Intermediate Microeconomics quiz 10-11

I get $200 revenue from the sale of my product each day. I rent the factory that I use for $90 a day. The raw materials of the operation cost $115 a day. I do all the work myself. Both jobs are equally attractive as far as the work is concerned. Recently, a competitor offered me $30 a day to work for him. My accounting profit is ____, and my economic profit is _____. A. -5; -35 B. -35; -35 C. 25; -5 D. 110; -30

A. -5; -35

The profit maximizing markup (over MC) is given by A. 1/elasticity. B. elasticity. C. elasticity2. D. elasticity+1.

A. 1/elasticity

Suppose an industry has 100 firms, each with supply curve P = 50 + 10Q. Furthermore, suppose the market demand curve is given by P = 200 - 0.9Q. How many units of output will be produced by a firm operating in this market with a MC = 130Q? A. 2 B. 5 C. 0.70 D. It is impossible to answer with the information given

A. 2

Say a monopolist sells in two separate markets, with demand PA = 100 - 2Q and PB = 50 - Q respectively. Marginal costs in both markets are constant and equal to 8. The monopolist would charge a price of _______ in market B in order to maximize profits. A. 29 B. 21 C. 8 D. 0

A. 29

A monopolist has a marginal revenue curve given by MR = 102 - Q, and a total cost curve given by TC = Q2 + 16. The monopolist's profit maximizing price and quantity are _______, _____ respectively. A. 85;34 B. 52; 50 C. 100;2 D. 77;50

A. 85;34

Suppose you own a firm that produces widgets and is a monopoly. The market demand is given by the equation P = 100 - 2Q, where P is the price of gadgets and Q is the quantity of gadgets sold per week. The firm's marginal costs are given by the equation MC = 16Q. When the monopolist maximizes profits the price elasticity of demand for widgets is A. 9. B. 36. C. 0.5. D. 0.02.

A. 9

A natural monopoly always has A. a downward sloping long run average cost curve. B. a downward sloping marginal cost curve. C. its profit maximization point where price = marginal cost. D. patent rights.

A. A downward sloping long run average cost curve

If the demand curve for a single price monopolist always is a downward sloping straight line, then marginal revenue will be A. a straight line with a negative slope of twice the demand curve slope. B. a straight line with a negative slope of one-half the demand curve slope. C. identical to the demand curve. D. a horizontal line.

A. A straight line with a negative slope of twice the demand curve slope

Producer surplus is given by the area A. above the supply curve but below the price. B. below the supply curve. C. below the demand curve but above the price. D. below the demand curve.

A. Above the supply curve but below the price

If the owner of the firm, shown above is a profit maximizer, the firm should ______ in the short run. A. continue to operate at the existing output B. shutdown C. expand output to lower costs D. More data is needed to say definitively what the firm should do.

A. Continue. to operate at the existing output

A single-price monopolist with a positive marginal cost will maximize profit by producing where A. demand is price elastic. B. demand is price inelastic. C. demand is unit elastic. D. Any of these may apply.

A. Demand is price elastic

Ceteris paribus, in the long run, a tax placed on a perfectly competitive industry will A. increase the price of the good by an amount equal to the tax. B. increase the price of the good by an amount less than the tax. C. be borne entirely by the firm. D. be entirely borne by the consumer.

A. Increase the price of the good by an amount equal to the tax

The demand curve facing a perfectly competitive firm is A. infinitely elastic. B. perfectly inelastic. C. downward sloping. D. perfectly elastic.

A. Indefinitely Elastic

Which statement is true for a profit maximizing monopolist? A. It always faces a downward sloping demand curve. B. It can avoid diminishing returns to production. C. It will not produce where marginal cost equals marginal revenue. D. It can charge whatever price it wants.

A. It always faces a downward sloping demand curve

A profit maximizing monopolist sets output where A. MC=MR. B. MC=P. C. MC=demand. D. it depends on the average costs in each case.

