ECON 101 WSU Exam 2

(Figure: The Perfectly Competitive Firm) Examine the figure The Perfectly Competitive Firm. The figure shows a perfectly competitive firm that faces demand curve d, has the cost curves shown, and maximizes profit. The firm's economic profit in the long run will be: A) $0. B) $250. C) $275. D) $300.

A) $0

(Figure: The Profit-Maximizing Output and Price) Examine the figure The Profit-Maximizing Output and Price. Assume that there are no fixed costs and AC = MC = $200. At the profit-maximizing output and price for a monopolist, producer surplus is: A) $3,200. B) $6,400. C) $1,000. D) $1,600.

A) $3,200

(Figure: Marginal Benefits and Marginal Costs) Examine the figure Marginal Benefits and Marginal Costs. As shown, more time spent studying economics adds points to economics scores (MB) but subtracts points from accounting scores (MC). When Claudia studies economics for 4 hours, the marginal benefit is _____ points; when Claudia studies for 6 hours, the marginal benefit is _____ points. A) 20; 10 B) 30; 10 C) 20; 0 D) 20; 30

A) 20; 10

Which statement best characterizes a monopoly? A) A monopoly produces a product with no close substitutes. B) A monopoly is composed of a single buyer and several sellers. C) A monopoly is composed of a large number of small firms. D) A monopoly is composed of a small number of large firms.

A) A monopoly produces a product with no close substitutes.

(Figure: Monopolist) Examine the figure Monopolist. The graph shows the demand, marginal revenue, marginal cost, and average total cost for a monopolist. If this firm was regulated so as to eliminate the deadweight loss, what quantity would the firm produce? A) Between 300 and 350 units B) Fewer than 300 units C) Exactly 250 units D) 0 units

A) Between 300 and 350 units

(Figure: Monopoly Profits in Duopoly) Examine the figure Monopoly Profits in Duopoly. The figure illustrates the situation in which an industry consisting of two firms that face identical demand curves (D1) can collude to increase profits. The market demand curve is D2. If the firms collude and agree to share the market demand equally, then each firm will act as if its demand curve is given by: A) D1. B) D2. C) MR1. D) 2 × D1.

A) D1

Price discrimination is the practice of: A) charging different prices to buyers of the same good. B) paying different prices to suppliers of the same good. C) equating price to marginal cost. D) equating price to marginal revenue.

A) charging different prices to buyers of the same good.

The decision to tip a waiter or waitress is a(n): A) rational decision if the person leaving the tip is concerned about fairness. B) irrational economic decision because it reduces the economic payoff of the tipper. C) example of decision making using bounded rationality. D) example of behavior based on risk aversion.

A) rational decision if the person leaving the tip is concerned about fairness

(Table: Turkeys) Examine the table Turkeys. Trader Tom is a monopolist that sells fried turkeys for Thanksgiving dinner for a constant marginal and average cost of $10 per turkey. Assume that Tom has no fixed cost. Tom has 6 potential customers, each of which will buy at most one turkey if the price is just equal to or lower than their willingness to pay, which is shown in the table. If Tom can price-discriminate perfectly, the sale of the turkey to Bess generates consumer surplus of _____ and producer surplus of _____. A) $0; $20 B) $0; $15 C) $10; $20 D) $20; $30

B) $0; $15

Sasha buys a warm soda and a slice of cold pizza. The marginal utility from a soda is 40, and the price of the soda is $1. The marginal utility from a slice of pizza is 80. Because Sasha always chooses the utility-maximizing choice, the price of a slice of pizza must be: A) $20. B) $2. C) $1. D) $0.50.

B) $2

(Table: Prices and Demand) Examine the table Prices and Demand. The New Orleans Saints have a monopoly on Saints logo hats. The marginal cost of producing a hat is $18. If the Saints were a perfectly competitive firm in a perfectly competitive industry, their total surplus would be _____. If the Saints were a profit-maximizing monopoly, total surplus would be _____. A) $0; $0 B) $27; $36 C) $36; $27 D) $18; $27

B) $27; $36

(Figure: Collusion) Examine the figure Collusion. In the figure, panel (c) gives the combined marginal revenue, demand, and marginal cost curves for an industry containing several firms. Panels (a) and (b) give marginal cost curves for two of those firms. The quantity of output produced by Firm 2 when there is collusion in the industry is shown by: A) H. B) J. C) K. D) L.

B) J

(Figure: Possible Long-Run Outcome) Examine the figure Possible Long-Run Outcome. In the figure, which price and quantity refer to a potential long-run profit maximizing outcome for a firm producing in a monopolistically competitive market? A) P1 and Q3 B) P1 and Q1 C) P2 and Q2 D) P1 and Q4

B) P1 and Q1

(Scenario: Payoff Matrix for Firms X and Y) Use the information from the scenario Payoff Matrix for Firms X and Y. In the scenario, if Firm Y were to choose its dominant strategy, it would: A) choose a low price. B) choose a high price. C) encounter a dilemma, because there are two dominant strategies. D) allow Firm X to dominate the industry.

B) choose a high price.

