Microeconomics: Exam 2

Bill is an accountant for a small machine shop. His boss has asked him to calculate the shop's total fixed cost. Which method will get Bill the correct answer? a. subtracting total variable costs from total revenue b. calculating the product of average total cost and quantity c. subtracting the average variable cost from the total cost d. subtracting the total variable cost from the total cost

d. subtracting the total variable cost from the total cost

Marginal product measures the change in: a. total cost brought about by changing production by one unit b. product price brought about by changing production by one unit c. a firm's revenue brought about by changing production by one unit d. the firm's output brought about by employing one additional unit of output

d. the firm's output brought about by employing one additional unit of output

Which of the following could be a perfectly competitive market? a. the market for licensed electricians b. the market for restaurants with permits to sell alcohol c. the market fo patented pharmaceuticals d. the market for tradable stocks

d. the market for tradable stocks

A young chef is considering opening his own sushi bar. To do so, he would have to quit his current job, which pays $20,000 a year, and take over a store building that he owns and currently rents to his brother for $6,000 a year. His expenses at the sushi bar would be $50,000, for food and $2,000 for gas and electricity. What is the sum of his implicit costs? a. $26,000 b. $66,000 c. $78,000 d. $52,000

a. $26,000

American Airlines makes numerous nonstop flights from Chicago's O'Hare Airport to the airport at Dallas-Fort Worth. The distance between those two cities is 1,000 miles. The only variable cost, fuel, costs $.06 for each passenger-mile it flies. Bob, on his way to an emergency business meeting, buys a ticket in coach class for $1,300 at the very last minute. The marginal cost of flying Bob from Chicago to Dallas-Fort Worth is: a. $60. b. $160. c. $600. d. $1,300.

a. $60

Barbara owns a small shop where dresses are made. At the end of a given month, she has 250 dresses. Her expenses for the month are $1,000 for rent, $6,000 for wages, $1,500 for fabric and thread, and $500 for electricity. Her total variable costs for the month are: a. $8,000. b. $4,000. c. $32 per dress. d. $7,500.

a. $8,000

Suppose the marginal product is maximized when the 10th worker is hired. Then the marginal cost value is minimized when: a. 10 workers are hired b. more than 10 workers are hired c. fewer than 10 workers are hired d. an unknown number of workers are hired. Marginal cost is independent of marginal product

a. 10 workers are hired

If two workers can produce 22 units of output, and the addition of a third worker increases output to 30 units, the marginal product of the third worker is: a. 8 units b. 10 units c. 22 units d. 30 units

a. 8 units

Which of the following best describes total fixed cost? a. costs that do not vary as output varies b. total cost divided by the quantity of output produced c. total variable cost divided by the quantity of output produced d. total fixed cost divided by the quantity of output produced

a. costs that do not vary as output varies

A car leasing company that expands its size by buying its competitors may run the risk of increasing production cost per unit due to: a. diseconomies of scale b. economies of scale c. diminishing returns d. greater use of large-volume purchases

a. diseconomies of scale

The long run is a planning period: a. during which the firm can vary all inputs including its plant size b. less than six months c. less than one year d. less than five years

a. during which the firm can vary all inputs including its plant size

The difference between a firm's total revenues and total costs when all explicit and implicit costs are included is the firm's: a. economic profit b. accounting profit c. opportunity cost of capital d. long-run average total cost

a. economic profit

A downward-sloping portion of a long-run average total cost curve is the result of: a. economies of scale b. diseconomies of scale c. diminishing returns d. the existence of fixed resources

a. economies of scale

If the total cost of producing 10 jets is $28 million and the total cost of producing 11 jets is $30 million, this firm is experiencing: a. economies of scale in the range of 10 to 11 jets b. constant returns to scale in the range of 10 to 11 jets c. diseconomies of scale in the range of 10 to 11 jets d. increasing average variable costs in the range of 10 to 11 jets

a. economies of scale in the range of 10 to 11 jets

Constant returns to scale cause the long-run average cost curve to be: a. horizontal b. vertical c. upward-sloping d. downward-sloping

a. horizontal

In the perfectly competitive market, all firms in the market are assumed to be producing: a. identical products b. homogeneous product c. products that are heavily advertised d. complementary products

a. identical products

Monetary payments to nonowners of a firm are called: a. implicit costs b. accounting costs c. explicit costs d. economic costs

a. implicit costs

The short run is a period of time: a. in which a firm uses at least one fixed input b. that is long enough to permit changes in the firm's plant size c. in which production occurs within one year d. in which production occurs within six months

a. in which a firm uses at least one fixed input

Suppose a single egg farmer alters the number of eggs she produces but the change in egg output does not have any effect on the market price. This example describes which of the following characteristics of perfect competition? a. large number of small firms b. homogeneous product c. very easy entry and exit d. mutual interdependence

a. large number of small firms

A bus is mostly filled with passengers and ready to travel from Los Angeles to San Francisco. At the last minute, a person comes running up to the bus and takes a seat. The change in the bus company's total cost as a result of transporting one more passenger on this trip is called: a. marginal cost. b. average total cost. c. variable cost. d. fixed cost.

a. marginal cost

Implicit costs are: a. the opportunity costs of using resources owned by the entrepreneur in his/her own business b. payments the business owner must make on borrowed funds c. costs which vary as the level of output varies d. those payments the business owner makes in cash

a. the opportunity costs of using resources owned by the entrepreneur in his/her own business

Which of the following best illustrates perfect competition? a. wheat farming b. orange growers setting quotas under the Sunkist cooperative c. General Motors advertising campaign for its cars d. coca-cola and Pepsi battling for market share

a. wheat farming

A firm estimates that when output is 10, its total costs are $900. It also finds that when output is 11, its total costs are $920. The marginal cost of the eleventh unit of output is: a. $20 and the minimum point of the average total cost occurs at an output level less than 11. b. $20 and the minimum point of the average total cost occurs at an output level greater than 11. c. $90 and the average total cost is minimized. d. $90 and the minimum point of the average total cost occurs at an output level greater than 11.

b. $20 and the minimum point of the average total cost occurs at an output level greater than 11

In the short run, if average variable cost equals $50, average total cost equals $75, and output equals 100, the total fixed cost must be: a. $25 b. $2,500 c. $5,000 d. $7,500

b. $7,500

Which of the following explains most accurately why the firm's short-run marginal cost curve will eventually rise? a. As more of the variable factor is used, the higher the price of that factor. b. When diminishing marginal returns set in, it will take ever-larger quantities of the variable resources to produce an additional unit of output. c. As the variable factor is used more intensely, its marginal product will rise, causing an increase in marginal costs. d. As the size of the firm increases, the operational efficiency of the firm declines, causing an increase in marginal costs.

b. when diminishing marginal returns set in, it will take ever-larger quantities of the variable resources to produce an additional unit of output

When a product is defined as homogeneous: a. buyers prefer one seller's product to another's b. buyers are indifferent to which seller's product they buy c. sellers are indifferent as to the quantity of the product they sell d. sellers have an incentive to charge a price higher than the market

b. buyers are indifferent to which seller's product they buy

When total revenue - total cost is equal to zero, the firm is: a. earning above-average economic profit b. earning a normal profit c. losing too much money to stay in business d. earning abnormally low profits

b. earning a normal profit

A large aircraft manufacturer, like Boeing, may have a cost advantage over a new smaller manufacturer because of: a. diseconomies of scale. b. economies of scale. c. diminishing returns to a fixed factor of production. d. the principal agent problem is generally less severe for larger firms.

b. economies of scale

Pedro goes to the local farmer's market and is just as happy buying corn from the first vendor as he is from the second vendor. This example describes which of the following characteristics of perfect competition? a. large number of small firms b. homogeneous product c. very easy entry and exit d. differentiated product

b. homogeneous product

The opportunity costs associated with the use of resources owned by a firm are: a. externalities b. implicit costs c. explicit costs d. sunk costs

b. implicit costs

During the course of a week, McDonald's has enough time to hire or layoff workers, but it does not have enough time to expand its kitchen or add an additional seating area. In this situation, McDonald's: a. has no fixed costs. b. is in the short run. c. suffers an economic loss. d. earns a large profit.

b. is in the short run

For a typical firm, the long-run average total cost curve: a. is lower than the short-run average total cost curves b. is tangent to each possible short-run average total cost curve at one point c. intersects each possible short-run average total cost curve at two points d. passes through the minimum points of all possible short-run average cost curves

b. is tangent to each possible short-run average total cost curve at one point

If a firm enlarges its factory size and realizes higher average costs of production then: a. it has experienced economies of scale b. it has experienced diseconomies of scale c. it has experienced constant returns to scale d. the long-run average cost curve slopes downward

b. it has experienced diseconomies of scale

The mirror image of the marginal cost curve is the: a. average fixed cost curve b. marginal product curve c. total variable cost curve d. average total cost curve

b. marginal product curve

As a fishing firm hires its first, second, and third workers, it could find that marginal product actually rises. The reason for this is: a. diminishing returns have set in b. the division of labor creates greater productivity c. less qualified workers are becoming available d. all workers perform identical tasks

b. the division of labor creates greater productivity

Bill lives in Montana and likes to grow zucchini. He applies fertilizer to his crops twice during the growing season and notices that the second layer of fertilizer increases his crop, but not as much as the first layer. What economic concept best explains this observation? a. The law of diminishing marginal utility. b. The law of diminishing returns. c. Return equalization principle. d. The principal-agent problem.

b. the law of diminishing returns

Suppose the fixed cost of building a nuclear power plant is $1 billion. Suppose also that the only variable cost is the labor of Homer Simpson, and he earns $10 per hour. If the plant generates 1,000 kilowatts each hour, and has already generated 1 billion kilowatts, what can you say about the marginal cost of the next kilowatt? a. The marginal cost is falling. b. The marginal cost is equal to $.01. c. The marginal cost is equal to $1.01. d. The marginal cost is rising.

b. the marginal cost is equal to $.01

If fixed cost is $200,000 and variable cost is $30 per unit over the relevant range of output, when 10,000 units are produced, the average total cost will be: a. $20 b. $30 c. $50 d. $70

c. $50

If average fixed costs equal $60 and average total costs equal $120 when output is 100, the total variable cost must be: a. $40 b. $60 c. $6,000 d. $8,000

c. $6,000

Suppose a publisher faces the following costs of producing 10,000 newspapers each month: $5,500 cost of labor; $2,200 monthly mortgage payment; $250 cost of electricity to run the printing presses; $800 for ink and paper; and $200 in city property taxes (based on the value of the building and land). Its total variable costs are: a. $8,950. b. $8,750. c. $6,550. d. $6,300.

c. $6,550

A farm is able to produce 5,000 bushels of peaches per season on 100 acres. Assume it adds one more acre and is able to produce 6,000 bushels per season. The marginal product of the additional acre of land for this farm is: a. 6,000 bushels per acre per year. b. 5,000 bushels per acre per year. c. 1,000 bushels per acre per year. d. 11,000 bushels per acre per year.

c. 1,000 bushels per acre per year

Which of the following statements is true? a. TC=TFC-TVC b. AVC=TC/Q c. TFC=TC-TVC d. MC equals the change in ATC divided by the change in Q

c. TFC=TC-TVC

Assume both the marginal cost and the average variable cost curves are U-shaped. At the minimum point on the AVC curve, marginal cost must be: a. greater than the average variable cost b. less than the average variable cost c. equal to the average variable cost d. at its minimum

c. equal to the average variable cost

Both the marginal cost and the average variable cost curves are U-shaped. At the minimum point on the average variable cost curve, the marginal cost must be: a. greater than the average variable cost. b. less than the average variable cost. c. equal to the average variable cost. d. at its minimum.

