econ test 3

b. -$13

A monopolist can sell 20 toys per day for $8.00 each. To sell 21 toys per day, the price must be cut to $7.00. The marginal revenue of the 21st toy is: Multiple Choice a. -$10 b. -$13 c. +$7 d. +$21

b. may be greater or less than ATC.

A pure monopolist's short-run profit-maximizing or loss-minimizing position is such that price: Multiple Choice a. equals marginal revenue. b. may be greater or less than ATC. c. will always equal ATC. d. always exceeds ATC.

b. a price war

A breakdown in price leadership leading to successive rounds of price cuts is known as: Multiple Choice a. limit pricing b. a price war c. informal pricing d. price discrimination

b. earning economic profits

We would expect an industry to expand if firms in that industry are: Multiple Choice a. earning normal profits. b. earning economic profits. c. breaking even. d. earning accounting profits.

c. Price was greater than average total cost and the firm made substantial profits

When De Beers acted as a monopolist, at the profit-maximizing level of output: Multiple Choice a. The demand for diamonds was price inelastic b. Average total cost equaled marginal costs and equaled product price c. Price was greater than average total cost and the firm made substantial profits d. Price was less than average total cost and the firm experienced substantial losses

a. Air-conditioning maintenance

Which industry would be considered to be monopolistically competitive? Multiple Choice a. Air-conditioning maintenance b. Breakfast cereals production c. Wi-fi connection providers d. Small-arms ammunition supply

d. The portion of the marginal-cost curve above the average-variable-cost curve is the short-run supply curve for the firm

Which is not true for a monopolistically competitive industry? Multiple Choice a. Firms tend to operate with excess capacity b. Each firm faces a downward-sloping demand curve c. These firms earn zero economic profits in the long run d. The portion of the marginal-cost curve above the average-variable-cost curve is the short-run supply curve for the firm

a. P1.

a. P1. b. P2. c. P3. d. P4.

b. Both firms could have significant market power and control over price

A firm in an oligopoly is similar to a monopoly in that: Multiple Choice a. Both firms do not face competition from others b. Both firms could have significant market power and control over price c. Both firms face very inelastic demand for their products d. Both firms do not need to advertise

b. price must be lowered to sell more output.

Because the monopolist's demand curve is downsloping: Multiple Choice a. MR will equal price. b. price must be lowered to sell more output. c. the elasticity coefficient will increase as price is lowered. d. its supply curve will also be downsloping.

b. the quantity demanded at each price in a set of prices is greater.

By an "increase in demand" economists mean that: Multiple Choice a. product price has fallen so consumers move down to a new point on the demand curve. b. the quantity demanded at each price in a set of prices is greater. c. the quantity demanded at each price in a set of prices is smaller. d. a leftward shift of the demand curve has occurred.

c. exceed MC, but equal ATC.

In the long-run, the price charged by a monopolistically competitive firm seeking to maximize profit will: Multiple Choice a. be less than both MC and ATC. b. exceed ATC, but equal MC. c. exceed MC, but equal ATC. d. exceed both MC and ATC.

b. the development of a low-cost electric automobile

Other things equal, which of the following might shift the demand curve for gasoline to the left? Multiple Choice a. the discovery of vast new oil reserves in Montana b. the development of a low-cost electric automobile c. an increase in the price of train and air transportation d. a large decline in the price of automobiles

b. price inelastic in both the short and long run.

Studies show that the demand for gasoline is: Multiple Choice a. price inelastic in the short run, but elastic in the long run. b. price inelastic in both the short and long run. c. price elastic in the short run, but inelastic in the long run. d. price elastic in both the short and long run.

b. perfectly inelastic.

The supply of known Monet paintings is: Multiple Choice a. perfectly elastic. b. perfectly inelastic. c. relatively elastic. d. relatively inelastic.

d. 7 percent and quantity supplied rises by 5 percent.

