Midterm #3 Practice

A Nash equilibrium is: A.) an outcome in which all players choose the best strategy they can, given the choices made by all of the other players. B.) when one strategy is always the best for a player to choose, regardless of what other players do. C.) an outcome in which all players follow a "leader" in order to maximize profits. D.) None of these statements is true.

a

A common tool for restricting trade through taxation is: A.) a tariff. B.) immigration restrictions. C.) international waters use policies. D.) quota.

a

The monopolist is always constrained by: A.) the amount demanders are willing to buy at any given price. B.) his production capacity. C.) the barriers to entry. D.) government regulation.

a

The monopolist's outcome happens at a: A.) lower quantity than the perfectly competitive one. B.) lower price than the perfectly competitive one. C.) higher quantity than the perfectly competitive one. D.) cost that is equal to a perfectly competitive one.

a

Laws limiting trade are often referred to as: A.) trade protection. B.) trade liberalization. C.) trade enhancement. D.) international policy.

a

An essential characteristic of a monopoly is: A.) the good must have no close substitutes. B.) there can only be a few sellers in the market. C.) only one buyer must exist. D.) many buyers must exist.

a

Actions that reduce trade restrictions and promote free trade are often referred to as: A.) trade liberalization. B.) trade protectionism. C.) free trade politicism. D.) autarky.

a

A perfect monopoly: A.) refers to a single seller. B.) can extract all consumer surplus from a market. C.) controls 90 to 100 percent of the market for a product. D.) would produce efficient outcomes.

a

According to the graph shown, if the economy is operating under free trade, who would be in favor of a tariff? A.) Domestic producers B.) Domestic consumers C.) Foreign producers D.) Foreign governments

a

When firms have market power, it means that they: A.) can noticeably affect the market price. B.) have no control over the market price. C.) can noticeably affect the market quantity available for sale. D.) do not noticeably affect the market quantity offered for sale.

a

Which of the following holds true at the chosen level of output in the long run for firms in a perfectly competitive market? A.) P = MC B.) P = minimum AVC C.) MR = AVC D.) MR > ATC

a

In perfectly competitive markets, transactions costs are: A.) generally quite high. B.) a natural byproduct of making the transaction. C.) low or nearly zero. D.) seen as a nuisance and generally ignored when making a transaction.

c

In reality, the long-run supply curve tends to be: A.) perfectly elastic. B.) perfectly inelastic. C.) upward sloping. D.) downward sloping.

c

In the long run when average total cost does not depend on the quantity of output, this is called: A.) economies of scale. B.) diseconomies of scale. C.) constant economies to scale. D.) minimum average total cost.

c

In the long run, firms in a monopolistically competitive market operate: A.) at lowest average total costs possible. Incorrect B.) at full capacity. C.) at less than full capacity. D.) on an efficient scale.

c

Monopolistically competitive firms have an incentive to: A.) engage in tactics for bringing in more customers. B.) advertise. C.) engage in brand promotion. D.) All of these statements are true.

d

A perfect monopoly: A.) has no competition at all. B.) has complete market control. C.) restricts output to maximize profits. D.) All of these statements are true.

d

One barrier to entry into a monopoly market is: A.) very large fixed costs relative to variable costs. B.) the existence of large economies of scale. C.) the high cost of required infrastructure for an industry. D.) All of these statements are true.

d

Over time, technology tends to: A.) set countries apart in terms of productivity. B.) allow developing nations to experience the "catch-up" effect. C.) diminish in nations that are still developing. D.) spread from country to country, equalizing opportunity costs.

d

Public policy responses to monopolies: A.) aim to break up existing monopolies. B.) prevent new monopolies from forming. C.) ease the effect of monopoly power on consumers. D.) All of these statements are true.

d

Suppose Chip's Chips produces bags of potato chips. An example of a fixed cost for this company would be: A.) a potato peeling machine. B.) the factory building. C.) the deep fryer. D.) All of these are examples of fixed costs.

d

The government uses the antitrust laws in place: A.) to prevent all mergers that would create market power. B.) ineffectively because the laws are outdated. C.) increasingly over time, as market power is getting more concentrated. D.) to break up and prevent monopoly power in markets.

d

A common tool for restricting trade through quantity is: A.) a tariff. B.) immigration restrictions. C.) international waters use policies. D.) import quota.

not a

The short run: A.) is typically defined by the process cycle of the particular firm. B.) is defined by the presence of a fixed cost for a firm. C.) is generally less than a year. D.) All are correct.

