Econ exam #3
In the long run, a. competitive firms' profits are zero. b. competitive firms' variable costs are zero. c. competitive firms' ATC curves shift upward or downward to ensure that all demand is satisfied. d.the number of firms in the market is fixed.
a. competitive firms' profits are zero.
The profit-maximizing rule for a firm in a monopolistically competitive market is to always select the quantity at which a. marginal revenue is equal to marginal cost. b.average total cost is equal to marginal revenue. c.average total cost is equal to price .d. average revenue exceeds average total cost.
a. marginal revenue is equal to marginal cost.
Acme Computer Co. sells computers to retail stores for $400. If Acme requires the retailers to charge customers $500 for the computers, then it is engaging in a. resale price maintenance. b. predatory pricing. c. tying .d. monopolistic competition.
a. resale price maintenance
When the wages paid to government economists increase, the labor supply curve for academic economists a. shifts to the left .b. shifts to the right. c. will become backward-sloping .d. will not change.
a. shifts to the left
In a monopolistically competitive market, a. the entry of new firms creates externalities. b. the absence of restrictions on entry by new firms ensures that there will be no dead weight loss. c. there are always too many firms in the market relative to the socially-optimal number of firms .d. firms cannot earn positive economic profits in the short run.
a. the entry of new firms creates externalities.
Suppose that monopolistically competitive firms in a certain market are experiencing losses. In the transition from this initial situation to along-run equilibrium, a. the number of firms in the market decreases. b. each existing firm experiences a decrease in demand for its product. c. each firm experiences an upward shift of its marginal cost and average total cost curves. d. each existing firm's average total cost falls to bring economic profit back to zero.
a. the number of firms in the market decreases
An oligopoly is a market in which a. there are only a few sellers, each offering a product similar or identical to the products offered by other firms in the market. b. firms are price takers. c. the actions of one seller in the market have no impact on the other sellers' profits. d. there are many price-taking firms, each offering a product similar or identical to the products offered by other firms in the market.
a. there are only a few sellers, each offering a product similar or identical to the products offered by other firms in the market.
51.Why does a firm in a competitive industry charge the market price? a.If a firm charges less than the market price, it loses potential revenue. b.If a firm charges more than the market price, it loses all its market power. c.The firm can only sell limited number of units of output, so it wants to sell at the market price in order to lower its costs. d.All of the above are correct.
a.If a firm charges less than the market price, it loses potential revenue.
48.Refer to Table 17-21. If John chooses Drive Straight, what will Paul choose to do and what will Paul's pay off equal? a.Turn,5 b.Drive Straight,0 c.Turn,10 d.Drive Straight,200
a.Turn,5
The prisoners' dilemma provides insights into the a.difficulty of maintaining cooperation. b.benefits of avoiding cooperation. c.benefits of government ownership of monopoly. d.ease with which oligopoly firms maintain high prices.
a.difficulty of maintaining cooperation.
If firms are competitive and profit maximizing, the price of a good equals the a.marginal cost of production. b.fixed cost of production. c.total cost of production. d.average total cost of production.
a.marginal cost of production.
A monopolistically competitive market could be considered inefficient because a. marginal revenue exceed saverage revenue. b. price exceeds marginal cost. c. the efficient scale of production is only achieved in the long run, not in the short run. d. mark up pricing does not occur in any other market structure.
b. price exceeds marginal cost.
When a firm experiences continually declining average total costs, a. the firm is a price taker. b. society is better served by having one firm supply the product. c. the firm will earn higher profits than if average total costs are increasing. d. All of the above are correct.
b. society is better served by having one firm supply the product.
45.Refer to Table 17-26. If both firms follow a dominant strategy, Firm A's profits( losses) will be a. $-12m b.$-24m c.$-60m d.$-100m
b.$-24m
38.An industry is a natural monopoly when (i)the government assists the firm in maintaining the monopoly. (ii)a single firm owns a key resource.(iii)a single firm can supply a good or service to an entire market at a smaller cost than could two or more firms. a.(ii) only b.(iii) only c.(i) and (ii) only d.(ii) and (iii) only
b.(iii) only
46.Refer to Figure 14-9. If there are 100 identical firms in this market, what is the value of Q2? a.10,000 b.20,000 c.40,000 d.80,000
b.20,000
41.Refer to Figure 15-4. The demand curve for a monopoly firm is depicted by curve a.A. b.B. c.C. d.D.
b.B.
52.How does advertising signal to consumers that the product is a good one? a.By seeing famous people using the product, consumers infer that they too can be famous. b.By being willing to spend money on advertising, firms let consumers know the product is likely a good one since firms would not likely advertise a poor product. c. By making consumers laugh during commercials, firms are associating positive experiences with the product. d.Without allowing consumers to actually use the product, it is not possible for firms to signal to consumers the product's quality.
b.By being willing to spend money on advertising, firms let consumers know the product is likely a good one since firms would not likely advertise a poor product.
