Microeconomics Exam 4

B. positive and decreasing.

When total product is increasing at a decreasing rate, marginal product is: A. positive and increasing. B. positive and decreasing. C. constant. D. negative.

C. maximize joint profits.

A major reason that firms form a cartel is to: A. reduce the elasticity of demand for the product. B. enlarge the market share for each producer. C. maximize joint profits. D. minimize the costs of production.

A. highly elastic demand curve.

A monopolistically competitive firm has a: A. highly elastic demand curve. B. highly inelastic demand curve. C. perfectly elastic demand curve. D. perfectly inelastic demand curve.

D. product differentiation.

A monopolistically competitive industry combines elements of both competition and monopoly. The monopoly element results from: A. the likelihood of collusion. B. high entry barriers. C. mutual interdependence in decision making. D. product differentiation.

C. average variable cost.

A profit-maximizing firm should shut down in the short run if the average revenue it receives is less than: A. marginal cost. B. average fixed cost. C. average variable cost. D. average total cost.

D. will vertically intersect demand where MR = MC.

A pure monopolist's short-run profit-maximizing or loss-minimizing position is such that price: A. will always equal ATC. B. always exceeds ATC. C. equals marginal revenue. D. will vertically intersect demand where MR = MC.

A. the loss is smaller than its total fixed costs.

A purely competitive firm will be willing to produce even at a loss in the short run, as long as: A. the loss is smaller than its total fixed costs. B. the loss is smaller than its marginal costs. C. price exceeds marginal costs. D. the loss is smaller than its total variable costs.

C. greater than economic profits because the former do not take implicit costs into account.

Accounting profits are typically: A. smaller than economic profits because the former do not take implicit costs into account. B. greater than economic profits because the former do not take explicit costs into account. C. greater than economic profits because the former do not take implicit costs into account. D. equal to economic profits because accounting costs include all opportunity costs.

D. monopolistic competition.

An industry comprising 40 firms, none of which has more than 3 percent of the total market for a differentiated product, is an example of: A. oligopoly. B. pure competition. C. pure monopoly. D. monopolistic competition.

D. oligopoly.

An industry comprising a small number of firms, each of which considers the potential reactions of its rivals in making price-output decisions, is called: A. pure competition. B. monopolistic competition. C. pure monopoly. D. oligopoly.

D. oligopoly.

An industry comprising four firms, each with about 25 percent of the total market for a product, is an example of: A. pure monopoly. B. monopolistic competition. C. pure competition. D. oligopoly.

C. charge a higher price.

Assume a pure monopolist is currently operating at a price-quantity combination on the inelastic segment of its demand curve. If the monopolist is seeking maximum profits, it should: A. charge a lower price. B. increase both price and quantity sold. C. charge a higher price. D. retain its current price-quantity combination.

D. can result from government regulation.

Barriers to entry: A. exist in economic theory but not in the real world. B. usually result in pure competition. C. are typically the result of wrongdoing on the part of a firm. D. can result from government regulation.

C. higher price and lower output.

Compared to a purely competitive firm in long-run equilibrium, the monopolistic competitor has a: A. higher price and higher output. B. lower price and lower output. C. higher price and lower output. D. price and output that may be higher or lower.

B. percentage of total industry sales accounted for by the largest firms in the industry.

Concentration ratios measure the: A. geographic location of the largest corporations in each industry. B. percentage of total industry sales accounted for by the largest firms in the industry. C. number of firms in an industry. D. degree to which product price exceeds marginal cost in various industries.

B. product differentiation allows each firm some degree of monopoly power.

Demand and marginal revenue curves are downward-sloping for monopolistically competitive firms because: A. mutual interdependence among all firms in the industry leads to collusion. B. product differentiation allows each firm some degree of monopoly power. C. there are a few large firms in the industry and they each act as a monopolist. D. each firm has to take the market price as given.

D. Dequam prefers monopolistically competitive industries, while Natasha prefers purely competitive industries.

Dequam likes product variety, while Natasha is most concerned about paying the lowest price possible for a good. This suggests that: A. Dequam cares more about productive efficiency, while Natasha cares more about allocative efficiency. B. Dequam cares more about allocative efficiency, while Natasha cares more about productive efficiency. C. Dequam prefers purely competitive industries, while Natasha prefers monopolistically competitive industries. D. Dequam prefers monopolistically competitive industries, while Natasha prefers purely competitive industries.

