ECON 201 FINAL

An agreement among firms in a market about quantities to produce or prices to charge is called a. collusion .b. Nash equilibrium c;.dominant strategy. d. behavioral economics.

.b. Nash equilibrium

For any country, if the world price of copper is lower than the domestic price of copper without trade, that country should a. export copper .b. import copper .c. neither export nor import copper, since that country cannot gain from trade .d. neither export nor import copper, since that country already produces copper at a low cost compared to other countries.

.b. import copper

A monopoly a. can set the price it charges for its output and earn unlimited profits. b. takes the market price as given and earns small but positive profits .c. can set the price it charges for its output but faces a downward-sloping demand curve so it cannot earn unlimited profits. d. can set the price it charges for its output but faces a horizontal demand curve so it can earn unlimited profits.

.c. can set the price it charges for its output but faces a downward-sloping demand curve so it cannot earn unlimited profits.

At the profit-maximizing level of output, a. marginal revenue equals average total cost. b. marginal revenue equals average variable cost .c. marginal revenue equals marginal cost. d. average revenue equals average total cost.

.c. marginal revenue equals marginal cost.

In the short run, a firm operating in a monopolistically competitive market a. produces an efficient output level. b. chooses the maximum price to maximize profits. c. produces where marginal cost is minimized .d. chooses a price that exceeds marginal revenue.

.d. chooses a price that exceeds marginal revenue.

Assume, for Mexico, that the domestic price of oranges without international trade is lower than the world price of oranges. This suggests that, in the production of oranges, a. Mexico has a comparative advantage over other countries and Mexico will export oranges .b. Mexico has a comparative advantage over other countries and Mexico will import oranges. c. other countries have a comparative advantage over Mexico and Mexico will export oranges .d. other countries have a comparative advantage over Mexico and Mexico will import oranges.

a. Mexico has a comparative advantage over other countries and Mexico will export oranges

Which of the following firms is the closest to being a perfectly competitive firm? a. a hot dog vendor in New York b. Microsoft Corporation c. Ford Motor Company d. the campus bookstore

a. a hot dog vendor in New York

In general, game theory is the study of a. how people behave in strategic situations. b. how people behave when the possible actions of other people are irrelevant. c. oligopolistic markets. d. all types of markets, including competitive markets, monopolistic markets, and oligopolistic markets.

a. how people behave in strategic situations.

As the number of firms in an oligopoly increases, the a. price approaches marginal cost, and the quantity approaches the socially efficient level .b. price and quantity approach the monopoly levels. c. price effect exceeds the output effect. d. individual firms' profits increase.

a. price approaches marginal cost, and the quantity approaches the socially efficient level

When a country allows trade and becomes an exporter of a good, a. the gains of the domestic producers of the good exceed the losses of the domestic consumers of the good. b. the gains of the domestic consumers of the good exceed the losses of the domestic producers of the good. c. the losses of the domestic producers of the good exceed the gains of the domestic consumers of the good .d. the losses of the domestic consumers of the good exceed the gains of the domestic producers of the good.

a. the gains of the domestic producers of the good exceed the losses of the domestic consumers of the good.

In studying oligopolistic markets, economists assume that a. there is no conflict or tension between cooperation and self-interest. b. it is easy for a group of firms to cooperate and thereby establish and maintain a monopoly outcome. c. each oligopolist cares only about its own profit. d. strategic decisions do not play a role in such markets.

a. there is no conflict or tension between cooperation and self-interest.

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

Mrs. Smith is operating a firm in a competitive market. The market price is $6.50. At her profit-maximizing level of output, her average total cost of production is $7.00, and her average variable cost of production is $6.00. Which of the following statements about Mrs. Smith's firm is correct? a. Mrs. Smith is earning a loss and should shut down in the short run. b. Mrs. Smith is earning a loss but should continue to operate in the short run. c. Mrs. Smith is earning a profit since the price is above the average variable cost. d. Without knowing Mrs. Smith's marginal cost, we cannot determine whether she should stay in business or shut down.

b. Mrs. Smith is earning a loss but should continue to operate in the short run.

