Micro Economics Final
99. An attempt by one oligopolist to increase its market share by cutting prices will leave competitors unaffected.
False
21. Which of the following is likely to be a monopolist? A) A drug firm that has a patent granting it the exclusive right to produce a drug. B) A large firm like GM, which has a substantial portion of the car market. C) The Boeing company, which is one of the largest producers of airplanes. D) All of the above.
A) A drug firm that has a patent granting it the exclusive right to produce a drug.
61. The correct ranking of barriers to entry (from highest to lowest) in the market is: A) Monopoly, oligopoly, monopolistic competition, perfect competition. B) Monopoly, monopolistic competition, perfect competition, oligopoly. C) Monopoly, monopolistic competition, oligopoly, perfect competition. D) Oligopoly, monopoly, monopolistic competition, perfect competition.
A) Monopoly, oligopoly, monopolistic competition, perfect competition.
7. The pricing strategy in which one firm is allowed by its rivals to establish the market price for all firms in the market is called: A) Overt collusion. B) Price leadership. C) Pattern pricing. D) Benchmark pricing.
A) Overt collusion.
15. Price discrimination allows a producer to: A) Reap the highest possible average price for the quantity supplied. B) Increase the elasticity of consumer demand. C) Minimize marginal costs. D) Decrease total costs.
A) Reap the highest possible average price for the quantity supplied.
34. Ceteris paribus, if immigration to the United States increases the number of workers: A) The labor-supply curve will shift to the right and the equilibrium wage rate will fall. B) The labor-supply curve will shift to the right and the equilibrium wage rate will rise. C) The labor-supply curve will shift to the left and the equilibrium wage rate will fall. D) The labor-supply curve will shift to the left and the equilibrium wage rate will rise.
A) The labor-supply curve will shift to the right and the equilibrium wage rate will fall.
25. Which of the following is an example of government failure? A) Too much regulation resulting in wasted resources. B) Public goods. C) Externalities. D) All of the above.
A) Too much regulation resulting in wasted resources.
69. What will happen to wages and the level of employment in a competitive market when the government eliminates a minimum wage, ceteris paribus? A) Wages will rise but employment will fall. B) Wages will fall but employment will rise. C) Both wages and employment will fall. D) Both wages and employment will rise.
B) Wages will fall but employment will rise.
40. The only market structure in which there is significant interdependence among firms with regard to their pricing and output decisions is: A) Monopolistic competition. B) Monopoly. C) Oligopoly. D) Perfect competition.
C) Oligopoly.
2. The kinked-demand curve explains: A) The consequences of the interdependent behavior of oligopolists. B) Why oligopolists are more sensitive to cost changes than are competitive markets. C) Price fixing along the elastic part of the demand curve and predatory pricing on the inelastic portion. D) How an oligopoly can achieve monopoly profits.
C) Price fixing along the elastic part of the demand curve and predatory pricing on the inelastic portion.
13. The number of firms in an oligopoly must be: A) Four. B) Large enough so that firms cannot coordinate. C) Small enough so that one firm's decisions have a significant impact on the decisions of the other firms in the industry. D) Small enough so that revenues are large enough to support advertising expenditures.
C) Small enough so that one firm's decisions have a significant impact on the decisions of the other firms in the industry.
57. The refusal to work by unionized labor is an example of: A) Right to work. B) A lockout. C) Collective bargaining. D) A strike.
D) A strike.
10. The doctrine of laissez faire is consistent with: A) Use of the market mechanism. B) Undesirability of government intervention. C) The invisible hand. D) All of the above.
D) All of the above.
56. Which of the following may characterize oligopolistic behavior? A) Price leadership. B) Collusion. C) Retaliation. D) All of the above.
D) All of the above.
70. Economies of scale over the entire range of market output: A) Lead to natural monopoly. B) Mean that the long-run average total cost curve is downward-sloping. C) Mean that marginal costs are below average costs. D) All of the above.
D) All of the above.
74. The danger of experimenting with pricing for an oligopoly is: A) Retaliation. B) The uncertainty of competitor response. C) Price wars. D) All of the above.
D) All of the above.