The supply of product X is inelastic (but not perfectly inelastic) if the price of X rises by: Multiple Choice a. 5 percent and quantity supplied rises by 7 percent. b. 8 percent and quantity supplied rises by 8 percent. c. 10 percent and quantity supplied remains the same. d. 7 percent and quantity supplied rises by 5 percent.

d. Successful price discrimination will generally result in a lower level of output than would be the case under a single-price monopoly

Which is not true of price discrimination? Multiple Choice a. Successful price discrimination requires that different segments of the market have different demand elasticities b. Successful price discrimination will provide the firm with more profit than if it does not discriminate c. Successful price discrimination implies that the producer can separate customers into easily identifiable groups d. Successful price discrimination will generally result in a lower level of output than would be the case under a single-price monopoly

a. Price and marginal revenue are equal at all levels of output.

Which of the following is characteristic of a purely competitive seller's demand curve? Multiple Choice a. Price and marginal revenue are equal at all levels of output. b. Average revenue is less than price. c. Its elasticity coefficient is 1 at all levels of output. d. It is the same as the market demand curve.

c. $16.

a. $10. b. $13. c. $16. d. $19.

c. produce 40 units and incur a loss.

a. produce 14 units and realize an economic profit. b. produce 62 units and earn only a normal profit. c. produce 40 units and incur a loss. d. shut down in the short run.

d. rivals will ignore a price increase but match a price decrease.

a. the firm has no immediate rivals. rivals will match both a price b. increase and a price decrease. c. rivals will match a price increase but ignore a price decrease. d. rivals will ignore a price increase but match a price decrease.

c. economic profits will be zero.

a. the firm will maximize profit at point d. b. the firm will earn an economic profit. c. economic profits will be zero. d. new firms will enter this industry.

c. result in a surplus of wheat.

An effective price floor on wheat will: Multiple Choice a. force otherwise profitable farmers out of business. b. result in a shortage of wheat. c. result in a surplus of wheat. d. clear the market for wheat.

b. rise, the supply of bread to decrease, and the demand for potatoes to increase.

Assume a drought in the Great Plains reduces the supply of wheat. Noting that wheat is a basic ingredient in the production of bread and potatoes are a consumer substitute for bread, we would expect the price of wheat to: Multiple Choice a. rise, the supply of bread to increase, and the demand for potatoes to increase. b. rise, the supply of bread to decrease, and the demand for potatoes to increase. c. rise, the supply of bread to decrease, and the demand for potatoes to decrease. d. fall, the supply of bread to increase, and the demand for potatoes to increase.

a. Rent-seeking

Assume that the owners of the only gambling casino in Wisconsin spend large sums of money lobbying state government officials to protect their gambling monopoly. Economists refer to these expenditures as: Multiple Choice a. Rent-seeking b. Price discrimination c. X-efficiency d. Network effects

d. An increase in demand with no change in supply will result in an increase in sales.

Assuming competitive markets with typical supply and demand curves, which of the following statements is correct? Multiple Choice a. An increase in supply with a decrease in demand will result in an increase in price. b. An increase in supply with no change in demand will result in an increase in price. c. An increase in supply with no change in demand will result in a decline in sales. d. An increase in demand with no change in supply will result in an increase in sales.

a. in all likelihood alter both equilibrium price and quantity.

Assuming conventional supply and demand curves, changes in the determinants of both supply and demand will: Multiple Choice a. in all likelihood alter both equilibrium price and quantity. b. alter equilibrium quantity, but not equilibrium price. c. alter equilibrium price, but not equilibrium quantity. d. have no effect on equilibrium price or quantity.

b. price and minimum average variable cost.

If a firm is confronted with economic losses in the short run, it will decide whether or not to produce by comparing: Multiple Choice a. marginal revenue and marginal cost. b. price and minimum average variable cost. c. total revenue and total cost. d. total revenue and total fixed cost.

a. reducing output and raising price.

If a monopolist's marginal revenue is $3.00 and its marginal cost is $4.50, it will increase its profits by: Multiple Choice a. reducing output and raising price. b. reducing both output and price. c. increasing both price and output. d. raising price while keeping output unchanged.

b. not change its output.

If a profit-seeking competitive firm is producing its profit-maximizing output and its total fixed costs fall by 25 percent, the firm should: Multiple Choice a. use more labor and less capital to produce a larger output. b. not change its output. c. reduce its output. d. increase its output.

b. new firms will enter this market.

If a purely competitive firm is producing at the MR = MC output level and earning an economic profit, then: Multiple Choice a. the selling price for this firm is above the market equilibrium price. b. new firms will enter this market. c. some existing firms in this market will leave. d. there must be price fixing by the industry's firms.

b. pure monopoly.