b

Absolute advantage is the ability to produce: A.) more of a good than others with a given amount of resources. B.) relatively more than any other good with a given amount of resources. C.) a good or service at a lower opportunity cost than others can. D.) more of a good at a lower cost.

a

According to the graph shown, if Q2 units are being produced, this monopolist: A.) is not maximizing profits. B.) is producing where marginal costs are less than marginal revenue. C.) is earning negative profits. D.) should increase production.

a

According to the graph shown, if the government decides to restrict trade, a deadweight loss is created equal to area(s): A.) F and H. B.) DFGH. C.) FGH. D.) G.

a

According to the graph shown, in the long run we can expect that A.) firms will enter the market. B.) firms will exit the market. C.) price will increase. D.) profits will increase.

a

According to the graph shown, the amount bought by domestic consumers when there is open trade for this good is: A.) 1500. B.) 1150. C.) 500. D.) 250.

a

According to the graph shown, what is the market price? A.) P1 B.) P2 C.) P3 D.) Cannot tell from the graph.

a

According to the table shown, fixed costs must be: A.) $10. B.) $200. C.) $60. D.) Fixed costs cannot be determined by the information in the table.

a

Accounting profits are calculated as: A.) total revenue minus explicit costs. B.) total revenue minus all opportunity costs, explicit and implicit. C.) total revenue minus implicit costs. D.) None are correct.

a

An essential characteristic of a perfectly competitive market is: A.) buyers and sellers have no control over the market price. B.) sellers are selling unique products. C.) buyers have complete control over the market price and sellers have none. D.) sellers have complete control over the market price and buyers have none.

a

An oligopoly with two firms is known as: A.) a duopoly. B.) a two-opoly. C.) a double market. D.) duopolistic competition.

a

As the equilibrium price falls in a perfectly competitive market, so do firms': A.) revenue and so do their profits. B.) average costs and so do their profits. C.) revenue, and their profits rise. D.) total costs, and their profits rise.

a

Average fixed costs: A.) always trend downward as output increases. B.) always trend upward as output increases. C.) are a constant, regardless of quantity of output. D.) are a vertical line.

a

Average product curve tells us: A.) the level of inputs that are the most productive. B.) the cost-minimizing level of inputs to hire. C.) the profit-maximizing level of inputs to hire. D.) All are correct.

a

Average total cost: A.) decreases when output levels are low, then increases as output increases. B.) increases when output levels are low, then decreases as output decreases. C.) is minimized when it equals average variable cost. D.) is maximized when it equals marginal cost.

a

Average variable costs: A.) decrease when marginal product rises, and increase when marginal product declines. B.) increase when marginal product rises, and decrease when marginal product declines. C.) increase when output declines, and decrease when output rises. D.) decrease when output declines, and increase when output declines.

a

Costs that are "fixed": A.) depend on what timescale you are thinking. B.) are those that will never change. C.) vary with output, but not with resource prices. D.) None are correct.

a

The welfare loss associated with the outcome in a competitive oligopoly is: A.) bigger than that of a monopoly. B.) smaller than that of a monopoly. C.) the same as that of a monopoly. D.) the same as that of colluding oligopolists.

b

Doug wants to start up his own business, and needs $25,000 to get it off the ground. He can either withdraw it from his savings account, where he currently earns 3 percent, or he can take out a loan for $25,000 and pay 5 percent interest. Doug should compare: A.) the implicit cost of $750 to the explicit cost of $1,250 and choose to use his savings. B.) the implicit cost of $750 to the explicit cost of $1,250 and choose to borrow the money. C.) the explicit cost of $750 to the implicit cost of $1,250 and choose to use his savings. D.) the explicit cost of $25,750 to the explicit cost of $26,250 and choose to borrow the money.

a

Economies of scale refers to when: A.) an increase in the quantity of output decreases average total cost in the long run. B.) an increase in the quantity of output increases average total cost in the long run. C.) average total cost does not depend on the quantity of output in the long run. D.) None are correct.

a

Economists usually believe that: A.) competition encourages innovation. B.) innovation encourages competition. C.) innovation leads to market power and should be regulated. D.) market power leads to innovation.

a

For an oligopoly, when the quantity effect outweighs the price effect, firms may have the incentive to: A.) increase output. B.) decrease output. C.) not change the level of output. D.) leave the industry.

