Econ 202 Quiz 4

4. Use Figure: Profit Maximization for a Firm in Monopolistic Competition. Suppose that an innovation reduces a firm's costs from ATC to ATC′. Before the innovation reduced the cost, the firm's economic profit at the profit-maximizing quantity was: A. $0. B. $4,500. C. $750. D. $30.

A. $0.

Use Figure: The Profit-Maximizing Output and Price. Assume that there are no fixed costs and AC = MC = $200. The profit-maximizing output for a monopolist is: A. 20. B. 8. C. 16. D. 0.

B. 8.

Large barriers to entry are one reason that a monopoly: A. produces at the minimum average total cost in the long run. B. earns an economic profit in the long run. C. maximizes its profits by producing where P = MC. D. produces with no fixed costs in the long run.

B. earns an economic profit in the long run.

12. Industries that are made up of many competing producers, each selling a differentiated product, and whose firms earn zero economic profits in the long run are: A. monopolies. B. perfectly competitive. C. oligopolies. D. monopolistically competitive.

D. monopolistically competitive.

(Figure: Short-Run Monopoly) Use Figure: Short-Run Monopoly. The marginal cost of producing the profit-maximizing quantity is cost: A. Q. B. N. C. P. D. O.

C. P.

Price discrimination leads to a _____ price for consumers with a _____ demand. A. higher; less elastic B. higher; perfectly elastic C. lower; less elastic D. higher; more elastic

A. higher; less elastic

3. A monopolistically competitive firm has a downward-sloping demand curve for its product, primarily because: A. its product is differentiated. B. there are many sellers in the industry. C. there are no barriers to entry or exit in the long run. D. the price is greater than the marginal revenue.

A. its product is differentiated.

2. A feature of monopolistic competition that makes it different from monopoly is the: A. number of firms in the industry. B. fact that firms in monopolistically competitive industries follow the marginal decision rule, while monopolies do not. C. downward-sloping marginal revenue curve. D. downward-sloping demand curve.

A. number of firms in the industry.

8. A monopolistically competitive firm has excess capacity in the long run. This means that it: A. produces less than the output at which average total costs are minimized. B. produces less than the output at which price and marginal cost are equal. C. could produce more by moving to a larger plant. D. doesn't maximize profits.

A. produces less than the output at which average total costs are minimized.

6. Use Figure: The Restaurant Market. The figure shows curves facing a typical restaurant. Assume that many firms, differentiated products, and easy entry and exit characterize the market. In the long run: A. restaurants will enter the market. B. Not enough information is given to answer the question. C. restaurants will leave the market. D. restaurants will neither enter nor exit the market.

A. restaurants will enter the market.

Suppose a monopoly can separate its customers into two groups. If the monopoly practices price discrimination, it will charge the lower price to the group with: A. the higher price elasticity of demand. B. the lower price elasticity of demand. C. The answer cannot be determined with the information given. D. the fewer close substitutes

A. the higher price elasticity of demand.

Use Figure: PPV. The figure shows the demand and marginal revenue for a pay-per-view football game on cable TV. Assume that the marginal cost and average cost are a constant $40. If the cable company practices perfect price discrimination, consumer surplus will be: A. $100. B. $0. C. $40. D. $180.

B. $0.

The accompanying diagram illustrates your local electricity company's natural monopoly. The diagram shows the demand curve for kilowatt-hours (kWh) of electricity, the company's marginal revenue (MR) curve, its marginal cost (MC) curve, and its average total cost (ATC) curve. The government wants to regulate the monopolist by imposing a price ceiling. If the government does not regulate this monopolist, which price will it charge? A. $0.30 B. $0.80 C. $0.40 D. $0.50

B. $0.80

16. For the following situation, decide whether advertising is directly informative about the product or simply an indirect signal of its quality. A newspaper ad states, "For sale: 1999 Honda Civic, 160,000 miles, new transmission." A. Advertising is both directly informative and an indirect signal of quality. B. Advertising is directly informative. C.Advertising is neither directly informative nor an indirect signal of quality. D.Advertising is an indirect signal of quality.

B. Advertising is directly informative.

Bob, Bill, Ben, and Brad Baxter have just made a documentary movie about their basketball team. They are thinking about making the movie available for download on the Internet, and they can act as a single-price monopolist if they choose to. Each time the movie is downloaded, their Internet service provider charges them a fee of $4. The Baxter brothers are arguing about which price to charge customers per download. The accompanying table shows the demand schedule for their film. Calculate the total revenue and the marginal revenue per download. Based on your calculations, choose the correct statement. A. Maximum TR occurs where MR = $8. B. Maximum TR is $24. C. MR increases as more downloads are sold. D. TR increases as more downloads are sold.

