Econ Test 3 Practice Test

The Herfindahl- Hirschman Index is one factor used to determine whether a merger between two firms should be allowed. Which of the following statements regarding the value of the Index for a given industry is true.

If a merger would result in an Index value less than 1,500, the merger would not be challenged

Jason, a high-school student, mows lawns for families in his neighborhood. The going rate is $12 for each lawn-mowing service. Jason would like to charge $20 because he believes he has more experience mowing lawns than the many other teenagers who also offer the same service. If the market for lawn mowing services is perfectly competitive, what would happen if Jason raised his price?

If jason raises his price, he would lose all his customers

In Walnut Creek, California, there are three very popular supermarkets: Safeway, Whole Foods, and Lunardi's. While safeway remains open twenty-four hours a day, Whole Foods and Lunardi's close at 9pm. Which of the following statements is true?

Safeway has monopoly at midnight but not during the day

Assume a hypothetical case where an industry begins as perfectly competitive and then becomes a monopoly. Which of the following statements regarding economic surplus in each market structure is true

Under perfectly competitive conditions, economic surplus is maximized. Under monopoly conditions, economic surplus is less than under perfect competition and there is a deadweight loss

If, as a perfectly competitive industry expands, it can supply larger quantities only at a higher long-run equilibrium price, it is

an increasing-cost industry

If a restaurant was a natural monopoly, its

average total cost curve would still be declining when it crossed the demand curve

The De Beers Company, one of the longest-lived monopolies, is facing increasing competition. One source of competition comes from people who might resell their previously owned diamonds. Why is De Beers worried that people might resell their previously owned diamonds?

because previously owned diamonds would be a close substitute to newly mined diamonds and would therefore reduce De Beers market power

Which of the following is a characteristic shared by a perfectly competitive firm and a monopoly?

each maximizes profits by producing a quantity for which marginal revenue equals marginal cost

market supply is found be

horizontally summing the relevant part of each individual producer's marginal cost curve

If a perfectly competitive apple farm's marginal revenue exceeds the marginal cost of the last bushel of apples sold, what should the farm do to maximize its profit?

increase output

the price a perfectly competitive firm receives for its output

is determined by the interaction of all sellers and all buyers in the firm's market

If a perfectly competitive firm achieves productive efficiency then

it is producing the good it sells at the lowest possible cost

A perfectly competitive firm's supply curve is its

marginal cost curve above its minimum average variable cost

Ordinarily, governments attempt to promote competition in markets. Why do governments use patents to block entry into some markets when this prohibits competition?

patents encourage firms to spend money on research necessary to create new products

If a restaurant was a natural monopoly, dividing the restaurant equally into two separate restaurants would

raise average total costs

If, for a given output level, a perfectly competitive firm's price is less than its average variable cost, the firm

should shut down

If in perfectly competitive market, firms are facing a price below their average total cost but above average variable cost at the profit-maximizing output, then

some existing firms will exit the industry

Assume that the 4K and OLED television sets industry is perfectly competitive. Suppose a producer develops a successful innovation that enables it to lowers its cost of production. What happens in the short run and in the long run?

the firm will be able to increase its economic profits temporarily, but in the long run its economic profits will be eliminated as other firms copy the innovation

If a perfectly competitive firm raises the price it charges to consumers, which of the following is the most likely outcome?

the firm will not sell any output

If a regulatory commission set a price for a natural monopoly where marginal cost is equal to demand

the firm would incur a loss

A possible advantage of a horizontal merger for the economy is that

the merged firm might reap economies of scale which could translate into lower prices

Assume that firms in a perfectly competitive market are earning economic profits. Which of the following statements describes the change in market price and output as a result of the entry of new firms in the market?

the short-run market supply curve shifts to the right, causing price to fall and total market output to increase

Assume that the market for cage - free eggs is perfectly competitive. All else equal, as farmers find it less profitable to produce and sell cage-free eggs in this market

the supply curve will shift to the left and the equilibrium price will increase

Which of the following is the best example of a perfectly competitive industry

the wheat market

Using a broad definition, a firm would have a monopoly if

there is not other firm selling a substitute for its product close enough that its economic profits are competed away in the long run