A. MC=MR

The profit maximizing output level for a perfectly competitive firm is always where A. P = MC. B. P = AVC. C. MC = ATC. D. MC = AVC.

A. P=MC

In second-degree price discrimination it is true that A. people who buy a lot pay a lower price. B. people who buy relatively little pay a lower price. C. the monopolist cannot earn economic profits. D. the market need not be segmented.

A. People who buy a lot pay a lower price

In a decreasing cost industry, as output grows over time, A. prices will fall. B. prices will rise. C. prices will stay the same. D. prices are zero.

A. Price will fall

oe is self-employed in a store that has a rental value of $500 a month which he pays, but he can vacate the building without giving notice. His other expenses are $100 a month for maintenance. He makes $25,000 a year on net sales (total revenue minus the wholesale cost of the product). If he quit his job and worked the same number of hours elsewhere at a job he liked equally well, he estimates that he could make $20,000 a year. No one else can be hired to work in the store. Suppose that the store owner gave Joe the store. Now what should he do? A. Quit his job. B. Keep the job. C. Work part-time. D. It is impossible to say with the information given in the problem.

A. Quit his Job

Joe is self-employed in a store that has a rental value of $500 a month which he pays, but he can vacate the building without giving notice. His other expenses are $100 a month for maintenance. He makes $25,000 a year on net sales (total revenue minus the wholesale cost of the product). If he quit his job and worked the same number of hours elsewhere at a job he liked equally well, he estimates that he could make $20,000 a year. No one else can be hired to work in the store. Joe should A. quit his job. B. keep the job. C. work part-time. D. It is impossible to say with the information given in the problem.

A. Quit his job

In the long run, any perfectly competitive firm that produces will choose a quantity such that A. short run average cost is minimized. B. long run total cost is minimized. C. long run marginal cost is less than short run marginal cost. D. price is greater marginal cost.

A. Short run average cost is minimized

A firm is currently selling its product at $20 each. It estimates that its average total cost of production is $100 and its average fixed cost is $40. In the short run the firm should A. shutdown. B. continue production at a point where P = MC. C. hire more employees. D. buy more capital.

A. Shut down

If a firm's demand curve falls below its AVC curve, then the firm should A. shut down now. B. operate in the short run but not the long run. C. set price = marginal cost. D. shutdown in the long-run.

A. Shut down now

The output where MC = AVC is called the A. shutdown point. B. break-even point. C. profit maximizing point. D. revenue maximizing point.

A. Shut down point

A standardized product is a product A. that has many perfect substitutes. B. that is unique to one producer. C. which is produced according to government regulations. D. where the demand function is downward sloping for both the firm and the industry.

A. That has many perfect substitutes

In the long run for a competitive firm, A. the firm is at the bottom of its short run average cost curve. B. the firm is at the top of its long run average cost curve. C. the marginal cost is greater price. D. the firm is making economic profits.

A. The firm is at the bottom of its short run Average cost curve

In a competitive industry, the industry's short-run supply curve is A. the horizontal sum of the marginal cost curves. B. the vertical sum of the marginal cost curves. C. determined by the average total cost curve. D. determined by the average variable cost curve.

A. The horizontal sum of the marginal cost curves

I frequently buy something which then has a rebate offer attached. I must fill in all the information requested, send off the form and then wait 8 weeks for the rebate. This practice is referred to as A. the hurdle model of price discrimination. B. exclusive contracting. C. a profit maximizing markup. D. network economics.

A. The hurdle model of price discrimination

If a firm could perfectly price discriminate, A. the marginal revenue curve would be the same as the demand curve. B. the marginal revenue curve would lie below the demand curve. C. the marginal revenue curve would lie above the demand curve. D. there would be no marginal revenue function.

A. The marginal revenue curve would be the same as the demand curve

Other things remaining the same, in the long-run as compared to the short-run A. supply elasticity will increase. B. supply elasticity will decrease. C. supply elasticity will remain the same. D. one cannot tell.

A. supply elasticity will increase

Monopoly is characterized by A. many close substitutes. B. no barriers to entry. C. a downward sloping demand curve. D. a horizontal demand curve.

