final micro

(I) The entrepreneurial discovery and development of improved products and production processes is a central element of economic progress. (II) Traditional economic models of the firm accurately capture the role of the entrepreneur. a. I is true; II is false. b. I is false; II is true. c. Both I and II are true. d. Both I and II are false.

A

A competitive price-searcher market is characterized by firms a. being able to choose their price and no barriers preventing firms from entering or leaving the market. b. being able to choose their price and high barriers preventing firms from entering or leaving the market. c. being able to accept the market price for their product and high barriers preventing firms from entering or leaving the market. d. having to accept the market price for their product and no barriers preventing firms from entering or leaving the market.

A

A market situation in which only a small number of mutually interdependent, rival sellers exists is known as a(n) a. oligopoly market. b. monopoly market. c. open price-taker market. d. competitive price-searcher market.

A

Historically, most economists have referred to markets where firms are price takers as a. purely competitive markets. b. monopoly markets. c. open-door markets. d. price-searcher markets.

A

If a local government began licensing funeral homes in the area, effectively making them into a cartel, we would expect a. the price of funeral services to rise, and the number of funerals performed in the area to fall. b. the price of funeral services to rise, and the number of funerals performed in the area to increase as well. c. the price of funeral services to fall, and the number of funerals performed in the area to increase. d. the price of funeral services to fall, and the number of funerals performed in the area to fall as well.

A

If you were the owner of a price-taker firm operating at an output level where the marginal cost of producing another unit was $5, and the market price was $7, then you a. could increase your profit by expanding output. b. could increase your profit by decreasing output. c. are maximizing your profit at your current output level. d. will be able to earn positive economic profits in the long run.

A

Laws designed to prevent monopoly and promote competition are known as a. antitrust laws. b. statutory amendments. c. fair-pricing legislation. d. breakup bills.

A

Neither price takers nor competitive price searchers will be able to earn long-run economic profit because a. with low entry barriers, the entry and exit of firms result in prices that are equal to per-unit costs in the long run. b. competition from new firms will result in higher prices in the market, which offset any economic losses they earn. c. in both markets, firms charge a price equal to marginal cost. d. in both markets, firms produce products that are identical to the products produced by their competitors.

A

Refer to Figure 10-13. The firm is currently earning an economic a. profit equal to the area CKGA. b. profit equal to the area DJGA. c. loss equal to the area CKGA. d. loss equal to the area DJGA.

A

Refer to Figure 10-13. This firm will maximize profits by producing a quantity of output equal to a. E and charging a price equal to A. b. E and charging a price equal to D. c. F and charging a price equal to H. d. F and charging a price equal to C

A

To increase joint profits, a cartel will attempt to a. restrict output in order to increase the market price of the good produced. b. restrict output in order to decrease the market price of the good produced. c. expand output in order to increase the market price of the good produced. d. expand output in order to decrease the market price of the good produced.

A

When significant economies of scale are present in the production process, an industry will tend naturally toward monopoly because a. one firm will be able to produce the entire market output at a lower cost than several smaller firms. b. marginal revenue will be less than market price, giving firms the incentive to equate marginal cost with price instead of equating marginal cost and marginal revenue. c. economies of scale can only be present when firms produce identical products and there is no reason to have more than one firm producing the same exact product. d. consumers will be unwilling to compare the prices charged by several different firms.

A

You are the owner of an ice cream shop that earns a profit most of the year except during the cold winter months. During the month of December, your rent and other fixed costs amount to a total of $200. If you remain open, your total variable costs (workers, ice cream cones, etc.) will amount to $300. If you would be able to sell 100 ice cream cones at $4 each during December, then a. to maximize profits, you should remain open in December. b. to maximize profits, you should shut down in December. c. you will be able to avoid making a loss by shutting down in December. d. you should go out of business in the long run if there is any single month in which you do not earn a profit.

A

A monopoly is best defined as a. a single seller of a product that has characteristics very similar to the products produced in other industries. b. a single seller of a well-defined product for which there are no good substitutes operating in a market with high barriers to entry. c. a market in which a small number of rival sellers produce the entire market output. d. any firm operating in a contestable market.

B

A price-taker market tends toward a state of long-run equilibrium in which firms earn only a normal rate of return (zero economic profits) because a. firms will keep their prices low under fear of government regulation. b. with firms able to enter and leave the industry freely, competition will drive prices down to the level of production costs. c. by definition, production costs always rise to equal the market price. d. mismanagement on the part of owners generally results in the firms not equating marginal revenue and marginal cost.

B

Given the data shown in the table, what price and output level would a profit-maximizing price searcher choose? a. price of $8, output of 3 units b. price of $7, output of 4 units c. price of $6, output of 5 units d. price of $5, output of 6 units

B

If the market price in a price-taking industry was currently above the average total cost of production for firms in the industry, a. firms in the industry would earn short-run economic profits that would be offset by long-run economic losses. b. new firms would enter the industry, which would drive price down to the average total cost of production in the long run. c. firms in the industry would earn positive economic profits in the long run. d. most firms in the industry would shut down in the long run.