30. Suppose when a monopolist produces 50 units its average revenue is $8 per unit, its marginal revenue is $4 per unit, its marginal cost is $4 per unit, and its average total cost is $3 per unit. What can we conclude about this monopolist? a.The monopolist is currently maximizing profits, and its total profits are $200. b.The monopolist is currently maximizing profits, and its total profits are $250. c.The monopolist is not currently maximizing its profits; it should produce more units and charge a lower price to maximize profit. d.The monopolist is not currently maximizing its profits; it should produce fewer units and charger a higher price to maximize profit.
b.The monopolist is currently maximizingprofits,anditstotalprofitsare$250.
33.When the prisoners' dilemma game is generalized to describe situations other than those that literally involve two prisoners, we see that cooperation between the players of the game a.can be difficult to maintain, but only when cooperation would make at least one of the players of the game worse off. b.can be difficult to maintain, even when cooperation would make both players of the game better off. c.always works to the benefit of society as a whole .d.always works to the detriment of society as a whole.
b.can be difficult to maintain, even when cooperation would make both players of the game better off.
49.A competitive market is in long-run equilibrium. If demand increases, we can be certain that price will a.rise in the short run. Some firms will enter the industry. Price will then rise to reach the new long-run equilibrium. b.rise in the short run.Some firms will enter the industry. Price will then fall to reach the new long-run equilibrium. c.fall in the short run. All, some, or no firms will shut down, and some of them will exit the industry. Price will then rise to reach the new long-run equilibrium. d.not rise in the short run because firms will enter to maintain the price.
b.rise in the short run.Some firms will enter the industry. Price will then fall to reach the new long-run equilibrium.
39.Phil sells duck calls in a perfectly competitive market. If duck calls sell for $10 each and average total cost per unit is $11 at the profit-maximizing output level, then in the long run a.more firms will enter the market .b.some firms will exit from the market. c. the equilibrium price per duck call will fall d. average total costs will fall
b.some firms will exit from the market.
43.When a profit-maximizing firm in a monopolistically competitive market charges a price higher than marginal cost, a.the firm must be earning a positive economic profit. b.the firm may be incurring economic losses . c.there is a deadweight loss to society, but it is exactly off set by the benefit of excess capacity. d.new firms will enter the market in the long run.
b.the firm may be incurring economic losses .
25. If a firm operating in a competitive industry shuts down in the short run, it can avoid paying a.fixed costs. b.variable costs .c. total costs. d. The firm must pay all its costs, even if it shuts down.
b.variable costs
40.Refer to Table16-6. When maximizing profit, what price does Beatrice's charge for a cake? a.$24 b.$30 c.$36 d.$42
c. $36
17. Refer to Figure 15-6. How much out put will the monopolist produce? a.O b.T c.W d.Z
c. W
19. Which of the following correctly lists the products in order from most advertised to least advertised? a.soft drinks, breakfast cereals, dog food b.corn, dog food, communication satellites c. dog food, communication satellites, corn d.wheat, corn, crudeoil
c. dog food, communication satellites, corn
16. At the profit-maximizing level of output, a. marginal revenue equals average total cost. b. marginal revenue equals average variable cost. c. marginal revenue equals marginal cost. d. average revenue equals average total cost.
c. marginal revenue equals marginal cost.
In the language of game theory, a situation in which each person must consider how others might respond to his or her own actions is called a a. quantifiable situation. b.cooperative situation. c. strategic situation d. tactical situation
c. strategic situation
44.Refer to Figure 15-7. In order to maximize profits, the monopolist should charge a price of a.$9. b.$12. c.$20. d.$23.
c.$20.
31.Refer to Scenario 15-5 .How much profit will the air line earn if it engages in price discrimination? a.-$5,000 b.$40,000 c.$55,000 d.$75,000
c.$55,000
34.Which of the following statements regarding brand names in advertising is not correct? a.Brand names provide consumers within formation about quality when quality cannot be easily judged in advance of purchase. b.Brand names give firms an incentive to maintain high quality to maintain the reputation of the firm. c.Brand names allow firms to produce and sell inferior products in the long run since people will continue to purchase the brand-name product. d.Brand names can cause consumers to perceive differences in products that do not actually exist.
c.Brand names allow firms to produce and sell inferior products in the long run since people will continue to purchase the brand-name product.
47.Refer to Figure 16-9. As the figure is drawn, the firm is in a. a short-run equilibrium but it is not in a long-run equilibrium. b.along-run equilibrium but it is not in a short-run equilibrium. c.a short-run equilibrium as well as a long-run equilibrium. d.neither a short-run equilibrium nor along-run equilibrium.
c.a short-run equilibrium as well as a long-run equilibrium.