(Figure and Table: The Budget Line) Examine the figure and table The Budget Line. In the figure, a(n) _____ in the price of clams would rotate the budget line along the _____ axis _____ the origin. A) increase; horizontal; away from B) decrease; horizontal; away from C) increase; vertical; toward D) decrease; vertical; away from

B) decrease; horizontal; away from

Advertising is worthwhile only in industries in which firms: A) can sell as much as they would like at the going market price. B) have some degree of market power. C) all sell identical products. D) are already earning economic profits

B) have some degree of market power.

A firm operating in a monopolistically competitive market is producing a quantity at which MC = MR. Profit: A) can be increased by increasing production. B) is maximized. C) can be increased by decreasing the price. D) is maximized only if MC = P

B) is maximized.

(Figure: Payoff Matrix for Gehrig and Gabriel) Examine the figure Payoff Matrix for Gehrig and Gabriel. The figure refers to two people who sell handmade Davy Crockett figurines in San Antonio. Both Gehrig and Gabriel have two strategies available to them: to produce 5,000 figurines each month or to produce 7,000 figurines each month. For Gehrig and Gabriel, the dominant strategy is to: A) produce 5,000 figurines. B) produce 7,000 figurines. C) produce between 5,000 and 7,000 figurines. D) collude and increase production to more than 14,000 figurines.

B) produce 7,000 figurines

If the price is greater than average total cost at the profit-maximizing quantity of output in the short run, a perfectly competitive firm will: A) produce at a loss. B) produce at a profit. C) produce less than the profit-maximizing quantity. D) produce more than the profit-maximizing quantity

B) produce at a profit.

(Figure: Total Cost for Tomato Producers) Examine the figure Total Cost for Tomato Producers. The market for tomatoes is perfectly competitive, and an individual tomato farmer faces the cost curves shown in the figure. The market price of a bushel of tomatoes is $14. The farmer's total cost at the profit-maximizing number of bushels is: A) $3.50. B) $14.00. C) $56.00. D) $72.00.

C) $56.00

(Figure: A Perfectly Competitive Firm in the Short Run) Examine the figure A Perfectly Competitive Firm in the Short Run. If the market price is G, the firm's total cost of producing its most profitable level of output is: A) BS. B) DK. C) 0FKD. D) 0ESB.

C) 0FKD

The long-run average total cost of producing 100 units of output is $4, while the long-run average cost of producing 110 units of output is $4. These numbers suggest that the firm producing this output has: A) economies of scale. B) diseconomies of scale. C) constant returns to scale. D) diminishing returns.

C) constant returns to scale.

When a firm produces at an output level at which MR = MC, it is operating at the: A) shut-down level. B) break-even level. C) optimal output level. D) minimum cost level

C) optimal output level

(Table: Costs of Birthday Cakes) Examine the table Costs of Birthday Cakes. Annie has a bakery that specializes in birthday cakes, and her variable costs of producing cakes are shown in this table. Assume that her fixed costs are $10.What is the average variable cost of 2 cakes? A) $40.00 B) $35.00 C) $25.00 D) $12.50

D) $12.50

(Figure: The Profit-Maximizing Output and Price) Examine the figure The Profit-Maximizing Output and Price. Assume there are no fixed costs and AC = MC. At the profit-maximizing quantity of production for the monopolist, total revenue is _____, total cost is _____, and profit is _____. A) $600; $200; $400 B) $1,600; $3,200; $1,600 C) $4,800; $3,200; $1,600 D) $4,800; $1,600; $3,200

D) $4,800; $1,600; $3,200

(Table: Andrew's Garage) The table gives the production function for Andrew's Garage. If labor is the variable input and number of cars serviced is the output, what is the marginal product of labor when the number of workers rises from 4 to 5? A) 10 B) 8 C) 6 D) 4

D) 4

(Figure: Efficiency and Pollution) Examine the figure Efficiency and Pollution. In the absence of government intervention and if it costs the polluter nothing to pollute, the amount of pollution will be: A) 20 tons. B) 30 tons. C) 40 tons. D) 45 tons.

D) 45 tons.

(Table: Prices and Demand) Examine the table Prices and Demand. Prof. Dumbledore has a monopoly on magic hats. The marginal cost of producing a hat is $18. Suppose Dumbledore can perfectly price-discriminate. How many hats will he produce? A) 3 B) 4 C) 5 D) 6

D) 6

(Figure: Pollution and Efficiency) Examine the figure Pollution and Efficiency. Point _____ in the figure represents an efficient solution in this market, where sulfur emissions are a result of production. A) A B) B C) E D) F

D) F

(Figure: A Perfectly Competitive Firm in the Short Run) Examine the figure A Perfectly Competitive Firm in the Short Run. The firm will shut down in the short run if the price falls below: A) G. B) F. C) E. D) P.

D) P

(Figure: Short-Run Costs II) Examine the figure Short-Run Costs II. Curve 3 is the _____ cost curve. A) average total B) total C) marginal D) average variable

D) average variable.

(Table: Total Product and Marginal Product) Examine the table Total Product and Marginal Product. Negative marginal returns begin when the _____ worker is added. A) fifth B) sixth C) seventh D) eighth

D) eighth.

In economic analysis, the optimal quantity of an activity is the quantity at which: A) marginal benefit exceeds marginal cost by the greatest amount. B) total benefit exceeds total cost by the greatest amount. C) marginal benefit equals marginal cost. D) total benefit exceeds total cost by the greatest amount and marginal benefit equals marginal cost.

D) total benefit exceeds total cost by the greatest amount and marginal benefit equals marginal cost.