Microeconomics final part 2

b. oligopoly

Mutual interdependence would tend to limit control over price in which market model? Monopolistic competition Oligopoly Pure competition Pure monopoly

EH

Refer to the above graph for a purely competitive firm. When the firm is in equilibrium in the short run, the amount of economic profit per unit is: DH EH DE DB

point B

Refer to the above graph. At which point is average product (AP) at its maximum? Point A Point B Point C Point D

point c

Refer to the above graph. It shows the total product (TP) curve. At which point is the marginal product zero? Point a Point b Point c Point d

D. slopes downward

One feature of pure monopoly is that the demand curve: Slopes upward Is vertical Is horizontal Slopes downward

price

marginal cost will equal ... in a purely competive market

B. average revenue exceeds average total costs

A firm will earn economic profits whenever: Average revenue exceeds average variable costs Average revenue exceeds average total costs Marginal revenue exceeds variable costs Marginal revenue exceeds marginal costs

C. a firm produces more output by acquiring more raw materials

All of the following are long-run changes, except: A firm moves into larger production facilities to expand production Some firms decide to leave an industry and the industry contracts A firm produces more output by acquiring more raw materials for its existing factory An industry expands as more firms enter it

A. pure competition

An industry comprised of a very large number of sellers producing a standardized product is known as: Pure Competition Pure Monopoly monopolistic competition Oligopoly

profit of 6.50

Answer the question below on the basis of the following demand and cost data for a pure monopolist. Picture Refer to the above table. At equilibrium, the monopolist will realize a: Profit of $4.50 Profit of $6.50 Loss of $7.25 Profit of $10.00

A. pure competition

Average revenue and marginal revenue are equal at each output level in: Pure competition Oligopoly Monopoly Monopolistic competition

D. reduce a moral hazard problem

If Congress decreases the amount of government insurance on bank deposits, then this action would: Create an adverse selection problem Reduce an adverse selection problem Reduce a moral hazard problem Create a moral hazard problem

two

Chris is preparing for a comprehensive course exam by reading a textbook with chapters of equal length and difficulty. The number of chapters she can comprehend and master when studying is: (1) hour one: 1.5 chapters; (2) hour two: 2.0 chapters; (3) hour three: 1.5 chapters; (4) hour four: 1 chapter; (5) hour five: 0 chapters. Diminishing marginal returns to studying sets in for Chris after hour: One Two Four Five

C. zero economic profits

Consider the purely competitive firm pictured above. At its short-run equilibrium point, the firm is earning: Zero normal profits Zero accounting profits Zero economic profits We can say nothing about this firm's profit or loss situation

B. pure competition

If a firm has at least some control over the price of its product, then the firm cannot be in which market model: Monopolistic competition Pure competition Oligopoly Pure monopoly

$94

If average variable cost is $74 and total fixed cost is $100 at 5 units of output, then average total cost at this output level is: $91 $94 $97 $100

3500

Plant sizes get larger as you move from ATC-1 to ATC-4. Refer to the above table. The firm experiences minimum efficient scale at what output level? 2500 3000 3500 4000

a. each seller supplies a negligible fraction of total market

Price is taken to be a "given" by an individual firm selling in a purely competitive market because: Each seller supplies a negligible fraction of total market Product differentiation is reinforced by extensive advertising There are no good substitutes for the firm's product The firm's demand curve is downward-sloping

A. economies of scale

The ability of Intel to spread product development costs over a larger number of units of output arises from: Economies of scale Diseconomies of scale Minimum efficient scale Constant returns to scale

differentiated oligopoly

The consumer wifi-service providers' market is best described as a: Monopolistic competition Differentiated oligopoly Monopoly Homogeneous oligopoly

A. the same as the industry's demand curve

The demand curve confronting a non-discriminating pure monopolist is: The same as the industry's demand curve Horizontal Derived by vertically summing the individual demand curves for the buyers More elastic than the demand curve confronting a competitive firm

c. 7 units and earn economic profits of 238

The following table shows cost data for a firm that is selling in a purely competitive market. Refer to the above table. If the market price for the firm's product is $180, the competitive firm will produce: 5 units and earn economic profits of $100 8 units and earn economic profits of $278 7 units and earn economic profits of $238 6 units and earn economic profits of $120

$119

The following table shows cost data for a firm that is selling in a purely competitive market. Picture Refer to the above table. If the product price is $290, the per-unit economic profit at the profit-maximizing output is: $76 $0 $152 $119

D. will earn zero economic profit in the long run

The representative firm in a purely competitive industry: Will always earn an economic profit in the long run Will always earn a profit in the short run May earn either an economic profit or a loss in the long run Will earn zero economic profit in the long run

B. moral hazard

he "too big to fail" policy of the Fed, whereby some banks are bailed out if they are in danger of failing because they are too big and could bring the system down, leads to which of the following problems? Public goods Moral hazard Adverse selection Externalities