B

In general, an organization of sellers designed to coordinate supply decisions so that the joint profits of the members is maximized is called a(n) ____. If they are successful, the total market output and price will most closely approximate the output and price in a(n) ____ market. (Fill in the blanks.) a. cooperative; open price-taker b. cartel; monopoly c. cartel; open price-taker d. OPEC; competitive price-searcher

B

Refer to Figure 10-13. In the long run, we would expect the firm's a. ATC curve to fall as firms enter the industry, forcing the firm to increase its efficiency. b. demand curve to decrease as firms enter the industry due to the presence of positive economic profits. c. demand curve to increase as firms exit the industry due to the presence of economic losses. d. demand curve to shift such that marginal revenue and marginal cost intersect at quantity F- -the point where average total cost is at a minimum.

B

Refer to Figure 10-14. In the long run, we would expect a. more firms to enter this industry until zero economic profits are restored. b. firms to exit this industry until zero economic profits are restored. c. the number of firms to remain constant and existing firms will continue to suffer economic losses in the long run. d. the number of firms to remain constant and existing firms will continue to earn economic profits in the long run.

B

Refer to Figure 10-14. This firm will maximize profits by producing a quantity of output equal to a. I and charging a price equal to A. b. I and charging a price equal to C. c. I and charging a price equal to D. d. J and charging a price equal to B.

B

The fact that barriers to entry are low in competitive price-searcher markets means that if current firms are making economic losses, a. these losses will remain in the long run because firms will not exit the market. b. some current firms will exit the market, causing the demand curves that face the remaining firms to increase. c. new firms will enter the market, causing the demand curves that face the existing firms to decrease. d. new firms will enter the market, causing no change in the demand curves that face the existing firms in the market.

B

The idea that business failure is a positive force for progress in a market economy is often summarized by the term "creative destruction." Which of the following best states the central idea of this principle? a. When a business fails, the assets and resources from that business become unemployed, resulting in higher government subsidies. b. Business failure allows the assets and resources from that business to move into other areas where those resources are now more productive and highly valued. c. Only through frequent business failure will it be possible to avoid income being concentrated in a few rich entrepreneurs. d. The new, rival businesses that drive out old competitors tend to be less efficient and less creative than the older established businesses.

B

The practice of price discrimination has which of the following effects? a. Groups with the higher elasticity of demand will pay higher prices. b. Groups with the lower elasticity of demand will pay higher prices. c. With price discrimination, total output and allocative efficiency will fall. d. Groups will pay identical prices that are exactly equal to the firm's marginal cost

B

To maximize profit, the monopolist, whose cost and demand conditions are shown below, should charge a price of a. $4. b. $5. c. $6. d. $7.

B

Which of the following firms best fits the definition of a monopoly? a. McDonald's, because it is the only firm who produces the Big Mac b. a local cable company that has been granted the only license to sell cable in a city by the town council c. Ford Motor Company, because there are significant economies of scale in the production of automobiles d. Harvard University, because it has a reputation as being one of the top universities in the country

B

Economic theory suggests that government-operated monopolies will a. be highly efficient and follow policies that are in the consumers' interest. b. be dominated by persons who, while seeking to serve the public interest, are not hardnosed enough to run a business efficiently. c. be inefficient because of poor incentives for operational efficiency. d. favor the consumer at the expense of special interest groups in and out of government.

C

FYI Sanitation is currently eight months into a year-long lease contract on a garbage truck at a cost that averages $500 per month. Variable costs (fuel, workers, etc.) for operating the truck amount to $300 per month. If the monthly revenue from operating the truck is $400, and these conditions are expected to continue into the future, to maximize its profit, FYI Sanitation should a. stop operating the truck immediately and not renew the lease for next year. b. continue operating the truck, then renew the lease for next year. c. continue operating the truck until the lease expires, then not renew the lease for next year. d. stop operating the truck now but renew the lease and begin operating the truck again next year.

C

If a firm in a price-taker market is earning zero economic profit, it a. will shut down in the long run but not the short run. b. will also be earning zero accounting profit. c. is doing as well as typical firms in other markets. d. will shut down in the short run.

C

If economic profits were present in a competitive price-searcher industry, a. production inefficiency would develop, causing costs to increase until the profits had been eliminated. b. firms would operate in the short run, but they would be forced out of business in the long run as competition eliminated the economic profit. c. competition from new entrants would occur until the economic profits had been eliminated. d. the firms would eventually find these profits offset by long-run economic losses

C

If marginal revenue exceeds marginal cost at the current level of output, profit will increase when output is expanded because a. other firms in the industry will shut down as the firm expands output. b. the market price will rise as the firm expands output. c. producing and selling an additional unit will add more to total revenue than it adds to total cost. d. marginal cost will decline as output is expanded.

C

In a price-taker market, a. all firms in the market charge different prices depending upon their respective costs of production. b. there are generally a small number of very large firms. c. the firms all produce identical products. d. firms will usually make economic losses in the long run.