c. equal to the average variable cost

If the long-run average cost of producing 50 units of Good X is $3.00 and the long run average cost of producing 51 units of Good X is $3.25, the firm is a. experiencing economies of scale in the range of 50 to 51. b. experiencing constant returns to scale in the range of 50 to 51. c. experiencing diseconomies of scale in the range of 50 to 51. d. operating at the minimum efficient scale.

c. experiencing diseconomies of scale in the range of 50 to 51

Which of the following is an implication of the law of diminishing returns? a. total output will decline as more workers are hired b. in the long run, average total cost will eventually decline as output is expanded c. in the short run, expansion of output will eventually lead to increases in marginal cost d. a doubling of all inputs will lead to more than a doubling of output

c. in the short run, expansion of output will eventually lead to increases in marginal cost

The minimum point on the marginal cost curve corresponds to the: a. maximum point on the total cost curve b. minimum point on the total cost curve c. inflection point of the total variable cost curve d. midpoint of the total cost curve

c. inflection point of the total variable cost curve

The change in total cost that results from the production of one additional unit is called: a. marginal revenue b. average variable cost c. marginal cost d. average total cost

c. marginal cost

Which of the following is true if the total variable cost curve is increasing at an increasing rate? a. average fixed cost is increasing b. marginal cost is decreasing c. marginal cost is increasing d. average fixed cost is constant

c. marginal cost is increasing

Which of the following is true at the point where diminishing returns set in? a. both marginal product and marginal cost are at a maximum b. both marginal product and marginal cost are at a minimum c. marginal product is at a maximum and marginal cost at a minimum d. marginal product is at a minimum and marginal cost at a maximum

c. marginal product is at maximum and marginal cost at a minimum

Diseconomies of scale exist over the range of output for which the long-run average cost curve is: a. constant b. falling c. rising d. subject to diminishing returns

c. rising

The long run is a period of: a. at least one year. b. sufficient length to allow a firm to expand output by hiring additional workers. c. sufficient length to allow a firm to alter its plant size and capacity and all other factors of production. d. sufficient length to allow a firm to transform economic losses into economic profits by hiring better workers.

c. sufficient length to allow a firm to alter its plant size and capacity and all other factors of production

When the marginal cost is higher than the average total cost, a. the average fixed cost must exceed the average variable cost b. the average variable cost must also be higher than the average total cost c. the higher additional value causes the average to rise d. the higher additional value causes the average to fall

c. the higher additional value causes the average to rise

If total cost is $1,000 when output is zero, and total cost is $1,200 when output is one, and total cost is $1,500 when output is two, then which of the following is true? a. Total fixed cost is $1,500. b. The marginal cost of producing the first unit of output is $1,200. c. The marginal cost of producing the second unit of output is $300. d. The average fixed cost is $750 when two units of output are produced.

c. the marginal cost of producing the second unit of output is $300

The law of diminishing marginal returns implies that, in the short run: a. output must fall beyond a certain point b. price must fall beyond a certain point c. the marginal product of the variable input must eventually decrease d. wages of workers must eventually increase

c. the marginal product of the variable input must eventually decrease

Which of the following is an example of a fixed cost for a fishing company? a. the cost of hiring a fishing crew b. the fuel costs of running the boat c. the monthly loan payment on the boat d. the supply of nets, books, and fishing lines

c. the monthly loan payment on the boat

Which of the following best describes a production function? a. The relationship between consumer preferences and market demand. b. The relationship between the quantity of labor employed and total cost. c. The relationship between the maximum amounts of output a firm can produce and various quantities of inputs. d. The relationship between price and quantity supplied by sellers in a market.

c. the relationship between the maximum amounts of output a firm can produce and various quantities of inputs

Which of the following is a characteristic of a competitive price-taker market? a. profit-maximizing firms in the market will expand output until price equals average variable cost b. the market demand curve for the product is a horizontal line c. there are many firms in the. market, each producing a small share of total market output d. the product produced by each of the firms is differentiated

c. there are many firms in the market, each producing a small share of total market output

Suppose that a small business takes in monthly revenue of $100,000. Labor, rental, energy, and other purchased input costs are $70,000. The owner/entrepreneur could earn $5,000 per month in another job, and the owner/entrepreneur could get a return of $5,000 each month if she sold her business and invested the net proceeds in a financial asset, such as a treasury bond. Which of the following correctly describes her monthly economic profit? a. $90,000 b. $80,000 c. $25,000 d. $20,000

d. $20,000

A young chef is considering opening his own sushi bar. To do so, he would have to quit his current job, which pays $20,000 a year, and take over a store building that he owns and currently rent to his brother for $6,000 a year. His expenses at the sushi bar would be $50,000 for food and $2,000 for has and electricity. What is the sum of his explicit costs? a. $26,000 b. $66,000 c. $78,000 d. $52,000

d. $52,000

Suppose when a car wash has 2 washing stations and 5 workers and is able to wash 100 cars per day. When it adds a third station, but no more workers, it is able to wash 150 cars per day. The marginal product of the third washing station is: a. 100 cars per day. b. 150 cars per day. c. 5 cars per day. d. 50 cars per day.

d. 50 cars per day

Which of the following would be considered an implicit cost? a. Health insurance of employees paid for by the firm b. the water bill of the firm c. The salaries paid to the managers of the firm d. Foregone rent on assets owned by the firm

d. Foregone rent on assets owned by the firm

Which of the following is true about average fixed cost? a. average fixed cost has a U-shape, and marginal cost crosses average fixed cost at its minimum point b. average fixed cost does not vary as output increases c. average fixed cost is the difference between marginal cost and average total cost d. average fixed cost is total fixed cost divided by the quantity of output produced, and it declines steadily as output increases

d. average fixed cost is total fixed cost divided by the quantity of output produced, and it declines steadily as output increases

When costs that vary with the level of output are divided by the output, you have calculated: a. total changing cost b. total fixed cost c. average fixed cost d. average variable cost

d. average variable cost

A firm's opportunity cost of using resources provided by the firm's owners is called: a. sunk costs b. fixed costs c. explicit costs d. implicit costs

d. implicit costs

Economies of scale are created by greater efficiency of capital and by: a. longer chains of command in management b. better wages for labor c. smaller plant sizes d. increased specialization of labor

d. increased specialization of labor

Economies of scale can be cause by all of the following except: a. price discounts for large scale purchases b. labor specialization c. use of more productive equipment d. increases in the firm's average total cost

d. increases in the firm's average total cost

Which statement about the total variable cost curve is true? a. it begins at the origin and increases before decreasing again b. the total variable cost curve is the same at all levels of output c. the total variable cost curve is increasing but at a decreasing rate d. it begins at the origin and is always increasing

d. it begins at the origin and is always increasing

Which of the following is most likely to be a fixed cost for a business? a. expenditures on low-skill labor b. shipping charges for the delivery of products c. materials costs d. property taxes on the firm's buildings

d. property taxes on the firm's buildings

The total fixed cost curve: a. varies with the quantity of inputs used b. decreases with output c. increases with output d. remains constant regardless of output

d. remains constant regardless of output

Since the 1980s, Wal-Mart stores have appeared in almost every community in America. Wal-Mart buys its goods in large quantities and, therefore, at cheaper prices. Wal-Mart also locates its stores where land prices are low, usually outside of the community business district. Many customers shop at Wal-Mart because of low prices. Local retailers, like the neighborhood drug store, often go out of business because they lose customers. This story demonstrates that: a. consumers are boycotting local retailers b. Wal-Mart engages in illegal acts of monopolization c. there are diseconomies in retail sales d. there are economies of scale in retail sales e. Wal-Mart is managed by ruthless business people

d. there are economies of scale in retail sales

Which of the following statements is true? a. when marginal cost is below average cost, average cost rises; when marginal cost is above average cost, average cost falls b. the marginal product is the output per unit of a variable input c. average variable cost and average fixed cost are U-shaped curves d. when marginal productivity of a variable input is falling then marginal costs of production must be rising

d. when marginal productivity of a variable input is falling then marginal costs of production must be rising

Suppose that a study of changes in admission prices reveals that when the price of admission to the museum increases by 10%, adults reduce their ticket purchases by 10%, senior citizens reduce their ticket purchases by 20%, college students reduce their ticket purchases by 25%, and children reduce their ticket purchases by 30%. If the cost of having a person visit the museum is the same regardless of whether the person is an adult, senior citizen, college student, or child, which of the following pricing schemes is the most likely to be used by the museum and why? a. The museum will set one price of $12 for everyone because that is the most fair. b. $8 for children, $10 for college students, $12 for senior citizens, and $15 for adults because the museum can earn higher profits by charging the highest price to those with the least elastic demand and the lowest price to those with the most elastic demand. c. $8 for children, $10 for college students, $12 for senior citizens, and $15 for adults because the museum can earn higher profits by charging the lowest price to those with the least elastic demand and the highest price to those with the most elastic demand. d. $15 for children, $12 for college students, $10 for senior citizens, and $8 for adults because the adults are most likely to visit and the children are least likely to visit.

$8 for children, $10 for college students, $12 for senior citizens, and $15 for adults because the museum can earn higher profits by charging the highest price to those with the least elastic demand and the lowest price to those with the most elastic demand

Suppose ABC Dairy is one firm competing in the perfectly competitive market for milk. Now suppose ABC Dairy decides to produce only organic milk. Which of the following best describes the effects of this change in the market? a. ABC Dairy is differentiating its product and will likely be able to charge a higher price than before. b. ABC Dairy will still be a price taker because it is still operating in a perfectly competitive market. c. ABC Dairy will have a monopoly on organic milk due to very high entry barriers. d. The other dairy firms will produce with excess capacity, but ABC Dairy will be efficient.

a. ABC Dairy is differentiating its product and will likely be able to charge a higher price than before

Suppose Kellogg's, General Mills, and Post make the majority of breakfast cereal sold in the United States. If Kellogg's decides to decrease its prices by 10%, a. General Mills and Post will immediately respond because of mutual interdependence. b. Kellogg's will also decrease the variety of cereals it offers because of nonprice competition. c. the other firms in the industry will not change their pricing strategy because of the kinked demand curve. d. more firms will enter the market due to low barriers to entry

a. General Mills and Post will immediately respond because of mutual interdependence

Suppose a perfectly competitive market results in a long-run equilibrium price of $8 and quantity of 500. If this same market were a monopoly, which of the following price and quantity combinations would be the most likely? a. Price: $10, Quantity: 350 b. Price: $8, Quantity: 500 c. Price: $6, Quantity: 650 d. Price will equal marginal revenue and quantity will be found where marginal revenue equals marginal cost.

a. Price $10, Quantity: 350

Maximizing profit means finding the maximum difference between: a. TR and TC b. MR and MC c. price and ATC d. ATC and MC

a. TR and TC

What is the shape of the average total cost curve for a firm in the short run? a. U-shaped b. a horizontal line c. a vertical line d. a curve that slopes upward to the right

a. U-shaped

Which of the following is true about a monopoly? a. a monopoly charges a higher price and produces a lower output level than if the market were competitive b. a monopoly is guaranteed an economic profit c. a monopoly charges the highest price possible d. a monopoly will shut down whenever losses are incurred

a. a monopoly charges a higher price and produces a lower output level than if the market were competitive