D. Pure competition

n which market model are the conditions of entry into the market easiest? Monopolistic competition Oligopoly Pure monopoly Pure competition

B. marginal benefit equals the marginal cost of the public good

Refer to the above supply and demand graph for a public good. Point c on the graph shows where the: Total benefit equals the total cost of the public good Marginal benefit equals the marginal cost of the public good Average benefit equals the average cost of the public good Total benefit of the public good is at the maximum

B. price would decrease

Refer to the above supply and demand graph of Product X. What would happen if the government decided to also start providing Product X in the market? Demand would increase Price would decrease Supply would decrease Demand would decrease

$160,000

Harvey quit his job at State University where he earned $45,000 a year. He figures his entrepreneurial talent or foregone entrepreneurial income to be $5,000 a year. To start the business, he cashed in $100,000 in bonds that earned 10 percent interest annually to buy a software company, Extreme Gaming. In the first year, the firm sold 11,000 units of software at $75 for each unit. Of the $75 per unit, $55 goes for the costs of production, packaging, marketing, employee wages and benefits, and rent on a building. Refer to the above information. The economic profits of Harvey's firm in the first year were: $155,000 $160,000 $220,000 $280,000

B. perfectly elastic

If a firm is a price taker, then the demand curve for the firm's product is: Unit elastic Perfectly elastic Equal to the total revenue curve Perfectly inelastic

B. price would increase and output would decrease

If a good that generates negative externalities were priced to take these negative externalities into account, then its: Output would increase but its price would remain constant Price would increase and its output would decrease Price would decrease and its output would increase Price would increase but its output would remain constant

C. moral hazard problem

If a person drives with less care after purchasing auto insurance, this situation would be an example of a(n): Negative externality problem Adverse selection problem Moral hazard problem Reverse wealth problem

C. accounting profits are greater than zero

If economic profits in an industry are zero and implicit costs are greater than zero, then: Resources will move out of the industry There will be no production in the short run Accounting profits are greater than zero New firms will enter the industry

$750

If you know that with 8 units of output, average fixed cost is $12.50 and average variable cost is $81.25, then total cost at this output level is: $93.75 $97.78 $750 $880

C. payments for self employed resources

Implicit costs are: Equal to total fixed costs Comprised entirely of variable costs "payments" for self-employed resources Always greater in the short run than in the long run

D. elastic bc many other firms produce the same product

In pure competition, the demand for the product of a single firm is perfectly: Elastic because the firm produces a unique product Inelastic because many other firms produce the same product Inelastic because the firm produces a unique product Elastic because many other firms produce the same product

D. may be positive, negative, or zero

In the short run equilibrium, a monopolist's profits: Are positive because of the monopolist's market power Are positive if the product's elasticity of demand is greater than 1 Are positive if the product's elasticity of demand is less than 1 May be positive, negative, or zero

A. retail trade

In which industry is monopolistic competition most likely to be found? Retail trade Utilities Mining Agriculture

D. pure monopoly

In which market model are the conditions of entry the most difficult? Monopolistic competition Pure competition Oligopoly Pure monopoly

B. monopolistic competition and oligopoly

In which two market models would advertising be used most often? Pure competition and pure monopoly Monopolistic competition and oligopoly Pure monopoly and oligopoly Pure competition and monopolistic competition

D. in some markets the producers of a certain commodity might face competition from products of other industries

Interindustry competition refers to the fact that: Products are identical in a purely competitive industry Firms which sell a product at one stage of production buy materials and parts from other firms at prior stages of production Oligopolistic producers establish a common price for their products In some markets the producers of a certain commodity might face competition from products of other industries

A. cap and trade system

It has been proposed that a government agency be charged with the task of determining the amount of pollution that the atmosphere (or a body of water) can safely absorb, establish "rights" to this limited amount of pollution, and sell those limited amount of rights to firms. The firms can then buy and sell these rights among themselves later. This approach is known as the: Cap and trade system Property rights system Taxes and subsidies system Market and command system

b. external benefits from production and consumption of the product

Refer to the above supply and demand graph. S1 and D1 represent the current market supply and demand, respectively. S2 and D2 represent the socially optimal supply and demand. The positions of the graphs indicate that there is (are): External benefits from production and external costs from consumption of the product External benefits from production and consumption of the product External costs from production and external benefits from consumption of the product External costs from production and consumption of the product

$4.57

Refer to the above table. The average variable cost of producing 35 units of output is: $6.00 $7.43 $4.57 $1.43

D. the demand curve will shift to the right

Refer to the graph above. Suppose consumers do not fully appreciate the benefits of the product whose market shown in the graph. If an external agency is able to provide full information about the benefits of the product, then: The new equilibrium price will be higher but the equilibrium quantity will be either higher or lower Both the new equilibrium price and quantity will be lower The supply curve will shift to the left The demand curve will shift to the right