B. Maximum TR is $24.

Consider an industry with the demand curve (D) and marginal cost curve (MC) shown in the accompanying diagram. Assume there is no fixed cost. If the industry is a single-price monopoly, the monopolist's marginal revenue curve would be MR. If the industry is perfectly competitive, the market equilibrium will be at what point? A. Point K B. Point R C. Point F D. Point H

B. Point R

Consider an industry with the demand curve (D) and marginal cost curve (MC) shown in the accompanying diagram. Assume there is no fixed cost. If the industry is a single-price monopoly, the monopolist's marginal revenue curve would be MR. Which area reflects the single-price monopolist's profit? A. Triangle AFB B. Rectangle BEHF C. Triangle ARE D. Rectangle BCGF

B. Rectangle BEHF

Consider an industry with the demand curve (D) and marginal cost curve (MC) shown in the accompanying diagram. Assume there is no fixed cost. If the industry is a single-price monopoly, the monopolist's marginal revenue curve would be MR. Which area reflects the deadweight loss to society from single-price monopoly? A. Triangle FJK B. Triangle FRH C. Rectangle BEHF D. Rectangle BCGF

B. Triangle FRH

You own a lemonade stand in a competitive market, and as such, you are a price-taking firm. Which event would MOST likely increase your market power? A. The government abolishes the system of patents and copyrights. B. You acquire exclusive rights to harvest lemons from all domestic citrus orchards. C. The average total cost curve for firms in the industry becomes horizontal. D. A booming economy increases the demand for lemonade and attracts entry into the market.

B. You acquire exclusive rights to harvest lemons from all domestic citrus orchards.

Chiquita, a supplier of bananas and owner of most banana plantations, possesses market power. What is the source of Chiquita's market power? A. increasing returns to scale B. control over a scarce resource C. a government-created barrier to entry

B. control over a scarce resource

1. The wedding dress industry is monopolistically competitive. As a result: A. prices tend to be lower than if the dress industry approximated perfect competition. B. dresses tend to be differentiated among the many sellers serving this market. C. thousands of dress suppliers all sell identical products. D. it has freedom of entry but not exit.

B. dresses tend to be differentiated among the many sellers serving this market.

11. Defenders of advertising argue that it: A. seeks to persuade, rather than inform, buyers. B. provides education and information about products. C. encourages artificial product differentiation. D. facilitates the concentration of monopoly power.

B. provides education and information about products.

(Figure: A Profit-Maximizing Monopoly Firm) Use Figure: A Profit-Maximizing Monopoly Firm. This firm's cost per unit at its profit-maximizing quantity is: A. $15. B. $8. C. $18. D. $20.

C. $18.

15. For the following situation, decide whether advertising is directly informative about the product or simply an indirect signal of its quality. Football great Peyton Manning drives a Buick in a TV commercial and claims that he prefers it to any other car. A. Advertising is neither directly informative nor an indirect signal of quality. B. Advertising is both directly informative and an indirect signal of quality. C. Advertising is an indirect signal of quality.

C. Advertising is an indirect signal of quality.

10. Which statement is TRUE? A. Monopolistic competition is efficient because of product differentiation. B. The inefficiency of monopolistic competition is a result of advertising expenses. C. The inefficiency of monopolistic competition is arguably a small price to pay for the wide range of product choices it offers. D. Monopolistic competition and perfect competition are both inefficient.

C. The inefficiency of monopolistic competition is arguably a small price to pay for the wide range of product choices it offers.

Consider an industry with the demand curve (D) and marginal cost curve (MC) shown in the accompanying diagram. Assume there is no fixed cost. If the industry is a single-price monopoly, the monopolist's marginal revenue curve would be MR. Which area reflects consumer surplus under single-price monopoly? A. Triangle ACK B. Triangle ARE C. Triangle AFB D. Rectangle BEHF

C. Triangle AFB

Use Figure: Monopoly Model. When the firm is in equilibrium (that is, maximizing its economic profit), its total revenue is the area of rectangle: A. 0PDJ. B. SPDB. C. IPDH. D. 0SBJ.

A. 0PDJ.

The diagram shows the demand curve for kilowatt-hours (kWh) of electricity, the company's marginal revenue (MR) curve, its marginal cost (MC) curve, and its average total cost (ATC) curve. The government wants to regulate the monopolist by imposing a price ceiling.If the government imposes a price ceiling of $0.50, will the monopolist make a profit, lose money, or break even? A. The monopolist will break even. B. The monopolist will have a large profit. C. The monopolist will incur a loss. D. The monopolist will have a small profit.

