Microeconomics Exam #3

(13) Looking at the table above, what is the marginal product of the first worker? a. 300 units b. 200 units c. 100 units d. 50 units

a. 300 units

(14) The figure below corresponds to a firm operating in a competitive industry. If there were four identical firms in the industry, which of the following price-quantity combinations would be on the market supply curve? a. A only b. A and C only c. B only d. B and D only

a. A only

(15) Price discrimination... a. Is illegal in the United States and Europe b. Can occur in both perfectly competitive and monopoly markets. c. Is illogical because it does not maximize profits. d. Can maximize profits if the seller can prevent the resale of goods between customers.

d. Can maximize profits if the seller can prevent the resale of goods between customers.

(13) As Bubba's Bubble Gum Company adds workers while using the same amount of machinery, some workers may be underutilized because they have little work to do while waiting in line to use the machinery. When this occurs, Bubba's Bubble Gum Company encounters... a. Economies of sale b. Diseconomies of sale c. Increasing marginal product d. Diminishing marginal product

d. Diminishing marginal product

(14) Competitive markets are characterized by... a. A small number of buyers and sellers. b. Unique products. c. The interdependence of firms. d. Free entry and exit by firms.

d. Free entry and exit by firms.

(16) A monopolistically competitive firm chooses... a. The quantity of output to produce, but all firms in the market agree upon a single price b. The price, but competition in the market determines the quantity. c. The price, but output is determined by a cartel production quota. d. The quantity of output to produce, but the price of its output is determined by demand.

d. The quantity of output to produce, but the price of its output is determined by demand.

(15) The fundamental source of monopoly is... a. Barriers to entry. b. Profit. c. Increasing average total cost. d. A product without close substitutes.

a. Barriers to entry.

(16) Which of the following is true about a monopolistically competitive firm? a. It can earn an economic profit in the short run, but not the long run. b. It can earn an economic profit in the short run and the long run. c. It can earn an economic profit in the long run, but not the short run. d. It cannot earn an economic profit in either the short or long run.

a. It can earn an economic profit in the short run, but not the long run.

(16) Which of the following statements is correct? a. Monopolistic competition is similar to monopoly because both market structures are characterized by firms being price makers rather than price takers. b. Monopolistic competition is similar to perfect competition because both market structures are characterized by differentiated products. c. Monopolistic competition is similar to oligopoly because both market structures are characterized by strategic interaction between firms in the market. d. Monopolistic competition is similar to perfect competition because both market structures are characterized by perfectly elastic demand curves facing each firm.

a. Monopolistic competition is similar to monopoly because both market structures are characterized by firms being price makers rather than price takers.

(16) Which of the following conditions is characteristic of a monopolistically competitive firm in both the short run and the long run? a. P < MC b. MC = ATC c. P < MR d. P = ATC

a. P < MC

(15) A monopolist can sell 300 units of output for $50 per unit. Alternatively, it can sell 301 units of output for $49.60 per unit. The marginal revenue of the 301st unit of output is... a. -$99.60 b. -$70.40 c. -$0.40 d. $70.40

b. -$70.40

(14) If a competitive firm is currently producing a level of output at which marginal cost exceeds marginal revenue, then... a. A one-unit increase in output will increase the firm's profit. b. A one-unit decrease in output will increase the firm's profit. c. Total revenue exceeds total cost. d. Total cost exceeds total revenue.

b. A one-unit decrease in output will increase the firm's profit.

(16) In monopolistically competitive markets, free entry and exit suggest that... a. The market structure will eventually be characterized by perfect competition in the long run. b. All firms earn zero economic profits in the long run. c. Some firms will be able to earn economic profits in the long run. d. Some firms will be forced to incur economic losses in the long run.

b. All firms earn zero economic profits in the long run.

(16) For a monopolistically competitive firm... a. Marginal revenue and price are the same b. At the profit-maximizing quantity of output, marginal revenue equals marginal cost c. At the profit-maximizing quantity of output, price equals marginal cost. d. At the profit-maximizing quantity of output, price equals the minimum of average total cost

b. At the profit-maximizing quantity of output, marginal revenue equals marginal cost

(15) Monopoly firms face... a. Downward sloping demand curves, so they can sell as much output as they desire at the market price. b. Downward-sloping demand curves, so they can sell only the specific price-quantity combinations that lie on the demand curve. c. Horizontal demand curves, so they can sell as much output as they desire at the market price. d. Horizontal demand curves, so they can sell only a limited quantity of output at each price.

b. Downward-sloping demand curves, so they can sell only the specific price-quantity combinations that lie on the demand curve.

(14) For any competitive market, the supply curve is closely related to the... a. Preferences of consumers who purchase products in that market. b. Firms' costs of production in that market. c. Income tax rates of consumers in that market. d. Interest rates on government bonds.

b. Firms' costs of production in that market.

(16) Which of the following graphs illustrates the demand curve most likely faced by a firm in a monopolistically competitive market? a. Graph (a) b. Graph (b) c. Graph (c) d. Graph (d)

b. Graph (b)

(15) A firm cannot price discriminate if... a. It has declining marginal revenue. b. It operates in a competitive market. c. Buyers only reveal the price they are willing to pay for the product. d. It has constant marginal cost.

b. It operates in a competitive market.

