economics final exam

The faculty member who designed the course argues: "I think the course should be priced so that the maximum number of students enroll." How much profit (or loss) will the college make on the course if it charges this price?

A) -$2,592,000

Assume a hypothetical case where an industry begins as perfectly competitive and then becomes a monopoly. Which of the following statements comparing the conditions in the industry under both market structures is true?

A) A monopoly will produce less and charge a higher price than would a perfectly competitive industry producing the same good.

An economics professor argues: "I think the course should be priced so as to achieve economic efficiency." Which price should this faculty member favor?

B) $40

If the market price is $45 the firm will produce

B) 80 units.

What type of protection does U.S. law grant the creator of a book, film, or piece of music?

B) A copyright, which grants the exclusive right to use the creation during the creator's lifetime and to his or her heirs for 70 years after the creator's death.

One of your classmates asserts that advertising, marketing research, and brand management are redundant expenditures because a firm can obtain the same information by simply looking at what customers are already buying. Which of the following isnot a response you might offer her?

A) Advertising and brand management allow a firm to create an entry barrier which will insulate the firm from competition and from undertaking further product innovations.

What is the Nash equilibrium in this game?

A) Both Alistair and Baine increase their advertising budgets.

The International Nickel Company of Canada is often cited as an example of monopoly, but International Nickel eventually lost its monopoly. What event was responsible for this?

A) Competition in the market for nickel increased after nickel fields were developed in Russia after World War II.

Which of the following is true of a typical firm in a monopolistically competitive industry?

A) Each firm acts independently.

In what way does long-run equilibrium under monopolistic competition differ from long-run equilibrium under perfect competition?

A) Firms in perfect competition achieve productive and allocative efficiency while firms in monopolistic competition achieve neither allocative nor productive efficiency.

What is always true at the quantity where a firm's average total cost equals average revenue?

A) The firm breaks even.

Suppose Renee can increase her total utility from consuming video rentals and books by buying one more book and renting one fewer video. Which of the following is true?

A) The marginal utility per dollar spent on books exceeds that of video rentals.

Which of the following describes the difference between the market demand curve for a perfectly competitive industry and the demand curve for a firm in this industry?

A) The market demand curve is downward sloping; the firm's demand curve is a horizontal line.

A sequential game can be used to analyze whether a retail firm should build a large store or a small store in a city, when the correct choice depends on whether a competing firm will build a new store in the same city. Which of the following is used to analyze this type of decision?

A) a decision tree

Minimum efficient scale is defined as the level of output at which

A) all economies of scale are exhausted.

Consumers maximize total utility within their budget constraint by

A) buying the goods with the largest marginal utility per dollar spent.

All but one of the following have been suggested by some economists as possible consequences of path dependency and switching costs. Which of the following is not a possible consequence of path dependency and switching costs?

A) diseconomies of scale

The demand curve for an individual seller's product in perfect competition is

A) horizontal.

The rate at which a firm is able to substitute one input for another while keeping the level of output constant is called the

A) marginal rate of technical substitution.

If a producer is not able to expand its plant capacity immediately, it is

A) operating in the short run.

When large firms in oligopoly markets cut their prices

A.) we don't know for sure how rival firms will respond.

Two stores - Lazy Guys and Ralph's Recliners - are located in the same city. Both stores buy recliner chairs from the same manufacturer at the same price and both stores are about the same size, so that the fixed costs of production for both stores are the same. Ralph's Recliners sells more recliners per month and Ralph's has a lower average total cost of production. Which of the following can explain why the average total cost of production is lower for Ralph's Recliners?

B) Because Ralph's Recliners sells more output its average fixed costs are lower than Lazy Guys' average fixed costs.

How are sunk costs and fixed costs related?

B) In the short run they are equal to each other.

What happens to the average fixed cost of production when the firm increases output from 150 to 200?

B) It falls.

Jennifer Borts moves her office from the premises she rents at a local mall to her home. As a result of this move

B) Jennifer's explicit costs fall and her implicit costs rise.

Which of the following does not hold true for a perfectly competitive firm in long-run equilibrium?

B) Marginal cost will be minimized.

Does it make sense for Netflix to lower its price in order to deter Spotify's entry into the streaming video market?

