ECON 2143: Exam II
If 9 workers can produce 1,550 units of output and 10 workers can produce 1,700 units of output, then the marginal product of the 10th worker is A. 170 units. B. 1,700 units. C. 150 units. D. 1,550 units. E. 155 units.
C. 150 units.
The figure above shows the market demand curve and the ATC curve for a firm. If all firms in the market have the same ATC curve, economies of scale limit the market to ________ firm(s). http://imgur.com/Be3Rjhl A. 1 B. 8 C. 2 D. 3 E. 4
C. 2
Jill runs a factory that makes lie detectors in Little Rock, Arkansas. This month, Jill's 34 workers produced 690 machines. Suppose Jill adds one more worker and, as a result, her factory's output increases to 700. Jill's marginal product of labor from the last worker hired equals ________. A. 10 B. 20 C. 700 D. 690 E. None of the above answers is correct.
A. 10
Arnie's Airlines is a monopoly airline that is able to price discriminate. If Arnie's decides to price discriminate, then A. consumer surplus decreases. B. Arnie's profit decreases. C. Arnie's revenues decrease. D. Arnie's sells fewer tickets. E. Arnie's will see all of his tickets at a single price.
A. consumer surplus decreases.
A natural monopoly's average cost curve i. intersects the demand curve while the average cost curve slopes downward. ii. reaches its minimum before it intersects the demand curve. iii. intersects the demand curve below the intersection of the marginal cost curve and the demand curve. A. i only. B. iii only. C. ii only. D. i, ii, and iii. E. i and iii.
A. i only.
Which of the following is true if a firm shuts down? i. The price is less than minimum average variable cost. ii. The firm is able to avoid an economic loss. iii. The firm incurs a loss equal to its total variable cost. A. iii only B. i only C. i and iii D. i and ii E. ii only
B. i only
For a single−price monopoly, A. marginal revenue will be greater than price if demand is inelastic. B. if marginal cost exceeds marginal revenue, profits will increase if output decreases. C. if marginal revenue exceeds marginal cost, profits will increase if output decreases. D. marginal revenue will be greater than price if demand is elastic. E. there are several different price and output combinations that maximize profit.
B. if marginal cost exceeds marginal revenue, profits will increase if output decreases.
The average fixed cost curve A. has an upside−down U shape. B. is always negatively sloped. C. is horizontal. D. is always positively sloped. E. is U−shaped.
B. is always negatively sloped.
Bill is an economics professor who earns $37,000 teaching but decides to leave and fulfill his dream of catering barbecues. During his year of barbecuing he earned total revenue of $60,000. He spent $30,000 on food and supplies. He also paid his wife $10,000 to help serve food. The normal profit for an entrepreneur running a barbecue business is $3,000. Bill also rented an industrial grill/fry truck for $12,000. Bill had an economic A. profit of zero. B. loss of −$32,000. C. profit of $28,000. D. profit of $20,000. E. loss of −$42,000.
B. loss of −$32,000.
A cartel is a collusive agreement among a number of firms that is designed to A. expand output and raise prices. B. restrict output and raise prices. C. restrict output and lower prices to a predatory level. D. expand output and lower prices to a predatory level. E. expand output and lower prices but not to a predatory level.
B. restrict output and raise prices.
A firm is spending the profit−maximizing amount on product development when A. the firm's total revenue exceeds its total costs. B. the marginal cost of product development is equal to the marginal revenue from product development. C. the price of the good is higher than its marginal cost. D. people perceive the firm's product to be better than those of its competitors. E. the advertising costs are covered.