C. a downward sloping demand curve

Which of the following could not be considered price discrimination? A. The issuing of discount tickets to week-end travelers. B. Airlines offering super-saver fares to everyone. C. Movies offering cheap matinees. D. Senior citizen's discounts.

B. Airlines offer super-saver fares to everyone

Which of the following is not true? A. A monopolist typically seeks to maximize profits. B. A monopolist can set price at arbitrarily high levels. C. Economies of scale are the cause of natural monopolies. D. Monopolists price on the elastic portion of their demand curves.

B. A monopolist can set price at arbitrarily high levels.

The expansion of the car manufacturing industry causes an improvement in the assembly line system, thus reducing costs to each firm in that industry. This is an example of A. constant returns to scale. B. a decreasing-cost industry. C. a decreasing returns to scale. D. an increasing-cost industry.

B. A. decreasing-cost industry

Say a monopolist sells in two separate markets, with demand PA = 100 - 2Q and PB = 50 - Q respectively. Marginal costs in both markets are constant and equal to 8. The profit maximizing quantity of output in market A would be A. 46. B. 23. C. 21. D. 5.

B. 23

The demand equation for a single price monopolist is P = 50 - Q. The marginal revenue equation for this monopolist is A. 25-Q. B. 50-2Q. C. 50-Q. D. 100-Q.

B. 50-2Q

In first-degree price discrimination, the monopolist A. knows the equilibrium price. B. can segment the market to the fullest extent. C. charges only two different prices. D. gets less of the consumer surplus than would be taken if 2nd degree price discrimination was practiced.

B. Can segment the market to the fullest extent

In the short run, a tax placed on a perfectly competitive industry should A. increase the total amount of the good sold. B. decrease the total amount of the good sold. C. not affect the total amount of the good sold. D. always increase the price.

B. Decrease the total amount of the good sold

According to the text, the most important of the five factors which give rise to monopoly is A. exclusive control over important inputs. B. economies of scale. C. patents. D. government licenses. E. network economies.

B. Economies of scale

At the output where MC = ATC = P, the firm A. should shutdown. B. has no economic profit. C. is profit maximizing. D. should raise output.

B. Has no economic profit

Which is true of a single price monopoly firm? A. Its supply curve is equal to its marginal cost function. B. It creates more welfare loss to society than a perfect price discriminating monopolist. C. Its shutdown point is where ATC = price. D. An increased profits tax will lower the quantity the firm will produce.

B. It creates more welfare loss to society than a perfect price discriminating monopolist.

If a profit maximizing monopolist sells output for $100, then we know that its marginal revenue is A. more than $100 if it is a perfect price discriminator. B. less than $100 if it is a single price monopolist. C. equal to $100 in all cases. D. less than $100 if it is a perfect price discriminator.

B. Less than $100 if it is a single price monopolist

The marginal revenue curve of a single price monopolist A. lies above the demand curve. B. lies below the demand curve. C. lies along the demand curve. D. is a horizontal line.

B. Lies below the demand curve

All of the following are true about a monopolist except: A. Average and marginal revenues are not the same. B. Marginal revenue is greater than price. C. Marginal revenue decreases with increases in output. D. Marginal revenue can be negative.

B. Marginal revenue is greater than price

Price discrimination is possible only if A. economies of scale exist. B. markets can be segregated. C. each person in the market has the same elasticity of demand. D. prices are kept secret so those paying the high price do not know that others paid less.

B. Markets can be segregated

In general, economists assume that firms A. maximize accounting profit. B. maximize economic profit. C. maximize sales. D. maximize revenue.