21. Refer to Table 16-3. What is the concentration ratio for Industry A? a.approximately 52% b.approximately 58% c.approximately 66% d.approximately 72%
c.approximately 66%
42.A competitive firm a.and a monopolist are price takers. b.and a monopolist are price makers. c.is a price taker, where as a monopolist is a pricemaker. d.is a price maker, where as a monopolist is a pricetaker.
c.is a price taker, where as a monopolist is a pricemaker.
If "too much choice" is a problem for consumers, it would occur in which market structure(s)? a.perfect competition b.monopoly c.monopolistic competition d.perfect competition and monopolistic competition
c.monopolistic competition
50.When firm shave an incentive to exit a competitive market, their exit will a.lower the market price. b.necessarily raise the costs for the firms that remain in the market. c.raise the profits of the firms that remain in the market. d.shift the demand for the product to the left.
c.raise the profits of the firms that remain in the market.
Refer to Figure 15-5. Profit on a typical unit sold for a profit-maximizing monopoly would equal a.P1-P6. b.P2-P4. c.P2-P5. d.P2-P3.
cP2-P5.
Refer to Figure14-5. Firms would been couraged to enter this market for all prices that exceed a.P1. b.P2. c.P3. d.P4.
d. P4
Refer to Figure 15-9. The monopolist's maximum profit a. is $1,600. b. is $2,000. c. is $2,500 . d. cannot be determined from the diagram.
d. cannot be determined from the diagram.
Raiman's Shoe Repair produces custom- made shoes. When Mr. Raiman produces 12 pairs per week, the marginal cost of the 12th pair is $84, and the marginal revenue of the 12th pair is $70. What would you advise Mr. Raimantodo? a. shut down the business b. produce more custom- made shoes c. decrease the price d. produce fewer custom-made shoes
d. produce fewer custom-made shoes
9 .Which of the following represents the firm's short-run condition for shutting down? a. shut down if TR<TC b. shut down if TR<FC c. shut down if P<A TC d. shut down if TR<VC
d. shut down if TR<VC
The more firms an oligopoly has, a. the more likely it is to earn monopoly profits. b. the higher the price of the product. c. the farther the equilibrium quantity will be from the socially efficient quantity. d. the more likely the firms will charge a price close to the perfectly competitive price.
d. the more likely the firms will charge a price close to the perfectly competitive price.
Victor is the recipient of $1 million from a lawsuit. Victor decides to use the money to purchase a small business in Florida. His business operates in a perfectly competitive industry. If Victor would have invested the $1 million in a risk-free bond fund, he could have earned $100,000 each year. After he bought the small business, Victor quit his job as a market analyst with Research,Inc., where he used to earn $75,000 per year. 22.Refer to Scenario 14-4. What is Victor's opportunity costs of operating his new business? a.$25,000 b.$75,000 c.$100,000 d.$175,000
d.$175,000
28.Refer to Table 15-8. What is the additional cost to the firm when the monopolist lowers the price from $18 to $12? a.The firm saves $15. b.$15 c.$30 d.$40
d.$40
37.In a long-run equilibrium, the marginal firm has a.price equal to average total cost. b.total revenue equal to total cost. c.economic profit equal to zero. d.All of the above are correct.
d.All of the above are correct.
Which of the following questions about predatory pricing remains unresolved? a. Are the courts capable of determining which price cuts are competitive and which are predatory? b. Are the courts capable of determining which price cuts are good for consumers? c.Is predatory pricing ever a profitable business strategy? d.All of the above questions about predatory pricing are unresolved.
d.All of the above questions about predatory pricing are unresolved.
Refer to Figure 16-2. Suppose that average total cost is $36 when Q=24. What is the profit-maximizing price and resulting profit? a. P=$24, profit=$0 b. P=$36, profit=$144 c.P=$36, profit=$48 d.P=$36, profit=$0
d.P=$36, profit=$0
36. Refer to Figure 17-5. The dominant strategy for ABC is to a.charge a high price, and the dominant strategy for QRS is to charge a high price. b.charge a high price, and the dominant strategy for QRS is to charge a low price. c.charge a low price, and the dominant strategy for QRS is to charge a high price. d.charge a low price, and the dominant strategy for QRS is to charge a low price.
d.charge a low price, and the dominant strategy for QRS is to charge a low price.
29.In a long-run equilibrium, a firm in a monopolistically competitive market operates a. where marginal revenue is zero. b.where marginal revenue is negative. c.on the rising portion of its average total cost curve. d.on the declining portion of its average total cost curve.
d.on the declining portion of its average total cost curve.
The amount that producers receive for a good minus their costs of producing it equals a.quantity supplied. b.supply price. c.deadweight loss. d.producer surplus.
d.producer surplus.
In perfect competition as well as in monopolistic competition, a .marginal revenue is equal to price for each firm. b. profit is positive in along-run equilibrium for each firm. c.entry and exit by firms are restricted. d.there are many firms in a single market.
d.there are many firms in a single market.