If the several oligopolistic firms that comprise an industry behave collusively, the resulting price and output will most likely resemble those of: Multiple Choice a. bilateral monopoly. b. pure monopoly. c. monopolistic competition. d. pure competition.

d.the price of the product for which the supply curve is relevant

In moving along a supply curve which of the following is not held constant? Multiple Choice a. the number of firms producing this good b. expectations about the future price of the product c. techniques used in producing this product d.the price of the product for which the supply curve is relevant

c. Elastic because many other firms produce the same product

In pure competition, the demand for the product of a single firm is perfectly: Multiple Choice a. Elastic because the firm produces a unique product b. Inelastic because the firm produces a unique product c. Elastic because many other firms produce the same product d. Inelastic because many other firms produce the same product

c. Not change their prices

In the kinked demand model of oligopoly, if one firm increases its price, the most likely reaction of the other firms will be to: Multiple Choice a. Decrease their prices b. Increase their prices c. Not change their prices d. Reduce their quantity

c. above marginal cost.

In the short-run, a profit-maximizing monopolistically competitive firm sets it price: Multiple Choice a. equal to marginal revenue. b. equal to marginal cost. c. above marginal cost. d. below marginal cost.

c. Monopolistic competition and oligopoly

In which two market models would advertising be used most often? Multiple Choice a. Pure competition and monopolistic competition b. Pure competition and pure monopoly c. Monopolistic competition and oligopoly d. Pure monopoly and oligopoly

c. Average total cost is greater than the minimum average total cost

Monopolistic competitive firms are productively inefficient because production occurs where: Multiple Choice a. Marginal cost is greater than marginal revenue b. Marginal cost is less than marginal revenue c. Average total cost is greater than the minimum average total cost d. Average total cost is less than the difference between average total cost and average variable cost

c. demand curve as kinked, being steeper below the going price than above.

Suppose an oligopolistic producer assumes its rivals will ignore a price increase but match a price cut. In this case the firm perceives its: Multiple Choice a. demand curve as being of unit elasticity throughout. b. supply curve as kinked, being steeper below the going price than above. c. demand curve as kinked, being steeper below the going price than above. d. demand curve as kinked, being steeper above the going price than below.

c. close down because, by producing, your losses will exceed your total fixed costs.

Suppose you find that the price of your product is less than minimum AVC. You should: Multiple Choice a. minimize your losses by producing where P = MC. b. maximize your profits by producing where P = MC. c. close down because, by producing, your losses will exceed your total fixed costs. d. close down because total revenue exceeds total variable cost.

a. Shut down in the short run

T-Shirt Enterprises is selling in a purely competitive market. It is producing 3000 units, selling them for $2.00 each. At this level of output, the average total cost is 2.50 and the average variable cost is $2.20. Based on these data, the firm should: Multiple Choice a. Shut down in the short run b. Decrease output to 2500 units c. Continue to produce 3000 units d. Increase output to 3500 units

d. independent goods.

Tennis rackets and ballpoint pens are: Multiple Choice a. substitute goods. b. complementary goods. c. inferior goods. d. independent goods.

d. Homogeneous oligopoly

The U.S. primary steel industry is best described as a(n): Multiple Choice a. Monopolistic competition b. Monopoly c. Differentiated oligopoly d. Homogeneous oligopoly

b. is less elastic than that faced by a single purely competitive firm.

The demand curve faced by a pure monopolist: Multiple Choice a. may be either more or less elastic than that faced by a single purely competitive firm. b. is less elastic than that faced by a single purely competitive firm. c. has the same elasticity as that faced by a single purely competitive firm. d. is more elastic than that faced by a single purely competitive firm.

c. relatively price inelastic.

The demand for a necessity whose cost is a small portion of one's total income is: Multiple Choice a. perfectly price inelastic. b. perfectly price elastic. c. relatively price inelastic. d. relatively price elastic.

c. quantity demanded of X/percentage change in price of Y.

