ECON102 EXAM #3

If the demand curve facing the monopolist is Price = 70 - 14 × Q, then the slope of its marginal revenue curve is: A. -28. B. -14. C. -7. D. -1.

A. -28.

Both the perfectly competitive firm and the monopolist find that: A. price and marginal revenue are the same. B. they can sell all they want to at the market price. C. it is best to expand production until the benefits and costs of the last unit produced are equal. D. price is less than marginal revenue.

C. it is best to expand production until the benefits and costs of the last unit produced are equal.

In order to sell another unit, an imperfectly competitive firm must: A. increase its advertising. B. increase the value of its product. C. lower its price. D. lower its quality.

C. lower its price.

Imagine that you are an entrepreneur, making designer t-shirts in your garage. Your accountant has estimated that your firm's total costs can be expressed by the function TC = 300 + 10 × Q, where Q represents the number of t-shirts you make. Refer to the information given above. If you make 100 t-shirts, your average total cost is _______. A. $3 B. $10 C. $3.10 D. $13

D. $13

Which of the following firms is most likely to be a monopolist? A. The clothing retailer with the best location in a mall B. The grocery store in a large city C. The most popular hot dog vendor on a city street corner D. The one grocery store in a small town

D. The one grocery store in a small town

Suppose the market for coffee is in equilibrium at a price of $5 per pound. This means: A. all producers who want to sell coffee earn a profit. B. all potential producers not producing coffee require less than $5 to produce coffee. C. all consumers who want to buy coffee are satisfied. D. all potential consumers not buying coffee value a pound of coffee at less than $5.

D. all potential consumers not buying coffee value a pound of coffee at less than $5.

For perfectly competitive firms price _____ marginal revenue; for monopolists price ____ marginal revenue. A. equals; equals B. equals; is less than C. is less than; equals D. equals; is greater than

D. equals; is greater than

The primary objective of a monopolist is to: A. charge the highest possible price. B. maximize total revenues. C. minimize total costs. D. maximize profits.

D. maximize profits.

The profit maximizing rule P = MC applies to: A. all firms. B. monopolists only. C. monopolists and perfect competitors. D. perfect competitors only.

D. perfect competitors only.

When a perfect competitor sells additional units, __________, and when a monopolist sells additional units, ___________. A. total revenue always rises; total revenue may rise, fall, or remain unchanged B. total revenue remains unchanged; total revenue always rises C. marginal revenue stays the same; marginal revenue rises D. total revenue always rises; total revenue always falls

A. total revenue always rises; total revenue may rise, fall, or remain unchanged

Which of the following is NOT guaranteed by the efficiency of the market equilibrium? A. Price represents the value of an extra unit of consumption. B. Rich and poor will have adequate access to the good. C. Price represents the cost of an extra unit of production. D. All mutually beneficial trades will have been made.

B. Rich and poor will have adequate access to the good.

A firm is most likely to experience economies of scale if it has _____ start up costs and ______ variable costs. A. high; increasing B. high; low C. high; high D. low; decreasing

B. high; low

Market power refers to the firm's ability to: A. undercut its competitors. B. force consumers to pay prices higher than their reservation prices. C. raise its price without losing all of its sales. D. influence the price its competitors charge.

C. raise its price without losing all of its sales.

In exchange for a share in the revenues earned on campus, State U has granted CheapFizz the exclusive right to sell soft drinks in the student union and in vending machines on campus. Prior to the deal, three soft drink companies sold beverages on campus; now no other soft drink company is allowed to sell its products on campus or at university events. Refer to the information above. Prior to the deal, a 12-ounce can of CheapFizz sold for 75 cents. After the deal you would expect a 12-ounce can of CheapFizz to sell for: A. 75 cents because that is the market price. B. less than 75 cents because CheapFizz will have greater volume and so can sell for a lower price. C. more than 75 cents because demand for CheapFizz will shift to the left. D. more than 75 cents because other firms must exit the market.

D. more than 75 cents because other firms must exit the market.

If a firm is earning zero economic profits: A. its revenues are sufficient to pay explicit costs, but not implicit costs. B. the owner will not be able to pay himself or herself a salary. C. it will shut down in the long run, but will continue to operate in the short run. D. the owners are earning a return on their time and investment that is equal to the opportunity costs of that time and investment.

D. the owners are earning a return on their time and investment that is equal to the opportunity costs of that time and investment.

Consider an industry with two firms producing similar products. Mega Corp's total costs are TC = $5,000 + 100 × Quantity. Big Inc's total costs are TC = $4,000 + 200 × Quantity. Refer to the information given above. When each firm produces 8 units _____ has lower costs, and when each firm produces 12 units _____ has lower costs. A. Big Inc; Mega Corp B. Mega Corp; Big Inc C. Big Inc; Big Inc D. Mega Corp; Mega Corp

A. Big Inc; Mega Corp

Generally, ______ motivate firms to enter an industry while ______ motivate firms to exit an industry. A. economic profits; economic losses B. accounting profits; accounting losses C. accounting profits; economic losses D. economic profits; accounting losses

A. economic profits; economic losses

If a natural monopoly increases the quantity of output it produces: A. its average costs will decrease. B. its average costs will increase. C. it will have to increase the price that it charges. D. its profits will increase.