11. An individual's labor-supply curve reflects his or her: A) MRP. B) MPP. C) Equilibrium wage. D) Choice between work and leisure.
D) Choice between work and leisure.
39. The supply curve for a monopolist: A) Slopes upward. B) Is the same as the marginal cost curve. C) Is the same as the marginal revenue curve. D) Does not exist.
D) Does not exist.
51. When there is market failure: A) Government intervention is always beneficial. B) A laissez-faire approach is the best policy. C) Government intervention is beneficial only in the case of natural monopolies. D) Government intervention is beneficial only when the marginal benefit of intervention exceeds the marginal cost.
D) Government intervention is beneficial only when the marginal benefit of intervention exceeds the marginal cost.
12. Jane loves to work. She does not receive any enjoyment from leisure time. The last dollar that she earns each year means just as much to her as the first dollar. Which of the following best describes the shape of Jane's labor supply curve? A) Upward sloping. B) Backward sloping. C) Downward sloping. D) Horizontal.
D) Horizontal.
43. Oligopolistsic firms will maximize total profits for all of the firms in the market at the rate of output where: A) TR = TC for the total market. B) AR = AC for each firm. C) MR = MC for the marginal firm. D) MR = MC for the market.
D) MR = MC for the market.
63. A profit-maximizing monopsonist will hire workers at the point where the marginal factor cost curve intersects the: A) Marginal wage curve. B) Equilibrium wage. C) Labor supply curve. D) Marginal revenue product curve.
D) Marginal revenue product curve.
100. The marginal physical product of a factor is equal to the additional revenue generated from employing 1 additional unit of the factor.
False
102. Government failure can never be worse than the market failure it attempts to correct. (NO ANSWER)
False
104. When the minimum wage is set above the market equilibrium wage, it has no effect on wages in that market.
False
106. A monopolist has market power because it faces a downward-sloping demand curve.
False
103. In a monopoly labor market, the optimal union wage can be read off the marginal revenue product curve.
True
105. Duopoly is an oligopoly with only two firms.
True
82. The opportunity cost of working is the amount of leisure time that must be given up in order to work.
True
83. If close substitutes are available which have only slight product differentiation, a firm is not a monopoly.
True
89. Antitrust laws can restrain the abuse of monopoly power.
True
90. A monopsonist must raise the wage rate if it desires to hire additional workers.
True
93. Colluding oligopolists face the conflict between maximizing joint-market profit or their own market share.
True
96. In the long run, a firm will leave the market if it is not covering all of its fixed costs.
True
14. The marginal wage is: A) Change in total wages paid / change in quantity of labor employed. B) Change in total revenue / change in quantity of labor employed. C) Change in wage rate / change in quantity of labor supplied. D) Change in total wages / change in quantity of output produced.
A) Change in total wages paid / change in quantity of labor employed.
27. In a contestable market: A) Entry occurs when prices rise above average total costs. B) Many firms compete prices down to minimum long-run average total cost. C) A few firms use predatory prices to achieve market share. D) A few firms collude to achieve monopoly profits.
A) Entry occurs when prices rise above average total costs.
20. Typical goals of a labor union in the United States include: A) Higher wages, better working conditions, more job security. B) Higher profit, lower output, greater productivity. C) Less work, more workers, more overtime. D) All of the above.
A) Higher wages, better working conditions, more job security.
19. The long-run average total cost curve of a natural monopolist: A) Is U-shaped. B) Reflects declining average fixed costs. C) Is always above the marginal cost curve in the relevant range of production. D) Reflects diminishing returns.
A) Is U-shaped.
17. Competitive firms and monopolies both face downward-sloping: A) Market demand curves. B) Demand curves from the point of view of the firm. C) Long-run average cost curves. D) Short-run marginal cost curves.
A) Market demand curves.
5. Market failure includes: A) Market power resulting in reduced output and higher price. B) Antitrust laws. C) Administrative costs of compliance. D) Compliance costs.
A) Market power resulting in reduced output and higher price.
48. The collapse of AT&T's natural monopoly in long distance telephone service was caused by: A) Satellite technology which made it easier and less expensive for new companies to provide long- distance service. B) The takeover of the telephone industry by the U.S. government. C) Government regulation because of illegal collusion between AT&T and foreign competitors. D) Inadequate profits.