The formula for cross elasticity of demand is percentage change in: Multiple Choice a. quantity demanded of X/percentage change in price of X. b. quantity demanded of X/percentage change in income. c. quantity demanded of X/percentage change in price of Y. d. price of X/percentage change in quantity demanded of Y.

a. competitors will follow a price cut but ignore a price increase.

The kinked-demand curve of an oligopolist is based on the assumption that: Multiple Choice a. competitors will follow a price cut but ignore a price increase. b. competitors will match both price cuts and price increases. c. competitors will ignore a price cut but follow a price increase. d. there is no product differentiation.

b. greater their substitutability.

The larger the positive cross elasticity coefficient of demand between products X and Y, the: Multiple Choice a. stronger their complementariness. b. greater their substitutability. c. smaller the price elasticity of demand for both products. d. the less sensitive purchases of each are to increases in income.

d. lower its average total cost at its profit maximizing level of output.

The more elastic a monopolistic competitor's long-run demand curve, the: Multiple Choice a. greater its excess capacity. b. the higher its price relative to that of a pure competitor having the same cost curves. c. lower its long-run profit. d. lower its average total cost at its profit maximizing level of output.

b. the greater will be the price elasticity of demand.

The more time consumers have to adjust to a change in price: Multiple Choice a. the smaller will be the price elasticity of demand. b. the greater will be the price elasticity of demand. c. the more likely the product is a normal good. d. the more likely the product is an inferior good.

c. Marginal revenue is less than average revenue

The non-discriminating pure monopolist must decrease price on all units of a product sold in order to sell more units. This explains why: Multiple Choice a. There are barriers to entry in pure monopoly b. A monopoly has a perfectly elastic demand curve c. Marginal revenue is less than average revenue d. Total revenues are greater than total costs at the profit maximizing level of output

a. is less elastic than a purely competitive firm's demand curve.

The nondiscriminating monopolist's demand curve: Multiple Choice a. is less elastic than a purely competitive firm's demand curve. b. is perfectly elastic. c. coincides with its marginal revenue curve. d. is perfectly inelastic.

c. directly with the number of competitors, but inversely with the degree of product differentiation.

The price elasticity of a monopolistically competitive firm's demand curve varies: Multiple Choice a. inversely with the number of competitors and the degree of product differentiation. b. directly with the number of competitors and the degree of product differentiation. c. directly with the number of competitors, but inversely with the degree of product differentiation. d. inversely with the number of competitors, but directly with the degree of product differentiation.

c. Is upsloping when some inputs are fixed

The purely competitive firm's supply curve: Multiple Choice a. Is perfectly inelastic in the short run b. Is horizontal in the long run c. Is upsloping when some inputs are fixed d. Becomes less elastic in the long run

a. Price must be at least equal to average total cost.

Which of the following is not a valid generalization concerning the relationship between price and costs for a purely competitive seller in the short run? Multiple Choice a. Price must be at least equal to average total cost. b. Price times quantity produced must be equal to or greater than total variable cost for some level of output or the firm will close down in the short run. c. Price may be equal to, greater than, or less than average total cost. d. Price must be equal to or greater than minimum average variable cost for the firm to continue producing.

c. Easy entry, many firms, and differentiated products

Which set of characteristics below best describes the basic features of monopolistic competition? Multiple Choice a. Easy entry, many firms, and standardized products b. Barriers to entry, few firms, and differentiated products c. Easy entry, many firms, and differentiated products d. Easy entry, few firms, and standardized products

b. C only

a. B only b. C only c. B and C d. D only

b. E units and charge price A.

a. E units and charge price C. b. E units and charge price A. c. M units and charge price N. d. L units and charge price LK.

b. P = $14; Q = 4

a. P = $12; Q = 5 b. P = $14; Q = 4 c. P = $15; Q = 3 d. P = $18; Q = 2

a. P1.

a. P1. b. P3. c. P2. d. P4.

c. a technological improvement in production methods.

a. a decline in product demand. b. an increase in resource prices. c. a technological improvement in production methods. d. entry of new firms into the industry.

a. an economic profit of ABHJ.

a. an economic profit of ABHJ. b. an economic profit of ACGJ. c. a loss of GH per unit. d. a loss of JH per unit.

b. above ATC.

a. below ATC. b. above ATC. c. below MC. d. below MR.

d. between P2 and P3.

a. below P2. b. below P1. c. below P3. d. between P2 and P3.

