Econ
Which of the following is necessary for a firm to practice price discrimination? A The government strictly enforces antitrust laws. B The firm is a member of a cartel. C The firm can prevent resale of its goods. D The demand curve for the product is perfectly inelastic. E The demand curve for the product is perfectly elastic.
The firm can prevent resale of its goods.
A perfectly competitive market in equilibrium is allocatively efficient and it maximizes A total consumer surplus B total producer surplus C the sum of total consumer surplus and total producer surplus D total revenue E total external benefits
the sum of total consumer surplus and total producer surplus
If the firm produces 10 units of output, its economic profits will equal A 0 B $50 C $100 D $150 E
$50
Which of the following statements concerning a natural monopoly is true? A Average total cost is always less than marginal cost in the long run. B At the allocatively efficient level of output, monopoly profit and deadweight loss are both equal to zero. C If the monopolist chooses to produce the quantity at which price is equal to average cost, it would earn a normal profit. D The monopolist can earn positive economic profits by producing the allocatively efficient output in the short run. E Production efficiency could be improved if another firm were to enter and compete with the single monopolist.
If the monopolist chooses to produce the quantity at which price is equal to average cost, it would earn a normal profit.
For a perfectly competitive firm producing the profit-maximizing quantity, the average total cost is $10 and the average variable cost is $8. If the market price for its product is $10, which of the following is true for the firm? A It is sustaining a loss and should shut down. B It is earning zero economic profit and will remain in business. C Its accounting profits exceed implicit costs. D It will temporarily shut down until price rises. E It is making an economic profit that will attract other firms to the industry.
It is earning zero economic profit and will remain in business.
A typical firm in a perfectly competitive constant-cost industry is operating with an economic loss in the short run. When the industry returns to long-run equilibrium, what will happen to the number of firms in the industry, the market price, and the typical firm's quantity? Number of FirmsMarket PriceFirm's QuantityDecreaseIncreaseIncrease B Number of FirmsMarket PriceFirm's QuantityDecreaseDecreaseIncrease C Number of FirmsMarket PriceFirm's QuantityDecreaseIncreaseDecrease D Number of FirmsMarket PriceFirm's QuantityIncreaseIncreaseDecrease E Number of FirmsMarket PriceFirm's QuantityIncreaseDecreaseDecrease
Number of firms: Decrease Market Price: Increase Firm's Quantity: Increase
Which of the following enables a seller to capture the entire consumer surplus in a market? A Perfect price discrimination B Perfect competition C An excise tax on buyers D Effective price ceiling E Effective price floor
Perfect price discrimination
A monopolist introduces a technological innovation that lowers the marginal cost and average cost of production. The price of the good and the level of output are most likely to change in which of the following ways? A PriceLevel of Output Remain constantRemain constant B PriceLevel of OutputRemain constantIncrease C PriceLevel of OutputIncreaseDecrease D PriceLevel of OutputDecreaseIncrease E PriceLevel of OutputDecreaseRemain constant
Price Decrease and Quantity Increase
If the monopolist chooses to maximize total revenue rather than total profit, it will choose which combination of price and output? A PriceOutputP1Q5 B PriceOutputP2Q4 C PriceOutputP3Q3 D PriceOutputP4Q4 E PriceOutputP5Q5
Price: P3 Quantity: Q3
Which of the following is a characteristic of firms in a perfectly competitive industry? A Engaging in collusive behavior B Facing significant barriers to entry C Setting the market price D Producing identical products E Earning positive long-run economic profit
Producing identical products
If the monopolist is unregulated, its profitmaximizing price and output level would lead to a deadweight loss equal to area A RUV B RTV C RTW D TUV E UVW
RTV
Assume that a firm that produces a good in a constant-cost perfectly competitive industry is in long-run equilibrium. If the demand for the good increases, the profit-maximizing output by the firm will change in which of the following ways in the short run and long run? A Short RunLong RunReturn to original levelReturn to original level B Short RunLong RunIncreaseIncrease C Short RunLong RunIncreaseReturn to original level D Short RunLong RunDecreaseDecrease E Short RunLong RunDecreaseReturn to original level
Short run: Increase Long run: Return to its original level
Which of the following segments of the marginal cost curve lies entirely on the firm's short-run supply curve? A TUV B STU C RSTU D RSTUV E RS
TUV
Which of the following is true for a monopoly but NOT for a perfectly competitive firm? A The firm maximizes profit by equating marginal cost to marginal revenue. B The firm's demand curve is the same as its average revenue curve. C At the profit-maximizing output level, price is less than marginal revenue. D The firm faces a downward-sloping demand curve. E The firm earns zero economic profit in the long run.