Land of Many Lakes (LML) sells butter to a broker in Albert Lea, Minnesota. Because the market for butter is generally considered to be competitive, LML a. can choose the price at which it sells its butter but not the quantity of butter that it produces. b. can choose quantity of butter that it produces but not the price at which it sells its butter .c. can choose both the price at which it sells its butter and the quantity of butter that it produces. d. cannot choose either the price at which it sells it butter or the quantity of butter that it produces.

b. can choose quantity of butter that it produces but not the price at which it sells its butter

Which of the following pairs illustrates the two extreme examples of market structures? a. competition and oligopoly b. competition and monopoly c. monopoly and monopolistic competition d. oligopoly and monopolistic competition

b. competition and monopoly

Whenever a perfectly competitive firm chooses to change its level of output, 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

The simplest type of oligopoly is a. monopoly. b. duopoly .c. monopolistic competition. d. oligopolistic competition.

b. duopoly

When a country that imports a particular good imposes a tariff on that good ,a. producer surplus increases and total surplus increases in the market for that good. b. producer surplus increases and total surplus decreases in the market for that good. c. producer surplus decreases and total surplus increases in the market for that good. d. producer surplus decreases and total surplus decreases in the market for that good.

b. producer surplus increases and total surplus decreases in the market for that good.

A key characteristic of a competitive market is that a. government antitrust laws regulate competition. b. producers sell nearly identical products. c. firms minimize total costs. d. firms have price setting power.

b. producers sell nearly identical products.

8. Suppose Brazil has a comparative advantage over other countries in producing almonds, but other countries have an absolute advantage over Brazil in producing almonds. If trade in almonds is allowed, Brazil a. will import almonds. b. will export almonds. c. will either import almonds or export almonds, but it is not clear from the given information .d. would have nothing to gain either from exporting or importing almonds.

b. will export almonds.

28. Suppose a firm in a competitive market produces and sells 150 units of output and earns $1,800 in total revenue from the sales. If the firm increases its output to 200 units, the average revenue of the 200th unit will be a. less than $12. b. more than $12. c. $12. d. Any of the above may be correct depending on the price elasticity of demand for the product.

c. $12

Which of the following is not a characteristic of a competitive market? a. Buyers and sellers are price takers. b. Each firm sells a virtually identical product. c. Entry is limited. d. Each firm chooses an output level that maximizes profits.

c. Entry is limited.

Which of the following is not a difference between monopolies and perfectly competitive markets? a. Monopolies can earn profits in the long run while perfectly competitive firms break even. b. Monopolies charge a price higher than marginal cost while perfectly competitive firms charge a price equal to marginal cost. c. Monopolies choose to produce the quantity at which marginal revenue equals marginal cost while perfectly competitive firms do not. d. Monopolies face downward sloping demand curves while perfectly competitive firms face horizontal demand curves.

c. Monopolies choose to produce the quantity at which marginal revenue equals marginal cost while perfectly competitive firms do not.

Which of the following statements is not correct? a. Monopolistic competition is similar to monopoly because in each market structure the firm can charge a price above marginal costs .b. Monopolistic competition is similar to perfect competition because both market structures are characterized by free entry. c. Monopolistic competition is similar to oligopoly because both market structures are characterized by barriers to entry. d. Monopolistic competition is similar to perfect competition because both market structures are characterized by many sellers.

c. Monopolistic competition is similar to oligopoly because both market structures are characterized by barriers to entry.

Which of the following conditions is characteristic of a monopolistically competitive firm in short-run equilibrium? a. P > AR b. MR > MC c. P > MC d. All of the above are correct.

c. P > MC

For a firm operating in a competitive industry, which of the following statements is not correct? a. Price equals average revenue. b. Price equals marginal revenue. c. Total revenue is constant. d. Marginal revenue is constant.

c. Total revenue is constant.

Most economists view the United States' experience with trade as a. one from which no firm conclusions about the virtues of free trade can be reached, due to the relatively short history of international trade in the U.S. b. one from which no firm conclusions about the virtues of free trade can be reached, due to the lack of trade within the U.S. throughout most of the early history of the U.S. c. an ongoing experiment that confirms the virtues of free trade. d. an ongoing experiment that calls into serious question the notion that free trade enhances the economic well-being of a nation.

c. an ongoing experiment that confirms the virtues of free trade.

Monopolies use their market power to a. charge prices that equal minimum average total cost. b. increase the quantity sold as they increase price. c. charge a price that is higher than marginal cost. d. dump excess supplies of their product on the market.

c. charge a price that is higher than marginal cost.

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.

When a country allows trade and becomes an importer of a good, a. both domestic producers and domestic consumers become better off. b. domestic producers become better off, and domestic consumers become worse off. c. domestic producers become worse off, and domestic consumers become better off. d. both domestic producers and domestic consumers become worse off.

c. domestic producers become worse off, and domestic consumers become better off.