B. the marginal cost of product development is equal to the marginal revenue from product development.
The only two firms in a market are trying to decide what price to charge. The payoff matrix for this duopoly game is shown above. The payoffs are thousands of dollars of economic profit. In the Nash equilibrium, Firm A will set a price of ________ and Firm B will set a price of ________. http://imgur.com/W4p2Pc4 A. $20; $20 B. $10; $10 C. $10; $20 D. $20; $10 E. $20; something, but more information is needed to determine Firm B's price
B. $10; $10
The table above gives costs at Jan's Bike Shop. Unfortunately, Jan's record keeping has been spotty. Each worker is paid $100 a day. Labor costs are the only variable costs of production. What is the total fixed cost of producing 64 bikes? http://imgur.com/KqdBpZ9 A. $500 B. $200 C. $300 D. $400 E. $600
B. $200
Which of the following is an example of a natural monopoly? A. the Pittsburgh Penguins hockey team, a National Hockey League team B. Sony, the Japanese producer of the Playstation III C. Florida Power and Light, an electric utility in Florida D. JCPenney, the large department store chain E. Ford Motors, the large automobile producing company
C. Florida Power and Light, an electric utility in Florida
Dr. Khan starts his own dental practice after quitting his $150,000 job at The Mall Dental Clinic. His revenues for the first year are $500,000. He paid $90,000 in rent for the dental office, $60,000 for his office manager's salary, $24,000 for the dental hygienist, $150,000 for insurance, and $6,000 for other miscellaneous costs. The normal profit from running his business is $20,000. A. His accounting profit is zero. B. His economic profit is $150,000. C. His economic profit is zero. D. His accounting profit is $350,000. E. None of the above answers are correct.
C. His economic profit is zero.
In order to maximize its profit, a single−price monopoly produces the amount of output so that A. P = MR. B. P = MC − MR. C. MR = MC. D. P = MC. E. P = ATC.
C. MR = MC.
The efficient scale of one firm is 20 units and the average total cost at the efficient scale is $30. The quantity demanded in the market as a whole at $30 is 40 units. This market is A. a legal monopoly. B. a legal duopoly. C. a natural duopoly. D. a natural monopoly. E. monopolistically competitive.
C. a natural duopoly.
Computer memory chips are produced on wafers, each wafer having many separate chips that are separated and sold. The above table shows costs for a perfectly competitive producer of computer memory chips. If the market price of a wafer is $2,400 dollars, the firm is http://imgur.com/mkDgoOQ A. incurring an economic loss of $2,000 an hour. B. making an economic profit of $2,400 an hour. C. incurring an economic loss of $2,800 an hour. D. making an economic profit of $12,000 an hour. E. making zero economic profit.
A. incurring an economic loss of $2,000 an hour.
If a perfectly competitive firm finds that the price exceeds its ATC, then the firm A. is earning an economic profit. B. will lower its price to increase its economic profit. C. will raise its price to increase its economic profit. D. is earning zero economic profit. E. is incurring an economic loss.
A. is earning an economic profit.
The above figure shows a perfectly competitive firm. If the market price is $10, the firm http://imgur.com/Oijs2b3 A. is making zero economic profit. B. might shut down but more information is needed about the AVC. C. is making an economic profit. D. will immediately shut down. E. is incurring an economic loss.
A. is making zero economic profit.
If firms in a perfectly competitive industry are earning an economic profit, then in the ________ firms will ________ the industry. A. long run; enter B. short run; exit C. short run; enter D. long run; exit E. More information about the firms' costs and the price of the product is needed to determine if firms enter or exit the industry.
A. long run; enter
Today, you might be buying from a regulated natural monopoly when you purchase A. natural gas or electricity. B. a car, a truck, or a bicycle. C. a computer, a phone, or a camera. D. food in a grocery store or in a restaurant E. a house, a condominium, or a plot of land.
A. natural gas or electricity.
Marginal product equals A. the change in total product that results from a one−unit increase in the quantity of labor employed. B. the total product produced by a certain amount of labor. C. the amount of labor needed to produce an increase in production. D. total product minus the quantity of labor. E. total product divided by the quantity of labor.
A. the change in total product that results from a one−unit increase in the quantity of labor employed.
The above table gives some production and cost information for Flaming Fernando's, a restaurant that sells Fiery Frijoles. What is the total fixed cost of producing 4,500 frijoles? http://imgur.com/AmgdsfL A. $1000 B. $2,000 C. $9000 D. $8000 E. More information is needed to determine the answer.