B. a payment that must be made to obtain and retain the services of a resource.

Economic cost can best be defined as: A. any contractual obligation that results in a flow of money expenditures from an enterprise to resource suppliers. B. a payment that must be made to obtain and retain the services of a resource. C. all costs exclusive of payments to fixed factors of production. D. any contractual obligation to labor or material suppliers.

B. an oligopoly.

Economists would describe the U.S. automobile industry as: A. monopolistically competitive. B. an oligopoly. C. a pure monopoly. D. purely competitive.

A. there is free entry and exit of firms in the industry.

Firms in an industry will not earn long-run economic profits if: A. there is free entry and exit of firms in the industry. B. fixed costs are zero. C. production costs for a given level of output are minimized. D. the number of firms in the industry is fixed.

B. total profit.

Firms seek to maximize: A. total revenue. B. total profit. C. per unit profit. D. market share.

B. any cost that does not change when the firm changes its output.

Fixed cost is: A. usually zero in the short run. B. any cost that does not change when the firm changes its output. C. the cost of producing one more unit of capital, for example, machinery. D. average cost multiplied by the firm's output.

B. all of these.

For a purely competitive seller, price equals A. total revenue divided by output. B. all of these. C. marginal revenue. D. average revenue.

B. perfectly elastic.

If a firm is a price taker, then the demand curve for the firm's product is: A. perfectly inelastic. B. perfectly elastic. C. unit elastic. D. equal to the total revenue curve.

B. price leadership.

If a particular bank regularly announces changes in its interest rate schedules before its competitors, who then set rates very close to those announced by that bank, this could be described as: A. markup pricing. B. price leadership. C. predatory pricing. D. explicit price collusion.

B. average total cost.

If a regulatory commission wants to provide a natural monopoly with a fair return, it should establish a price that is equal to: A. minimum average fixed cost. B. average total cost. C. marginal revenue. D. marginal cost.

A. the law of diminishing returns.

If a variable input is added to some fixed input, beyond some point the resulting extra output will decline. This statement describes: A. the law of diminishing returns. B. X-inefficiency. C. the law of diminishing marginal utility. D. economies and diseconomies of scale.

D. marginal product could be either increasing or decreasing.

If in the short run a firm's total product is increasing, then its: A. marginal product must be decreasing. B. average product must also be increasing. C. marginal product must also be increasing. D. marginal product could be either increasing or decreasing.

C. a purely competitive firm.

If the demand curve faced by an individual firm is downward-sloping, the firm cannot be: A. a monopolistically competitive firm. B. a monopoly firm. C. a purely competitive firm. D. an oligopolistic firm.

B. the former refer to nonexpenditure costs and the latter to monetary payments.

Implicit and explicit costs are different in that: A. the latter refer to nonexpenditure costs and the former to monetary payments. B. the former refer to nonexpenditure costs and the latter to monetary payments. C. explicit costs are opportunity costs; implicit costs are not. D. implicit costs are opportunity costs; explicit costs are not.

B. earning a normal profit, but not an economic profit.

In the long run, a representative firm in a monopolistically competitive industry will end up: A. producing a level of output at which marginal cost and price are equal. B. earning a normal profit, but not an economic profit. C. having an elasticity of demand that will be less than it was in the short run. D. having a larger number of competitors than it will in the short run.

B. above marginal cost.

In the short run, a profit-maximizing monopolistically competitive firm sets it price: A. equal to marginal revenue. B. above marginal cost. C. equal to marginal cost. D. below marginal cost.

B. marginal cost curve lying above the average variable cost curve.

In the short run, the individual competitive firm's supply curve is that segment of the: A. marginal revenue curve lying below the demand curve. B. marginal cost curve lying above the average variable cost curve. C. marginal cost curve lying between the average total cost and average variable cost curves. D. average variable cost curve lying below the marginal cost curve.

D. may be positive, negative, or zero.

In the short-run equilibrium, a monopolist's profits: A. are positive if the product's elasticity of demand is greater than 1. B. are positive if the product's elasticity of demand is less than 1. C. are positive because of the monopolist's market power. D. may be positive, negative, or zero.

B. pure competition, monopolistic competition, oligopoly, pure monopoly

In which of these continuums of degrees of competition (highest to lowest) is monopolistic competition properly placed? A. monopolistic competition, pure competition, pure monopoly, oligopoly B. pure competition, monopolistic competition, oligopoly, pure monopoly C. oligopoly, pure competition, monopolistic competition, pure monopoly D. pure competition, oligopoly, pure monopoly, monopolistic competition

A. change in total cost that results from producing one more unit of output.

Marginal cost is the: A. change in total cost that results from producing one more unit of output. B. rate of change in total fixed cost that results from producing one more unit of output. C. change in average total cost that results from producing one more unit of output. D. change in average variable cost that results from producing one more unit of output.