C

In both price-taker and competitive price-searcher markets, short-run economic profits will lead to a. firms being able to sustain those economic profits into the long run. b. the exit of firms from the market and the eventual restoration of zero long-run economic profits. c. the entry of additional firms into the market and the eventual restoration of zero long-run economic profits. d. none of the above

C

The oil industry is dominated by a cartel known as OPEC, and the cocaine industry is dominated by the Colombian cocaine cartel. If these cartels are being successful, a. the price of oil is higher than if the cartel did not exist, but the price of cocaine is lower. b. the price of cocaine is higher than if the cartel did not exist, but the price of oil is lower. c. both goods have higher prices than if the cartels did not exist, and both have lower levels of total output. d. both goods have higher prices than if the cartels did not exist, and both also have higher levels of total output.

C

The profit-maximizing monopolist shown in the figure would a. charge a price equal to C and earn an economic profit of AFDC. b. charge a price equal to C and earn an economic profit of AFEB. c. charge a price equal to C and earn an economic profit of BEDC. d. charge a price equal to A and earn an economic profit of AFDC.

C

The schedule of total cost for a firm in a price-taker market is given in the table. If the market price for this product is $50, which of the following output levels should this firm produce if it wants to maximize its profit? a.1 b.2 c.3 d.4

C

To maximize profits, a firm should always produce the level of output where a.marginal cost equals average total cost. b.average total cost equals price. c.marginal cost equals marginal revenue. d.marginal revenue equals price.

C

Which of the following is not a barrier that limits the entry of potential competitors into a market? a. government licensing b. control over an essential resource c. an elastic demand for a product d. patent rights

C

Which of the following would increase the likelihood that firms in an industry could successfully collude? a. a large number of firms in the industry b. unstable demand conditions in the industry c. high barriers to entry in the industry d. product characteristics that make it difficult for firms to detect other firms that cheat on the agreement

C

(I) Oligopolistic firms have an incentive to collude to increase profits. (II) Oligopolistic firms have an incentive to cheat on collusive agreements to increase profits. a. I is true; II is false. b. I is false; II is true. c. Both I and II are false. d. Both I and II are true.

D

A market in which the costs of entry and exit are low is called a a. regulated market. b. monopoly market. c. market with high barriers to entry. d. contestable market.

D

For the competitive price searcher, a. price will exceed marginal cost at the profit-maximizing level of output. b. price will equal average total cost in the long run. c. economic profit will be driven to zero in the long run by the entry and exit of firms. d. all of the above are correct.

D

How will the price and output of an unregulated monopolist compare with the ideal levels that might be reached if the market was competitive? a. The output of the monopolist will be larger and the price lower. b. The output of the monopolist will be larger and the price higher. c. The output of the monopolist will be smaller and the price lower. d. The output of the monopolist will be smaller and the price higher.

D

In order for a firm to be able to engage in price discrimination, it must be able to a. identify and separate groups with different price elasticities of demand. b. prevent resale of the product between customer groups. c. maximize profits at the point where average total cost is minimized. d. do both a and b, but not c.

D

Only undertaking an activity when it adds more to revenue than to cost is the decision rule a profit-maximizing firm will use when deciding upon a. the level of output to produce. b. the amount of advertising to undertake. c. the level of product quality (for example, how many years it is designed to last). d. all of the above.

D

Refer to Figure 10-14. The firm is currently earning an economic a. profit equal to the area AHFC. b. profit equal to the area CFED. c. loss equal to the area AHED. d. loss equal to the area CFED.

D

To maximize profits, the monopolist shown in the figure would produce output of a. Q1 and charge a price of P1. b. Q1 and charge a price of P2. c. Q2 and charge a price of P3. d. Q1 and charge a price of P4.

D

Which of the following is true when long-run equilibrium conditions are present in price-taker and competitive price-searcher markets? a. MR = MC in both price-taker and competitive price-searcher markets b. P = ATC in both price-taker and competitive price-searcher market c. P = MC in both price-taker and competitive price-searcher markets d. Both a and b, but not c are true.

D

Which of the following is true? a. When firms in a price-taker market are earning zero economic profit, they will shut down. b. When firms in a price-taker market are earning positive economic profits, new firms will enter the industry causing the market price to fall until the firms in the industry are earning only zero economic profit. c. When firms in a price-taker market are earning economic losses, some firms will exit the industry causing the market price to rise until the remaining firms are earning zero economic profit. d. Both b and c are true.

D

Which of the following is true? a. A monopolist is always guaranteed to earn positive economic profits regardless of their cost of production or the price they charge. b. A monopolist will charge the highest price possible for their product because no matter what price they charge, people will still have to buy it. c. A monopolist has no incentive to find more cost-efficient methods of production because they are protected from competition from other sellers. d. None of the above are correct

D

Which of the following statements accurately describes a difference between a firm that is a monopolist and one that is in a competitive price-searcher market? a. A competitive price searcher produces at the output level where marginal cost equals marginal revenue; a monopolist does not. b. A monopolist faces a downward-sloping demand curve; a competitive price searcher does not. c. A monopolist charges a price higher than marginal cost; a competitive price searcher does not. d. In the long run, a competitive price searcher will earn zero economic profit because of low entry barriers, while a monopolist may earn positive economic profits in the long run.

D