In monopolistic competition if there is profit, there is: a. a signal for new firms to enter b. a motive for existing firms to increase prices c. proof that advertising works d. a motive for existing firms to decrease prices

a. a signal for new firms to enter

Compared to the perfectly competitive outcome, monopolistically competitive markets will result in: a. a wider variety of products and higher prices b. less product variety and higher prices c. a wider variety of products and lower prices d. less product variety and lower prices

a. a wider variety of products and higher prices

Which of the following best describes why a perfectly competitive firm will sometimes continue producing in the short run even if it incurs a loss? a. As long as price exceeds average variable cost, the loss from producing will be smaller than the loss from shutting down, which is equal to the amount of total fixed costs. b. Short-run losses turn into long-run profits when there is entry into the market. c. A perfectly competitive firm should never produce if it incurs a loss because it is unable to influence the market price. d. If price exceeds average total cost, the loss from covering the fixed costs will be smaller than the loss from covering the variable costs.

a. as long as price exceeds average variable cost, the loss from producing will be smaller than the loss from shutting down, which is equal to the amount of total fixed costs

In contrast to a perfectly competitive firm, a monopolist operates in the long run a. at a price higher than marginal cost b. with a profit equal to zero c. at an efficient level of output d. at the minimum point on its average total cost curve

a. at a price higher than marginal cost

The marginal revenue curve of a monopolistically competitive firm will always lie: a. below the firm's demand curve b. parallel to the firm's demand curve c. parallel to the firm's quantity axis d. above the firm's demand curve

a. below the firm's demand curve

Suppose both a monopolist and a perfectly competitive firm are producing in their respective markets at a point where marginal cost is $8 and marginal revenue is $10. What should the profit-maximizing firms do? a. Both the monopolist and the perfectly competitive firm should increase output until MC = MR. b. Both the monopolist and the perfectly competitive firm should decrease output until MC = MR. c. The monopolist should increase output but the perfectly competitive firm should shut down. d. The monopolist should keep producing at this level but the perfectly competitive firm should decrease output until MC = MR.

a. both the monopolist and the perfectly competitive firm should increase output until MC = MR

Entry of new firms into a monopolistically competitive market causes a(n): a. decrease in the existing firms' demand curves b. increase in the existing firms' demand curves c. decrease in the existing firms' cost curves d. increase in the existing firms' cost curves

a. decrease in the existing firms' demand curves

The long run is a planning period: a. during which the firm can vary its plant size b. less than six months c. less than one year d. less than five years

a. during which the firm can vary its plant size

To maximize its profit, a monopoly should choose a price where demand is: a. elastic b. inelastic c. unitary elastic d. vertical

a. elastic

In the long run, monopolistically competitive firms have: a. excess capacity b. positive profits c. minimal average costs d. homogeneous production

a. excess capacity

Because an oligopoly is characterized by: a. few large sellers, each seller has some influence over the market price b. a single seller of a product that has few suitable substitutes, the seller is a price maker c. many small sellers, each firm must differentiate this product d. a few sellers selling a differentiated product, each seller makes its price and output decisions independently

a. few large sellers, each seller has some influence over the market price

Which of the following is a key characteristic of the long-run competitive equilibrium that distinguishes it from the short-run competitive equilibrium? a. Free entry to reduce short-run profits, or free exit to reduce short-run losses. b. Economic profits are positive, but cannot be negative. c. Marginal revenue is greater than marginal cost. d. Average revenue is less than average cost.

a. free entry to reduce short-run profits, or free exit to reduce short-run losses

A price-discrimination monopoly charges the lowest price to the group that: a. has the most elastic demand b. purchases the largest quantity c. engages in the most arbitrage d. is least responsive to price changes

a. has the most elastic demand

In a perfectly competitive industry, assume the short-run average total cost increases as output of the industry expands. In the long run, the industry supply curve will: a. have a positive slope b. have a negative slope c. be perfectly horizontal d. be perfectly vertical

a. have a positive slope

The monopolist's demand curve is: a. identical to the market demand curve b. identical to the marginal revenue curve c. below the marginal revenue curve d. a horizontal line at the market price

a. identical to the market demand curve

If a firm shuts down in the short run, it will: a. incur losses equal to its fixed costs b. have total revenue greater than total fixed costs c. reduce its losses to zero d. do this because P > AVC

a. incur losses equal to its fixed costs

If a firm is operating at a loss in the short run and finds that its price is greater than average variable cost, then: a. it should produce where MR = MC b. it should produce zero output c. total revenue is greater than total costs d. total revenue is less than total variable costs

a. it should produce where MR = MC

If pizza used to be produced in a perfectly competitive market, and now the pizza market has become a monopoly, we can expect: a. less pizza to be sold at a higher price b. more pizza to be sold at a higher price c. less pizza to be sold at a lower price d. more pizza to be sold at a lower price

a. less pizza to be sold at a higher price

Which of the following is not associated with the monopoly market structure? a. many sellers b. a single seller c. a unique product d. impossible entry into the market

a. many sellers

Because a monopolistically competitive market is characterized by a. many small sellers selling a differentiated product, each seller has some influence over its own price. b. a single seller of a product that has few suitable substitutes, the seller is a price maker. c. many small sellers selling a differentiated product, one seller's change in price has a large effect on the market price. d. a few sellers selling a differentiated product, each seller bases its decisions on the expected decisions of its rivals.

a. many sellers selling a differentiated product, each seller has some influence over its own price

A competitive firm maximized its profits (or minimizes is losses) by producing the quantity where the market price equals the firm's: a. marginal cost b. average total cost c. average variable cost d. average fixed cost

a. marginal cost

As market price increases in the short run, a profit-maximizing firm in a perfectly competitive market will expand output along its: a. marginal cost curve b. average total cost curve c. average variable cost curve d. market demand curve

a. marginal cost curve

Which of the following statements accurately describes a difference between a firm that is a monopolist and one that is a competitive price taker? a. Marginal revenue and market price are equal for the competitive price taker but not for the monopolist. b. The monopolist does not always produce the output that equates marginal cost and marginal revenue; the competitive price taker does. c. The monopolist charges the highest price possible; the competitive price taker charges a price equal to its per-unit cost. d. A monopolist can earn economic profit in the short run; a competitive price taker cannot.

a. marginal revenue and market price are equal for the competitive price taker but not for the monopolist

Because monopolists are protected by high barriers to entry, they: a. may be able to earn long-run economic profits b. will not minimize the per-unit cost of producing their output c. will price their product at the highest possible price d. seek economic profit; however, they are not able to earn it in the long run

a. may be able to earn long-run economic profits

A firm in a perfectly competitive market: a. must take the price that is determined in the market b. must reduce its price if it wants to sell a larger quantity c. must be large relative to the total market d. can exert a major influence on the market price

a. must take the price that is determined in the market

When Pepsi is considering a price hike, it needs to consider how Coke may react. This situation is called: a. mutual interdependence b. price leadership c. collusion d. monopolistic competition

a. mutual interdependence

Suppose the Tidy Laundry Detergent Company, which sells 40% of all detergent, is thinking about raising its price. Before Tidy makes the change, they analyze the likely responses of the All-Clean Detergent Company, which sells 35% of all detergent, and Cheerful Detergent Company, which sells 20% of all detergent. Tidy's behavior shows a. mutual interdependence in pricing decisions. b. nonprice competition. c. difficult entry in oligopolies. d. cullusion

a. mutual interdependence in pricing decisions

When a perfectly competitive firm or a monopolistically competitive firm is making zero economic profit, a. no firms will want to enter or exit b. some firms will want to leave c. some firms will want to enter d. market demand shifts to the left

a. no firms will want to enter or exit

Alcoa had a monopoly in the U.S. aluminum market from the late nineteenth century until the end of World War II. Which barrier to entry was the source of Alcoa's monopoly power? a. ownership of a vital resource b. government franchises and licenses c. patents and copyrights d. economies of scale

a. ownership of a vital resource

In long-run equilibrium, output is expanded to the minimum long-run average total cost by: a. perfectly competitive firms but not by monopolistically competitive firms b. monopolistically competitive firms but not by perfectly competitive firms c. both monopolistically competitive firms and perfectly competitive firms d. neither perfectly competitive firms nor monopolistically competitive firms

a. perfectly competitive firms but not by monopolistically competitive firms

Suppose that R. J. Reynolds raises the price of cigarettes by 10 percent. Although they have no requirement or agreement to do so, the other cigarette firms decide to raise their prices accordingly. This situation is best described as: a. price leadership. b. a cartel. c. monopolistic competition. d. a market with kinked demand.

a. price leadership

A monopolist earning economic profit in the short run determines that at its present level of output, marginal revenue is $23 and marginal cost is $30. Which of the following should the firm do to increase profit? a. Raise price and lower output. b. Lower price and lower output. c. Raise price and raise output. d. Lower price and raise output.

a. raise price and lower output

If marginal cost exceeds marginal revenue, a profit-maximizing monopolist will: a. restrict output to increase the price even higher b. raise price and expand output to increase profit c. lower price and expand output to increase profit d. attempt to maintain this position because it is consistent with profit maximization

a. restrict output to increase the price even higher

In the long-run equilibrium, which of the following is not equal to price for a perfectly competitive firm? a. short-run average variable cost b. long-run average total cost c. short-run marginal cost d. short-run average total cost

a. short-run average variable cost

At the level of output where the marginal cost and marginal revenue curve intersect, two firms demand curves pass above their average total cost curve. One firms is a monopoly and the other is perfectly competitive. Which statement is true for both firms? a. the firms are making an economic profit b. price equals marginal revenue c. price equals marginal cost d. entry of new firms is expected in the market

a. the firms are making an economic profit

Which of the following is true for a monopolist but not for a firm in perfect competition? a. the marginal revenue curve is downward-sloping b. marginal revenue equals price c. economic profits are zero in the long-run d. the marginal revenue curve lies above the demand curve

a. the marginal revenue curve is downward-sloping

Perfect competition and monopolistic competition are similar because under both market structures, a. there are many firms b. production takes place at the least-cost combination c. differentiated products are produced d. entry is difficult

a. there are many firms

Which of the following best explains why the monopolist's marginal revenue is less than the selling price? a. To sell more units, the monopolist must reduce price on all units sold. b. As the monopolist expands output, the average total cost will decline. c. The monopolist charges each consumer the highest possible price. d. When a firm has a monopoly, consumers have no choice other than to pay the price set by the monopolist.

a. to sell more units, the monopolist must reduce price on all units sold

Consider a firm with the following cost information: ATC = $15, AVC = $12, and MC = $14. If we know that this firm has decided to produce Q = 20 by following the rule to maximize profits or minimize losses, then the price of the output is: a. $12. b. $14. c. $15. d. $20.

