Econ practice exam 2

The profit maximizing rule MR=MC applies to: 1. all firms 2. monopolists only 3. perfect competitors only 4. all firm types except perfect competitors

1. all firms Following the cost-benefit principle, for all firms the rule for profit maximization is marginal revenue equals marginal cost

An imperfectly competitive firm is one that: 1. has some degree of influence over the price it charges for its output 2. charges any price it wishes 3. revenue maximizes 4. confronts a perfectly inelastic demand curve

1. has some degree of influence over the price it charges for its output An imperfectly competitive firm can increase its price and still retain some customers.

If a natural monopoly increases the quantity of output it produces: 1. its average costs will decrease 2. its average costs will increase 3. it will have to increase the price that it charges 4. its profits will increase

1. its average costs will decrease A natural monopoly experiences lower average costs when it increases output.

Assume that the market for soybeans is purely competitive. Currently, firms growing soybeans are experiencing economic profits. In the long run, we can expect: 1. new firms to enter causing the market price of soybeans to fall 2. new firms to enter causing the market price of soybeans to rise 3. some firms to exit causing the market price of soybeans to fall 4. some firms to exit causing the market price of soybeans to rise

1. new firms to enter causing the market price of soybeans to fall

Which of the following factors of production is likely to be fixed in the short run? 1. the location of the firm 2. the number of employee-hours 3. the amount of elecyricity consumed 4. the amount of paper used

1. the location of the firm Factors that cannot easily be changed are fixed in the short run.

If a firm spends $400 to produce 20 units of output and spends $880 to produce 40 units, then between 20 and 40 units of output, the marginal cost of production is: 1. $20 2. $24 3. $22 4. $480

2. $24 Total cost increased by $480 and the number of units increased by 20, so the increase in cost per unit is 480/20, or $24.

suppose that Joe sells pork in a purely competitive market. The market price of pork is $3 per pound. Joe's marginal revenue from selling the twelfth pound would be: 1. 36 2. 3 3. 12 lbs 4. 1 lb

2. $3

Pat used to work as an aerobics instructor at the local gym earning $35,000 a year. Pat quit that job and started working as a personal trainer. Pat makes $50,000 in total revenue. Pat's only out-of-pocket costs are $12,000 per year for rent and utilities, $1,000 per year for advertising and $3,000 per year for equipment. Refer to the information given above. Pat's accounting profit is ______, and Pat's economic profit is ______. 1. $50,000; $15,000 2. $34,000; -$1,000 3. $34,000; $15,000 4. -$1,000; -$1,000

2. $34,000; -$1,000

The market for agricultural products such as wheat or corn would best be described by which market model? 1. monopolistic competition 2. pure competition 3. pure monopoly 4. oligopoly

2. pure competition

The demand curve confronting a non-discriminating pure monopolist is: 1. horizontal 2. the same as the industry's demand curve 3. more elastic than the demand curve confronting a competitive firm 4. derived by vertically summing the individual demand curves for the buyers

2. the same as the industry's demand curve

In a purely competitive industry, each firm: 1. determines its own price 2. produces a differentiated product 3. can easily enter or exit the industry 4. engages in various forms of nonprice competition

3. can easily enter or exit the industry

If a firm increases its output quantity when marginal revenue is less than marginal cost then its profits will: 1. be positive 2. increase 3. decrease 4. be negative

3. decrease

Which of the following is NOT true of a perfectly competitive firm? 1. it faces a perfectly elastic demand curve 2. it is unable to influence the market price of the good it sells 3. it seeks to maximize revenue 4. relative to the size of the market, the firm is small

3. it seeks to maximize revenue No firms seek to maximize revenue. They seek to maximize profit.

In order to sell another unit, an imperfectly competitive firm must: 1. increase its advertising 2. increase the value of its product 3. lower its price 4. lower its quality

3. lower its price Imperfectly competitive firms face a downward sloping demand curve.

A profit-maximizing perfectly competitive firm must decide: 1. only on what price to charge, taking output as fixed 2. both what price to charge and how much to produce 3. only how much to produce, taking price of the good as fixed 4. only on which industry to join, taking price and output as fixed

3. only how much to produce, taking price of the good as fixed A perfectly competitive firm is a price taker so it can only determine quantity.

The table shows the demand schedule facing Nina, a monopolist selling baskets. Profit|20|18|16|14|12|10 Sold | 3 | 5 | 7 |10|15|30 Refer to the above table for Nina. What is the change in total revenue if she raises the price from $10 to $12? 1. -$300 2. +$300 3. +$120 4. -$120

4. -$120

One feature of a pure monopoly is that the firm is: 1. a producer of products with close substitutes 2. one of several producers of a product 3. a price taker 4. a price maker

4. a price maker

In a perfectly competitive industry over the long run: 1. economic profits tend to persist 2. the number of firms in an industry grows 3. economic losses tend to persist 4. economic profits and losses are driven towards zero by entry and exit

4. economic profits and losses are driven towards zero by entry and exit The incentive to earn profit and avoid loss causes firms to enter profitable markets and exit unprofitable ones until the market settles in to a zero-profit equilibrium.

For all firms, the additional revenue collected from the sale of one additional unit of output is: 1. price 2. average revenue 3. marginal profit 4. marginal revenue

4. marginal revenue Marginal revenue is the change in total revenue when the firm sells one more unit.

Suppose a firm is collecting $100 in total revenues when it sells 10 units and it receives $110 in total revenues when it sells 11 units. The firm is a(n): 1. pure monopolist 2. oligopolist 3. monopolistic competitor 4. perfect competitor

4. perfect competitor Perfectly competitive firms face a horizontal demand curve, so each additional unit sold increases revenue by the price of the good, here $10. Imperfectly competitive firms face a downward sloping demand curve so that selling an additional unit does not increase revenue by the price.