The firm faces a downward-sloping demand curve.
Assume a profit-maximizing monopolist is able to price discriminate, dividing its consumers into two distinct groups charging each a different price. Based on this information, which of the following is true? A The monopolist would earn greater profit charging each consumer the same price, not charging two different prices. B The price discrimination can only be successful if one group can resell the product but the other group cannot. C The group with the more elastic demand will pay the lower price. D The consumers with less willingness to pay will pay the higher price. E The group with greater production costs will pay a lower price.
The group with the more elastic demand will pay the lower price
Which of the following is true for a monopolist that engages in perfect price discrimination? A The firm sells the profit-maximizing quantity of the regular monopolist but charges each consumer a price higher than the regular monopoly price. B There is more consumer surplus than exists with a regular monopoly. C The monopolist further restricts output compared to the regular monopoly, creating greater deadweight loss. D The monopolist sells the allocatively efficient quantity of output. E The monopolist no longer faces a downward-sloping demand curve, becoming a price taker.
The monopolist sells the allocatively efficient quantity of output.
The firm's economic profit is equal to A area 0P3 JQ1 B area 0P2 KQ1 C area P2 P3 JK D area P1 P3 JL E zero
area P2 P3 JK
Which of the following can give a firm market power? A Having access to common information B Producing a standardized or homogeneous product C Lacking barriers to entry or exit D Having a large number of competitors in the market E Having economies of scale in production over the range of market output
Having economies of scale in production over the range of market output
In the diagram above, the deadweight loss from a profit-maximizing monopolist is represented by area A FGK B FHI C IJK D GHIK E 0HIQ
IJK
A profit-maximizing, perfectly competitive firm is currently in long-run equilibrium. It is earning $15,000 of total revenue from a sale of 1,000 units. Its total fixed cost of production is $2,500. Which of the following can correctly be inferred from the information provided? A Its marginal cost is $12.50, and its average total cost is $12.50. B Its marginal cost is $12.50, and its average variable cost is $12.50. C Its marginal cost is $15.00, and its average total cost is $12.50. D Its marginal cost is $15.00, and its average variable cost is $12.50. E Its marginal cost is $15.00, and its average fixed cost is $12.50.
Its marginal cost is $15.00, and its average variable cost is $12.50.
Reff Corp is a firm with total revenue of $1,000, marginal cost of $5, and average variable cost of $4. Both the output and the input markets are perfectly competitive, and Reff Corp is currently in long-run equilibrium. Reff Corp's output and total fixed cost of production must be equal to which of the following? A OutputFixed Cost250$800 B OutputFixed Cost250$400 C OutputFixed Cost200$200 D OutputFixed Cost200$400 E OutputFixed Cost200$800
Output: 200 Fixed Cost: $200
Which of the following is a source of monopoly power? A Scarcity B Elasticity of demand C Barriers to entry D Low profits E Free markets
Barriers to entry
Which of the following is most likely to occur if a single-price monopolist is replaced by a perfectly competitive market? A Prices will increase. B The deadweight loss will decrease. C Profits will increase. D Output will decrease. E The firm's cost curves will shift upward.
The deadweight loss will decrease.
Which of the following statements relating to a profit-maximizing perfectly competitive firm is true? A The firm is facing downward-sloping demand and marginal revenue curves. B The firm will raise its price to increase revenue. C The firm's price is above its marginal revenue at every output level. D The firm's price is given by the market and is equal to marginal revenue. E The firm continues to produce as long as marginal revenue is greater than zero.
The firm's price is given by the market and is equal to marginal revenue.