C. both the new equilibrium price and quantity will be lower

Refer to the graph above. Suppose consumers do not know the safety risks associated with a particular good, and that the free-market equilibrium is at E as shown in the diagram above. If an independent agency now provides accurate information about the harmful characteristics of the product, then: The new equilibrium price will be higher but the equilibrium quantity will be either higher or lower The supply curve will shift to the right Both the new equilibrium price and quantity will be lower The supply curve will shift to the left

B. supply curve will shift to the right

Refer to the graphs above for a purely competitive market in the short run. The graphs suggest that in the long run, assuming no changes in the given information, the market: Supply curve will shift to the left Supply curve will shift to the right Demand curve will shift to the right Demand curve will shift to the left

b. the benefits accrue to politically powerful government officials and their constituents

Sometimes, public goods whose benefits are less than their costs still get produced because: Of externalities in production The benefits accrue to politically powerful government officials and their constituents The marginal benefit is still larger than the marginal cost Of market failures

A. 500,000 and an economic profit of 200,000

Suppose that a firm produces 200,000 units a year and sells them all for $10 each. The explicit costs of production are $1,500,000 and the implicit costs of production are $300,000. The firm earns an accounting profit of: $500,000 and an economic profit of $200,000 $400,000 and an economic profit of $200,000 $300,000 and an economic profit of $400,000 $200,000 and an economic profit of $500,000

C. decreasing price and increasing output

Suppose that a monopolist calculates that at its present output level, marginal cost is $4.00 and marginal revenue is $5.00. The firm could increase profits by: Increasing price and decreasing output Decreasing price and leaving output unchanged Decreasing price and increasing output Decreasing output and leaving prices unchanged

A. increasing price and decreasing output

Suppose that a monopolist calculates that at present its output level, marginal revenue is $1.00 and marginal cost is $2.00. He or she could maximize profits or minimize losses by: Increasing price and decreasing output Decreasing price and increasing output Decreasing output and leaving price unchanged Decreasing price and leaving output unchanged

$.25

The Campus Crustacean Company receives $2 per box for its crawfish and is selling 1,600 boxes to maximize its profits. What is the profit per box of crawfish at this equilibrium level of output if the average variable cost is $1 per box and fixed costs are $1,200? $.50 $1.25 $.25 $1.00

D. 20,25,25, and 30

The Herfindahl index for an industry is 2550. Which of the following sets of market shares and industry with four firms would produce such an index? 25, 25, 25, and 25 10, 20, 30, and 40 20, 20, 30, and 30 20, 25, 25, and 30

B. is the same as its marginal revenue curve

The demand curve faced by a purely competitive firm: Is identical to the market demand curve Is the same as its marginal revenue curve Yields constant total revenues even when price changes Has unitary elasticity

60-70 units

The following data show the relationship between output, total costs, and total revenue for a pure monopoly. Picture Within which of the following ranges of output will the firm earn maximum economic profits? 80 to 90 units 70 to 80 units 50 to 60 units 60 to 70 units

3 and 4

The following data show the relationship between total costs and output in the short run. The firm's marginal costs are equal to average total cost somewhere between units: 1 and 2 2 and 3 3 and 4 4 and 5

$400

The following question is based on the demand and cost data for a pure monopolist given in the table below. Picture Refer to the above table for a monopolist. If the monopolist perfectly price-discriminated and sold each unit of the product at the maximum price the buyer of that unit would be willing to pay, and if the monopolist sold 4 units, then total profits would be: $400 $150 $900 $100

40 and 50 units of output

The following schedule gives the cost data for a firm: Diseconomies of scale start between: 0 and 10 units of output 40 and 50 units of output 20 and 30 units of output 30 and 40 units of output

A. economies of scale

The following table shows the short-run total cost data for a firm. Picture All of the following statements are correct, except that the firm has: Economies of scale Fixed costs of $80 Constant marginal cost An average fixed cost of $20 at 4 units of output

B. overcomes market information problems

The franchising of fast-food restaurants would be an example of how a private business: Solves the moral hazard problem in insurance Overcomes market information problems Corrects the problem of externalities Expands the limits of the Coase theorem

C. 65 and produce 35 units of output

The graph depicts a monopolistically competitive firm. Picture Refer to the above graph. In the short run, this monopolistically competitive firm will set price at: $55 and produce 45 units of output $50 and produce 35 units of output $65 and produce 35 units of output $52 and produce 50 units of output

C. will earn only normal profits in the long run

The graph depicts a monopolistically competitive firm. Refer to the above graph. This monopolistically competitive firm is earning economic profits in the short run and: This will cause its demand curve to shift to the right in the long run This will cause its cost curves to rise in the long run Will earn only normal profits in the long run Will continue to have economic profits in the long run

D. interindustry competition

The increased use of plastic bags instead of paper bags in grocery stores and retail shops is an example of: Covert collusion Import competition Overt collusion Interindustry competition

A. greater the degree of market power in an industry

The larger the Herfindahl index, the: Greater the degree of market power in an industry Less the degree of import competition in an industry Greater the degree of import competition in an industry Less the degree of market power in an industry