C. transform monopolistic competition into oligopoly.

Mergers of firms in an industry tend to: A. transform monopolistic competition into pure competition. B. reduce the Herfindahl index for the industry. C. transform monopolistic competition into oligopoly. D. break up an oligopoly.

B. many firms producing differentiated products.

Monopolistic competition means: A. a market situation where competition is based entirely on product differentiation and advertising. B. many firms producing differentiated products. C. a large number of firms producing a standardized or homogeneous product. D. a few firms producing a standardized or homogeneous product.

D. considers the reactions of its rivals when it determines its pricing policy.

Mutual interdependence means that each firm in an oligopoly: A. depends on the other firms for its inputs. B. faces a perfectly inelastic demand for its product. C. depends on the other firms for its markets. D. considers the reactions of its rivals when it determines its pricing policy.

A. must consider the reactions of its rivals when it determines its price policy.

Mutual interdependence means that each oligopolistic firm: A. must consider the reactions of its rivals when it determines its price policy. B. produces a product identical to those of its rivals. C. produces a product similar but not identical to the products of its rivals. D. faces a perfectly elastic demand for its product.

D. extensive economies of scale in production.

Natural monopolies result from: A. patents and copyrights. B. pricing strategies. C. control over an essential natural resource. D. extensive economies of scale in production.

C. an international cartel.

OPEC provides an example of: A. a monopolistically competitive industry. B. noncollusive oligopoly. C. an international cartel. D. an unwritten, informal understanding.

C. a few dominant firms and substantial entry barriers.

Oligopolistic industries are characterized by: A. a large number of firms and low entry barriers. B. a few dominant firms and no barriers to entry. C. a few dominant firms and substantial entry barriers. D. a few dominant firms and low entry barriers.

B. incentive to cheat.

One inherent factor that tends to destroy collusion among oligopolists is the: A. mutual interdependence. B. incentive to cheat. C. product differentiation. D. leadership of the dominant firm.

C. Average fixed costs and average total costs would rise.

Other things equal, if the fixed costs of a firm were to increase by $100,000 per year, which of the following would happen? A. Average fixed costs would rise, but marginal costs would fall. B. Marginal costs and average variable costs would both rise. C. Average fixed costs and average total costs would rise. D. Average fixed costs and average variable costs would rise.

D. the selling of a given product to different customers at different prices that do not reflect cost differences.

Price discrimination refers to: A. the difference between the prices a purely competitive seller and a purely monopolistic seller would charge. B. any price above that which is equal to a minimum average total cost. C. selling a given product for different prices at two different points in time. D. the selling of a given product to different customers at different prices that do not reflect cost differences.

B. a cartel.

Suppose the only three existing manufacturers of video game players signed a written contract by which each agreed to charge the same price for products and to distribute their products only in the geographical area assigned them in the contract. This best describes: A. price leadership. B. a cartel. C. cost-plus pricing. D. multiproduct pricing.

B. gives much greater weight to larger firms than to smaller firms in an industry.

The Herfindahl index: A. is another name for the four-firm concentration ratio. B. gives much greater weight to larger firms than to smaller firms in an industry. C. tells us the degree to which monopolistically competitive firms are differentiating their products. D. tells us whether oligopolistic firms are engaging in collusion.

A. to firms in all types of industries.

The MR = MC rule applies: A. to firms in all types of industries. B. only when the firm is a "price taker." C. only to monopolies. D. only to purely competitive firms.

C. differentiated oligopoly.

The automobile, household appliance, and automobile tire industries are all illustrations of: A. monopolistic competition. B. homogeneous oligopoly. C. differentiated oligopoly. D. pure monopoly.

D. the firm does not have sufficient time to change the size of its plant.

The basic characteristic of the short run is that: A. the firm does not have sufficient time to cut its rate of output to zero. B. barriers to entry prevent new firms from entering the industry. C. a firm does not have sufficient time to change the amounts of any of the resources it employs. D. the firm does not have sufficient time to change the size of its plant.

A. at least one resource is fixed in the short run, while all resources are variable in the long run.

The basic difference between the short run and the long run is that: A. at least one resource is fixed in the short run, while all resources are variable in the long run. B. economies of scale may be present in the short run but not in the long run. C. all costs are fixed in the short run, but all costs are variable in the long run. D. the law of diminishing returns applies in the long run but not in the short run.

