Brian Feld Econ 222 Exam 3

Which of the following statements is correct? A. Monopolistic competition is similar to monopoly because both market structures arecharacterized by firms being price makers rather than price takers. b. Monopolistic competition is similar to perfect competition because both market structures are characterized by differentiated products. c. Monopolistic competition is similar to oligopoly because both market structures are characterized by strategic interaction between firms in the market. d. Monopolistic competition is similar to perfect competition because both market structures are characterized by perfectly elastic demand curves facing each firm.

A. Monopolistic competition is similar to monopoly because both market structures are characterized by firms being price makers rather than price takers.

The deadweight loss associated with a monopoly occurs because the monopolist a. maximizes profits. B. produces an output level less than the socially optimal level. C. produces an output level greater than the socially optimal level. D. equates marginal revenue with marginal cost.

B. produces an output level less than the socially optimal level.

Total Revenue (TR) a. Price x quantity b. price/quantity c. (price x quantity) - total cost d. output - input

Price x Quantity

looking at the table above, what is the marginal product of the first worker? a. 300 units b. 200 units c. 100 units d. 50 units

a. 300 units

Which of the following is true about a monopolistically competitive firm? a. It can earn an economic profit in the short run, but not the long run. b. It can earn an economic profit in the short run and the long run. c. It can earn an economic profit in the long run, but not the short run. d. It cannot earn a economic profit in either the short or long run.

a. It can earn an economic profit in the short run, but not the long run.

which of the following conditions is a characteristic of a monopolistically competitive firm in the short run and the long run? a. P > MC b. MC = ATC c. P < MR d. P = ATC

a. P > MC

For an individual firm operating in a competitive market, the marginal revenue equals a. average revenue and the price for all levels of output b. average revenue, which is greater than the price for all levels of output c. average revenue, the price, and marginal cost for all levels of output d. marginal cost, which is greater than average revenue for all levels of output

a. average revenue and the price for all levels of output

The fundamental source of monopoly power is a. barriers to entry b. profit c. increasing average total cost d. a product without close substitutes

a. barriers to entry

The accountants hired by Forever Fitness have determined total fixed cost to be $75,000, total variable cost to be $130,000, and total revenue to be $125,000. Because of this information, in the short run, Forever Fitness should a. shut down because staying open would be more expensive b. lower their prices to increase their profits c. stay open because shutting down would be more expensive d. stay open because the firm is making an economic profit

a. shut down because staying open would be more expensive

For a monopolistically competitive firm,

at the profit-maximizing quantity of output, marginal revenue equals marginal cost.

The following table presents cost and revenue information for a firm operating in a competitive industry. What is the marginal revenue from selling the 4th unit? a. $30 b. $120 c. $317 d. $79

b. $120

Nathan makes candles. If he charges $20 for each candle, his total revenue will be a. $1000 if he sells 100 candles b. $500 if he sells 25 candles c. $20 regardless of how many candles he sells d. $2000 if he sells 5 candles

b. $500 if he sells 25 candles

. A monopolist can sell 300 units of output for $50 per unit. Alternatively, it can sell 301 units of output for $49.60 per unit. The marginal revenue of the 301st unit of output is a. -$99.60. b. -$70.40. c. -$0.40. d. $70.40.

b. -$70.40.

If a competitive firm is currently producing a level of output at which marginal cost exceeds marginal revenue, then a. a one-unit increase in output will increase the firm's profit b. a one-unit decrease in output will increase the firm's profit c. total revenue exceeds total cost d. total cost exceeds total revenue

b. a one unit decrease in output will increase the firm's profit

Monopoly firms face a. downward-sloping demand curves, so they can sell as much output as they desire at the market price. b. downward-sloping demand curves, so they can sell only the specific price-quantity combinations that lie on the demand curve. c. horizontal demand curves, so they can sell as much output as they desire at the market price. d. horizontal demand curves, so they can sell only a limited quantity of output at each price.

b. downward-sloping demand curves, so they can sell only the specific price-quantity combinations that lie on the demand curve.

For any competitive market, the supply curve is closely related to the a. preferences of consumers who purchase products in the market b. firms' costs of production in that market c. income tax rates of consumers in that market d. interest rates on government bonds

b. firms costs of production in that market

which of the following graphs illustrates the demand curve most likely faced by a firm in a monopolistically competitive market? a. graph (a) b. graph (b) c. graph (c) d. graph (d)

b. graph (b)

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

b. the cost of the steel that is used in producing automobiles

look at the figure below, what is the area of the deadweight loss? a. the rectangle (X-Z)xJ b. the triangle 1/2[(X-Z) x (K-J)] c. the triangle 1/2[(X-Y) x (K-J)] d. the rectangle (X-Z) x J plus the triangle 1/2[(X-Z) x (K-J)]

b. the triangle 1/2[(X-Z) x (K-J)]

