Exam 3 MicroEcon

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

Assume a certain firm regards the number of workers it employs as variable but regards the size of its factory as fixed. This assumption is often realistic (a) in the short run but not in the long run. (b) in the long run but not in the short run. (c) both in the short run and in the long run. (d) neither in the short run nor in the long run.

A) in the short run but not in the long run.

Suppose that firms in a competitive industry are earning positive economic profits. All else equal, in the long run, we would expect the number of firms in the industry to (a) increase. (b) decrease. (c) remain the same. (d) We do not have enough information with which to answer this question.

A) increase

What do economists call the business practice of selling the same good at difference prices to different customers? (a) price discrimination (b) collusion (c) compensating differential (d) Both a and b are correct.

A) price discrimination

In the long run, all of a firm's costs are variable. In this case the exit criterion for a profit-maximizing firm is to shut down if (a) price is less than average total cost. (b) price is greater than average total cost. (c) average revenue is greater than average fixed cost. (d) average revenue is greater than marginal cost.

A) price is less than average total cost

Total revenue equals (a) price x quantity. (b) price/quantity. (c) (price x quantity) - total cost. (d) output - input.

A) price x quantity

Ryan sells 200 plastic ball point pens at $0.50 each. His total costs are $25. His profits are (a) $25. (b) $75. (c) $100. (d) $175.

B) $75

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 to answer the questions.

B) decreases

The simplest type of oligopoly is (a) monopoly. (b) duopoly. (c) perfect competition. (d) Nash equilibrium.

B) duopoly

The total cost to the firm of producing zero units of output is (a) zero in both the short run and the long run. (b) its fixed cost in the short run and zero in the long run. (c) its fixed cost in both the short run and the long run. (d) its variable cost in both the short run and the long run.

B) its fixed cost in the short run and zero in the long run

The amount by which total cost rises when the firm produces one additional unit of output is called (a) average cost. (b) marginal cost. (c) fixed cost. (d) variable cost.

B) marginal cost

For a firm, the relationship between the quantity of inputs and quantity of output is called the (a) profit function. (b) production function. (c) total-cost function. (d) quantity function.

B) production function

The prisoners' dilemma game (a) provides insight into why cooperation is individually rational. (b) provides insight into why cooperation is difficult. (c) is a game in which neither player has a dominant strategy. (d) is a game in which exactly one of the two players has a dominant strategy

B) provides insight into why cooperation is difficult

For a large firm that produces and sells automobiles, which of the following costs would be a variable cost? (a) the $20 million payment that the firm pays each year for accounting services (b) the cost of the steel that is used in producing automobiles (c) the rent that the firm pays for office space in a suburb of St. Louis (d) All of the above are correct.

B) the cost of the steel that is used in producing automobiles

A group of firms that act in unison to maximize collective profits is called a (a) monopolistically competitive industry. (b) monopoly. (c) cartel. (d) Nash equilibrium market.

C) cartel

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

The accountants hired by the Brookside Racquet Club have determined total fixed cost to be $75, 000, total variable cost to be $130, 000, and total revenue to be $145, 000. Because of this information, in the short run, the Brookside Racquet Club should (a) shut down. (b) exit the industry. (c) stay open because shutting down would be more expensive. (d) stay open because the firm is making a supernormal economic profit.

C) stay open because shutting down would be more expensive

If a monopoly lowers its price, its (a) total revenue must increase. (b) total revenue must decrease. (c) marginal revenue must increase. (d) marginal revenue must decrease.

D) marginal revenue must decrease