A. total cost eventually rises faster and faster

The law of diminishing returns explains why: Total cost eventually rises faster and faster Total cost eventually falls Total cost eventually rises more and more slowly Total cost eventually reaches a maximum point

C. eventually, the more hours you spend studying per day, the less you will learn with each added hour

The law of diminishing returns implies: The more hours you spend studying the less you will know Your understanding will be increased by decreasing your marginal study time Eventually, the more hours you spend studying per day, the less you will learn with each added hour The more hours you spend studying per day, the more you will learn with each added hour

B. one more worker will decrease the average amount of output per worker

The law of diminishing returns in a manufacturing plant of a fixed capacity implies that, eventually, employing one: More worker will increase the average amount of output per worker More worker will decrease the average amount of output per worker Less worker will decrease the average amount of output per worker Less worker will not affect the average amount of output per worker

C. there is at least one fixed factor of productioni

The law of diminishing returns only applies in cases where: There is increasing scarcity of factors of production The price of extra units of a factor is increasing There is at least one fixed factor of production Capital is a variable input

D. larger the number of competitors

The monopolistically competitive seller's demand curve will become more elastic the: Smaller the number of competitors More significant the barriers to entry Greater the degree of product differentiation Larger the number of competitors

A. second unit of variable input

The question is based on the following table that provides information on the production of a product that requires one variable input. Refer to the above table. Marginal product is largest for the: Second unit of variable input Third unit of variable input Seventh unit of variable input Ninth unit of variable input

D. average product is decreasing

The range over which average variable cost is increasing is the same as the range over which: Marginal cost is decreasing Average fixed cost is increasing Average product is increasing Average product is decreasing

$4

The table shows cost data for a firm that is selling in a purely competitive market. Picture Refer to the above cost table. The firm will produce its output only if the price is at least equal to what minimum level? $6 $9 $4 $3

B. all benefits assiociated with the production and use of a public good are received by the government

Which of the following statements concerning a pure public good is false? The availability of a public good to one person simultaneously makes it available to all members of society All benefits associated with the production and use of a public good are received by the government It is impossible to exclude non-taxpayers from the enjoyment of the public good The private sector does not have an economic incentive to produce a socially optimal amount of a public good

D. licensing of medical doctors and surgeons

Which of the following would be an example of government intervention to correct a market failure caused by buyers having inadequate information about sellers? Providing unemployment compensation insurance Sponsoring legislation to reduce pollution Requiring all car drivers to buy auto insurance Licensing of medical doctors and surgeons

a. easy entry, many firms, and differentiated products

Which set of characteristics below best describes the basic features of monopolistic competition? Easy entry, many firms, and differentiated products Barriers to entry, few firms, and differentiated products Easy entry, few firms, and standardized products Easy entry, many firms, and standardized products

D. of wages forgone by the owner of the firm

Which would be an implicit cost for a firm? The cost: Of worker wages and salaries for the firm Paid for leasing a building for the firm Paid for production supplies for the firm Of wages foregone by the owner of the firm

800 units

With fixed costs of $400, a firm has average total costs of $3 and average variable costs of $2.50. Its output quantity must be: 200 units 400 units 800 units 1,600 units

The four largest firms account for 20 percent of industry sales

You are told that the four-firm concentration ratio in an industry is 20. Based on this information you can conclude that: Each of the four largest firms accounts for 5 percent of industry sales The four largest firms account for 20 percent of industry sales The four largest firms account for a combined 80 percent of the industry sales Each of the top four firms has 20 percent of industry sales

B. falling long run average cost curve

A firm encountering economies of scale over some range of output will have a: Rising long-run average cost curve Falling long-run average cost curve Constant long-run average cost curve Rising, then falling, then rising long-run average cost curve

C. both firms could have significant market power and control over price

A firm in an oligopoly is similar to a monopoly in that: Both firms do not need to advertize Both firms face very inelastic demand for their products Both firms could have significant market power and control over price Both firms do not face competition from others

C. increase output if the minimum possible average variable cost is below 4. 50

A firm sells a product in a purely competitive market. The marginal cost of the product at the current output is $4.00 and the market price is $4.50. What should the firm do? Decrease output if the minimum possible average variable cost is above $4.50 Decrease output if the minimum possible average variable cost is below $4.50 Increase output if the minimum possible average variable cost is below $4.50 Shut down if the minimum possible average variable cost is below $4.50

B. total cost will decrease

A firm with fixed costs produces at the lowest point on its U-shaped average variable cost curve. If it raises output by 1 unit, then average: Fixed cost will increase Total cost will decrease Fixed cost will necessarily be below average variable cost Total cost will be less than average variable cost

$19 million

A government is considering undertaking one or more construction projects. The estimated marginal costs and benefits of each project are given in the table. Picture Refer to the above table and information. What is the total amount that the government should spend on construction projects? $14 million $37 million $8 million $19 million