A. its average costs will decrease.

In many towns in the United States, a single firm provides electricity. Those firms are: A. monopolists. B. oligopolists. C. monopolistic competitors. D. the government.

A. monopolists.

If a natural monopoly decreases the quantity of output it produces: A. its average costs will decrease. B. its average costs will increase. C. it will have to decrease the price that it charges. D. its profits will increase.

B. its average costs will increase.

Implicit costs: A. are always fixed. B. measure the forgone opportunities of the owners of the business. C. always exceed explicit costs. D. are irrelevant to business decisions.

B. measure the forgone opportunities of the owners of the business.

Adam Smith coined the term "invisible hand" to describe the process by which: A. self-interest leads an economy to ruin. B. self-interest leads to an allocation of goods and services that is relatively efficient. C. private interests are sacrificed for the benefit of society. D. the wealthy become richer and the poor become poorer.

B. self-interest leads to an allocation of goods and services that is relatively efficient.

Once a monopoly firm has determined the quantity of output it wishes to sell, the price it can charge is determined by: A. the cost of making the product. B. the demand curve that the firm faces. C. market demand for the product minus cost. D. the explicit cost of making the product plus the implicit costs incurred by the firm owner.

B. the demand curve that the firm faces.

A firm might have a monopoly in a market because: A. its average total cost function is increasing over the entire relevant range of output. B. the market is geographically isolated from other sellers. C. the firm's technology is obsolete. D. it faces a perfectly elastic demand curve.

B. the market is geographically isolated from other sellers.

If you were to start your own business, your implicit costs would include: A. rent that you have paid in advance for use of a building. B. the opportunity cost of your time. C. profit over and above normal profit. D. interest that you pay on your business loans.

B. the opportunity cost of your time.

If a single firm, belonging to a perfectly competitive industry in long run equilibrium, discovers a significant cost saving methodology, then: A. all firms will enjoy economic profits for a short period of time. B. the rest of the industry will quickly adopt the new methodology. C. the firm will enjoy economic profits forever. D. the firm will lower its price to drive the rest of the industry out of business.

B. the rest of the industry will quickly adopt the new methodology.

Given the total cost function TC = 2,000 + 2 × Q, when output is 1,000 units average total costs are __________ and total fixed costs is __________. A. $2; $2 B. $4; $2 C. $4; $2,000 D. $4,000; $2,000

C. $4; $2,000

_____________ work together to guide resources to their highest value. A. The explicit cost and the implicit cost of a profit maximizing firm B. The short run and long run supply curve C. The rationing and allocative functions of price D. The economic profit and accounting profit

C. The rationing and allocative functions of price

Suppose you quit your job to start a business. In the first month, your total revenue was $6,000. You paid: $1,000 in monthly rent for office space. $200 in monthly rent for equipment. $3,000 to your workers in wages for the month. $1,000 for the supplies you used that month. You determine that your profit that month was negative $200. Why? A. You did the math incorrectly. B. You accounted for lost salary of $200. C. You accounted for lost salary of $1,000. D. Your equipment rent is an implicit cost.

C. You accounted for lost salary of $1,000.

Normal profits occur when: A. accounting profits are positive. B. economic profits are positive. C. economic profits are zero. D. total revenues are greater than explicit and implicit costs.

C. economic profits are zero.

Explicit costs: A. measure the opportunity costs of the business owners. B. are always fixed in the short run. C. measure the payments made to the firm's factors of production. D. are always variable in the short run.

C. measure the payments made to the firm's factors of production.

Which ordering best describes how a perfectly competitive industry would respond to a sudden increase in popularity of the product? The market demand function will shift to the right, causing the market: A. price to increase, and a new stable equilibrium to be established at a higher price and higher quantity. B. price to increase, and all firms in the industry will earn higher profits for the foreseeable future. C. price to increase. Increased profits will encourage new firms to enter, shifting the market supply function to the right. Long-run market equilibrium will be at a higher quantity than before the surge in popularity. D. price and quantity supplied to increase. Increased profits will encourage new firms to enter shifting the market supply function upward. Long-run market equilibrium will be at a lower quantity and higher price than before the surge in popularity.

C. price to increase. Increased profits will encourage new firms to enter, shifting the market supply function to the right. Long-run market equilibrium will be at a higher quantity than before the surge in popularity.

In an industry with free entry and exit, economic profits: A. indicate a market failure. B. can never occur. C. provide incentives for a reallocation of resources out of other industries and into the one with economic profits. D. can be sustained indefinitely.

C. provide incentives for a reallocation of resources out of other industries and into the one with economic profits.