A) Satellite technology which made it easier and less expensive for new companies to provide long- distance service.
73. Which of the following markets best illustrates the practice of price discrimination? A) The airline market. B) Wheat farming. C) The fast-food market. D) The personal computer market.
A) The airline market.
77. When an individual's MRP is not measurable, his or her market wage is usually determined by: A) The individual's MPP B) The selling price of his or her output. C) His or her opportunity wage. D) The individual's comparable worth.
A) The individual's MPP
41. To be successful in changing wage rates and employment conditions, labor unions need to have control over only: A) Their own members. B) The supply of labor to the market. C) The MRP of employers. D) The production decision of employers.
A) Their own members.
36. If the sellers of labor in a competitive market decided to unionize, ceteris paribus, then: A) Wages would rise and employment would fall. B) Wages would rise and employment would rise. C) Wages would fall and employment would fall. D) Wages would fall and employment would rise.
A) Wages would rise and employment would fall.
60. Which of the following is likely to be a monopolist? A). A drug firm that has a patent granting it the exclusive right to produce a drug. B). A large firm like GM, which has a substantial portion of the car market. C). The Boeing Company, which is one of the largest producers of airplanes. D). An Indonesian restaurant in a large city.
A). A drug firm that has a patent granting it the exclusive right to produce a drug.
33. The best measure of the economic cost of doing your homework is A). The most valuable opportunity you give up when you do your homework. B). The amount you would have to pay to get someone else to do it. C). The economic cost plus the accounting cost of doing the homework. D). The tuition paid for your education plus the cost of any required textbooks.
A). The most valuable opportunity you give up when you do your homework.
23. In which of the following market structures are entry barriers the highest? A) Perfect competition. B) Monopolistic competition. C) Oligopoly. D) Monopoly.
D) Monopoly.
65. A clothing store can sell two shirts for $20 each or three shirts or $18 each. At a quantity of three shirts sold, marginal revenue is A) $18 B) $14 C) $54 D) $20 E) cannot be determined by the above information
B) $14
37. Compared with the profit-maximizing choice of a natural monopolist, output regulation will result in: A) A higher level of output and a higher price. B) A higher level of output and a lower price. C) A lower level of output and a higher price. D) A lower level of output and a lower price.
B) A higher level of output and a lower price.
47. A gap in the marginal revenue curve results from: A) Price fixing. B) A kinked demand curve. C) Price leadership. D) Predatory pricing.
B) A kinked demand curve.
16. The most common form of non-price competition is: A) Collusion. B) Advertising. C) Patents. D) All of the above.
B) Advertising.
30. At very high wage rates, it is likely that an individual's labor-supply curve: A) Becomes horizontal. B) Bends backward. C) Bends outward. D) Disappears.
B) Bends backward.
6. Price discrimination: A) Increases profits. B) Is the sale of an identical good at different prices to different consumers by a single seller. C) Requires the firm to eliminate possible resale of its product. D) All of the above.
B) Is the sale of an identical good at different prices to different consumers by a single seller.
42. When the MPP of labor is zero, ceteris paribus: A) Employment can be increased only by offering a higher wage rate. B) No further increases in output can be achieved by using additional units of labor. C) MRP is at a maximum. D) Additional units of labor must be employed because other factors of production are being wasted.
B) No further increases in output can be achieved by using additional units of labor.
71. Oligopolists have a mutual interest in coordinating production decisions in order to maximize combined: A) Costs. B) Profits. C) Revenues. D) Market share.
B) Profits.
8. The labor-supply curve depicts the: A) Marginal utility of work associated with alternative numbers of hours of work. B) Quantities of labor supplied at alternative wage rates. C) Quantities of labor associated with alternative levels of production. D) Quantities of labor supplied at alternative levels of demand for labor.
B) Quantities of labor supplied at alternative wage rates.
24. Which of the following firms is most likely to have more market power? A) A farmer selling tomatoes in a competitive market who can sell as many tomatoes as she wants at the market place. B) The only airline serving two cities (assume this is a contestable market). C) A regulated natural monopoly selling electrical power. D) The sole producer of the only effective AIDS drug.