b. $14

At a price of $5, 24 units of the good would be sold; at a price of $7, 25 units of output would be sold. The marginal revenue of the 25th unit of output is: a. $14 b. $55 c. $6 d. $175

b. $55

Suppose there are four buyers all considering purchasing round-trip airfare from Boston to Miami with the following price elasticities of demand for this purchase: Buyer A: 1.5, Buyer B: 0.7, Buyer C: 1.0, Buyer D: 2.3. If the airline knows of these elasticities and practices price discrimination, which buyer will pay the highest price for the airfare? a. Buyer A b. Buyer B c. Buyer C d. Buyer D

b. Buyer B

Which of the following offers the best explanation of why "marginal revenue equals marginal cost" is the rule that indicates the profit-maximizing output level? a. If output were reduced from the profit-maximizing level, then the firm would be gaining marginal revenue that exceeds marginal cost, and thus increasing the level of profit. b. If output were increased from the profit-maximizing level, then the firm would be gaining marginal revenue that is less than the marginal cost incurred in producing this additional unit, and thus reducing the level of profit. c. Because the firm colludes with other similar firms to set price equal to marginal cost. d. The marginal revenue is equal to the marginal cost at all levels of output for a perfectly competitive firm.

b. If output were increased from the profit-maximizing level, then the firm would be gaining marginal revenue that is less than the marginal cost incurred in producing this additional unit, and thus reducing the level of profit

The long-run equilibrium condition for perfect competition is: a. P = AVC = MR = MC b. P = ATC = MR = MC c. Q = AVC = MR =MC d. Q = ATC = MR =MC

b. P = ATC = MR =MC

Which of the following is the best example of a firm operating in a monopolistically competitive market? a. a Kansas wheat farmer b. TGI Fridays, a family restaurant c. US Postal Service d. Boeing, an aircraft manufacturer

b. TGI Fridays, a family restaurant

Price discrimination requires: a. a firm to be competitive firm b. a firm to be able to segment its customers based on different price elasticities of demand c. arbitrage d. that the product can be easily resold

b. a firm to be able to segment its customers based on different price elasticities of demand

The short-run equilibrium for a monopolistically competitive firm is at P = $28.47, ATC = $22.13, and MC = MR = $17.47. Which of the following is true? a. Average cost must be rising. b. Additional firms will be attracted into the industry. c. The firm could raise price and increase profits. d. The firm could lower price and increase profits.

b. additional firms will be attracted into the industry

Which of the following is true about advertising? a. Firms spend money on advertising in an attempt to make the demand curve more elastic. b. Advertising may be the only way that a new entrant can penetrate a market dominated by long-established firms. c. Advertising has no impact on entry costs or market structure. d. Firms consider advertising to be successful if it succeeds in lowering the long-run average cost.

b. advertising may be the only way that a new entrant can penetrate a market dominated by long-established firms

Suppose Ford, GM, and Dodge make the majority of pick-up trucks sold in the United States If they all sell for approximately the same price, and Ford offers a $2,000 rebate on new truck sales, what can Ford expect to see? a. an unprecedented increase in truck sales b. an immediate response by GM and Dodge c. a visit from the antitrust authorities of the government d. a revolution from Ford stockholders

b. an immediate response by GM and Dodge

Which of the following factors is not a barrier limiting the entry of potential competitors into a market? a. legally enforced patent rights b. an inelastic demand for a product c. economies of scale d. ownership of a vital resource

b. an inelastic demand for a product

When the price and output decisions of one firm include the possible price and output reactions of the firm's rivals, the market is: a. a monopoly characterized by differentiated products b. an oligopoly characterized by mutual interdependence c. perfectly competitive characterized by collusion d. monopolistically competitive characterized by nonprice competition

b. an oligopoly characterized by mutual interdependence

Suppose both a monopolist and a perfectly competitive firm charge a price corresponding to the quantity at the intersection of the marginal cost and marginal revenue curves. If this price is between each firm's average variable cost and average total cost curves, a. the perfectly competitive firm will continue to operate in the short run but the monopolist will shut down. b. both firms will continue to operate in the short run. c. both firms will shut down in the short run. d. the perfectly competitive firm will continue to operate in spite of the loss but the monopolist will earn a profit.

b. both firms will continue to operate in the short run

In order to make oil profits as large as possible, OPEC meets to set oil production quotas for its members. OPEC is best classified as a: a. monopoly b. cartel c. kinked demand industry d. price-leadership industry

b. cartel

Suppose a monopolist and a perfectly competitive firm have the same cost curves. The monopolistic firm would: a. charge a lower price than the perfectly competitive firm b. charge a higher price than the perfectly competitive firm c. charge the same price as the perfectly competitive firm d. refuse to operate in the short run unless an economic profit could be made

b. charge a higher price than the perfectly competitive firm

An example of price discrimination is the price charged for: a. coffee b. college admission c. cashmere sweaters d. cough syrup

b. college admission

Suppose that price is below the minimum average total cost but above the minimum average variable cost. In the short run, a firm that is a price taker would: a. immediately shut down and get out of the industry. b. continue to produce a quantity such that marginal revenue equals marginal cost. c. shut down temporarily, in hopes of restarting in the near future. d. cut price and expand output in hopes of achieving economies of scale

b. continue to produce a quantity such that marginal revenue equals marginal cost

If a perfectly competitive industry's long-run supply curve is downward sloping, we can conclude that input prices will: a. increase as industry output increases b. decrease as industry output increases c. remain constant as industry output increases d. not change systematically as industry output increases

b. decrease as industry output increases

Which barrier to entry results in the creation of a natural monopoly? a. legal barriers like government franchises b. economies of scale c. ownership of a vital resource d. patents and copyrights

b. economies of scale

At any point where a monopolist's marginal revenue is positive, the downward-sloping straight-line demand curve is: a. perfectly elastic, as is the perfectly competitive firm's. b. elastic but not perfectly elastic, and a perfectly competitive firm's demand curve is perfectly elastic. c. elastic but not perfectly elastic, as is the perfectly competitive firm's. d. inelastic, while a perfectly competitive firm's demand curve is perfectly elastic.

b. elastic but not perfectly elastic, and a perfectly competitive firm's demand curve is perfectly elastic

Which of the following statements best describes firms under monopolistic competition? a. there is little price or quality competition b. the firms compete, using quality, location, advertising, and price c. firms do not compete using advertising d. there is only one firm so there is no competition

b. firms compete, using quality, location, advertising, and price

Suppose the price of a product is less than its average variable cost. When the firm's fixed obligations are completely ended, it will now most likely: a. make an economic profit b. go out of business c. expand to a bigger operation d. break even

b. go out of business

Assume the short-run average total cost of a perfectly competitive industry decreases as the output of the industry expands. In the long run, the industry supply curve will: a. have a positive slope b. have a negative slope c. be perfectly horizontal d. be perfectly vertical

b. have a negative slope

If a potato farmer expands output, he finds that the increase in total revenue is less than the increase in total costs. This means that: a. Profit is being maximized b. He should not have expanded output c. He should produce even more output d. The firm is wasting resources

b. he should not have expanded output

Which of the following best explains why a firm in a perfectly competitive market must take the price determined in the market? a. The short-run average total costs of firms that are price takers will be constant. b. If a price taker increased its price, consumers would buy from other suppliers. c. Firms in a price-taker market will have to advertise to increase sales. d. There are no good substitutes for the product supplied by a firm that is a price taker.

b. if a price taker increased its price, consumers would buy from other suppliers

Which of the following statements is true? a. to maximize profits, a firm must maximize total revenue b. in long-run equilibrium, a competitive firm produces at the point of minimum average total cost c. in the short-run, a perfectly competitive firm produces where total cost is minimum d. in the short-run, a perfectly competitive firm will close down whenever price is less than total average cost

b. in the long-run equilibrium, a competitive firm produces at the point of minimum average total cost

A firm is currently operating where the MC of the last unit produced = $64 and the MR of this unit = $70. What would you advise this firm to do? a. shut down b. increase output c. stay at current output d. decrease output

b. increase output

A monopoly sets a market price that is higher than the marginal cost of production. This fact implies that a monopoly's allocation of resources is: a. unfair b. inefficient c. discriminatory d. excessive

b. inefficient

Which of the following is true about advertising by a firm? a. it is always successful in increasing demand for a firm's product b. it attempts to increase demand and to make demand more inelastic c. it reduces barriers to entry in a market d. it is only used in the monopolistic competition market structure

b. it attempts to increase demand and to make demand more inelastic

Jerome, the florist, sold 500 bridesmaid's bouquets in June. He estimates his costs that month were ATC = $10, AVC = $6, and MC = $9. If he sold each bouquet at the constant market price of $9, Jerome: a. made an economic profit of $500. b. made a loss of $500. c. should have shut down in June. d. made a loss of $1,500.

b. made a loss of $500

The monopolistic competition market structure is characterized by: a. few firms and similar products b. many firms and differentiated products c. many firms and a homogeneous product d. few firms and a homogeneous product

b. many firms and differentiated products

Above the shutdown point, a competitive firm's supply curve coincides with its: a. marginal revenue curve b. marginal cost curve c. average variable cost curve d. average total cost curve

b. marginal cost curve

A profit-maximizing monopolistically competitive firm will expand output to the point where: a. total revenue equals total cost b. marginal revenue equals marginal cost c. price equals average total cost d. price equals marginal cost

b. marginal revenue equals marginal cost

Both a perfectly competitive firm and a monopolist: a. always earn an economic profit b. maximize profit by setting marginal cost equal to marginal revenue c. maximize profit by setting marginal cost equal to average total cost d. are price takers

b. maximize profit by setting marginal cost equal to marginal revenue

Under both perfect competition and monopoly, a firm: a. faces a perfectly elastic demand curve b. maximizes profit by setting marginal cost equal to marginal revenue c. sells at a price equal to the minimum average total cost d. sells at a price equal to marginal cost

b. maximizes profit by setting marginal cost equal ti marginal revenue

Product differentiation makes the demand for a monopolistically competitive firm's product: a. perfectly elastic b. more elastic than for a monopoly c. more inelastic than for a monopoly d. perfectly inelastic

b. more elastic than for a monopoly

A kinked demand curve is perceived by the firm as being: a. more elastic to the right of the kink b. more inelastic to the right of the kink c. more inelastic to the left of the kink d. present when there is a monopoly

b. more inelastic to the right of the kink

What is the key feature shared by all oligopoly markets? a. a large number of sellers b. mutual interdependence c. product differentiation d. easy entry and exit

b. mutual interdependence

The demand for the product of a competitive price-taker firm is: a. perfectly inelastic b. perfectly elastic c. greater than zero but less than one d. dependent on the availability of substitutes for the firm's product

b. perfectly elastic

Under perfect competition, which of the following are equal to all levels of output? a. price and marginal cost b. price and marginal revenue c. marginal cost and marginal revenue d. marginal cost and short-run average total cost

b. price and marginal revenue

For a monopolist: a. price equals average total cost b. price is above marginal revenue c. marginal revenue equals zero d. marginal cost equals zero

b. price is above marginal revenue

The demand curve in monopolistic competition slopes downward because of: a. strong barriers to entry b. product differentiation c. the small number of firms d. government regulation

b. product differentiation

If a firm increases output when MR>MC, then: a. profit will equal zero b. profit will increase c. profit will decrease d. profit will remain the same

b. profit will increase

Product differentiation: a. refers to the attempt of firms to make their products look like those of the other firms in the industry and is used in a perfectly competitive market structure. b. refers to the attempt of firms to make real or apparent differences in essentially substitutable products look different in the minds of the consumers and is used in a monopolistically competitive market structure. c. leads to nonprice competition in a perfectly competitive market structure. d. leads to price equaling the minimum average total cost in the long run in a monopolistically competitive market structure.

b. refers to the attempt of firms to make real or apparent differences in essentially substitutable products look different in the minds of the consumers and is used in a monopolistically competitive market structure