A. $1000
Suppose the grocery store market in Kansas City is perfectly competitive. Then one store buys all the others and becomes a single−price monopoly. The figure above shows the relevant demand and cost curves. When the market is perfectly competitive, the price of a pound of steak is http://imgur.com/MEsoVlK A. $8. B. $4. C. $20. D. $12. E. $2.
A. $8.
The table above shows the total product schedule for The X Firm. Increasing marginal returns occur until the ________ worker because ________. http://imgur.com/y93tNHc A. 4th; the marginal product of the 4th worker exceeds the 3rd worker, but not the 5th worker B. 5th; output declines with the 6th worker C. 5th; output is maximized D. 4th; the average product of labor is also increasing E. 3rd; the average product of labor is also increasing
A. 4th; the marginal product of the 4th worker exceeds the 3rd worker, but not the 5th worker
The table above shows the revenue figures for the top four firms along with a total for the remaining firms in the fast−food industry. What is the four−firm concentration ratio for the industry? A. 80 percent B. 20 percent C. 25 percent D. 100 percent E. 200
B. 20 percent
A firm decreases its scale of operation and discovers that its long−run average costs decrease. Which of the following does this indicate? A. Diseconomies of scale were absent in the larger plant. B. The firm's scale initially was so large that it experienced diseconomies of scale. C. Its long−run marginal cost was smaller with the larger plant than with the smaller plant. D. Labor's marginal product has increased. E. The firm's scale initially was too small to experience economies of scale.
B. The firm's scale initially was so large that it experienced diseconomies of scale.
A group of firms that has entered into an agreement to restrict output and increase prices and profits is called A. an oligopoly. B. a cartel. C. a multi−firm monopoly. D. a duopoly. E. a compliance.
B. a cartel.
Henry, a perfectly competitive lime grower in Southern California, notices that the market price of limes is greater than his marginal cost. What should Henry do? A. shut down and earn no profit but also incur no loss B. expand his output to increase profits C. advertise his limes to be able to sell more output D. look for the output level where marginal revenue minus marginal cost is maximized E. shut down and incur a loss equal to his total fixed cost
B. expand his output to increase profits
Jennifer owns a pig farm near Salina, Kansas. Last year she earned $39,000 in total revenue while incurring $38,000 in explicit costs. She could have earned $27,000 as a teacher in Salina. These are all her revenue and costs. Therefore Jennifer earned an A. accounting profit of $1,000 but incurred an economic loss of $38,000. B. accounting profit of $1,000 but incurred an economic loss of $65,000. C. accounting profit of $1,000 but incurred an economic loss of $26,000. D. economic profit of $1,000. E. None of the above answers is correct.
C. accounting profit of $1,000 but incurred an economic loss of $26,000.
Increasing marginal returns to labor A. occur only when there are increasing marginal returns to capital. B. occur when a particularly efficient worker is employed. C. are the result of specialization and division of labor in the production process. D. mean that two workers produce less than twice the output of one worker. E. describe the portion of a total product curve where the marginal product is negative.
C. are the result of specialization and division of labor in the production process.
When a firm becomes so large it is difficult to coordinate and control, it is most likely that A. there is increasing marginal returns to increasing the firm's plant size. B. long−run average costs become negative. C. diseconomies of scale have begun. D. average total cost begins to fall. E. economies of scale have begun.
C. diseconomies of scale have begun.
The absence of barriers to entry in monopolistic competition means that in the long run firms A. earn an economic profit. B. incur an economic loss. C. earn zero economic profit. D. earn either an economic profit or zero economic profit. E. earn either zero economic profit or suffer an economic loss.
C. earn zero economic profit.
In an oligopoly, there are A. many firms and no barriers to entry. B. barriers to entry and only one firm. C. few firms and barriers to entry. D. few firms and no barriers to entry. E. many firms and barriers to entry.