B) The only airline serving two cities (assume this is a contestable market).
38. The quantity of labor demanded can change without shifting labor demand curve when there is a change in: A) Elasticity of labor supply. B) Wage rate. C) Income and wealth of labor. D) Fixed costs in the production process.
B) Wage rate.
62. Price-discriminating firms which sell in two markets will charge higher prices in the market, ceteris paribus: A) With a higher positive cross-price elasticity of demand with respect to substitutes. B) With the more price-inelastic demand. C) With the more income-elastic demand. D) With lower incomes.
B) With the more price-inelastic demand.
68. When officers of firms in an industry get together to discuss how they can improve their mutual well-being, the result is A) product differentiation B) collusion C) price leadership D) rule - of - thumb pricing E) game theory
B) collusion
64. One could argue that advertising A) creates diseconomies of scale B) creates barriers to entry C) increases consumer surplus D) makes demand curves more elastic E) enables firms to take advantage of diseconomies of scale
B) creates barriers to entry
66. A market in which a single seller is required for efficient production is a A) regulated industry B) natural monopoly C) pure monopoly D) contestable market E) competitive market
B) natural monopoly
75. Suppose a monopsonist must pay $10 per hour to attract 10 workers. If the same monopsonist must raise its wage to $11 per hour to attract the 11th worker, what is its marginal factor cost for labor? A). $121 per hour. B). $21 per hour. C). $11 per hour. D). $10 per hour.
B). $21 per hour.
58. A monopolist who does not practice price discrimination should never produce in the: A). Elastic portion of its demand curve because it can increase total revenue and reduce total costs by lowering the price. B). Inelastic portion of its demand curve because it can increase total revenue and reduce total costs by increasing the price. C). Inelastic portion of its demand curve because it can increase total revenue by more than it increases total cost by reducing the price. D). Segment of its demand curve where the price elasticity of demand is greater than one.
B). Inelastic portion of its demand curve because it can increase total revenue and reduce total costs by increasing the price.
80. Which of the following prohibits price discrimination, certain types of mergers, and interlocking boards of directors among competing companies? A). The Sherman Act. B). The Clayton Act. C). The Federal Trade Commission Act. D). The Full Employment and Balanced Growth Act.
B). The Clayton Act.
54. Which of the following is a barrier to entry in a monopoly market? A) Economic profit of the monopolist. B) A rising long-run average total cost curve. C) The antitrust laws. D) Difficulty in obtaining resources.
D) Difficulty in obtaining resources.
49. Suppose that a monopoly firm produces tables and can sell 10 tables per month at a price of $400 per table. In order to increase sales by one table per month, the monopolist must lower the price of its tables by $30 to $370 per table. The marginal revenue of the eleventh table is: A) $370. B) $30. C) $70. D) $4070.
C) $70.
1. A market that experiences both strikes and lockouts at different times is most likely characterized by: A) Monopoly. B) Monopsony. C) Bilateral monopoly. D) Monopolistic competition.
C) Bilateral monopoly.
52. The marginal revenue product of labor is equal to: A) Change in total output / change in quantity of labor. B) Percentage change in quantity of labor supplied / percentage change in wage rate. C) Change in total revenue / change in quantity of labor. D) Change in output per unit of labor / cost of an input.
C) Change in total revenue / change in quantity of labor.
53. The marginal factor cost is: A) Change in wage rate / change in quantity of labor demanded. B) Change in total revenue / change in quantity of labor employed. C) Change in total wages / change in quantity of labor supplied. D) Change in total wages / change in quantity of output produced.
C) Change in total wages / change in quantity of labor supplied.
45. The demand for labor is downward sloping because of: A) Rising MPP. B) Falling MC. C) Diminishing returns to labor. D) Rising Price.
C) Diminishing returns to labor.
29. If a firm can raise market price by reducing its output, then: A) It has no market power. B) It is a price taker. C) It faces a downward-sloping demand curve. D) It engages in marginal cost pricing.
C) It faces a downward-sloping demand curve.
