M

2 SECTION: 14.2 57. The additional revenue a firm in a competitive market receives if it increases its production by one unit equals its a. marginal revenue. b. average revenue. c. price per unit of output. d. All of the above are correct.

d. All of the above are correct. TYPE: M

2 SECTION: 14.2 88. When market price is P2, a profit-maximizing firm's losses can be represented by the area a. (P3 - P2) × Q2. b. (P2 - P1) × Q2. c. At a market price of P2, the firm does not have losses. d. At a market price of P2 the firm has losses, but the reference points in the figure don't identify the losses.

d. At a market price of P2 the firm has losses, but the reference points in the figure don't identify the losses. TYPE: M

2 SECTION: 14.1 35. For a competitive firm, a. Total revenue = Average revenue. b. Total revenue = Marginal revenue. c. Total cost = Marginal revenue. d. Average revenue = Marginal revenue.

d. Average revenue = Marginal revenue. TYPE: M

1 SECTION: 14.1 5. Over which range of output is average revenue equal to price? a. 1 to 5 b. 3 to 7 c. 5 to 9 d. Average revenue is equal to price over the whole range of output.

d. Average revenue is equal to price over the whole range of output. TYPE: M

1 SECTION: 14.2 44. If the firm finds that its marginal cost is $11, it should a. increase production to maximize profit. b. increase the price of the product to maximize profit. c. advertise to attract additional buyers to maximize profit. d. None of the above are correct.

d. None of the above are correct. TYPE: M

2 SECTION: 14.2 The figure below depicts the cost structure of a profit-maximizing firm in a competitive market. Use the figure to answer questions 71 and 72. 71. Which line segment best reflects the short-run supply curve for this firm? a. BCD b. CD c. DE d. None of the above are correct.

d. None of the above are correct. TYPE: M

2 SECTION: 14.2 72. If the firm is in a short-run position where P < AVC, it is most likely to be on what segment of its supply curve? a. BC b. CD c. DE d. None of the above are correct.

d. None of the above are correct. TYPE: M

2 SECTION: 14.1 16. A competitive firm might choose to set its price below the market price, because a. this would result in higher average revenue. b. this would result in higher profits. c. this would result in lower total costs. d. None of the above are correct.

d. None of the above are correct. TYPE: M

1 SECTION: 14.1 6. Over what range of output is marginal revenue declining? a. 1 to 6 b. 3 to 7 c. 7 to 9 d. None; marginal revenue is constant over the whole range of output.

d. None; marginal revenue is constant over the whole range of output. TYPE: M

2 SECTION: 14.2 54. When market price is at P4, a profit-maximizing firm will produce what level of output? a. Q1 b. Q2 c. Q3 d. Q4

d. Q4 TYPE: M

2 SECTION: 14.1 20. Starting from a situation in which a firm in a competitive market produces and sells 500 door knobs for a price of $10 per doorknob, which of the following events would decrease the firm's average revenue? a. The firm increases its output above 500 doorknobs. b. The firm decreases its output below 500 doorknobs. c. The market price of doorknobs rises above $10. d. The market price of doorknobs falls below $10.

d. The market price of door knobs falls below $10. TYPE: M

1 SECTION: 14.1 36. For a competitive firm, a. average revenue equals the price of the good, but marginal revenue is different. b. marginal revenue equals the price of the good, but average revenue is different. c. average revenue equals marginal revenue, but the price of the good is different. d. average revenue, marginal revenue, and the price of the good are all equal to one another.

d. average revenue, marginal revenue, and the price of the good are all equal to one another. TYPE: M

2 SECTION: 14.2 82. When a profit-maximizing firm in a competitive market is unable to generate enough revenue to pay all of its fixed costs it should, in the short run, a. shut down and incur a loss equal to its fixed costs. b. shut down until it is able to produce where average revenue exceeds average fixed cost. c. continue to produce as long as marginal cost is less than average revenue. d. continue to produce as long as total revenue is sufficient to pay variable costs.