A firm that is a price taker can: a. substantially change the market price of its product by changing its level of production b. sell all of its output at the market price c. sell some of it output at a price higher than the market price d. decide what price to charge for its product

b. sells all of its output at the market price

If a competitive firm is losing money then it should: a. always shut down b. shut down if its losses are greater than total fixed costs c. shut down if its total fixed costs are greater than losses d. raise its price

b. shut down if its losses are greater than total fixed costs

Which of the following is the best example of an oligopoly? a. area restaurants b. the automobile industry c. agricultural markets free of government support d. local utilities

b. the automobile industry

One key characteristic that is distinctive of an oligopoly market is that: a. the demand curve facing each firm is downward sloping, with a marginal revenue curve that lies below the firm's demand curve b. the decisions of one seller often influences the price of products, the output, and the profits of rival firms c. there is only one firm that produces a product for which there are no good substitutes d. there are many sellers in the market and each is small relative to the total market

b. the decisions of one seller often influences the price of products, the output, and the profits of rival firms

The price-taker firm should discontinue production immediately if: a. the market price exceeds the firm's average total costs b. the market price is less than the firm's average variable costs c. the market price is less than the firm's average total costs, but greater than its average variable cost d. its accounting statement indicates that it is suffereing losses

b. the market price is less than the firm's average variable costs

A monopoly is: a. a seller of a highly advertised and differentiated product in a market with low barriers to entry in the long run b. the only seller of a good for which there are no good substitutes in a market with high barriers to entry c. the only buyer of a unique raw material d. the producer of a product subsidized by the government

b. the only seller of a good for which there are no good substitutes in a market with high barriers to entry

Suppose the marginal revenue curve for a perfectly competitive firm intersects the average total cost curve at its minimum point. As the marginal revenue curve moves upward from that point along the marginal cost curve, a. the profit-maximizing quantity decreases. b. the profit-maximizing quantity increases. c. the firm will choose not to produce to minimize its loss. d. the average fixed cost curve will shift upward.

b. the profit-maximizing quantity increases

Which of the following most closely approximates the conditions of a monopolistically competitive market? a. the market for Grade A eggs, which is characterized by a large number of firms producing a homogeneous product b. the restaurant industry, which is characterized by firms producing a differentiated product in a market with low entry barriers c. local cable television service, where a licensed supplier competes with firms offering satellite service d. the market for jumbo aircraft, where one major domestic firm competes with one major foreign firm

b. the restaurant industry, which is characterized by firms producing a differentiated product in a market with low entry barriers

Kayla and Kevin are friends who go together to a used textbook seller who has two copies of the biology book that they both need for their class this semester. The cost to the seller of acquiring the books was $25 each and no other students will need this book. Kayla states that she is willing to pay $40 for the book, while Kevin says he is willing to pay $80. Which of the following describes the most likely conclusion to this scenario? a. The seller will sell the books to both Kayla and Kevin for $80 each because Kevin's higher value exceeds Kayla's willingness to pay. b. The seller will sell the books to both Kayla and Kevin for $40 each because if they tried to charge Kevin a higher price, Kayla would engage in arbitrage. c. The seller will sell one book to Kayla for $40 and one book to Kevin for $80 because this market meets all three requirements for price discrimination. d. The seller will sell the books to both Kayla and Kevin for $25 each because that is how much the seller paid for the books.

b. the seller will sell the books to both Kayla and Kevin for $40 each because if they tried to charge Kevin a higher price, Kayla would engage in arbitrage

Which of the following correctly explains why sellers in a perfectly competitive market are price takers? a. There are few sellers, and so they have the power to take whatever price they want. b. There are many sellers, and so the market process generates an equilibrium price that cannot be influenced by any one seller. Thus they have no choice but to take the price generated by the market process. c. Sellers in a competitive market have the power to influence price by colluding with one another and using quotas to limit overall market output and thus raise price. d. Individual buyers in a competitive market have the power to influence price, and thus can impose prices and other conditions on powerless sellers.

b. there are many sellers, and so the market process generates an equilibrium price that cannot be influenced by any one seller. Thus they have no choice but to take the price generated by the market process

Tombstones are produced in a monopolistic competitive market. One producer, Rolling Stones, sells 20 tombstones a week at a price of $500 each. Its average total cost is $600. From this information, we can tell: a. new tombstone firms will want to enter. b. this producer is losing $2,000 a week. c. this producer is making an economic profit of $400. d. this producer should increase production.

b. this producer is losing $2,000 a week

Which of the following scenarios demonstrates price discrimination? a. bananas at the grocery store are sold for $0.69 per round b. tickets to a play are sold for $15 for students and $25 for adults c. general admission concert tickets are sold for $40 d. strawberries are sold for $2.00 per quart in the early summer and $5.00 per quart in the winter

b. tickets to a play are sold for $15 for students and $25 for adults

If a perfectly competitive firm sells 50 units of output at a market price of $10 per unit, its marginal revenue is: a. more than $10 b. less than $10 c. $10 d. $500

c. $10

Which of the following firms best fits the definition of a monopoly? a. General Motors b. Exxon Mobil c. Local electric utility d. AT&T

c. Local electric utility

Ricky and Anita are 10 year-olds who have a lemonade stand on a busy beach and would like to practice price discrimination. They know that they are the only sellers of lemonade on the beach and that adults have a less elastic demand for lemonade than kids so they decide to sell their lemonade for $0.25 to kids and $0.50 to adults. Will their price discrimination be successful? Why or why not? a. Yes, they have all of the necessary criteria to successfully price discriminate. b. Yes, the only necessary conditions is that they know the relative elasticities of the market segments. c. No, the kids who buy their lemonade can practice arbitrage. d. No, Ricky and Anita are price takers.

c. No, the kids who buy their lemonade can practice arbitrage

The markets for Products X and Y both have many sellers, each earning an economic profit of zero in the long run. One of the markets is perfectly competitive while the other is monopolistically competitive. Which of the following information can help you determine which operates in a monopolistically competitive market structure? a. There is easy entry into the market for Product X. b. The firms selling product Y choose the profit-maximizing quantity where MR = MC. c. The price for Product X is higher than the marginal cost at the profit-maximizing quantity. d. The price for Product Y is equal to the average total cost at the long-run equilibrium quantity.

c. The price for Product X is higher than the marginal cost at the profit-maximizing quantity

An example of price discrimination is the price charged for: a. an economics textbook at a campus bookstore b. gasoline c. a piece of art sold at an auction d. a postage stamp

c. a piece of art sold at an auction

A natural monopoly is a market where: a. a single firm has control over a vital natural resource b. a single large firm can produce the entire market output at the same per-unit cost as could one large firm c. a single large firm can produce the entire market output at a lower per-unit cost than a group of smaller firms d. many smaller firms can produce the entire market output at a lower per-unit cost than could one large firm

c. a single large firm can produce the entire market output at a lower per-unit cost than a group of smaller firms

The short-run supply curve for a perfectly competitive firm is the marginal cost curve: a. at all price levels because the firm chooses the profit-maximizing quantity of output where marginal revenue equals marginal cost. b. above the minimum point of the average variable cost (AVC) curve because as the price falls, the firm maximizes profit by producing more output to account for a smaller profit margin on each unit. c. above the minimum point of the average variable cost (AVC) curve because the firm maximizes profit by choosing the quantity at which marginal revenue equals marginal cost and below the minimum point of AVC the firm will shut down to minimize its losses. d. above the minimum point of the average total cost (ATC) curve because the firm maximizes profit by choosing the quantity at which marginal revenue equals marginal cost and below the minimum point of ATC the firm will shut down to minimize its losses.

c. above the minimum point of the average variable cost (AVC) curve because the firm maximizes profit by choosing the quantity at which marginal revenue equals marginal cost and below the minimum point of AVC the firm will shut down to minimize its losses

A profit-maximizing firm with continue to expand output: a. as long as the revenues from the production and sale of an additional unit exceeds the average cost of the unit b. until the average cost of producing the good or service is at a minimum c. as long as the revenues from the production and sale of an additional unit exceeds the marginal cost of the unit d. until the marginal cost of producing a good or service is at a minimum

c. as long as the revenues from the production and sale of an additional unit exceeds the marginal cost of the unit

Assume that an oligopolist has a kinked demand curve. Suppose that the marginal cost curve passes through the gap in the marginal revenue curve. This means price and output will be shown by a point: a. above the curve b. below the curve c. at the kink d. on the upper part of the curve

c. at the kink

A monopolist can earn an economic profit only when: a. marginal cost equals marginal revenue, and the same is true for a perfectly competitive firm. b. marginal cost equals price, while a perfectly competitive firm earns a profit if average total cost is less than price. c. average total cost is less than price and the same is true for a perfectly competitive firm. d. average variable cost exceed marginal cost, while a perfectly competitive firm earns a profit if average total cost exceeds marginal cost.

c. average total cost is less than price and the same is true for a perfectly competitive firm

In the short run, why would a firm in a perfectly competitive market shut down production if the prevailing market price falls below the lowest possible average variable cost? a. At that point (economic) profit is zero. b. Below that point average revenue becomes less than marginal revenue. c. Below that point marginal revenue becomes insufficient to pay for avoidable average variable cost. d. Below that point other firms with similar cost will find it profitable to enter the market and take away demand from the existing firms

c. below that point marginal revenue becomes insufficient to pay fro avoidable average variable cost

Compared to monopoly, the market results with monopolistic competition are usually expected to be: a. worse because consumers get fewer choices b. worse because consumers pay a higher price c. better because consumers pay a lower price d. better because consumers get less output

c. better because consumers pay a higher price

If the expansion of output in an industry leads to unchanged resource prices, the industry is most likely to be a(n): a. decreasing cost industry b. increasing cost of industry c. constant cost industry d. industry characterized by economies of scale

c. constant cost industry

The neighborhood ice cream shop finds that when it charges $3 per ice cream cone, its total revenues are $90,000. It has total variable costs of $30,000 and total fixed costs of $40,000. From this we can infer the: a. shop sells 10,000 ice cream cones. b. price is less than average total cost. c. economic profits are $20,000. d. shop will be closed in the long run.

c. economic profits are $20,000

Which of the following is true under natural monopoly? a. the marginal cost curve will be above the average cost curve b. the monopolist will set price equal to marginal cost and will earn economic profits c. economies of scale exist d. output is produced under conditions of constant cost

c. economies to scale exist

In the long run, the economic profits of Hoot's Chicken 'n' Ribs, a monopolistic competitor, are: a. not eliminated, because competition is not perfect b. not eliminated, because the demand curve slopes downward c. eliminated due to firms entering the industry d. eliminated due to firms leaving the industry

c. eliminated due to firms entering the industry

If the price of a product is $12, its average total cost is $2 and its average total cost is $15 at the profit-maximizing output level, in the short run the firm: a. should expand output until MR = MC b. cannot cover total fixed costs c. experiences a loss d. must always shut down

c. experiences a loss

Cash payments to a steel mill for steel used in production would be an example of: a. entrepreneurial costs b. fixed costs c. explicit costs d. implicit costs

c. explicit costs

Some economists argue that monopolistically competitive markets are inefficient because: a. the firms earn economic profits in the long run b. the firms' marginal costs and marginal revenues are not always equal c. firms do not produce the output rate that would minimize their average total cost d. barriers to entry are high

c. firms do not produce the output rate that would minimize their average total cost