C. is the same as its marginal revenue curve.

The demand curve faced by a purely competitive firm: A. is identical to the market demand curve. B. yields constant total revenues even when price changes. C. is the same as its marginal revenue curve. D. has unitary elasticity.

C. downsloping; perfectly elastic

The demand curve in a purely competitive industry is ________, while the demand curve to a single firm in that industry is ________. A. perfectly inelastic; perfectly elastic B. perfectly elastic; downsloping C. downsloping; perfectly elastic D. downsloping; perfectly inelastic

C. perfectly elastic.

The demand schedule or curve confronted by the individual, purely competitive firm is: A. relatively elastic, that is, the elasticity coefficient is greater than unity. B. perfectly inelastic. C. perfectly elastic. D. relatively inelastic, that is, the elasticity coefficient is less than unity.

D. marginal product of the third worker is 9.

The first, second, and third workers employed by a firm add 24, 18, and 9 units to total product, respectively. Therefore, we can conclude that: A. the first worker puts forth more effort than the second and third workers. B. the firm will not want to hire more than three workers. C. the third worker has to work with poorer-quality tools and raw materials. D. marginal product of the third worker is 9.

B. $150,000.

The following is cost information for the Creamy Crisp Donut Company.Entrepreneur's potential earnings as a salaried worker = $50,000Annual lease on building = $22,000Annual revenue from operations = $380,000Payments to workers = $120,000Utilities (electricity, water, disposal) costs = $8,000Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000Entrepreneur's forgone interest on personal funds used to finance the business = $6,000Creamy Crisp's explicit costs are: A. $286,000. B. $150,000. C. $94,000. D. $156,000.

D. competitors will follow a price cut but ignore a price increase.

The kinked-demand curve of an oligopolist is based on the assumption that: A. there is no product differentiation. B. competitors will ignore a price cut but follow a price increase. C. competitors will match both price cuts and price increases. D. competitors will follow a price cut but ignore a price increase.

C. as extra units of a variable resource are added to a fixed resource, marginal product will decline beyond some point.

The law of diminishing returns indicates that: A. the demand for goods produced by purely competitive industries is downsloping. B. beyond some point, the extra utility derived from additional units of a product will yield the consumer smaller and smaller extra amounts of satisfaction. C. as extra units of a variable resource are added to a fixed resource, marginal product will decline beyond some point. D. because of economies and diseconomies of scale, a competitive firm's long-run average total cost curve will be U-shaped.

A. as extra units of a variable resource are added to a fixed resource, marginal product will decline beyond some point.

The law of diminishing returns indicates that: A. as extra units of a variable resource are added to a fixed resource, marginal product will decline beyond some point. B. the demand for goods produced by purely competitive industries is downsloping. C. beyond some point, the extra utility derived from additional units of a product will yield the consumer smaller and smaller extra amounts of satisfaction. D. because of economies and diseconomies of scale, a competitive firm's long-run average total cost curve will be U-shaped.

B. may be homogeneous or differentiated.

The product in an oligopolistic market: A. is assumed to be homogeneous. B. may be homogeneous or differentiated. C. has very many close substitutes. D. is always differentiated from one firm to another.

B. price exceeds marginal cost.

The profit-maximizing output of a pure monopoly is not socially optimal, because in equilibrium: A. marginal cost exceeds price. B. price exceeds marginal cost. C. marginal revenue equals marginal cost. D. price equals minimum average total cost.

B. monopolistic competition.

The restaurant, legal assistance, and clothing industries are each illustrations of: A. pure monopoly. B. monopolistic competition. C. countervailing power. D. homogeneous oligopoly.

C. game theory.

The study of how people (or firms) behave in strategic situations is called: A. normative economics. B. cost-benefit analysis. C. game theory. D. recursive analysis.

B. a few firms producing either a differentiated or a homogeneous product.

The term oligopoly indicates: A. many producers of a differentiated product. B. a few firms producing either a differentiated or a homogeneous product. C. a one-firm industry. D. an industry whose four-firm concentration ratio is low.

B. cartels, informal understandings, and price leadership.

Three major means of collusion by oligopolists are: A. cartels, kinked-demand pricing, and product differentiation. B. cartels, informal understandings, and price leadership. C. informal understandings, P = MC pricing, and mutual interdependence. D. market sharing, mutual interdependence, and product differentiation.