Suppose that in a competitive market the equilibrium price is $2.50. What is marginal revenue for the last unit sold by the typical firm in this market? a. less than $2.50 b. more than $2.50 c. exactly $2.50 d. The marginal revenue cannot be determined without knowing the actual quantity sold by the typical firm.

c. exactly $2.50

23. For any competitive market, the supply curve is closely related to the a. preferences of consumers who purchase products in that market. b. income tax rates of consumers in that market. c. firms' costs of production in that market. d. interest rates on government bonds.

c. firms' costs of production in that market.

Which of the following is not a characteristic of a monopoly? a. barriers to entry b. one seller c. one buyer d. a product without close substitutes

c. one buyer

The Nash equilibrium for this game is a. 10 units of output for Firm A and 10 units of output for Firm B. b. 10 units of output for Firm A and 12 units of output for Firm B. c. 12 units of output for Firm A and 10 units of output for Firm B. d. 12 units of output for Firm A and 12 units of output for Firm B.

d. 12 units of output for Firm A and 12 units of output for Firm B.

41. 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.

Costa Rica allows trade with the rest of the world. We can determine whether Costa Rica has a comparative advantage in producing pharmaceuticals if we a. know whether Costa Rica imports or exports pharmaceuticals. b. compare the world price of pharmaceuticals to the price of pharmaceuticals that would prevail in Costa Rica if trade with the rest of the world were not allowed. c. compare the quantity of pharmaceuticals consumed in Costa Rica with the quantity of pharmaceuticals that would be consumed in Costa Rica if trade with the rest of the world were not allowed. d. All of the above are correct.

d. All of the above are correct.

The market for soybeans in Canada consists solely of domestic buyers of soybeans and domestic sellers of soybeans if a. consumer surplus equals producer surplus in the Canadian soybean market .b. total surplus exceeds consumer surplus in the Canadian soybean market. c. Canada permits international trade in soybeans. d. Canada forbids international trade in soybeans.

d. Canada forbids international trade in soybeans.

Which of the following statements is correct? a. Strategic situations are more likely to arise when the number of decision-makers is very large rather than very small .b. Strategic situations are more likely to arise in monopolistically competitive markets than in oligopolistic markets. c. Game theory is useful in understanding certain business decisions, but it is not really applicable to ordinary games such as chess or tic-tac-toe. d. Game theory is not necessary for understanding competitive or monopoly markets.

d. Game theory is not necessary for understanding competitive or monopoly markets.

Which of the following statements about oligopolies is not correct? a. An oligopolistic market has only a few sellers. b. The actions of any one seller can have a large impact on the profits of all other sellers. c. Oligopolistic firms are interdependent in a way that competitive firms are not. d. Unlike monopolies and monopolistically competitive markets, oligopolies prices do not exceed their marginal revenues.

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

Which of the following is not an important question for economic policy raised by the experience of the textile industry? a. How does international trade affect consumer well-being? b. Who gains and who loses from free trade among countries?c. How do the gains from trade compare to the losses? d. Which argument for restricting free trade is politically feasible?

d. Which argument for restricting free trade is politically feasible?

A tariff is a tax placed on a. an exported good and it lowers the domestic price of the good below the world price .b. an exported good and it ensures that the domestic price of the good stays the same as the world price. c. an imported good and it lowers the domestic price of the good below the world price. d. an imported good and it raises the domestic price of the good above the world price.

d. an imported good and it raises the domestic price of the good above the world price.

The nation of Wheatland forbids international trade. In Wheatland, you can buy 1 pound of corn for 3 pounds of fish. In other countries, you can buy 1 pound of corn for 2 pounds of fish. These facts indicate that a. Wheatland has a comparative advantage, relative to other countries, in producing corn. b. other countries have a comparative advantage, relative to Wheatland, in producing fish. c. the price of fish in Wheatland exceeds the world price of fish. d. if Wheatland were to allow trade, it would import corn.

d. if Wheatland were to allow trade, it would import corn.

When a profit-maximizing firm in a monopolistically competitive market charges a price higher than marginal cost, a. the firm must be earning a positive economic profit. b. the firm may be incurring economic losses c. there is a deadweight loss to society, but it is exactly offset by the benefit of excess capacity. d. new firms will enter the market in the long run.

d. new firms will enter the market in the long run.

1. A logical starting point from which the study of international trade begins is a. the recognition that not all markets are competitive. b. the recognition that government intervention in markets sometimes enhances the economic welfare of the society. c. the principle of absolute advantage. d. the principle of comparative advantage

d. the principle of comparative advantage.

The price of sugar that prevails in international markets is called the a. export price of sugar .b. import price of sugar. c. comparative-advantage price of sugar. d. world price of sugar.

d. world price of sugar.