a

Given the payoffs in the matrix shown, Firm A: A.) has a dominant strategy to compete. B.) does not have a dominant strategy. C.) has a dominant strategy to collude. D.) None of these statements is true.

a

If a firm in a perfectly competitive market faces the cost curves in the graph shown, which of the following is true? The firm: A.) if it produces at profit-maximizing level of output it will make positive profits when price is higher than $15. B.) if it produces at profit-maximizing level of output it will make positive profits when price is higher than $11. C.) should always produce at least 43 units in order to maximize profits. D.) will shut down if market price is below $15, but above $11.

a

If a firm produces nothing, then its: A.) variable costs equal zero. B.) fixed costs equal zero. C.) total costs equal zero. D.) All are correct.

a

If the marginal cost of hiring another worker to produce sandwiches is $4 per sandwich, and sandwiches sell for $5 each, then: A.) another worker should be hired. B.) another worker should not be hired. C.) two more workers should be hired. D.) Cannot answer this without more information.

a

If the market price falls below the bottom of the firm's ATC curve: A.) there is no level of output at which the firm can make a profit. B.) the firm is earning profits. C.) the market price must be lower than the firm's AVC. D.) total revenue must be higher than total cost.

a

Imagine Tom's annual salary as an assistant store manager is $30,000, he owns a building that rents for $10,000 yearly, and his financial assets generate $1,000 per year in interest. One day, after deciding to be his own boss, he quits his job, evicts his tenants, and uses his financial assets to establish a bicycle repair shop. To run the business, he outlays $15,000 in cash to cover all the costs involved with running the business, and earns revenues of $50,000. Tom should: A.) close his shop and go back to what he was doing before with his time and assets, because it was earning him $6,000 more than he's earning now. B.) keep his shop going because he's earning a healthy $35,000 a year. C.) keep his shop going because he's earning $5,000 more than his salary before. D.) None are correct.

a

Imports are goods and services that are produced: A.) in other countries and consumed domestically. B.) domestically and consumed in other countries. C.) and consumed in other countries. D.) and consumed domestically.

a

In the long run, a profit-maximizing monopolistically competitive firm sells at a price that is: A.) equal to average total cost, but higher than marginal cost. B.) equal to marginal cost and marginal revenue. C.) equal to average total cost, but lower than marginal cost. D.) equal to demand, but higher than average total cost and marginal cost.

a

In theory, the long-run supply curve for perfectly competitive market firms who are identical is: A.) perfectly elastic. B.) perfectly inelastic. C.) upward sloping. D.) downward sloping.

a

Marginal cost: A.) is calculated as change in total cost divided by change in total output. B.) is calculated as change in total output divided by change in total cost. C.) increases then decreases, as output increases, to reflect marginal product. D.) All are correct.

a

Most markets in the United States: A.) have some degree of competitiveness, but are not perfectly competitive. B.) have very few competitive features and so are regulated by the government. C.) are monopolies. D.) are perfectly competitive.

a

Natural monopolies are the natural result of: A.) competition in markets where economies of scale exist over the relevant range of output. B.) geographical happenstance. C.) fierce competition from firms in a market. D.) government regulations intended to encourage competition.

a

One way for firms to analyze their choices in an oligopoly is by using: A.) game theory. B.) cost minimization theory. C.) marginal revenue maximization strategy. D.) None of these is an effective method for oligopolists.

a

Price discrimination is: A.) the practice of charging customers different prices for the same good. B.) the practice of charging customers the same price for a variety of similar goods. C.) choosing which prices to charge for certain items. D.) the process of customers choosing items based on price.

a

Suppose Bev's Bags makes two kinds of handbags—large and small. Bev rents an industrial space where she keeps the fabric, the industrial sewing machine, her measuring board and cutting shears, extra needles, thread and buttons, and labels. Bev can produce three bags an hour, regardless of the size of bag. Which of the following would be considered a fixed cost of this company? A.) The rent Bev pays B.) The fabric C.) The sewing thread D.) None of these would be considered a fixed cost.