B. Maximize economic profit

Which of the following is false? A. Profit is maximized when MR = MC for both monopolies and perfect competition firms B. Monopolies profit maximize and perfect competitive firms output maximize C. Both monopolies and perfect competition firms earn zero profit in the long run D. At equilibrium, price is higher than marginal cost for monopolies but not for competitive firms

B. Monopolies profit maximize and perfect competitive firms output maximize

Suppose an industry has 100 firms, each with supply curve P = 50 + 10Q. Furthermore, suppose the market demand curve is given by P = 200 - 0.9Q. What is the industry supply curve? A. P = 500 + Q B. P = 50 + 0.1Q C. P = -500 + 10P D. P = 50 + 10 Q

B. P=50+0.1Q

Under rate of return regulation, A. P = MC. B. P = ATC. C. P = AVC. D. P > ATC.

B. P=ATC

Some people advocate price ceilings in certain markets because they seek to A. expand the total of consumer and producer surplus which the market generates. B. redistribute welfare from the producer to the consumer even if overall welfare is sacrificed. C. redistribute welfare from the consumer to the producer even if welfare is sacrificed. D. enhance both efficiency and distribution goals with the price ceiling.

B. Redistribute welfare from the producer to consumer even if overall welfare is sacrificed.

Say a monopolist knew that at the current price for its product demand is inelastic. If marginal costs for this firm are zero, then in order to maximize profits this monopolist should A. increase output. B. reduce output. C. keep output at the same level. D. decrease its price.

B. Reduce output

If firms are price takers this implies that A. in the short-run economic profits will be zero. B. the demand curve facing the firm is perfectly elastic. C. the total revenue curve is horizontal. D. the marginal revenue curve is upward sloping.

B. The demand-curve facing the firm is perfectly elastic

Which of the following would erode the monopoly pricing power of a firm that was controlling a market? A. New technology developed by the firm that lowered long run average costs. B. The development of substitutes for the product by other firms. C. A tax on corporate profits. D. All of these would reduce the monopoly power of the firm.

B. The development of substitutes for the product by other firms

The total revenue curve for a firm is given by TR = 2Q. A. The firm is definitely a monopolist. B. The firm is definitely not a monopolist. C. The firm may be a monopolist or a perfectly competitive firm. D. One cannot tell from the equation what market form applies.

B. The firm is definitely not monopolist

Assume a perfectly competitive economy would use an assortment of nails that weighs a total of 100 tons. However, the economy is controlled by the government and it sets a ton limit of 100 tons. When production is complete there is only one nail that weighs 100 tons. Which of the following describes what was wrong when government did the planning? A. Producers did not follow their personal interest in planning production. B. The wishes of consumers were not represented in the producer's actions. C. The government miscalculated the correct tonnage that the economy needed. D. All of these are true. B. The wishes of consumers were not represented in the producer's actions.

B. The wishes of consumers were not. represented in the producer's actions.

Which is not true of a perfectly competitive market? A. The typical industry demand curve is downward sloping. B. There is no incentive to innovate since economic profit is zero in the long-run. C. If the long-run average total cost curve is horizontal in the relevant range of production, perfectly competitive firms can be various sizes in long-run equilibrium. D. At long-run equilibrium, economic profit is less than accounting profit.

B. There is no incentive to innovate since economic profit is zero in the long run

In a competitive industry in the long-run, it is likely that A. firms with the advantage of location or an especially skilled work crew will be the lone survivors in equilibrium. B. all firms giving their best effort will have the same LAC regardless of location or the unique skills of some workers. C. the firms with the poorest location will be the lone survivors in equilibrium because their location cost will be lowest. D. only one large efficient firm can survive.

B. all firms giving their best effort will have the same LAC regardless of the location or the unique skills of some workers

A pecuniary diseconomy occurs when A. supply exceeds demand. B. an expansion of industry output increases the price of an input. C. higher output levels results in lower unit costs. D. higher output levels results in the same unit costs.

B. an expansion of industry output increase the price of an input

In the long run, a tax placed on a perfectly competitive industry should A. increase the number of firms. B. decrease the number of firms. C. not affect the number of firms. D. One cannot tell B. decrease the number of firms.

B. decrease the number of firms

In the long run, a tax placed on a perfectly competitive industry should have what effect on the entire market? A. Increase the total amount of the good sold. B. Decrease the total amount of the good sold. C. Not affect the total amount of the good sold. D. One cannot tell.