Ryzard decides to open his own business and earns $60,000 in accounting profit the first year. When deciding to open his own business, he withdrew $20,000 from his savings, which earned 6 percent interest. He also turned down three separate job offers with annual salaries of $30,000, $40,000, and $45,000. What is Ryzard's economic profit from running his own business? a. $18800 b. $58800 c. $13800 d. $28800

c. $13800

looking at the figure above, the firms short-run supply curve is its marginal cost curve above a. $1 b. $2 c. $3 d. $6.5

c. $3

the figure below depicts a situation in a monopolistically competitive market. How much profit will the monopolistically competitive firm earn in this situation? a. $0 b. $2100 c. $600 d. $900

c. $600

which of the following is not an argument made by critics of advertising? a. advertising manipulates people's tastes b. advertising impedes competition c. advertising promotes economies of scale d. advertising increases the perception of product differentiation

c. advertising promotes economies of scale

the product variety externality is associated with the a. producer surplus that accrues to incumbent firms in a monopolistically competitive industry b. loss of consumer surplus from exposure to additional advertising c. consumer surplus that is generated from the introduction of a new product d. opportunity cost of firms exiting a monopolistically competitive industry

c. consumer surplus that is generated from the introduction of a new product

If a firm in a competitive market doubles its number of units sold, total revenue for the firm will a. more than double b. increase but by less than double c. double d. may increase or decrease depending on the price elasticity of demand

c. double

a firm's opportunity costs of production are equal to its a. explicit costs only b. implicit costs only c. explicit + implicit costs d. explicit + implicit costs + total revenue

c. explicit + implicit costs

A monopolist's profits with price discrimination will be a. lower than if the firm charged a single, profit-maximizing price. b. the same as if the firm charged a single, profit-maximizing price. c. higher than if the firm charged just one price because the firm will capture more consumer surplus. d. higher than if the firm charged a single price because the costs of selling the good will be lower.

c. higher than if the firm charged just one price because the firm will capture more consumer surplus.

Bubba is a shrimp fisherman who could earn $5,000 as a fishing tour guide. Instead, he is a full-time shrimp fisherman. In calculating the economic profit of his shrimp business, the $5,000 that Bubba gave up is counted as part of the shrimp business's a. total revenue b. explicit costs c. implicit costs d. marginal costs

c. implicit costs

look at the figure below. if the monopoly firm is currently producing Q4 units of output then the decrease in output will necessarily cause profit to a. remain unchanged b. decrease c. increase if the output is between Q3 and Q4 d. increase regardless of the level of output

c. increase if the output is between Q3 and Q4

if a competitive firm is selling 900 units of its product at a price of $10 per unit and earning a positive profit, then a. its total cost is more than $9000 b. its marginal revenue is less than $10 c. its average total cost is less than $10 d. the firm cannot be a competitive firm because competitive firms cannot earn positive profits

c. its average total cost is less than $10

Suppose that a "doggie day care" firm uses only two inputs: hourly workers (labor) and a building (capital). In the short run, the firm most likely considers a. both labor and capital to be fixed b. both labor and capital to be variable c. labor to be variable and capital to be fixed d. capital to be variable and labor to be fixed

c. labor to be variable and capital to be fixed

If a profit-maximizing monopolist faces a downward-sloping market demand curve, its a. average revenue is less than the price of the product. b. average revenue is less than marginal revenue. c. marginal revenue is less than the price of the product. d. marginal revenue is greater than the price of the product.

c. marginal revenue is less than the price of the product.

if the distribution of water is a natural monopoly, then a. a single firm cannot serve the market at the lowest possible average total cost b. allowing for competition among different firms in the water-distribution industry is efficient c. multiple firms would likely each have to pay large fixed costs to develop their own network of pipes d. average cost increases as the quantity of water produced increases

c. multiple firms would likely each have to pay large fixed costs to develop their own network of pipes

A government-created monopoly arises when

c. the government gives a firm the exclusive right to sell some good or service.

Zaid's Tent Company has total fixed costs of $300,000 per year. The firm's average variable cost is $65 for 10,000 tents. At that level of output, the firm's average total costs equal a. $65 b. $75 c. $85 d. $95

d. $95

Looking at the table below, over which range of output is average revenue equal to price? a. 2 to 10 units b. 6 to 14 units c. 10 to 18 units d. average revenue is equal to price over the entire range of output

d. average revenue is equal to price over the entire range of output

As Bubba's Bubble Gum Company adds workers while using the same amount of machinery, some workers may be underutilized because they have little work to do while waiting in line to use the machinery. When this occurs, Bubba's Bubble Gum Company encounters a. economies of scale b. diseconomies of scale c. increasing marginal product d. diminishing marginal product

d. diminishing marginal product

competitive markets are characterized by a. a small number of buyers and sellers b. unique products c. the interdependence of firms d. free entry and exit by firms

d. free entry and exit by firms

a monopolistically competitive firm chooses a. the quantity of output to produce but all firms in the market agree upon b. the price but competition in the market determines the quantity c. the price but output is determined by a cartel production quota d. the quantity of output to produce, but the price of its output is determined by ...

d. the quantity of output to produce, but the price of its output is determined by ...