A. The monopolist will break even.

Merck, the producer of the patented cholesterol-lowering drug, Zetia, possesses market power. What is the source of Merck's market power? A. a government-created barrier to entry B. increasing returns to scale C. control over a scarce resource

A. a government-created barrier to entry

The Walt Disney Company, the creators of Mickey Mouse, possesses market power. What is the source of the company's market power? A. a government-created barrier to entry B. increasing returns to scale C. control over a scarce resource

A. a government-created barrier to entry

The diagram shows the demand curve for kilowatt-hours (kWh) of electricity, the company's marginal revenue (MR) curve, its marginal cost (MC) curve, and its average total cost (ATC) curve. The government wants to regulate the monopolist by imposing a price ceiling.If the government imposes a price ceiling equal to the marginal cost, $0.30, will the monopolist make profits or lose money? If the government does impose this price ceiling, will the firm continue to produce in the long run? A. The monopolist will incur a loss, but in the long run it will continue to produce. B. The monopolist will break even, and in the long run it will exit the market. C. The monopolist will incur a loss, and in the long run it will exit the market. D. The monopolist will have a small profit, but in the long run it will exit the market.

C. The monopolist will incur a loss, and in the long run it will exit the market.

Consider an industry with the demand curve (D) and marginal cost curve (MC) shown in the accompanying diagram. Assume there is no fixed cost. If the industry is a single-price monopoly, the monopolist's marginal revenue curve would be MR. Which area reflects consumer surplus under perfect competition? A. Triangle AFB B. Triangle AKC C. Triangle ARE D. Rectangle BFGC

C. Triangle ARE

The demand curve for a monopoly is: A. identical to the MR curve. B. the MR curve above the horizontal axis. C. also the industry demand curve. D. the MC curve above the AVC curve.

C. also the industry demand curve.

WaterWorks, a provider of piped water to homes, possesses market power. What is the source of WaterWorks' market power? A. a government-created barrier to entry B. control over a scarce resource C. increasing returns to scale

C. increasing returns to scale

7. Use Figure: Monopolistic Competition IV. The firm in the figure is producing at the output level that maximizes profits (minimizes losses). The shaded rectangle represents the firm's: A. variable cost. B. fixed cost. C. profit. D. loss.

C. profit.

The demand curve for a monopoly is: A. the entire MR curve. B. the MR curve above the horizontal axis. C. the MR curve above the AVC curve. D. above the MR curve.

D. above the MR curve.

13. Both monopolists and monopolistic competitors: A. have high barriers to entry. B. produce a product for which there are no substitutes. C. make positive economic profits in the long run. D. charge a price that is greater than the marginal cost of production.

D. charge a price that is greater than the marginal cost of production.

9. In long-run equilibrium, a firm in monopolistic competition is similar to a monopoly because it: A. earns no economic profit. B. charges a price equal to marginal cost. C. charges a price equal to average total cost. D. charges a price greater than marginal cost.

D. charges a price greater than marginal cost.

Diamond rings are relatively scarce because: A. the demand for diamonds is so high.according to geologists, B. diamonds are less common than is any other gem-quality stone. C. of monopolistic competition. D. diamond producers limit the quantity supplied to the market.

D. diamond producers limit the quantity supplied to the market.

5. The model of monopolistic competition characterizes the market for plumbing services in a city. Suppose that the market is in long-run equilibrium. For a typical plumbing firm, price: A. is greater than the average for all other firms in the market. B. is less than average total cost. C. exceeds average total cost. D. equals average total cost.

D. equals average total cost.

Consider an industry with the demand curve (D) and marginal cost curve (MC) shown in the accompanying diagram. Assume there is no fixed cost. If the industry is a single-price monopoly, the monopolist's marginal revenue curve would be MR. If the industry is a single-price monopoly, what quantity will the monopolist produce? Which price will it charge? A. price E and quantity S B. price C and quantity M C. price E and quantity I D. price B and quantity I

D. price B and quantity I

14. The market structure of the local gas station industry is monopolistic competition. Suppose that currently each gas station incurs a loss. In the long run, ______. A. so many gas stations will exit the industry that it will become an oligopoly B. some gas stations will exit the industry, and each remaining gas station makes a positive profit C. some gas stations will exit the industry, but each remaining gas station still incurs a loss D. some gas stations will exit the industry, and each remaining gas station makes zero profit

D. some gas stations will exit the industry, and each remaining gas station makes zero profit