c. unit elastic for price increases that reduce quantity demanded from 5 units to 4 units.

a. inelastic for price declines that increase quantity demanded from 2 units to 3 units. b. elastic for price declines that increase quantity demanded from 5 units to 6 units. c. unit elastic for price increases that reduce quantity demanded from 5 units to 4 units. d. inelastic for price increases that reduce quantity demanded from 4 units to 3 units.

d. positive and decreasing.

a. negative and decreasing. b. negative and increasing. c. positive and increasing. d. positive and decreasing.

d. A formal agreement among firms to collude

A cartel is: Multiple Choice a. A form of covert collusion b. Legal in the United States c. Always successful in raising profits d. A formal agreement among firms to collude

c. Average revenue exceeds average total costs

A firm will earn economic profits whenever: Multiple Choice a. Marginal revenue exceeds marginal costs b. Marginal revenue exceeds variable costs c. Average revenue exceeds average total costs d. Average revenue exceeds average variable costs

d. the consumption of which varies directly with incomes.

A normal good is one: Multiple Choice a. whose amount demanded will increase as its price decreases. b. whose amount demanded will increase as its price increases. c. whose demand curve will shift leftward as incomes rise. d. the consumption of which varies directly with incomes.

b. Provides useful information to reduce search cost for consumers

A positive effect of advertising for society is that it: Multiple Choice a. Increases market share for the dominant firm in the industry b. Provides useful information to reduce search cost for consumers c. Raises barriers to entry into the industry and protects existing firms d. Creates price leadership and gives firms guidance in dealing with rivals

d. the maximum price each would be willing to pay.

A price discriminating pure monopolist will attempt to charge each buyer (or group of buyers): Multiple Choice a. different prices to compensate for differences in the characteristics of the product. b. the same price if per unit cost is constant for each unit of the product. c. that price which equals the buyer's marginal cost. d. the maximum price each would be willing to pay.

d. society values additional units of the monopolized product more highly than it does the alternative products those resources could otherwise produce.

A single-price monopoly is economically inefficient because, at the profit maximizing output: Multiple Choice a. marginal revenue exceeds product price at all profitable levels of production. b. monopolists always price their products on the basis of the ability of consumers to pay rather than on costs of production. c. MC > P. d. society values additional units of the monopolized product more highly than it does the alternative products those resources could otherwise produce.

d. from which the percentage price change is calculated is large and the original quantity from which the percentage change in quantity is calculated is small.

Most demand curves are relatively elastic in the upper-left portion because the original price: Multiple Choice a. and quantity from which the percentage changes in price and quantity are calculated are both large. b. and quantity from which the percentage changes in price and quantity are calculated are both small. c. from which the percentage price change is calculated is small and the original quantity from which the percentage change in quantity is calculated is large. d. from which the percentage price change is calculated is large and the original quantity from which the percentage change in quantity is calculated is small.

b. Ownership of essential resources

One major barrier to entry under pure monopoly arises from: Multiple Choice a. The availability of close substitutes for a product b. Ownership of essential resources c. The price taking ability of the firm d. Diseconomies of scale

d. a very small number of firms producing a homogeneous product

One would expect that collusion among oligopolistic producers would be easiest to achieve in which of the following cases? Multiple Choice a. a rather large number of firms producing a differentiated product b. a very small number of firms producing a differentiated product c. a rather large number of firms producing a homogeneous product d. a very small number of firms producing a homogeneous product

d. Marginal cost equals price

Pure competition produces a socially optimal allocation of resources in the long run because: Multiple Choice a. Marginal cost equals marginal revenue b. Marginal cost equals average total cost c. Marginal revenue equals price d. Marginal cost equals price

c. a single firm producing a product for which there are no close substitutes.

Pure monopoly refers to: Multiple Choice a. any market in which the demand curve to the firm is downsloping. b. a standardized product being produced by many firms. c. a single firm producing a product for which there are no close substitutes. d. a large number of firms producing a differentiated product.

c. price is equal to marginal cost.

Resources are efficiently allocated when production occurs where: Multiple Choice a. marginal cost equals average variable cost. b. price is equal to average revenue. c. price is equal to marginal cost. d. price is equal to average variable cost.