d. continue to produce as long as total revenue is sufficient to pay variable costs. TYPE: M

2 SECTION: 14.2 97. If a profit-maximizing firm in a competitive market discovers that at its current level of production price is greater than marginal cost it should a. shut down. b. reduce its output, but continue operating. c. keep output the same. d. increase its output.

d. increase its output. TYPE: M

2 SECTION: 14.2 59. When price falls from P3 to P1, the firm finds that a. fixed cost is higher at a production level of Q1 than it is at Q3. b. it should produce Q1 units of output. c. it should produce Q3 units of output. d. it is unwilling to produce any output.

d. it is unwilling to produce any output. TYPE: M

2 SECTION: 14.2 64. The short-run supply curve for a firm in a perfectly competitive market is a. likely to be horizontal. b. likely to slope downward. c. determined by forces external to the firm. d. its marginal cost curve (above average variable cost).

d. its marginal cost curve (above average variable cost). TYPE: M

2 SECTION: 14.2 95. A firm's short-run supply curve is part of which of the following curves? a. marginal revenue b. average variable cost c. average total cost d. marginal cost

d. marginal cost TYPE: M

2 SECTION: 14.2 93. When a profit-maximizing firm finds itself minimizing losses because it is unable to earn a positive profit, this task is accomplished by producing the quantity at which price is equal to a. sunk cost. b. average fixed cost. c. average variable cost. d. marginal cost.

d. marginal cost. TYPE: M

2 SECTION: 14.2 48. If marginal cost exceeds marginal revenue, the firm a. is most likely to be at a profit-maximizing level of output. b. should increase the level of production to maximize its profit. c. must be experiencing losses. d. may still be earning a profit.

d. may still be earning a profit. TYPE: M

1 SECTION: 14.1 26. In calculating accounting profit, accountants typically don't include a. long-run costs. b. sunk costs. c. explicit costs of production. d. opportunity costs that do not involve an outflow of money.

d. opportunity costs that do not involve an outflow of money. TYPE: M

2 SECTION: 14.2 85. Profit-maximizing firms enter a competitive market when, for existing firms in that market, a. total revenue exceeds fixed costs. b. total revenue exceeds total variable costs. c. average total cost exceeds average revenue. d. price exceeds average total cost.

d. price exceeds average total cost. TYPE: M

2 SECTION: 14.2 62. A profit-maximizing firm in a competitive market will always make marginal adjustments to production as long as a. average revenue is greater than average total cost. b. average revenue is equal to marginal cost. c. marginal cost is greater than average total cost. d. price is above or below marginal cost.

d. price is above or below marginal cost. TYPE: M

1 SECTION: 14.1 12. When buyers in a competitive market take the selling price as given, they are said to be a. market entrants. b. monopolists. c. free riders. d. price takers.

d. price takers. TYPE: M

2 SECTION: 14.2 50. When managers of firms think at the margin and make incremental adjustments to the level of production, they are naturally led to a level of production where a. average variable cost exceeds marginal cost. b. total cost is less than average revenue. c. costs are minimized. d. profit is maximized.

d. profit is maximized. TYPE: M

1 SECTION: 14.1 10. Because the goods offered for sale in a competitive market are largely the same, a. there will be few sellers in the market. b. there will be few buyers in the market. c. buyers will have market power. d. sellers will have little reason to charge less than the going market price.

d. sellers will have little reason to charge less than the going market price. TYPE: M

2 SECTION: 14.2 46. The Wheeler Wheat Farm sells wheat to a grain broker in Seattle, Washington. Since the market for wheat is generally considered to be competitive, the Wheeler Wheat Farm maximizes its profit by choosing a. to produce the quantity at which average total cost is minimized. b. to produce the quantity at which average fixed cost is minimized. c. to sell its wheat at a price where marginal cost is equal to average total cost. d. the quantity at which market price is equal to the farm's marginal cost of production.

d. the quantity at which market price is equal to the farm's marginal cost of production. TYPE: M