(13) For a large firm that produces and sells automobiles, which of the following costs would be a variable cost? a. The $20 million payment that the firm pays each year for accounting services b. The cost of the steel that is used in producing automobiles c. The rent that the firm pays for office space in a suburb of St. Louis d. The cost of Internet advertising incurred each year

b. The cost of the steel that is used in producing automobiles

(15) Look at the figure below. What is the are of deadweight loss? a. The rectangle (X - Z) x J b. The triangle 1/2[(X - Z) x (K - J)] c. The triangle 1/2[(X - Y) x (K - J)] d. The rectangle (X - Z) x J plus the triangle 1/2[(X - Z) x (K - J)]

b. The triangle 1/2[(X - Z) x (K - J)]

(16) The figure below depicts a situation in a monopolistically competitive market. How much profit will the monopolistically competitive firm earn in this situation? a. $0 b. $2,100 c. $600 d. $900

c. $600

(14) In the following figure, graph (a) depicts the linear marginal cost (MC) of a firm in a competitive market, and graph (b) depicts the linear market supply curve for a market with a fixed number of identical firms. If there are 300 identical firms in this market, what level of output will be supplied to the market when the price is $1.00? a. 300 b. 6,000 c. 30,000 d. 60,000

c. 30,000

(15) Suppose a monopolist faces the following demand curve: The monopolist has fixed costs of $1,000 and has a constant marginal cost of $2 per unit. If the monopolist were able to perfectly price discriminate, how many units would it sell? a. 400 b. 500 c. 900 d. 4,200

c. 900

(16) Which of the following is not an argument made by critics of advertising? a. Advertising manipulates people's tastes. b. Advertising impedes competition. c. Advertising promotes economies of scale. d. Advertising increases the perception of product differentiation.

c. Advertising promotes economies of scale.

(16) The product-variety externality is associated with the... a. Producer surplus that accrues to incumbent firms in a monopolistically competitive industry. b. Loss of consumer surplus from exposure to additional advertising. c. Consumer surplus that is generated from the introduction of a new product. d. Opportunity cost of firms exiting a monopolistically competitive industry.

c. Consumer surplus that is generated from the introduction of a new product.

(14) If a firm in a competitive market doubles its number of units sold, total revenue for the firm will... a. More than double b. Increase but by less than double. c. Double. d. May increase or decrease depending on the price elasticity of demand.

c. Double.

(14) When new firms enter a perfectly competitive market... a. Economic profits of existing firms will continue to be zero. b. Entering firms will earn zero economic profit upon entry into the market. c. Existing firms may see their costs rise if more firms compete for limited resources. d. Prices will rise as existing firms raise prices to keep new firms out of the market.

c. Existing firms may see their costs rise if more firms compete for limited resources.

(14) A competitive market is in long-run equilibrium. If demand decreases, we can be certain that price will... a. Fall in the short run. All firms will shut down, and some of them will exit the industry. Price will then rise to reach the new long-run equilibrium. b. Fall in the short-run. No firms will shut down, but some of them will exit the industry. Price will then rise to reach the new long-run equilibrium. c. Fall in the short run. All, some, or no firms will shut down, and some of them will exit the industry. Price will then rise to reach the new long-run equilibrium. d. Not fall in the short-run because firms will exit to maintain the price.

c. Fall in the short run. All, some, or no firms will shut down, and some of them will exit the industry. Price will then rise to reach the new long-run equilibrium.

(15) A monopolist's profits with price discrimination will be... a. Lower than if the firm charged a single, profit-maximizing price. b. The same as if the firm charged a single, profit-maximizing price. c. Higher than if the firm charged just one price because the firm will capture more consumer surplus. d. Higher than if the firm charged a single price because the costs of selling the good will be lower.

c. Higher than if the firm charged just one price because the firm will capture more consumer surplus.

(13) Suppose that a "doggie daycare" firm uses only two inputs: hourly workers (labor) and a building (capital). In the short run, the firm most likely considers... a. Both labor and capital to be fixed. b. Both labor and capital to be variable. c. Labor to be variable and capital to be fixed. d. Capital to be variable and labor to be fixed.

c. Labor to be variable and capital to be fixed.

(15) A government-created monopoly arises when... a. Government spending in a certain industry gives rise to monopoly power. b. The government exercises its market control by encouraging competition among sellers. c. The government gives a firm the exclusive right to sell some good or service. d. The government collects taxes in a particular industry.

c. The government gives a firm the exclusive right to sell some good or service.

(14) The long-run market supply curve in a competitive market will... a. Always be horizontal b. Be the portion of the MC that lies above the minimum of AVC for the marginal firm. c. Typically be more elastic than the short-run supply curve. d. Be above the competitive firm's efficient scale.

c. Typically be more elastic than the short-run supply curve.

(13) Zaid's Tent Company has total fixed costs of $300,000 per year. The firm's average variable cost is $65 for 10,000 tents. At that level of output, the firm's average total costs equal... a. $65 b. $75 c. $85 d. $95

d. $95

(15) Which of the following is not an example of price discrimination... a. A zoo charges a lower price for a child's ticket than for an adult's ticket. b. A design school rebates part of the cost of tuition in the form of financial aid for underprivileged students. c. A local supermarket chain offers a "buy three get one free" deal. d. A bakery charges a higher price for brownies than for cookies.

d. A bakery charges a higher price for brownies than for cookies.

(14) Looking at the table below, over which range of output is average revenue equal to price? a. 2 to 10 units b. 6 to 14 units c. 10 to 18 units d. Average revenue is equal to price over the entire range of output.

d. Average revenue is equal to price over the entire range of output.