If a perfectly competitive firm is producing where marginal cost is rising and greater than marginal revenue, to maximize profits it should A increase the level of production B decrease the level of production C maintain current level of production D increase price E decrease price
decrease the level of production
The graph above shows the total revenue and total cost curves for a firm in which type of market structure and what is the profit-maximizing quantity? A Monopoly Q2 B Monopoly Q3 C Perfect Competition Q1 D Perfect Competition Q3 E Perfect Competition Q4
perfect competition Q3
A monopolist's demand curve is necessarily A the same as the market demand curve B the same as its marginal revenue curve C upward sloping D perfectly elastic E perfectly inelastic
the same as the market demand curve
The reason that firms in perfect competition earn zero economic profit in the long run is that A firms are small B there are a large number of sellers C firms cannot advertise D there are no barriers to entry or exit E the commodities produced are relatively inexpensive
there are no barriers to entry or exit
Assume a decreasing-cost perfectly competitive industry. Which of the following statements is true? A Firms will earn economic profits in long-run equilibrium. B The short-run market supply curve is upward sloping; the long-run supply curve is horizontal or perfectly elastic. C As industry output expands, there are fewer firms producing in the long run. D As industry output contracts, each firm's long-run average total cost curve shifts upward. E Input prices rise as the industry produces more output.
As industry output contracts, each firm's long-run average total cost curve shifts upward.
Assume an increasing-cost perfectly competitive industry. Which of the following statements is true? A The short-run market supply curve will be upward sloping, but the long-run market supply curve will be horizontal. B Firms must be producing where their long-run average cost curve is upward sloping, exhibiting diseconomies of scale. C In the long run, firms will actually sustain economic losses. D Firms no longer produce at the minimum of long-run average total cost in long-run equilibrium. E As the industry expands its output, at least one input price increases, increasing the minimum of long-run average total cost.
As the industry expands its output, at least one input price increases, increasing the minimum of long-run average total cost.
Catering, Inc., which provides catering services in a perfectly competitive market, was maximizing profits at the market price of $22 per meal. The market price has recently increased to $28 per meal. Which of the following short-run adjustments will increase profits for Catering, Inc.? A Increasing output until the marginal cost equals the new price B Increasing output until the average total cost equals the new price C Decreasing output because of the increase in market price D Increasing the wage rate paid to its workers E Increasing advertising to increase demand for the meals
Increasing output until the marginal cost equals the new price
Which of the following areas shows the producer surplus and the deadweight loss? A The producer surplus is area P1BCP0P1BCP0, and the deadweight loss is area BJEBJE. B The producer surplus is area P1BJFP1BJF, and the deadweight loss is area BJEBJE. C The producer surplus is area P1BQ10P1BQ10, and the deadweight loss is area BJEBJE. D The producer surplus is area P1BQ10P1BQ10, and the deadweight loss is area BCEBCE. E The producer surplus is area P0EAP0EA, and the deadweight loss is area CEJCEJ.
The producer surplus is area P1BJFP1BJF, and the deadweight loss is area BJEBJE.
Suppose that a firm is producing the profit-maximizing output under conditions of diminishing returns. Its output price is $25, and its marginal cost of production at its current output level is $25. Based on this information, it can be concluded that this firm must A be a single-price monopoly B be a perfectly competitive firm C decrease its output to maximize profit it it is a monopoly D increase its output to maximize profit if it is a monopoly E exit the industry if it is a perfectly competitive firm
be a perfectly competitive firm
Assuming a linear downward-sloping demand curve, as a monopoly firm sells additional units of output, its marginal revenue will A increase at an increasing rate B increase at first, then decrease C decrease at first, then increase D decrease continuously E remain constant
decrease continuously
Compared with a perfectly competitive market,a single-price monopoly with the same market demand and cost curves will A increase output and price B increase output and decrease price C decrease output and price D decrease output and increase price E produce the same level of output and increase price
decrease output and increase price
If a profit-maximizing firm in a perfectly competitive market chooses to produce in the short run, then marginal cost is always A greater than or equal to total cost B greater than or equal to average total cost C greater than or equal to average variable cost D greater than or equal to average fixed cost E less than average total cost
greater than or equal to average variable cost
The long-run industry supply curve for corn is A upward sloping B downward sloping C horizontal D downward sloping at first and then upward sloping E upward sloping at first and then downward sloping
horizontal
A firm is producing the allocatively efficient level of output if... A total revenue is equal to total cost B marginal revenue is equal to marginal cost C price is equal to average total cost D price is equal to marginal cost E price is equal to total cost
price is equal to marginal cost
Most economists argue that a monopoly is inefficient because it A has no incentive to minimize its costs B produces too little output and sets a price above marginal cost C earns too much profit by charging consumers any price it wants D produces too much output and thus wastes scarce resources E usually produces unsafe products if not regulated by government
produces too little output and sets a price above marginal cost