B. provide potential polluters with a monetary incentive to reduce emissions

A market for pollution rights can be expected to: Encourage potential polluters to increase emissions Provide potential polluters with a monetary incentive to reduce emissions Produce a shortage of pollution Eliminate all pollution

A. increase the level of output

A monopolistically competitive firm is producing at a short-run output level where average total cost is $10.00, marginal cost is $5.00, marginal revenue is $6.00, and price is $12.00. In the short run, the firm should: Increase the level of output Decrease the level of output Make no change in the level of output Increase product price

D. economies of scale are large relative to market demand

A monopoly is most likely to emerge and be sustained when: Output demand is relatively elastic Fixed capital costs are small relative to total costs Firms have U-shaped, average-total-cost curves Economies of scale are large relative to market demand

C. the supply of the output from the hydroelectric power plants to increase

It is the custom for paper mills located alongside the Layzee River to discharge waste products into the river. As a result, operators of hydroelectric power-generating plants downstream along the river find that they must clean up the river's water before it flows through their equipment. If the government intervenes and corrects the externality in the situation described above, we would expect: The demand for the output from the hydroelectric power plants to increase The supply of the output from the hydroelectric power plants to decrease The supply of the output from the hydroelectric power plants to increase The demand for the output from the hydroelectric power plants to decrease

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

Demand and marginal revenue curves are downsloping for monopolistically competitive firms because: Mutual interdependence among all firms in the industry leads to collusion Each firm has to take the market price as given There are a few large firms in the industry and they each act as a monopolist Product differentiation allows each firm some degree of monopoly power

b. moral hazard

Depositors do not check their banks carefully for stability anymore, because of the Federal deposit insurance program. This illustrates the problem of: Externalities Moral hazard Public goods Adverse selection

C. of the inherent difficulties involved in managing and coordinating a large business enterprise

Diseconomies of scale occur mainly because: Of the law of diminishing returns Firms in an industry must be relatively large in order to use the most efficient production techniques Of the inherent difficulties involved in managing and coordinating a large business enterprise The short-run average total cost curve rises when marginal product is greater than average total cost

C. adverse selection

E-bay, Amazon and other Internet shopping sites provide "seller ratings" done by previous buyers, in order to help deal with the problem of: Externalities Public goods Adverse selection Moral hazard

c. total revenues minus opportunity costs of all of the inputs

Economic profits are equal to: Total revenues minus fixed costs Total revenues minus the costs of raw materials Total revenues minus the opportunity costs of all inputs Gross profit minus selling and operating expenses

B. those markets that are not purely competitive

Economists use the term imperfect competition to describe: any industry in which there is no nonprice competition those markets that are not purely competitive all industries that produce standardized products a pure monopoly only

C. independent of the rate of output

Fixed costs are those costs which are: Zero if the firm produces no output in the short run Unchanging through time Independent of the rate of output Implicit to a competitive firm

B. the marginal costs and marginal benefits of the policies

From an economist's perspective, an important consideration for policies to address global warming is: The market for recyclable inputs The marginal cost and marginal benefit of the policies The supply and demand for recycled products A lawsuit that can arise from the enactment of the policies

A. X3 since any increase in output will reduce profits

Given the diagram above, which level of output should the entrepreneur choose? X3 since any increase in output will reduce profits X2 since at this level the difference between MR and MC is maximized Either X1 or X3 since the profit level will be the same X1 since any decrease in output will reduce profits

A. government licensing and regulation

Google and Amazon have enjoyed barriers to entry in their respective markets due to the following, except: Government licensing and regulation Network effects among users Economies of scale in operations Loyalty and familiarity of consumers

B. a price maker

One feature of pure monopoly is that the firm is: One of several producers of a product A price maker A producer of products with close substitutes A price taker

C. operate where P>MC

Pure monopolists: Face demand curves that are perfectly inelastic Maximize MR Operate where P > MC Are price takers

0ADQ

Refer to the above graph for a monopolist in short-run equilibrium. This monopolist has total cost equal to area: 0CFQ ADFC CADF 0ADQ

0V

Refer to the above graph for a profit-maximizing monopolist. The firm will produce the quantity: 0X 0V 0T 0Y

P2 and Q3

Refer to the above graph for a pure monopoly. If the government regulated the monopoly and made it produce the level of output that would achieve allocative efficiency, what price and quantity levels would we observe in the short run? P1 and Q1 P4 and Q1 P2 and Q3 P3 and Q2

B. an increase in market demand

Refer to the above graph for a purely competitive firm operating at a loss in the short run. Which of the following changes in its market would allow the firm to earn positive profits again? A decrease in the price of the industry's product An increase in the market demand An increase in the wages of workers in the industry A decrease in the price of raw materials used by firms in the industry

P3

Refer to the above graph showing the revenue curves for a monopolist. What price should be charged in order to maximize total revenue? P1 P3 P2 P4

0B

Refer to the above graph. At what level of output will the firm earn a maximum unit-profit margin (or profit per unit)? 0A 0B 0K 0C