C. few firms and barriers to entry.
The decision to innovate A. is unnecessary in a monopolistically competitive market. B. depends on the marketing department's needs. C. is based on the marginal cost and the marginal revenue of innovation. D. depends on whether the firm wants to benefit its customers. E. None of the above answers is correct.
C. is based on the marginal cost and the marginal revenue of innovation.
A perfectly competitive firm's short−run supply curve is A. its total cost curve above the AVC. B. horizontal at the market price. C. its marginal cost curve above the AVC curve. D. its marginal cost curve below the marginal revenue curve. E. its marginal revenue curve below the ATC curve.
C. its marginal cost curve above the AVC curve.
The above figure shows a perfectly competitive firm. If the market price is $5, the firm http://imgur.com/Oijs2b3 A. will not shut down. B. is making zero economic profit. C. might shut down but more information is needed about the AVC. D. will immediately shut down. E. is making an economic profit.
C. might shut down but more information is needed about the AVC.
Which of the following is an example of an implicit cost? A. the cost of fuel and materials. B. the cost of fertilizer for a farmer C. the economic depreciation of capital equipment the business owns D. wages paid to workers E. rent on a building
C. the economic depreciation of capital equipment the business owns
The table above gives costs at Jan's Bike Shop. Unfortunately, Jan's record keeping has been spotty. Each worker is paid $100 a day. Labor costs are the only variable costs of production. What is the total variable cost of producing 60 bikes? http://imgur.com/KqdBpZ9 A. $500 B. $200 C. $300 D. $400 E. None of the above answers are correct.
C. $300
A single−price monopoly can sell 10 units of its product at a price of $45 each but to sell 11 units, the monopoly must cut the price to $44. What is the marginal revenue of the extra unit sold? A. $450 B. $484 C. $34 D. $44 E. −$1
C. $34
The table above shows the total product schedule for Rick's Lawn Service, a yard care company. When the 4th worker is hired, the ________ product of labor equals ________ lawns mowed. http://imgur.com/30gIpqC A. marginal; 0 B. marginal; 3.75 C. average; 3.75 D. marginal; 15 E. average; 60
C. average; 3.75
April quit her job as an accountant at Ernst and Young, where she was paid $45,000 per year. She started her own landscaping business. She rents machines and tools for $50,000 and pays $10,000 as wages to her help. These are her only costs. April earned total revenue of $100,000. A. She has an economic loss. B. Her accountant calculates her profit as $40,000. C. Her explicit cost is $105,000. D. Both answers A and B are correct. E. Both answers A and C are correct.
D. Both answers A and B are correct.
Which of the following is correct? A. The short run is the same for all firms. B. The long run is the time frame in which all resources are fixed. C. The short run for a firm can be longer than the long run for the same firm. D. The long run is the time frame in which the quantities of all resources can be varied. E. The long run does not exist for some firms.
D. The long run is the time frame in which the quantities of all resources can be varied.
The figure above shows the demand curve, marginal revenue curve, and marginal cost curve. The amount of consumer surplus when the market has a monopoly producer is http://imgur.com/M8DuVnk A. acd. B. bcef. C. bcd. D. abf. E. ace.
D. abf.
In the long run, constant returns to scale necessarily occur when the firm increases its production and the firm's A. average total cost increases . B. production increases by more than does the firm's total cost. C. total cost does not change. D. average total cost does not change. E. total cost increases.
D. average total cost does not change.
When a monopoly price discriminates, it A. converts economic profit into consumer surplus. B. decreases its economic profit. C. increases the amount of consumer surplus. D. converts consumer surplus into economic profit. E. has no effect on the deadweight loss in the market.