C. explicit and implicit costs.

To the economist, total cost includes: A. implicit, but not explicit, costs. B. explicit, but not implicit, costs. C. explicit and implicit costs. D. neither implicit nor explicit costs.

D. All are opportunity costs.

What do wages paid to factory workers, interest paid on a bank loan, forgone interest, and the purchase of component parts have in common? A. All are implicit costs. B. All are explicit costs. C. None are either implicit or explicit costs. D. All are opportunity costs.

B. A major airline sells tickets to senior citizens at lower prices than to other passengers.

Which case best represents a case of price discrimination? A. A professional baseball team pays two players with identical batting averages different salaries. B. A major airline sells tickets to senior citizens at lower prices than to other passengers. C. A utility company charges less for electricity used during off-peak hours, when it does not have to operate its less-efficient generating plants. D. An insurance company offers discounts to safe drivers.

D. a large number of firms

Which constitutes an obstacle to collusion among oligopolists? A. trademarks and copyrights B. a standardized product C. prosperous economic conditions D. a large number of firms

B. the only grocery store in a small isolated town

Which of the following best approximates a pure monopoly? A. the foreign exchange market B. the only grocery store in a small isolated town C. the Kansas City wheat market D. the soft drink market

C. agriculture

Which of the following industries most closely approximates pure competition? A. farm implements B. steel C. agriculture D. clothing

A. A purely competitive firm is a "price taker," while a monopolist is a "price maker."

Which of the following is correct? A. A purely competitive firm is a "price taker," while a monopolist is a "price maker." B. Both purely competitive and monopolistic firms are "price makers." C. A purely competitive firm is a "price maker," while a monopolist is a "price taker." D. Both purely competitive and monopolistic firms are "price takers."

B. X-inefficiency

Which of the following is not a barrier to entry? A. ownership of essential resources B. X-inefficiency C. patents D. economies of scale

A. recognized mutual interdependence

Which of the following is not a basic characteristic of monopolistic competition? A. recognized mutual interdependence B. the use of trademarks and brand names C. product differentiation D. a relatively large number of sellers

B. pricing strategies by firms

Which of the following is not a characteristic of pure competition? A. a standardized product B. pricing strategies by firms C. a larger number of sellers D. no barriers to entry

A. The commodity involved must be a durable good.

Which of the following is not a precondition for price discrimination? A. The commodity involved must be a durable good. B. The good or service cannot be profitably resold by original buyers. C. The seller must be able to segment the market, that is, to distinguish buyers with different elasticities of demand. D. The seller must possess some degree of monopoly power.

A. Norway

Which of the following nations is not a member of the OPEC oil cartel? A. Norway B. Venezuela C. Iraq D. Iran

C. AP continues to rise so long as TP is rising.

Which of the following statements concerning the relationships between total product (TP), average product (AP), and marginal product (MP) is not correct? A. MP cuts AP at the maximum AP. B. TP reaches a maximum when the MP of the variable input becomes zero. C. AP continues to rise so long as TP is rising. D. AP reaches a maximum before TP reaches a maximum.

A. In the long run, purely competitive firms and monopolistically competitive firms earn zero economic profits, while pure monopolies may or may not earn economic profits.

Which of the following statements is correct? A. In the long run, purely competitive firms and monopolistically competitive firms earn zero economic profits, while pure monopolies may or may not earn economic profits. B. Purely competitive firms, monopolistically competitive firms, and pure monopolies all earn positive economic profits in the long run. C. Purely competitive firms, monopolistically competitive firms, and pure monopolies all earn zero economic profits in the long run. D. Monopolistically competitive firms earn zero economic profits in both the short run and the long run.

D. firms like iTunes that distribute their products over the Internet

Which of the following types of firms are least likely to have their MC, AVC, and ATC curves affected by fluctuations in gasoline prices? A. companies that operate bus tours to popular vacation destinations B. taxi cab companies and Uber drivers C. firms like UPS that use a fleet of gasoline-powered vehicles D. firms like iTunes that distribute their products over the Internet

C. easy entry, many firms, and differentiated products

Which set of characteristics below best describes the basic features of monopolistic competition? A. easy entry, many firms, and standardized products B. easy entry, few firms, and standardized products C. easy entry, many firms, and differentiated products D. barriers to entry, few firms, and differentiated products

A. fails to achieve the minimum average total costs attainable at each level of output.

X-inefficiency refers to a situation in which a firm: A. fails to achieve the minimum average total costs attainable at each level of output. B. fails to realize all existing economies of scale. C. is not as technologically progressive as it might be. D. encounters diseconomies of scale.