B. decrease the total amount of the good sold

In long-run equilibrium for a single-price monopolist, A. the plant size is always the one at the bottom of the long-run ATC curve. B. output is at the level where short-run and long-run marginal costs are the same. C. marginal cost equals ATC. D. marginal revenue equals price.

B. output is at the level where short-run and long-run marginal costs are the same

If a profit maximizing monopolist faces a linear demand curve and has zero marginal cost, it will produce where demand elasticity is __________________ if it will produce at all. A. inelastic B. elastic C. 1 D. Information is inadequate to answer the question.

C. 1

Suppose that the supply curve is given by P = Q. What is the elasticity of supply? A. 10 B. 1/10 C. 1 D. Cannot be determined from these information

C. 1

Say a competitive firm is producing at point where ATC = $10, AVC = $2. If the firm charges $5 for its output, then in the short-run this firm should A. shutdown production. B. exit the industry. C. continue to operate. D. try to reduce its fixed costs.

C. Continue to operate

The supply curve for a monopolist A. is upward sloping. B. is vertical. C. does not exist. D. is downward sloping.

C. Does not exist

Which of the following is not a condition for perfect competition? A. Firms take prices as given. B. Firms sell a standardized product. C. Firms are protected by barriers to entry. D. Firms have perfect information.

C. Firms are protected by barriers to entry

A profit maximizing monopolist faces the following information: P = $4, MR = $2, MC = $1.50. The firm should A. shutdown. B. decrease output. C. increase output. D. stay at its current level of output.

C. Increase output

Joe is self-employed in a store that has a rental value of $500 a month which he pays, but he can vacate the building without giving notice. His other expenses are $100 a month for maintenance. He makes $25,000 a year on net sales (total revenue minus the wholesale cost of the product). If he quit his job and worked the same number of hours elsewhere at a job he liked equally well, he estimates that he could make $20,000 a year. No one else can be hired to work in the store. Suppose that Joe had a long term lease which requires him to pay the rent even if he doesn't operate the store. What should Joe do? A. Quit immediately. B. Keep the job permanently. C. Keep the job until the lease expires. D. It is impossible to say with the information given in the problem.

C. Keep his job until the lease expires

Which statement is true of the market supply curve? A. It is the vertical summation of all the individual supply curves. B. It is the horizontal summation of the upward sloping portion of the AVC function of all firms in the industry. C. One must know the marginal cost information of firms in order to construct a supply function. D. In perfect competition the slope of the curve is horizontal.

C. One must know the. marginal cost information of firms in order to construct a supply

At market equilibrium, the total benefit that results from all the transactions is A. the consumer surplus minus the producer surplus. B. the producer surplus minus the consumer surplus. C. the sum of the producer surplus and the consumer surplus. D. the entire area under the demand curve up to the quantity exchanged

C. The sum of the producer surplus and the consumer surplus

If a monopolist had no costs, its best possible price would be where demand is A. infinitelyelastic. B. relatively (but not perfectly) elastic. C. unit elastic. D. relatively (but not completely) inelastic.

C. Unit elastic

Under rate of return regulation, firms earn A. positive economic profits. B. negative economic profits. C. zero economic profits. D. zero accounting profits.

C. Zero economic profits

A single price profit maximizing monopolist is inefficient because A. it produces too much output. B. it perfectly price discriminates when it can. C. the sum of consumer and producer surplus is less than it could be. D. it produces where price equals marginal cost rather than where marginal cost equals marginal revenue.

C. the sum of consumer and producer surplus is less than it could be

The demand equation for a single price monopolist is P = 120 - 3Q. The marginal revenue curve for this monopolist is A. 120-1.5Q. B. 60-3Q. C. 60-6Q. D. 120-6Q.

D. 120-6Q

If a profit maximizing monopolist faces a linear demand curve and has zero marginal cost, it will produce at A. the lowest point of marginal revenue curve. B. elasticity of demand equals 1. C. the lowest point of marginal profit curve. D. All of the choices are correct.