0A

Refer to the above graph. The firm should shut down if the quantity of output that it could sell falls below: 0A 0K 0C 0B

0C

Refer to the above graph. The firm will earn maximum total profits if it produces and sells quantity: 0A 0B 0C 0K

A. from q1 to q2

Refer to the above graph. There are economies of scale: From Q1 to Q2 From Q2 to Q3 From Q3 to Q4 After Q4

graph A

Refer to the above graphs. They show the long-run average total cost (LRATC) for a product. For which graph would a firm NOT be experiencing diseconomies of scale? Graph A Graph B Graph C Graph D

525 million

Refer to the above payoff matrix. If the two firms collude to maximize joint profits, the total profits for the two firms will be: $350 million $525 million $400 million $500 million

C. pull the hamburger

A fast-food company spends millions of dollars to develop and promote a new hamburger on their menu only to find that consumers won't buy it because they don't like the taste. From an economic perspective, the company should: Keep the hamburger on the menu because they've spent so much money and time developing and promoting the product Spend more money to develop a more efficient way to cook the hamburger so it cooks in a shorter time Pull the hamburger off the menu and treat the development and promotion expenditures as a sunk cost Keep trying to sell the hamburger so that people who developed and promote it have a job with the company

B. each firm accounts for a small market share of the industry

A low concentration ratio means that: Each firm accounts for a large market share of the industry Each firm accounts for a small market share of the industry There is a low probability of entering the industry There is a low probability of success in the industry

D. a recognized interdependence exist between firms in one industry but not the other

A major distinction between a monopolistically competitive firm and an oligopolistic firm is that: One is a price taker and the other is a price maker One necessarily faces a downward-sloping demand curve and the other a horizontal demand curve One always produces differentiated products and the other always produces a homogeneous product A recognized interdependence exists between firms in one industry but not in the other

B. a decreasing average total cost curve extending beyond the market's size

A natural monopoly is characterized by: Collusion with other competitors to divide up the market A decreasing average-cost curve extending beyond the market's size A firm protected from competition by a government regulation A firm having control over the entire supply of a basic input in the production process

A. its average revenue equals its marginal revenue

A purely competitive firm can be identified by the fact that: Its average revenue equals its marginal revenue There are other firms in the industry producing similar products It experiences diminishing marginal returns It is making only normal profits in the short run

A. increase and profits will decrease

A purely competitive firm is producing at the point where its marginal cost equals the price of its product. If the firm increases its output, then total revenue will: Increase and profits will decrease Decrease and profits will decrease Decrease and profits will increase Increase and profits will increase

A. leave price unchanged and raise output

A purely competitive firm's output is currently such that its marginal cost is $4 and marginal revenue is $5. Assuming profit maximization, the firm should: Leave price unchanged and raise output Leave price unchanged and cut output Cut its price and raise its output Raise its price and cut output

B. nonexcludability

Assume there is no way to prevent someone from using an interstate highway, regardless of whether or not he or she helps pay for it. This characteristic is called: Nondiscrimination Nonexcludability Nonrivalry Nontaxability

B. marginal product starts to decrease

At the point where diminishing marginal returns of an input sets in, the: Average product starts to decrease Marginal product starts to decrease Total product starts to decrease Average product exceeds the marginal product

B. Pure monopoly

Local electric or gas utility companies mostly operate in which market structure? Monopolistic competition Pure monopoly Pure competition Oligopoly

$3

Suppose that Joe sells pork in a purely competitive market. The market price of pork is $3 per pound. Joe's marginal revenue from selling the twelfth pound would be: 12 lbs. $3 $36 1 lb.

C. a change in production to a redesigned and retooled facility

Which is most likely to be a long-run adjustment for a firm that manufactures cars on an assembly line basis? An increase in the amount of steel that the firm buys A decrease in the number of production managers in the assembly line A change in production to a redesigned and retooled facility An increase in the number of shifts of workers from two to three

D. relatively easy entry

Which of the following is a characteristic of monopolistic competition? Standardized product Absence of nonprice competition A relatively small number of firms Relatively easy entry

B. whamO

he classic example of a private unregulated monopoly is: General Motors Wham-O (Frisbee) General Electric Coca Cola

B. buyer and seller

symmetric information in a market transaction occurs when there is unequal knowledge possessed by the: Seller and the government Buyer and the seller Taxpayer and the government Buyer and the government

$5 million

A government is considering undertaking one or more construction projects. The estimated marginal costs and benefits of each project are given in the table. Picture Refer to the above table and information. What is the net benefit of project 2? $5 million $3 million $2 million $4 million

C. with a loss

A monopolistically competitive firm is producing at an output level in the short run where average total cost is $4.50, price is $4.00, marginal revenue is $2.50, and marginal cost is $2.50. This firm is operating: At a non-optimal level of output With positive profits With a loss At the break-even point

