Micro Econ Exam 4

Refer to the graph shown, which depicts a perfectly competitive firm. When it is maximizingprofit, the total profit earned by this firm is roughly: A. $250. B. $200. C. $300. D. $605.

A. $250

Refer to the table shown. If the market price is $4, a perfectly competitive profit-maximizing firm will produce: Quantity: 1, 2, 3, 4 Marginal Cost: $3, 5, 7, 9 A. 1 unit of output. B. 2 units of output. C. 3 units of output. D. 4 units of output.

A. 1 unit of output

A monopolistically competitive firm faces a downward-sloping demand curve. A. True B. False

A. True

If long-run average total cost exceeds marginal revenue, a perfectly competitive firm will incur losses. A. True B. False

A. True

The fact that U.S. managers' salaries are about four times higher than those of comparable managers in Japan, where banks control firms more closely, is probably: A. an example of the monitoring problem in the United States. B. an example of X-inefficiency in Japan. C. due to the fact that the U.S. economy is much less competitive. D. due to the fact that there are more natural monopolies in the United States.

A. an example of the monitoring problem in the United States.

The proposed merger between Pabst Brewing and Blatz Brewing in 1966 was: A. blocked because the relevant geographic market was narrowly defined. B. allowed because the relevant geographic market was broadly defined. C. blocked because both companies used unfair business practices. D. allowed because both companies priced fairly.

A. blocked because the relevant geographic market was narrowly defined.

Refer to the graph shown of average costs for a firm. This firm exhibits: A. economies of scale. B. diseconomies of scale. C. profits. D. X-inefficiency.

A. economies of scale

For a cartel to be successful in increasing economic profits for its members: A. entry of new firms must be blocked. B. price must be set equal to marginal cost. C. individual firms must be encouraged to adjust output so as to maximize their own profits at the cartel price. D. price must be set equal to average total cost.

A. entry of new firms must be blocked.

Monopolistic competition is similar to perfect competition in that: A. long-run profits tend to zero in both. B. output is at minimum average total cost in both. C. both entail the production of differentiated products. D. firms advertise in both cases.

A. long-run profits tend to zero in both.

As network externalities broaden the use of a product, the: A. need for a single standard becomes more important and eventually one standard wins out. B. need for a single standard becomes less important, so many different standards are likely to coexist. C. benefits of that product to everyone are diminished. D. incentive to replace that product with something new grows stronger.

A. need for a single standard becomes more important and eventually one standard wins out.

TIME magazine offers a significant discount to students who purchase a one-year subscription. If the reason for the discount is price discrimination, we can conclude that: A. students have a more elastic demand for magazines than does the general public. B. students have a less elastic demand for magazines than does the general public. C. there is no difference between a student's elasticity of demand for magazines and any other person's elasticity of demand. D. students have a perfectly inelastic demand for magazines.

A. students have a more elastic demand for magazines than does the general public.

The contestable market model of oligopoly bases pricing and output decisions on: A. the threat of new entrants into the market. B. market structure. C. the degree of product differentiation. D. market share.

A. the threat of new entrants into the market.

Refer to the graph shown. If this monopolist sets the price to maximize profit, it will earn economic profit of: A. $1,600 per day. B. $2,400 per day. C. $4,800 per day. D. $7,200 per day.

B. $2,400 per day.

Refer to the table shown. If the market price is $6, a perfectly competitive profit-maximizing firm will produce: Quantity: 1, 2, 3, 4 Marginal Cost: $3, 5, 7, 9 A. 1 unit of output. B. 2 units of output. C. 3 units of output. D. 4 units of output.

B. 2 units of output.

A price-discriminating monopolist will make less in profit than will one that does not price-discriminate. A. True B. False

B. False

The central element of the oligopoly model is that each firm produces a differentiated product. A. True B. False

B. False

The net effect of restricting entry into a market is to decrease the income of the remaining suppliers. A.True B. False

B. False

Refer to the graph shown. The profit-maximizing monopolist would sell its output at price: A. P1. B. P2. C. P3. D. P4.

B. P2

Refer to the graph shown. Other things equal, an increase in the market price of this product will cause: A. an increase in total revenue and a decrease in the firm's profit-maximizing level of output. B. an increase in total revenue and an increase in the firm's profit-maximizing level of output. C. a decrease in total revenue and a decrease in the firm's profit-maximizing level of output. D. a decrease in total revenue and an increase in the firm's profit-maximizing level of output.

B. an increase in total revenue and an increase in the firm's profit-maximizing level of output.

Firms base decisions on the decisions of other firms in the market in: A. a monopolistic industry. B. an oligopolistic industry. C. a monopolistically competitive industry. D. a perfectly competitive industry.

B. an oligopolistic industry.

Refer to the graphs shown, which depict a perfectly competitive market and firm. If market demand decreases from D0 to D1, the firm will: A. raise the price it charges. B. earn negative economic profit in the short run. C. earn positive economic profit in the short run. D. earn positive economic profit in the long run.

B. earn negative economic profit in the short run.

If a market with monopolistic competition became a monopoly market, output would: A. rise. B. fall. C. not change. D. be incomparable.

B. fall.

Suppose an oligopolistic firm assumes that its rivals will ignore a price increase but match a price cut. In this case, the firm perceives its demand curve to be: A. kinked, being steeper above the going price than below. B. kinked, being steeper below the going price than above. C. linear, being less elastic at lower prices. D. linear, being more elastic at higher prices.