18. The responsiveness of workers to a change in wage rates, ceteris paribus, is measured by the: A) Marginal physical product. B) Elasticity of labor supply. C) Labor-demand curve. D) Income effect.
C) Labor-demand curve.
46. Which of the following rules will always be satisfied when any firm (i.e. perfectly competitive or monopoly) has maximized profits? A) Price = lowest level of ATC. B) Price = MC. C) MR = MC. D) Total revenues are also maximized.
C) MR = MC.
22. When firms have the power to restrict output, raise prices, stifle competition, and inhibit innovation the market failure involved is: A) Public goods. B) Externalities. C) Market power. D) Inequities.
C) Market power.
32. The soft drink market is dominated by Coke, Pepsi, and very few other firms. The firms often start price wars. The market can best be classified as: A) Perfect competition. B) Monopolistic competition. C) Oligopoly. D) Monopoly.
C) Oligopoly.
9. The creation of another antitrust agency besides the Justice Department was accomplished through: A) The Sherman Act. B) The Clayton Act. C) The Federal Trade Commission Act. D) Case decisions, such as those for AT&T and IBM.
C) The Federal Trade Commission Act.
35. Which of the following is the same for monopoly and competition under the same cost and demand conditions? A) The amount of output that is produced. B) Economic profits. C) The goal of maximizing profits. D) Efficiency of production at the profit-maximizing output.
C) The goal of maximizing profits.
76. The demand curve faced by a monopoly firm is: A) Perfectly inelastic reflecting the firm's dominance of the market. B) Perfectly elastic reflecting the fact that the monopolist can sell as much as it wants as the price it sets. C) The same as the market demand for the product. D) Below its marginal revenue curve.
C) The same as the market demand for the product.
78. To maximize profits or minimize losses, a monopolist should at so that A) MR = rising MC B) p = MC C) p = AC D) TR = TC E) AR = AC
C) p = AC
31. According to the text, what type of market failure provides the best case for government regulation? A) Market power. B) Public goods. C) Inequalities. D) Natural monopoly.
D) Natural monopoly.
50. Which market structure is characterized by a few interdependent firms? A) Monopoly. B) Perfect competition. C) Monopolist competition. D) Oligopoly.
D) Oligopoly.
26. As long as additional workers are attracted into the labor force by higher wages, the market labor supply curve is: A) Vertical. B) Perfectly elastic. C) Negatively sloped. D) Upward-sloping.
D) Upward-sloping.
67. Monopoly power A) is found only in natural monopolies B) means that a monopoly is not regulated by the government C) means that a monopoly can effectively bar entry of new firms D) is the ability of a firm to influence the price of its product E) is a theoretical concept but does not actually exist in the real world
D) is the ability of a firm to influence the price of its product
59. The law of diminishing returns states that, ceteris paribus, the: A). MPP of labor declines as additional land, raw materials, and other factors of production are employed. B). MPP of labor declines as the wage rate falls. C). MPP of labor declines as product price declines. D). MPP of labor declines as more labor is employed.
D). MPP of labor declines as more labor is employed.
101. Monopolists can charge any price and sell any amount of output they want since no competition exists.
False
84. Individual farmers face a horizontal demand curve.
False
85. A multiplant monopolist produces more than if each of its plants were a separate firm in a competitive market.
False
86. If marginal revenue product is declining, the marginal physical product must decline.
False
87. Unlike most monopolies, unions do not attempt to use their market power to raise the equilibrium wage above its competitive level.
False
88. The concept of laissez faire calls for government intervention if market failure is evident.
False
91. Monopolists in the labor market equate the marginal wage with the marginal revenue product.
False
92. Unregulated natural monopolists produce sub-optimal rates of output.
False
94. Unions do not need to control the labor supply in order to have market power.
False
95. If, at the optimum level of output, a typical perfectly competitive firm's price is greater than its ATC, the firm should increase output.
False
97. Antitrust laws focus only on the structure of an industry, not on its behavior. (NO ANSWER)
False
98. When there are economies of scale, a firm can simply increase production rates in the long run, and the unit costs will rise.
False
107. The intersection of the labor market supply and market demand curves establishes the minimum wage.
True