C. as long as marginal revenue is greater than marginal cost

A profit-maximizing firm in the short run will expand output: Until marginal cost begins to rise Until marginal cost equals average variable cost As long as marginal revenue is greater than marginal cost Until total revenue equals total cost

D. shut down in the short run

A profit-maximizing monopolist facing the situation shown in the graph above should: Continue producing to minimize losses Continue producing to make economic profits Continue producing as long as price is greater than marginal cost Shut down in the short run

A. mutual interdependence

A unique feature of an oligopolistic industry is: Mutual interdependence Standardized products Low barriers to entry Diminishing marginal returns

b. supply curve of the firms to the left

An emission fee levied against polluting firms will tend to shift the: Demand curve for the product to the right Supply curve of the firms to the left Supply curve of the firms to the right Demand curve for the product to the left

B. economic profit

An industry is expected to expand if firms in the industry are earning positive: Normal profits Economic profits Accounting profits Total revenues

C. those other than the ones who consumed the product

External benefits in consumption refer to benefits accruing to: Those who are selling the product to the consumers Those who bought and consumed the product Those other than the ones who consumed the product Those who are consuming the product abroad

C. decrease, and the representative firm's profits will increase

If firms are losing money in a purely competitive industry, then the long run adjustments in this situation will cause the market price to: Increase, and the representative firm's profits will decrease Decrease, and the representative firm's profits will decrease Decrease, and the representative firm's profits will increase Increase, and the representative firm's profits will increase

B. supply curve to the right, indiv firm's demand curve will shift down

If firms enter a purely competitive industry, then in the long run this change will shift the industry: Supply curve to the left, and the individual firm's demand curve will shift up Supply curve to the right, and the individual firm's demand curve will shift down Demand curve to the left, and the individual firm's demand curve will shift down Demand curve to the right, and the individual firm's demand curve will shift up

A. subsidized

If some activity creates external benefits as well as private benefits, then economic theory suggests that the activity ought to be: Subsidized Left alone Taxed Prohibited

D. the private demand curve will underestimate the true demand curve

If there are external benefits associated with the consumption of a good or service: The market demand curve will be the vertical summation of the individual demand costs Consumers will be willing to pay for all these benefits in private markets The private demand curve will overestimate the true demand curve The private demand curve will underestimate the true demand curve

B. 10 percent

If there are ten plants producing the total domestic consumption of the product and each plant is operating at minimum efficient scale, then each plant accounts for what percentage of domestic consumption? 5 percent 10 percent 20 percent 25 percent

C. marginal cost=marginal reveue

Many people believe that monopolies charge any price they want to without affecting sales. Instead, the output level for a profit-maximizing monopoly is determined by: Average total cost = average revenue Marginal revenue = average cost Marginal cost = marginal revenue Marginal cost = average revenue

C. the monopolist produces a product with no close substitutes

One defining characteristic of pure monopoly is that: There is relatively easy entry into the industry, but exit is difficult The monopolist uses advertising The monopolist produces a product with no close substitutes The monopolist is a price taker

B. ownership of essential resources

One major barrier to entry under pure monopoly arises from: The availability of close substitutes for a product Ownership of essential resources The price taking ability of the firm Diseconomies of scale

Q2

Refer to the above graphs. Minimum efficient scale occurs at: Q1 Q2 Q3 Q4

D. product differentiation

Which idea is inconsistent with pure competition? Price-taking behavior A large number of buyers and sellers Freedom of entry or exit for firms Product differentiation

D. products are standardized or homogeneous

Which is a feature of a purely competitive market? Significant barriers to entry into the industry The industry's demand curve is perfectly elastic Price differences between firms producing the same product Products are standardized or homogeneous

A. successful price discrimination will generally result in a lower level of output than would be the case under a single price monopoly

Which is not true of price discrimination? Successful price discrimination will generally result in a lower level of output than would be the case under a single-price monopoly Successful price discrimination requires that different segments of the market have different demand elasticities Successful price discrimination will provide the firm with more profit than if it does not discriminate Successful price discrimination implies that the producer can separate customers into easily identifiable groups

A. depreciation of capital

Which of the following is a typical example of a fixed cost of production in a business firm? Depreciation of capital Wages paid to hourly workers Electricity charges Sales taxes due

C. profit maximization

Which of the following is not a barrier to entry in an industry? Strategic pricing Government licensing Profit maximization Economies of scale

C. pure monopoly

n which market model would there be a unique product for which there are no close substitutes? Pure competition Oligopoly Pure monopoly Monopolistic competition

C. there would be an under allocation of resources

Answer the question based on the following information. Normal University has found it necessary to institute a crime-control program on its campus to deal with the high costs of theft and vandalism. The university is now considering several alternative levels of crime control. This table shows the expected annual costs and benefits of these alternatives. Picture Refer to the above information. If Normal University undertakes program Level Three: Total benefits will be less than total costs There would be an over-allocation of resources to crime control There would be an under-allocation of resources to crime control Marginal costs will exceed marginal benefits