B. kinked, being steeper below the going price than above.

Natural monopoly exists when: A. one firm can supply the entire quantity demanded at higher cost than two or more firms. B. one firm can supply the entire quantity demanded at lower cost than two or more firms. C. one firm can supply the entire quantity demanded at the same cost as two or more firms. D. the long-run average cost curve exhibits constant returns to scale.

B. one firm can supply the entire quantity demanded at lower cost than two or more firms.

The general monitoring problem implies that: A. profit maximization should always be considered to be a firm's goal. B. there is a cost of supervising employees so that they work toward the owner's goals rather than their own. C. government must intervene to protect national goals. D. competition will ensure common goals among the owners and managers of a firm.

B. there is a cost of supervising employees so that they work toward the owner's goals rather than their own.

Refer to the graph shown. If the market price is P2, the firm will produce: A. Q2 and incur a loss. B. Q3 and earn a profit. C. Q3 and break even. D. Q4 and incur a loss.

C. Q3 and break even.

Which of the following is an example of the monitoring problem? A. Government fails to stop firms hiring child labor to produce goods. B. Two firms collude to set the market price, but the government cannot prove this conclusively. C. The managers of a firm maximize their own salaries to the detriment of maximizing profit for the owner of the firm. D. A firm does not take into account the air pollution caused by a coal factory when pricing its product.

C. The managers of a firm maximize their own salaries to the detriment of maximizing profit for the owner of the firm.

The cartel model of oligopoly assumes that: A. monopolists sometimes act like oligopolists when they pit divisions of the same corporation against one other. B. oligopolies act as if they were perfectly competitive when there are no barriers to entry. C. oligopolies act as if they were monopolists by assigning output quotas to each member so that joint profits are maximized. D. oligopolies act as if they were monopolists by setting prices competitively for each member.

C. oligopolies act as if they were monopolists by assigning output quotas to each member so that joint profits are maximized.

A perfectly price-discriminating monopolist: A. creates more consumer surplus for the consumer. B. increases both consumer surplus and producer surplus. C. reduces or eliminates the welfare loss from monopoly. D. increases the welfare loss from monopoly.

C. reduces or eliminates the welfare loss from monopoly.

Refer to the table shown, which shows the demand schedule for a product sold by a monopolist. Marginal revenue is negative: Price of Product: $14, $12, $10, $8, $6 Quantity Demanded: 3, 4, 5, 6, 7 A. when price is $10. B. when price is above $10. C. when price is below $10. D. for every price.

C. when price is below $10.

The top four firms in the industry have 10 percent, 8 percent, 8 percent, and 6 percent of the market. The Herfindahl index of this market is closest to which of the following? A. 8. B. 32. C. 66. D. 264.

D. 264

A Nash equilibrium refers to a: A. cooperative game. B. a sequential game. C. a repeated game. D. a noncooperative game.

D. a noncooperative game.

Refer to the graph shown of a monopolistically competitive firm. In the long run: A. marginal cost will fall for firms that remain as other firms exit the industry. B. average total cost will rise for firms that remain as other firms enter the industry. C. demand will fall for firms that remain as other firms enter the industry. D. demand will rise for firms that remain as other firms exit the industry.

D. demand will rise for firms that remain as other firms exit the industry.

The difference between a perfectly competitive firm and a monopolistically competitive firm is that a monopolistically competitive firm faces a: A. horizontal demand curve and price equals marginal cost in equilibrium. B. horizontal demand curve and price exceeds marginal cost in equilibrium. C. downward-sloping demand curve and price equals marginal cost in equilibrium. D. downward-sloping demand curve and price exceeds marginal cost in equilibrium.

D. downward-sloping demand curve and price exceeds marginal cost in equilibrium.

Refer to the graph shown depicting a perfectly competitive firm. If average variable cost is $3 at quantity 450, points A through E represent the: A. firm's total cost curve. B. firm's total revenue curve. C. demand for the firm's product. D. firm's supply curve.

D. firm's supply curve.

Refer to the following graphs. Graph I: P above ATC and AVC Graph II: P equal to ATC Graph III: P between ATC and AVC Graph IV: P below ATC and AVC Which graph depicts a perfectly competitive firm that will minimize short-run losses by producing zero output? A. graph I B. graph II C. graph III D. graph IV

D. graph IV

In 2009 the electronics retailer Circuit City closed its stores. If we assume this was a short-run decision, the most likely explanation for it is that the price of a typical product sold at Circuit City stores was: A. greater than the average total cost of producing its typical product. B. equal to the average total cost of producing its typical product. C. less than the average total cost of producing its typical product but greater than the average variable cost. D. less than the average variable cost of producing its typical product.

D. less than the average variable cost of producing its typical product.

Refer to the graph shown. If a competitive industry producing hamburger dinners is taken over by a pure monopoly firm that maximizes profit: A. output will remain at 100 but price will rise to $6. B. price will remain at $6 but output will fall by 100. C. price will remain at $4 but output will fall by 100. D. price will rise to $6 and output will fall by 100.

D. price will rise to $6 and output will fall by 100.

Refer to the graph shown. If this monopolist were forced to set price equal to marginal cost, in the long run it probably would: A. charge a price of $2. B. charge a price of $3. C. charge a price of $12.00. D. stop producing.

D. stop producing.

ALCOA was found guilty of violating the antitrust statutes in 1945 because it: A. had engaged in unfair pricing practices. B. forced competing firms out of business with unfair business practices. C. exploited its monopoly power to charge high prices. D. used its knowledge of the market to expand its capacity before any competitors had a chance to enter the market.

D. used its knowledge of the market to expand its capacity before any competitors had a chance to enter the market.