Monopolistic competition is inefficient because: a. firms earn positive economic profits b. the firms' marginal costs and marginal revenues are not equal c. firms have excess capacity in the long run d. entry is difficult

c. firms have excess capacity in the long run

In the long run, a monopolistically competitive firm will set price: a. at the intersection of the marginal cost and demand curves b. at the intersection of the average total cost and demand curves c. higher than the competitive level, but lower than the monopoly price d. higher than the marginal cost, but lower than the average total cost

c. higher than the competitive level, but lower than the monopoly price

If marginal costs increase, a monopolist will: a. decrease price and increase output b. decrease both price and output c. increase price and decrease output d. increase both price and output

c. increase price and decrease output

The strategy underlying price discrimination is to: a. charge higher prices to customers who have better access to substitutes. b. charge everyone the same price but limit the quantity they are allowed to buy. c. increase total revenue by charging higher prices to those with the most inelastic demand for the product and lower prices to those with the most elastic demand. d. reduce per-unit costs by charging higher prices to those with the most elastic demand and lower prices to those with the most inelastic demand.

c. increase total revenue by charging higher prices to those with the most inelastic demand for the product and lower prices to those with the most elastic demand

The kinked demand theory attempts to explain why an oligopolistic firm: a. has relatively large advertising expenditures b. fails to invest in research and development c. infrequently changes its price d. engages in excessive brand proliferation

c. infrequently changes its price

In the short run, a firm should shut down its operation if: a. its losses are less than TFC at the MR = MC point b. its losses equal TFC at the MR = MC point c. its losses are greater than TFC at the MR = MC point d. TR is less than TC

c. its losses are greater than TFC at the MR = MC point

A monopoly firm can sell its fourth unit of output for a price of $250. To sell more than five units, it must expect to receive a price: a. equal to $250 b. greater than $250 c. less than $250 d. equal to $340

c. less than $250

A perfectly competitive firm sells its output for $100 per unit and marginal cost is $100 per unit. to maximize short-run profit, the firm should: a. increase output b. decrease output c. maintain its current output d. shut down

c. maintain its current output

Which of the following is true at the point where diminishing returns set in? a. both marginal product and marginal cost are at a maximum b. both marginal product and marginal cost are at a minimum c. marginal product is at a maximum and marginal cost is at a minimum d. marginal product is at a minimum and marginal cost is at a maximum

c. marginal product is at a maximum and marginal cost is at a minimum

In the short run, when the prevailing market price falls below the average variable cost curve, a firm in perfect competition will shut down because: a. economic profit is zero b. price is less than marginal revenue c. marginal revenue is insufficient to pay average variable cost d. other firms will enter the market seeking profits

c. marginal revenue is insufficient to pay average variable cost

Which of the following statements best describes the price, output, and profit conditions of monopolistic competition? a. Price will equal marginal cost at the profit-maximizing level of output; profits will be positive in the long-run. b. Price will always equal average variable cost in the short run and either profits or losses may result in the long run. c. Marginal revenue will equal marginal cost at the short run, profit-maximizing level of output; in the long run, economic profit will be zero. d. Marginal revenue will equal average total cost in the short run; long-run economic profits will be zero.

c. marginal revenue will equal marginal cost at the short run, profit-maximizing level of output; in the long run, economic profit will be zero

If OPEC is an effective cartel, a. price changes are dictated by changes in demand b. output changes are dictated by changed in demand c. members agree on output quotas d. oil prices will be lower than if the market functioned competitively

c. members agree on output quotas

Suppose the firm or firms in the market for Good A face a downward-sloping demand curve, maximize profit by producing the quantity at which marginal revenue equals marginal cost, set the price higher than the marginal cost, and break even in long run equilibrium. Which one of the following market structures most likely exists for Good A? a. Perfectly competition. b. Monopoly. c. Monopolistic competition. d. Oligopoly.

c. monopolistic competition

In the short run, if a perfectly competitive firm is producing at a price below average total cost, its economic profit is: a. positive b. zero c. negative d. normal

c. negative

In a price leadership oligopoly model, a. a cartel of leading firms determines price and industry output b. the industry in consortium with the government determines price and output c. one firm is the price leader and all other firms follow d. the firms abandon a profit-maximizing goal

c. one firm is the price leader and all other firms follow

The total fixed cost remains constant as which of the following varies? a. cost of resources b. time c. output in a given time period d. profit

c. output in a given time period

Which of the following is a distinction between perfectly competitive and monopolistic competition? a. perfectly competitive firms must compete with rival sellers; monopolistically competitive firms do not confront rival sellers b. monopolistically competitive firms can raise their price without losing sales; perfectly competitive firms must lower their price in order to sell more of their product. c. Perfectly competitive firms confront a perfectly elastic demand curve; monopolistically competitive firms face a downward-sloping demand curve. d. Perfectly competitive firms may make either economic profits or losses in the short run, but monopolistically competitive firms always earn an economic profit.

c. perfectly competitive firms confront a perfectly elastic demand curve; monopolistically competitive firms face a downward-sloping demand curve

Consider a firm operating with the following: price = 10; MR = 10; MC = 10; ATC = 10. This firm is: a. making an economic profit of 10. b. an example of monopolistic competition. c. perfectly competitive in long-run equilibrium. d. a monopolist for a product with a relatively inelastic demand.

c. perfectly competitive in long-run equilibrium

In the short run, a firm will stay in business as long as: a. price equals average revenue b. marginal revenue is greater than or equal to marginal cost c. price exceeds average variable cost d. price is less than average variable cost

c. price exceeds average variable cost

Comparing a perfectly competitive market to a monopoly, which of the following is true? a. Price will be higher and quantity will be lower in the perfectly competitive market than in the monopoly. b. Price will be higher than marginal cost in the perfectly competitive market but will be equal to marginal cost in the monopoly. c. Price will be equal to marginal revenue in the perfectly competitive market but will be higher than marginal revenue in the monopoly. d. at that point on the market demand curve which intersects the marginal cost curve.

c. price will be equal to marginal revenue in the perfectly competitive market but will be higher than marginal revenue in the monopoly

A monopolist will maximize profits by: a. setting his price as high as possible, while a perfectly competitive firm will take price from the market. b. setting his price at the level that will maximize per-unit profit, while a perfectly competitive firm will minimize per-unit loss. c. producing the output where marginal revenue equals marginal cost, just as a perfectly competitive firm will. d. producing the output where price equals marginal cost, while a perfectly competitive firm will produce where marginal revenue equals marginal cost.

c. producing the output where marginal revenue equals marginal cost, just as a perfectly competitive firm will

A cartel maximizes industry profit by: a. eliminating quotas b. producing at the kink in its demand curve c. producing where MR = MC d. producing more output than a monopoly would

c. producing where MR = MC

Which of the following is always associated with monopolistic competition? a. identical products b. economic profits in the short run c. product differentiation d. demand curves become more inelastic as new entry occurs

c. product differentiation

Nonprice competition is monopolistically competitive markets results in: a. consumers buying the product with the lowest price in a differentiated market b. less advertising and product differentiation than in markets without nonprice competition c. rivalry among competing firms based on the characteristics that differentiate their products d. price equaling the minimum average total cost in long-run equilibrium

c. rivalry among competing firms based on the characteristics that differentiate their products

Which of the following correctly describes price discrimination? a. selling different products to different people for the same price b. selling different products to identical people for different prices c. selling the same product to different people for different prices d. selling the same product to the same person for the same price

c. selling the same product to different people for different prices

A firm operating in a perfectly competitive market is a price taker because: a. each firm has a significant market share b. each firm's product is perceived as different c. setting a price higher than the market price results in zero sales d. the market demand curve is perfectly elastic

c. setting a price higher than the market price results in zero sales

As a result of a kinked demand curve, the price: a. fluctuates b. falls below the kink c. settles at the kink d. rises above the kink

c. settles at the kink

A sandwich shop owner has the following information: P = MR = $4, ATC = $2, AVC = $1, MC = 4, and Q = 500. From this, she can determine: a. her profits are not being maximized b. she has earned zero economic profits c. she has earned economic profits of $1,000 d. she has earned economic profits of $1,500

c. she has earned economic profits of $1,000

Which of the following is true for perfect competition, monopolistic competition, and monopoly? a. the product of all firms is homogeneous b. firms will earn zero economic profits in the long run c. short-run profits are maximized when marginal costs equals marginal revenue d. price is greater than the marginal cost at the profit-maximizing quantity

c. short-run profits are maximized when marginal costs equals marginal revenue

Which of the following describes the monopoly market structure? a. few firms operating as price takers b. single firm operating as a price taker c. single firm that is a price maker d. many firms that are price makers

c. single firm that is a price maker

If resource prices rise and the per-unit cost of producing a product increases as the firms in an industry expand output in response to an increase in demand, the long-run market supply curve for the product will: a. be perfectly elastic b. be perfectly inelastic c. slope upward to the right d. be more inelastic than the short-run supply curve for the product

c. slope upward to the right

Which of the following is true of a perfectly competitive firm? a. the firm is a price maker b. if the firm wishes to maximize profits it will produce an output level in which marginal revenue exceeds marginal cost c. the firm will not earn an economic profit in the long run d. the firm's short-run supply curve is its MC curve below its AVC curve

c. the firm will not earn an economic profit in the long run

While there is no specific number of firms that must dominate an industry before it is an oligopoly, the number of sellers characterizes an oligopoly when a. there are more firms than a monopolistically competitive market. b. there is a sufficient number of firms to satisfy the market demand. c. the firms are so large relative to the total market that they can affect the market price. d. the firms are so small relative to the total market that they cannot affect the market price.

c. the firms are so large relative to the total market that they can affect the market price

Which of the following distinguishes a natural monopoly from monopoly caused by ownership of a vital resource? a. The natural monopoly has a marginal cost curve above its average cost curve at all levels of output, whereas the marginal cost in other monopolies is above average cost. b. The natural monopoly does not require any government intervention because it is only efficient to have one large firm supplying the market, but other monopolies do require government intervention to maintain efficiency. c. The natural monopoly has a downward-sloping long-run average cost curve as opposed to a U-shaped long-run average cost curve. d. The natural monopoly occurs with naturally occurring products like gold and diamonds, whereas other monopolies occur with man-made products.

c. the natural monopoly has a downward-sloping long-run average cost curve as opposed to a U-shaped long-run average cost curve

How will the price and output of a monopolist compare with perfect competition? a. the output of the monopolist will be too large and the price too high b. the output of the monopolist will be too large and the price too low c. the output of the monopolist will be too small and the price to high d. the output of the monopolist will be too small and the price too low

c. the output of the monopolist will be too small and the price too high

Costume jewelry is produced in a monopolistically competitive market. One producer finds that MR = MC = $3 when output is 700 necklaces. An economist studying this information can conclude that: a. the producer is charging a price of $3. b. economic profit is $2,100. c. the producer charges a price greater than $3. d. new firms will want to enter.