$2.25

Answer the question below on the basis of the following demand and cost data for a pure monopolist. Picture Refer to the above table. The profit-maximizing price for the monopolist will be: $2.25 $1.75 $2.00 $2.50

B. average fixed cost increases

Assume a firm is operating at minimum average total cost in the short run. If there is a decrease in output it follows that: Marginal cost increases Average fixed cost increases Average total cost decreases Average variable cost increases

$4 billion

Assume that a government is considering a new social program and may choose to include in this program any number of four progressively larger projects. The marginal cost and the marginal benefits of each of the four projects are given in the table. Picture Refer to the above table and information. What is the net benefit of project D? $4 billion $3 billion $20 billion $1 billion

B. equal to one

Assume that a monopolist faces a linear demand curve and that it produces the output quantity where total revenue is maximized. At that output, the price elasticity of demand for the product is: Greater or equal to one Equal to one Less than one Impossible to determine

B. the industry is less concentrated than suggested by domestic concentration ratios

Assume that an industry is significantly affected by import competition from foreign suppliers. Taking this factor into account, it would mean that: There is a high degree of interindustry competition The industry is less concentrated than suggested by domestic concentration ratios There is a low degree of interindustry competition The Herfindahl index would be significantly higher in that industry because there are more firms in the industry

c. increasing and quantity decreasing

By requiring car producers to install emission control devices on cars, the government forces these producers to internalize some of the external costs of auto pollution. This will lead to the equilibrium price of cars: Decreasing and the quantity decreasing Increasing and the quantity increasing Increasing and the quantity decreasing Decreasing and the quantity increasing

B. levy a tax on the producers of paper and use the tax revenues to clean up the river

It is the custom for paper mills located alongside the Layzee River to discharge waste products into the river. As a result, operators of hydroelectric power-generating plants downstream along the river find that they must clean up the river's water before it flows through their equipment. Refer to the above information. Which of the following policies would be most appropriate for dealing with this problem? Levy a tax on the producers of electricity and use the tax revenues to clean up the river Levy a tax on the producers of paper products and use the tax revenues to clean up the river Levy a tax on the consumers of electricity and use the tax revenues to subsidize the consumers of paper products Levy a tax on the consumers of paper products and use the tax revenues to conduct research on new energy sources

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

Mutual interdependence means that each firm in an oligopoly: Depends on the other firms for its markets Considers the reactions of its rivals when it determines its pricing policy Faces a perfectly inelastic demand for its product Depends on the other firms for its inputs

A. owners of poor quality cars have a stronger incentive to sell their cars, while owners of high quality cars have more incentive to keep their cars

There is an adverse selection problem in the market for used cars because: Owners of poor-quality cars have a strong incentive to sell their cars, while owners of high-quality used cars have more incentive to keep their cars Owners of high-quality cars will have a strong incentive to sell their cars to obtain the higher prices, while owners of poor-quality cars will have more incentive to keep theirs Most people prefer new cars, but the high prices for new cars force most of them to buy used cars Government actions to pass "lemon" laws have reduced information on used cars

B. monopolistic competition

There would be some control over price within rather narrow limits in which market model? Pure monopoly Monopolistic competition Oligopoly Pure competition

C. decide to increase advertising expenditures even if ti means a reduction in profits

Under oligopoly, if one firm in an industry significantly increases advertising expenditures in order to capture a greater market share, it is most likely that other firms in that industry will: Pursue a strategy to reduce advertising expenditures to maintain profits Increase the price of the product to improve profits and then increase advertising expenditures Decide to increase advertising expenditures even if it means a reduction in profits Make no changes in advertising expenditures because advertising is effective in the short run, but not the long run

C. in the elastic range of its demand curve

Under pure monopoly, a profit-maximizing firm will produce: Only where marginal costs are decreasing Only where marginal revenue is increasing In the elastic range of its demand curve In the inelastic range of its demand curve

A. economies of scale

When a firm doubles its inputs and finds that its output has more than doubled, this is known as: Economies of scale Constant returns to scale Diseconomies of scale A violation of the law of diminishing returns

d. below the true cost supply curve

When the production of a good generates external costs, the firm's supply curve will be: Above the true-cost supply curve Horizontal Vertical Below the true-cost supply curve

D. the industry or market demand is highly elastic

Which of the following is not a necessary characteristic of a purely competitive industry? Firms can enter or leave the industry Consumers see no difference between the product of one firm and that of another There are so many firms that none can influence market price The industry- or market demand is highly elastic

C. they are necessary to keep a firm in the industry in the long run

Which of the following is true of normal profits? They are zero under pure competition in the long run They are excluded from a firm's costs of production They are necessary to keep a firm in the industry in the long run They are what attract other firms to enter an industry

A. no single firm can influence the market price by changing its output

Which of the following is true under conditions of pure competition? No single firm can influence the market price by changing its output There are differentiated products The market demand curve is perfectly elastic Each individual firm has the ability to set its own price