D. converts consumer surplus into economic profit.
Intel and AMD are a duopoly that produce CPU chips. Intel and AMD can conduct R&D or they can not conduct R&D. The table above shows the payoff matrix for the two firms. AMD is playing a tit−for−tat strategy and Intel did not conduct R&D last period. Then, of the following answers, Intel's total profit for the next two periods is the highest if Intel ________ R&D this period and ________ R&D next period. http://imgur.com/VNZz7Og A. conducts; conducts B. does not conduct; does not conduct C. conducts; does not conduct D. does not conduct; conducts E. conducts; either conducts or does not conduct because the profit is the same in either case
D. does not conduct; conducts
Advertising costs and other selling costs are A. variable costs. B. marginal costs. C. considered as part of demand because they affect the demand for the good. D. fixed costs. E. efficient.
D. fixed costs.
Which of the following are characteristics of an oligopoly? i) The HHI for an oligopoly is between 100 and 1800. ii) There are a few firms that compete. iii) The firms can increase their profit by forming a cartel. A. i, ii, and iii B. i and iii C. i and ii D. ii and iii E. i only.
D. ii and iii
Patents A. increase the incentive to capture economies of scale. B. grant the holder a monopoly that lasts forever. C. require that monopolies increase the amount they produce. D. increase the incentive to innovate. E. are granted only to competitive firms and not monopolies.
D. increase the incentive to innovate.
If another worker is hired with a marginal product greater than the previously hired worker, which of the following will be true? A. marginal cost will increase B. average fixed costs will increase C. total costs will decrease D. marginal cost will decrease E. fixed costs will decrease
D. marginal cost will decrease
If perfectly competitive firms are making an economic profit, then A. the market might be in a long−run equilibrium but not a short−run equilibrium. B. the market cannot be in either a short−run or a long−run equilibrium. C. some firms will exit the market. D. new firms will enter the market. E. the market must be in long−run equilibrium but cannot be in a short−run equilibrium.
D. new firms will enter the market.
Which of the following is an example of an implicit cost? A. the cost of fuel and materials. B. rent on a building C. wages paid to workers D. the economic depreciation of capital equipment the business owns E. the cost of fertilizer for a farmer
D. the economic depreciation of capital equipment the business owns
The price charged by a perfectly competitive firm is A. lower the more the firm produces. B. different than the price charged by competing firms. C. higher the more the firm produces. D. the same as the market price. E. indeterminate.
D. the same as the market price.
In both monopolistic competition and perfect competition, A. the marginal revenue curve and the demand curve are the same. B. firms sell identical products. C. firms face horizontal demand curves. D. there is easy entry and exit. E. firms are price takers.
D. there is easy entry and exit.
Anna owns a dog grooming salon in Brunswick, Georgia. The above table has Anna's total product schedule. Anna pays each worker $300 per week and she pays rent of $600 a week for her salon. These are her only costs. When Anna has a staff of 2 workers, her average total cost equals http://imgur.com/R68U44H A. $300. B. $2,400. C. $10.00. D. $12.00. E. $1,200.
D. $12.00.
The above table gives some production and cost information for Flaming Fernando's, a restaurant that sells Fiery Frijoles. What is the average total cost of producing 4,500 frijoles? http://imgur.com/AmgdsfL A. $8,000 B. $225 C. $9,000 D. $2 E. More information is needed to determine the answer.
D. $2
Use the figure above to answer this question. Consider a perfectly competitive firm in a short run equilibrium. Figure ________ shows a firm in bad times because the firm makes a(n) ________. http://imgur.com/AORPfIn A. A; economic loss of $2 so it must close B. C; economic profit of $3 per unit C. B; economic profit because the price equals average variable cost D. C; economic loss of $3 per unit E. A; normal profit and can stay open in the long run
D. C; economic loss of $3 per unit
Is a single−price monopoly efficient? A. Yes, because consumers lose and producers gain some of their surpluses. B. Yes, because it produces the quantity at which MR=MC. C. Yes, because consumers gain and producers lose some of their surpluses. D. No, because it creates a deadweight loss. E. Yes, because it creates a deadweight loss.