c. the producer charges a price greater than $3

Marginal revenue is the change in: a. total profit brought about by selling one more unit of output b. price brought about by selling one more unit of output c. total revenue brought about by selling one more unit of output d. output brought about by a $1 change in product price

c. total revenue brought about by selling one more unit of output

Bethany decides to get some build a chicken coop, get some chickens, and start selling fresh eggs in her neighborhood. This example describes which of the following characteristics of perfect competition? a. large number of small firms b. homogeneous goods c. very easy entry and exit d. imperfect information

c. very easy entry and exit

If a firm is currently equating MR and MC and product price = $24, AVC = $22, and ATC = $26, then in the long run this firm: a. will continue to operate at a loss b. will earn a positive profit c. will go out of business d. should decrease price

c. will go out of business

What is the largest possible loss that is consistent with a firm producing in a perfectly competitive market in long-run competitive equilibrium? a. an amount equal to price minus average variable cost b. an amount equal to total variable c. zero d. an amount equal to total fixed cost

c. zero

If the minimum points of all the possible short-run average total cost curves become successively lower as quantity of output increases, then: a. the firm should try to produce less output. b. total fixed costs are constant along the LRAC curve. c. there are economies of scale. d. when output is doubled, total costs are doubled.

c.there are economies of scale

If a fishing boat owner brings 10,000 fish to market and the market price is $7 per fish, she will have $70,000 in total revenue. If the average variable cost of 10,000 fish is $4 and the fixed cost of the boat is $20,000, what is her profit? a. $3. b. $1,000. c. $3,000. d. $10,000.

d. $10,000

A portrait photographer produces output in packages of 100 photos each. If the output sold increases from 600 to 700 photos, total revenue increases from $1,200 to $1,400. The marginal revenue per photo is: a. $200. b. $100. c. $20. d. $2.

d. $2

Suppose that 1000 identical sellers each set their profit-maximizing output level at 18 units when price equals $10. Then what is market quantity supplied at a price of $10? a. 100 b. 1,000 c. 10,000 d. 18,000

d. 18,000

In the short run, a firm should shut down its business if price is less than: a. ATC b. AR c. MC d. AVC

d. AVC

If a firm in a competitive industry is making zero economic profit but still producing, it must be the case that: a. MC = MR > ATC b. MC = MR < ATC c. MC = ATC > MR d. MC = MR = ATC

d. MC = MR = ATC

The point of maximum profit for a business firm is where: a. P=AC b. TR=TC c. MR=AR d. MR=MC

d. MR=MC

The market for Product A has many sellers, selling identical products, each earning an economic profit of zero in the long run. The market for Product B has many sellers, selling differentiated products, each earning an economics profit of zero in the long run. Given this information, one can conclude that a. The markets for Product A and Product B are perfectly competitive. b. The markets for Product A and Product B are monopolistically competitive. c. The market for Product A is monopolistically competitive and the market for Product B is perfectly competitive. d. The market for Product A is perfectly competitive and the market for Product B is monopolistically competitive

d. The market for Product A is perfectly competitive and the market for Product B is monopolistically competitive

Which of the following does not represent an arbitrage transaction? a. Traders buy silks where they are abundant and cheap, and haul them along a trail to another place where they would be quite scarce and valued. b. An investor buys a stock when the company is new and relatively unknown and then sells the stock for a much higher price when the company is well-known and profitable. c. Someone buys a block of Final Four tickets and scalp them at the game. d. A boat manufacturer buys the electrical components for its boats from the lowest cost supplier and then sells the boats to consumers.

d. a boat manufacturer buys the electrical components for it boats from the lowest cost supplier and then sells the boats to consumers

The act of buying a commodity in one market at a lower price and selling it in another market at a higher price is known as: a. buying long b. selling short c. a tariff d. arbitrage

d. arbitrage

For a monopolist with a downward-sloping demand curve, a. when the price is equal to zero, marginal revenue is equal to zero b. the coefficient of price elasticity of demand is zero c. as price increases, marginal revenue decreases d. as price decreases, marginal revenue decreases

d. as price decreases, marginal revenue decreases

Why do economies of scale and monopoly power exist with network goods? a. Many small firms must develop to serve all of the consumers willing to pay for access to the network good, so their costs are driven down. b. Network goods require a group of sellers working together and this cooperation reduces the firms' cost per unit. c. Just as the value of a network good decreases to each user as the total number of users increases, so does the long run average cost decrease as output increases. d. As the number of people connected to a network increases, the greater the benefits each person gets and the smaller the cost per unit to supply.

d. as the number of people connected to a network increases, the greater the benefits each person gets and the smaller the cost per unit to supply

The market price for wallets is $20. Your technology is such that at your most efficient production point, the average total cost of producing a wallet is $2.50. Your manager runs into your office and shouts, "Boss!!! Average costs are rising!! Average costs are rising!!" To make a profit-maximizing decision, you should: a. ask the manager about the average total cost. b. immediately stop production. c. completely ignore your manager. d. ask the manager about the marginal cost.

d. ask the manager about the marginal cost

Which of the following is not a necessary condition for effective price discrimination? a. The seller must be able to separate buyers based on their elasticities. b. The seller must not be a price taker. c. Consumers must not be able to resell the products to other consumers. d. Consumers must tell the seller how much they are willing to pay for the product.

d. consumers must tell the seller how much they are willing to pay for the product

The two tendencies of a firm in a cartel are the incentive to: a. cheat to maximize joint profits and the incentive to raise prices. b. cheat and avoid collusion and the incentive to raise price to maximize the firm's share of profits. c. increase output in order to minimize per-unit cost and the incentive to reduce price in order to maximize joint profit. d. cooperate to maximize joint profits and to cheat on the agreement in order to increase the firm's share of the profit.

d. cooperate to maximize joint profits and to cheat on the agreement in order to increase the firm's share of the profit

A firm is currently operating where the MC of the last unit produced = $84, and the MR of this unit = $70. What would you advise this firm to do? a. shut down b. increase output c. stay at its current output d. decrease output

d. decrease output

The large-number-of-sellers condition of perfect competition is met when: a. there are more sellers than buyers in the market b. there are more than 50 firms in the industry c. there are more than 100 firms in the industry d. each firm is so small relative to the total market that no single firm can influence the market price

d. each firm is so small relative to the total market that no single firm can influence the market price

Cartel members have an incentive to cheat on the cartel because: a. the industry profit would be higher under competitive conditions b. the cartel price is the competitive price c. each member's output quota is too high d. each member's MR is not equal to the cartel's MC

d. each member's MR is not equal to the cartel's MC

Suppose an oil cartel has an agreement to restrict members' production in order to maintain a price of $30 per barrel. A single cartel member may want to cheat and exceed its quota so that it can: a. reduce its costs b. charge higher prices c. make demand more inelastic d. earn a bigger profit

d. earn a bigger profit

Exit of existing firms will occur in a monopolistic competitive industry until: a. marginal cost equals zero b. marginal revenue equals zero c. marginal revenue equals marginal cost d. economic profit equals zero

d. economic profit equals zero

Which of the following is true in long-run equilibrium for both perfect competition and monopolistic competition? a. accounting profit is zero b. marginal cost equals price c. long-run average cost is at a minimum d. economic profit is zero

d. economic profit is zero

A picture frame company operates in a monopolistically competitive market. Its short-run equilibrium price is $80 and its ATC is $65. It sells 100 picture frames a week. From this we can tell: a. this firm is making a normal profit. b. other picture frame companies will want to exit the market. c. there are no other picture frame companies in the area. d. economic profits are $1,500

d. economic profits are $1,500

Suppose that in a perfectly competitive market, firms are making economic profits. In the long run, we can expect to see: a. some firms leave b. the market price to rise c. market supply shift to the left d. economic profits become zero

d. economic profits become zero

The monopolist, unlike the perfectly competitive firm, can continue to earn an economic profit in the long run because of: a. collusive agreements with competitors b. price leadership c. cartels d. extremely high barriers to entry

d. extremely high barriers to entry

In a perfectly competitive market buyers want to buy 20,000 units and sellers want to sell 20,000 units of a product when the price is $50 per unit. ABC Corporation, one seller in this market, a. will sell a fixed number of units regardless of how the price changes. b. faces a downward-sloping demand curve for its product. c. will maximize profit by selling at a price less than $50. d. faces a perfectly elastic demand curve at a price of $50.

d. faces a perfectly elastic demand curve at a price of $50

Diseconomies of scale exist for all of the following except: a. bureaucratic inefficiencies b. management problems c. failures in information flows d. firm size is too small

d. firm size is too small

Which of the following is not a characteristic of a perfectly competitive market? a. there is a large number of small firms b. firms sell a homogeneous product c. firms can easily enter or exit the market d. firms are price makers, not price takers

d. firms are price makers, not price takers

If a firm has no ability to influence the market price of its product, it: a. will go out of business b. is a price-maker c. cannot maximize profit d. has a horizontal individual demand curve

d. has a horizontal individual demand curve

Suppose a single firm can produce 100 units at an average cost of $15. If two firms produce 50 units each, the total cost rises to $2,500. Which of the following is true about this market? a. The demand for this product will be higher if there are two firms producing the product than if there is only one. b. It is more efficient to have two firms so they each have a competitor. c. Neither firm can make a profit. d. It is a natural monopoly.

d. it is a natural monopoly

Which of the following is true about the demand curve for a monopolistically competitive firm? a. It is less elastic (steeper) than for monopoly, but more elastic (flatter) than for a perfectly competitive firm. b. It is less elastic (steeper) than the demand curve for either a monopoly firm or a perfectly competitive firm. c. It is more elastic (flatter) than the demand curves for either a monopoly firm or a perfectly competitive firm. d. It is less elastic (steeper) than for a perfectly competitive firm, but more elastic (flatter) than for a monopoly firm

d. it is less elastic (steeper) than for a perfectly competitive firm, but more elastic (flatter) than for a monopoly firm

An industry is said to be a natural monopoly when: a. legal barriers limit entry into the market b. diseconomies of scale are present in the market c. the market demand for the product supplied by a firm is inelastic d. long-run average cost continues to decline as the quantity of output increases

d. long-run average cost continues to decline as the quantity of output increases

Which of the following is the result of competing through advertising for a monopolistically competitive firm? a. long-run average cost shift downward b. the firm's demand curve become flatter and shifts inward c. the firm's demand curve keeps the same slope and shifts inward d. long-run average costs shift upward

d. long-run average costs shift upward

Which of the following must be true is average total cost is rising? a. average fixed cost must be rising b. total fixed cost must be rising c. average variable cost must be falling d. marginal cost must be greater than average total cost

d. marginal cost must be greater than average total cost

The profit maximizing or loss minimizing quantity of output for any firm to produce exists at that output level in which: a. total revenue is maximized b. total cost is minimized c. marginal cost is minimized d. marginal revenue equals marginal cost

d. marginal revenue equals marginal cost

Which of the following best explains an economic criticism of unregulated monopolists? a. monopolists do not try to minimize their fixed costs of production b. monopolists produce where marginal revenue is greater than marginal costs c. monopolists attempt to produce too many products, and as a result, their prices are high, and consumers waste time trying to choose between too many options d. monopolists restrict output, and as a result, they fail to produce units that are valued more than the marginal cost of producing them

d. monopolists restrict output, and as a result, they fail to produce units that are valued more than the marginal cost of producing them

Monopolists are criticized because they are inefficient. What is meant by this statement? a. monopolists could use their resources better elsewhere b. monopolists don't innovate enough to control pollution c. monopolists produce a large quantity of waste d. monopolists usually don't produce at the minimum of the ATC

d. monopolists usually don't produce at the minimum of the ATC

Economists do not think price discrimination is unfair because: a. people with higher incomes should pay higher prices than those with lower incomes. b. if the prices charged to some buyers get too high, those who are able to buy at lower prices will just resell their purchases to the people facing the high prices. c. economists are concerned with efficiency rather than fairness. d. more buyers are able to purchase the good with price discrimination, some buyers pay a lower price than if there were a single price, and sellers earn higher profit than if there were a single price.