D. All of the choices are correct

When the perfectly competitive firm maximizes profits the price of its product always equals A. average revenue. B. marginal revenue. C. marginal costs. D. All of the choices are correct

D. All of the choices are correct

If a firm is producing where its LMC = price and the LMC is equal to LAC, then it would do better in the long run by A. increasing output with its existing plant until LMC equals price. B. increasing plant size until LMC and SAC are identical and equal to price. C. decreasing plant size until LAC, SAC and price are equal. D. changing nothing because it is already at the long run profit maximizing point.

D. Changing nothing because it is already at the long run profit maximizing point

Which of the following is not true for a profit maximizing single-price monopolist in the long run? A. It will make profit or breakeven. B. Price is greater than marginal revenue. C. Marginal revenue equals marginal cost. D. Demand is inelastic.

D. Demand is inelastic

If free entry and exit were not possible, A. in the long run firms would lose money. B. in the long run firms would make money. C. in the long run firms would break even. D. It is impossible to tell what would happen without more cost and revenue information.

D. It is impossible to tell what would happen without more cost and revenue information

In the long run, equilibrium for a monopolist is when A. the short-run average cost curve is at its lowest point. B. the long-run average cost curve is at its lowest point. C. the short-run and long-run average cost curves are at their lowest points. D. None of these is necessarily true.

D. None of these is necessarily true

If the demand curve falls below the ATC curve but lies above AVC, then the firm should A. should shut down. B. operate in the short run but not the long run. C. set price = marginal cost. D. operate in the short run and the long run.

D. Operate in the short run and not the long run

For the output maximizing monopolist A. average total cost must be falling. B. marginal revenue equals marginal cost. C. long-run marginal cost equals demand. D. price equals average total cost.

D. Price equals average total cost

Which of the following explains why theater prices for popcorn are three or four times higher than the popcorn price in the grocery store? A. The grocery store sells a much higher volume and gets its profits that way. B. The cost of popping the popcorn is high. C. Grocery stores are satisfied with normal profit while theaters seek economic profit. D. The demand curve for popcorn in a theater is more inelastic than the demand for popcorn at the grocery store.

D. The demand curve for popcorn in a theater is more inelastic than the demand for popcorn at the grocery store.

You have a small business that makes $50,000 accounting and economic profit for you. As a disabled person, you must work at home and you did not have other opportunities until your neighbor offers you a job you like equally well for $50,000 and you can do it at home. This means A. your economic profit has gone down and your accounting profit has gone up. B. both your accounting and economic profit have gone down. C. both your accounting and economic profit have gone up. D. your economic profit has gone down and your accounting profit has stayed the same. D. your economic profit has gone down and your accounting profit has stayed the same.

D. Your economic profit has gone down and your accounting profit has stayed the same

The elasticity of supply is given by A. (deltaQ/deltaP)(P/Q) B. (P/Q)(1/slope) C. (deltaQ/Q)(deltaP/P) D. All of these are correct.

D. all of these are correct

Which of the following is not a source of monopoly power? A. Exclusive control over inputs B. Economies of scale C. Patents D. Rapid low cost technological change in the industry

D. rapid low cost technological change in the industry

A profit maximizing monopolist faces the following information: P = $10, MR = $5, ATC = $6, MC = $5. The firm should A. shutdown. B. decrease output. C. increase output. D. stay at its current level of output.

D. stay at its current level of output

In the long-run, profit maximizing monopolists A. price where MC and price are equal. B. never make positive economic profits. C. produce where average total costs are minimized. D. will produce where MC is below long run ATC.

D. will produce where MC is below long run ATC

Competitive markets result in allocative efficiency because they A. exhaust all possibilities for mutually beneficial trade. B. exhaust all possible benefits for the consumer. C. generate all possible benefits for the consumers. D. distribute resources in the most equitable way.

a. Exhaust all possibilities for mutually beneficial trade