B) No, because Netflix will make a higher profit by keeping its subscription price unchanged, whether Spotify enters the market or not.

The firm would maximize profit by producing

B) Q2 units.

Both monopolistically competitive firms and perfectly competitive firms maximize profits

B) by producing where marginal revenue equals marginal cost.

When a credit card company offers different services with its card, like travel insurance for air travel tickets purchased with the credit card or product insurance for items purchased with the card, the credit card company is trying to

B) convince customers that its card has greater value than those offered by rival firms.

An item has utility for a consumer if it

B) generates enjoyment or satisfaction

If a firm shuts down in the short run

B) its loss equals its fixed cost.

Which of the following describes how output changes in the short run? Because of specialization and the division of labor, as more workers are hired

B) output will first increase at an increasing rate, then output will increase at a decreasing rate.

The limitation that a consumer's total expenditure on goods and services purchased cannot exceed the income available is referred to as

B) the budget constraint.

Marginal revenue is

B) the change in total revenue divided by the change in the quantity of output.

If a natural monopoly regulatory commission sets a price where marginal cost is equal to demand

B) the firm would incur a loss.

The demand curve for a Giffen good is

B) upward sloping.

Which of the following is true for a monopolist?

C) Being the only seller in the market, the monopolist faces the market demand curve.

The deadweight loss due to a monopoly is represented by the area

C) FHE.

What is the amount of profit if the firm producesQ2units?

C) It is equal to the vertical distancec tog.

What is the firm's profit-maximizing output and what is the price charged 16) to sell this output?

C) P = $70;Q = 13

Which of the following is not a characteristic of indifference curves?

C) The closer to the origin, the greater the utility level

A firm that is first to the market with a new product frequently discovers that there are design flaws or problems with the product that were not anticipated. How do these problems affect the innovating firm?

C) They reduce profits for the new innovations and open the door to competitors who can enter the new market with a better product

Which of the following is most likely to exert the bargaining power of a buyer?

C) Walmart, the world's largest discount store, seeks vendors to supply products made exclusively for its stores.

Economies of scale occur when

C) a firm's long-run average total costs fall as it increases the quantity of output it produces.

A table that shows the possible payoffs each firm earns from every combination of strategies by all firms is called

C) a payoff matrix.

The level of output at which all economies of scale have been exhausted is known as

C) minimum efficient scale.

For a perfectly competitive firm, average revenue is equal to

C) the market price.

What is the price charged for the profit-maximizing output level?

D) $34

Suppose the marginal utilities for the first three cans of soda are 100, 80 and 60, respectively. The total utility received from consuming 2 cans is

D) 180.

What is the productively efficient output for the firm represented in the diagram?

D) Q4 units

A monopolistically competitive market is described as one in which there are

D) a large number of firms selling similar, but not identical, products.

Which of the following describes a situation in which every good or service is produced up to the point where the last unit provides a marginal benefit to consumers equal to the marginal cost of producing it?

D) allocative efficiency

A curve that shows all the combinations of two inputs, such as labor and capital, that will produce the same level of output is called

D) an isoquant.

To maximize his profit, Jason should produce the rate of output indicated by point

D) d.

When a firm faces a downward-sloping demand curve, marginal revenue

D) is less than price because a firm must lower its price to sell more.

Oligopolies exist and do not attract new rivals because

D) of barriers to entry.

A monopolistically competitive firm maximizes profit where

D) price > marginal cost.

Once a product becomes established, network externalities may create ________ costs that make consumers reluctant to buy a new product with better technology

D) switching

A large majority of the personal computers (PCs) in the United States use an operating system purchased from Microsoft. Microsoft's relationship with PC manufacturers is an example of which of Porter's competitive forces?

D) the bargaining power of suppliers

If a consumer always buys goods rationally, then

D) the marginal utility per dollar spent on all goods will be equal.

Which of the following is the best example of an oligopolistic industry?

D) the pharmaceutical industry

Consider a downward-sloping demand curve. When the price of an inferior good increases, the income and substitution effects

D) work in opposite directions and quantity demanded decreases.

Peet's Coffee and Teas produces some flavorful varieties of Peet's brand coffee. Is Peet's a monopoly?

D.) No, although Peet's coffee is a unique product, there are many different brands of coffee that are very close substitutes.