D. No, because it creates a deadweight loss.
A market has 4 firms in it. The market shares are in the table above. The table represents a(n) ________ market because its ________. http://imgur.com/x1CWHQg A. perfectly competitive; Herfindahl−Hirschman Index (HHI) is less than 1500 B. uncompetitive; Herfindahl−Hirschman Index (HHI) equals 65 percent C. competitive; four−firm concentration ratio equals 65 percent D. competitive; Herfindahl−Hirschman Index (HHI) equals 1425 E. uncompetitive; fourminus−firm concentration ratio exceeds 60 percent
D. competitive; Herfindahl−Hirschman Index (HHI) equals 1425
For a perfectly competitive firm, profit is maximized at the output level where i. total revenue exceeds total cost by the largest amount. ii. marginal revenue equals marginal cost. iii. price equals marginal cost. A. i and ii B. i only C. ii only D. i, ii, and iii E. ii and iii
D. i, ii, and iii
The above table has the total revenue and total cost schedule for Omar, a perfectly competitive grower of rutabagas. When Omar produces 2 bushels of rutabagas, his total profit equals http://imgur.com/MWABwn8 A. $28. B. $20. C. $0. D. −$8. E. $48.
D. −$8.
At the Punjab Bakery, two workers can decorate 14 cakes in an hour and three workers can decorate 18 cakes in an hour. The marginal product of the third worker is A. 18 cakes and the average product for three workers is 6 cakes. B. 9 cakes and is equal to the average product. C. 32 cakes and the average product for three workers is 9 cakes. D. 6 cakes and the average product for three workers is also 6 cakes. E. 4 cakes and the average product for three workers is 6 cakes.
E. 4 cakes and the average product for three workers is 6 cakes.
For a perfectly competitive firm, the market price of a good is A. equal to the firm's marginal revenue. B. determined by the firm in order to maximize its profit. C. a given which the firm cannot change. D. Answer A and answer B are correct. E. Answer A and answer C are correct.
E. Answer A and answer C are correct
In the prisoners' dilemma, each player is ________ regardless of the other player's actions. A. better off denying B. forced to deny C. going to go free D. forced to confess E. better off confessing
E. better off confessing
In monopolistic competition, the presence of a large number of firms making a differentiated product means that A. the price is established by collusive behavior. B. firms cannot compete with each other on the basis of price. C. each firm must charge the same price. D. each firm must produce the same quantity. E. each firm can set the price of its particular product.
E. each firm can set the price of its particular product.
The table above shows the total product schedule for Rick's Lawn Service, a yard care company. Increasing marginal returns http://imgur.com/30gIpqC A. Occur at all levels of employment. B. occur as long as output increases. C. never occur. D. end when the second worker is hired. E. end when the fourth worker is hired.
E. end when the fourth worker is hired.
Suppose the Busy Bee Cafe is the monopoly producer of hamburgers in Hugo, Oklahoma. The above figure represents the demand, marginal revenue, and marginal cost curves for this establishment. If the Busy Bee produces 40 hamburgers per hour, then http://imgur.com/t2iOOio A. profit will be maximized. B. both the marginal revenue and the price will be negative. C. marginal revenue will be maximized. D. marginal revenue will exceed marginal cost. E. marginal revenue will be negative.
E. marginal revenue will be negative.
A market in which many firms sell identical products is A. an oligopoly. B. only monopolistic competition. C. a monopoly. D. both perfect competition and monopolistic competition. E. only perfectly competition.
E. only perfectly competition.
Because perfectly competitive firms are price takers, each firm faces a demand that is A. highly inelastic but never is it perfectly inelastic. B. unit elastic. C. highly elastic but never is it perfectly elastic. D. perfectly inelastic. E. perfectly elastic.
E. perfectly elastic.
Economies of scale and diseconomies of scale explain A. the U−shape of the marginal cost curves. B. the U−shape of the short−run average total cost curve. C. cost behavior in the short run. D. profit maximization in the long run. E. the U−shape of the long−run average cost curve.
E. the U−shape of the long−run average cost curve.