d. more buyers are able to purchase the good with price discrimination, some buyers pay a lower price than if there were a single price, and sellers earn higher profit than if there were a single price

A monopoly: a. can increase price and increase output at the same time b. can charge any price it wants and still sell all of its output c. can sell any output it produces provided it accepts the market price d. must lower price in order to increase output

d. must lower price in order to increase output

Pricing and output determination under an oligopoly is more complicated than pricing and output determination in other industries. The primary reason for the complication is the: a. fewness of firms b. brand loyalty of customers c. powerful effect of adversing d. mutual interdependence of firms

d. mutual interdependence of firms

The automobile, steel, and oil markets are all examples of: a. perfectly competitive markets b. monopolies c. monopolistically competitive markets d. oligopolies

d. oligopolies

A market situation where a small number of sellers dominate the entire industry is called: a. monopolistic competition b. monopsony c. monopoly d. oligopoly

d. oligopoly

Under which one of the following market structures are sellers most likely to consider the reaction of rival sellers when they set the price of their product?: a. perfectly competition b. monopoly c. monopolistic competition d. oligopoly

d. oligopoly

A(n) ___ can be used to demonstrate why a competitive oligopoly tends to result in a low-price strategy that does not maximize mutual profits. a. interdependence index b. gini coefficient c. herfindahl index d. payoff matrix

d. payoff matrix

The theory of monopolistic competition predicts that in long-run equilibrium a monopolistically competitive firm will: a. produce the output level at which price equals long-run marginal cost b. operate at minimum long-run average cost c. overutilize its insufficient capacity d. produce the output level at which price equals long-run average cost

d. produce the output level at which price equals long-run average cost

If the market price is $5 and you are currently producing at a level where average total cost is $3 and falling, you should: a. produce until the average total cost and average revenue are equal b. shut down c. produce only enough to cover variable costs d. produce where MR = MC

d. produce where MR = MC

A monopolistic competitive firm is inefficient because the firm: a. earns positive economic profit in the long run b. is producing at an output corresponding to the condition that marginal cost equals price c. is not maximizing its profit d. produces an output where average total cost is not minimum

d. produces an output where average total cost is not minimum

If a firm equates MR and MC, then: a. TR is at a maximum, and TC is at a minimum b. output is at a maximum c. both TR and TC are at a maximum d. profits are at a maximum or losses are at a minimum

d. profits are at a maximum or losses are at a minimum

As new firms enter a monopolistic competitive industry, it can be expected that: a. market price will increase b. the output of existing firms will increase c. profits of existing firms will increase d. profits of existing firms will decrease

d. profits of existing firms will decrease

Critics of advertising argue that it: a. lowers price by increasing competition b. results in more variety of products c. establishes brand loyalty, which promotes competition d. serves as a barrier to entry for new firms

d. serves as a barrier to entry for new firms

Under both perfect competition and monopoly, a firm: a. is a price taker b. is a price maker c. will shut down in the short-run if price falls short of average total cost d. sets marginal cost equal to marginal revenue

d. sets marginal most equal to marginal revenue

Under perfect competition, a firm is a price taker because: a. setting a price higher than the going price results in profits b. each firm's product is perceived as different c. each firm has a significant market share d. setting a price higher than the going price results in zero sales

d. setting a price higher than the going price results in zero sales

Consider a firm with the following cost and revenue information: ATC = $8, AVC = $7, and MR = MC = $6. If the firm produces Q = 60 in the short run, it: a. is minimizing losses. b. makes a total loss of $60. c. should produce more output. d. should shut down.

d. should shut down

Which of the following best illustrates a perfectly competitive market? a. jeans b. breakfast cereal c. electric power d. soybeans

d. soybeans

Suppose product price is fixed at $24; MR = MC and Q = 200; AFC = $6; AVC= $16. What do you advise this firm to do? a. increase output b. decrease output c. stay at the current output; the firm is losing $200 d. stay at the current output; the firm is earning a profit of $400

d. stay at the current output; the firm is earning a profit of $400

A monopolist faces a downward-sloping demand curve because: a. the demand for its product is inelastic b. the industry demand curve is horizontal c. resource prices increase as the monopolist expands output d. the entire market demand curve is the monopolist's demand curve

d. the entire market demand curve is the monopolist's demand curve

Which of the following is characteristic of a monopolistically competitive firm? a. the firm faces an upward-sloping demand curve b. the firm faces an inelastic demand curve c. the firm faces a horizontal demand curve d. the firm produces a differentiated product

d. the firm produces a differentiated product

Which of the following is not true of a monopolistically competitive firm? a. the firm will maximize profits by producing where MR = MC b. the firm will not likely earn an economic profit in the long run c. the firm will shut down if price is less than average variable cost d. the firm will produce an efficient quantity where average total cost is minimized

d. the firm will produce an efficient quantity where average total cost is minimized

A monopolist always faces a demand curve that is: a. perfectly inelastic b. perfectly elastic c. unit elastic d. the same as the entire market demand curve

d. the same as the entire market demand curve

In the perfectly competitive market, individual firms exert no effect on the market price. Therefore, the firm's marginal revenue is: a. zero b. an upward-sloping curve c. a downward-sloping curve d. the same as the firm's demand curve

d. the same as the firm's demand curve

A kink in the demand curve facing an oligopolist is caused by: a. rapidly rising marginal revenues b. excessive advertising c. the belief that competitors will follow price increases but not match price decreases d. the tendency of competitors to follow price reductions but not price increases

d. the tendency of competitors to follow price reductions but not price increases

The industry that most closely approximates the conditions of the oligopoly model is: a. restaurants b. retail clothing c. home construction d. tires

d. tires

Economic profit is: a. total revenues - variable costs b. total revenues - implicit costs c. total revenues - explicit costs d. total revenues - explicit costs - implicit costs

d. total revenues - explicit costs - implicit costs

Suppose a company increases production from a point where marginal cost equals average total cost to a point where marginal revenue and marginal cost are equal. Is it a good idea for the company to do this? Why? a. No, average total costs have increased which means the company is not minimizing losses. b. Yes, because average variable costs are always less than average total costs. c. No, the previous level of output was the most efficient because it had the lowest average total cost. d. Yes, even though the previous level of output had minimized the average total cost, there was still profit to be earned by producing additional units.

d. yes, even though the previous level of output had minimized the average total cost, there was still profit to be earned by producing additional units

A firm has $200 million in total revenue and explicit costs of $190 million. Suppose its owners have invested $100 million in the company at an opportunity cost of 10 percent interest rate per year. The firm's economic profit is: a. $400 million b. $100 million c. $80 million d. zero

d. zero

For the law of diminishing returns to be present, we must have: a. at least one factor of production to be fixed b. output decreasing as more laborers are hired c. the price of labor increasing as more workers are hired d. simultaneous changes in labor and capital

a. at least one factor of production to be fixed

Suppose that when output is 20, marginal cost is $20, and average total cost is $30. Then which of the following is most likely to be true? a. average total cost is declining b. average total cost is constant c. average total cost is rising d. average total cost is less than average fixed cost

a. average total cost is declining

If the marginal cost of the 10th unit of output is $15 and the average total cost of the 10th unit of output is $15, a. average total cost is minimized at 10 units of output b. average total cost is decreasing at 10 units of output c. average total cost is increasing at 10 units of output d. average total cost is maximized at 10 units of output

a. average total cost is minimized at 10 units of output

During the short-run period of the production process, a firm will be: a. unable to vary any of its factors of production b. able to vary some of its factors of production c. able to vary all of its factors of production d. able to vary the size of its plant

b. able to vary some of its factors of production

Which of the following represents the key difference between the short run and the long run? a. In the long run, the firm makes commitments to a certain type of production technology which are represented as fixed costs in the long run. For example, they have signed a lease on a particular production facility. These fixed costs do not exist in the short run. b. In the short run, the firm makes commitments to a certain type of production technology, which are represented as fixed costs in the short run. For example, they have signed a lease on a particular production facility. These fixed costs do not exist in the long run. c. The short run refers to less than two years and the long run is over two years. d. In the short run, all costs are fixed but in the long run, capital costs are variable.

b. In the short run, the firm makes commitments to a certain type of production technology, which are represented as fixed costs in the short run. For example, they have signed a lease on a particular production facility. These fixes costs do not exist in the long run

Two friends, Diane and Sam, own and run a bar. Diane tends bar on Monday, Wednesday, and Friday and receives a wage in addition to tips. Sam tends bar on Tuesday, Thursday, and Saturday and receives only tips. Which of the following represents an implicit cost of operating the bar? a. Diane's wage b. Sam's time c. Diane's tips d. Sam's tips

b. Sam's time

When the cost curves have U-shapes, at the point where marginal cost equals average total cost: a. the fixed cost has been fully depreciated b. average fixed cost is rising c. average total cost is at its minimum d. average variable cost is falling

c. average total cost is at its minimum

If the marginal cost of the 5,000th unit is $0.06 and the average total cost of the 5,000th unit is $0.10: a. total cost is falling. b. average variable cost is falling. c. average total cost is falling. d. average fixed cost is rising.

c. average total cost is falling

Economies of scale imply that within some range one can increase the size of operation and: a. total cost will decrease b. fixed cost will decrease c. average total cost will decrease d. average total cost will increase

c. average total cost will decrease

f the marginal cost of the 100th unit is $3.25, the total cost of producing 100 units is $825, and the fixed cost is $500, a. average variable cost is higher than marginal cost. b. marginal cost is falling. c. average variable cost is at its minimum. d. average total cost is increasing.

c. average variable cost is at its minimum

Variable inputs are defined as any resource that: a. varies with the size of the firm's plant b. cannot be change as output changes c. can be changed as output changes d. can be increased or decreased hourly

c. can be changed as output changes

When the curve that envelops the series of possible short-run average total cost curves is declining, this means that there are: a. economies of scale b. diseconomies of scale c. constant returns to scale d. diminishing returns

c. constant returns to scale

In the long run, firms in many industries often experience a falling average total cost curve as a result of: a. gains through trade b. increasing marginal returns c. economies of scale d. lower fixed costs

c. economies of scale

The decreasing portion of a firm's long run average cost curve is attributable to: a. diminishing returns to scale b. increasing marginal cost c. economies of scale d. diseconomies of scale

c. economies of scale

Paul's Plumbing is a small business that employs 12 people. Which of the following is the best example of an implicit cost incurred by this firm? a. The tax payments on property owned by the firm b. The wages paid to the 12 employees c. The half of the payroll taxes on the wages of the 12 employees by the employers, but not the half paid by the employees d. The accounting services provided free of charge to the firm by Paul's wife, who is an accountant

d. The accounting services provided free of charge to the firm by Paul's wife, who is an accountant

Which of the following factors of production is not variable in the long run? a. the size of the firm's plant b. property taxes on the assets of the firm c. highly trained labor d. all factors of production are variable in the long run

d. all factors of production are variable in the long run

The marginal cost intersects the average variable cost: a. and the average total cost through their upward-sloping sections b. in its upward-sloping section and the average total cost through its downward-sloping section c. through its minimum point and the average total cost through its maximum point d. and the average total cost through their minimum points

d. and the average total cost through their minimum points

Unlike implicit costs, explicit costs: a. reflect opportunity costs b. include the value of the owner's time c. are not included in the accounting statement of the firm d. are actual cash payments

d. are actual cash payments