a

Suppose Winston's annual salary as an accountant is $60,000, and his financial assets generate $4,000 per year in interest. One day, after deciding to be his own boss, he quits his job and uses his financial assets to establish a consulting business, which he runs out of his home. To run the business, he outlays $8,000 in cash to cover all the costs involved with running the business, and earns revenues of $150,000. What are Winston's economic profits? A.) $78,000 B.) $142,000 C.) $138,000 D.) $150,000

a

Suppose Winston's annual salary as an accountant is $60,000, and his financial assets generate $4,000 per year in interest. One day, after deciding to be his own boss, he quits his job and uses his financial assets to establish a consulting business, which he runs out of his home. To run the business, he outlays $8,000 in cash to cover all the costs involved with running the business, and earns revenues of $150,000. What costs would be considered when calculating economic profit? A.) The opportunity cost of his job and interest forgone of $64,000, and the explicit cost of $8,000 B.) The implicit cost of the interest forgone of $4,000 and the explicit cost of $8,000 C.) The explicit cost of $8,000 D.) The implicit cost of his job of $60,000 and the opportunity cost of forgone interest of $4,000

a

Suppose a country, whose production and consumption of coffee is large relative to the world market, has just entered the global market. If the country is a net exporter of coffee, we would expect the world: A.) supply curve to shift more to the right than the world demand curve as a result. B.) supply curve to shift more to the left than the world demand curve as a result. C.) demand curve to shift more to the right than the world supply curve as a result. D.) demand curve to shift more to the left than the world supply curve as a result.

a

The World Trade Organization (WTO) is an international organization designed to: A.) monitor and enforce trade agreements, while also promoting free trade. B.) monitor and enforce world banking policies, and lending between nations. C.) provide a forum for all nations to have discussion on various international issues of concern. D.) international governing body that is the final arbiter of all world trade.

a

The additional output produced by adding one more unit of an input is the: A.) marginal product. B.) average product. C.) total production. D.) slope of the marginal product curve.

a

The primary difference between a monopolistically competitive firm and a monopoly is: A.) the ability for competition to enter the market in the long run. B.) the ability for competition to enter the market in the short run. C.) only the monopolistically competitive firm is a price taker. D.) only the monopolist can set his price equal to demand.

a

Using the information in the table shown, the average revenue for this firm: A.) decreases as output increases. B.) increases as output increases. C.) remains constant regardless of level of output. D.) is maximized when total revenue is maximized.

a

Voluntary exchanges generate: A.) surplus, leaving both participants better off than they were before. B.) deadweight loss, leaving both participants worse off than they were before. C.) deadweight loss, leaving at least one participant worse off than they were before. D.) a transfer of surplus from one participant to another.

a

We assume that in the long run in a perfectly competitive market: A.) the firms can enter or exit. B.) the number of firms is fixed. C.) the price will be constant. D.) collusion will set in without government regulation.

a

We assume that in the short run in a perfectly competitive market the: A.) number of firms is fixed. B.) total quantity supplied is fixed. C.) price is fixed. D.) All of these are true of the short run.

a

When a firm can achieve economies of scale by expanding, its long-run ATC curve: A.) slopes downward. B.) slopes upward. C.) is flat. D.) Any of these is possible.

a

When economic profits are zero, accounting profits are most likely: A.) positive. B.) negative. C.) zero. D.) All of these are likely.

a

When firms are faced with repeating games, such as the prisoner's dilemma, they: A.) are more likely to collude. B.) are less likely to collude. C.) will tend to act more like perfectly competitive firms. D.) will be more likely to renege on agreements.

a

An import quota is: A.) a tax on the good or services that are imported. B.) a limit on the amount of a particular good that can be exported. C.) a limit on the amount of a particular good that can be imported. D.) None of these is true.

c

A college student is thinking about running an ice-cream truck over the summer. Which of the following would likely be an ongoing expense of the business? A.) The cost of the truck B.) The cost of the gasoline used C.) The cost of ice cream scoopers D.) None of these is an ongoing expense.

b

A defining characteristic of an oligopoly is: A.) barriers to entry prevent newcomers to such an industry. B.) firms in the industry know they are competing with a few large firms with market power. C.) easy entry and exit prevent long-run profits from being possible. D.) all firms sell a standardized product.

b

According the graph shown, the firm's most efficient scale of operation is to produce quantity: A.) Q1. B.) Q2. C.) Q3. D.) Any quantity as long as P1 is charged.

b

According to the graph shown, if the economy is in autarky and decides to open trade with a tariff, the impact on domestic supply is they will: A.) increase output from 250 to 500. B.) decrease output from 815 to 500. C.) increase output from 500 to 815. D.) decrease output from 1500 to 1150.

b

According to the graph shown, if the economy opens itself to free trade, it will become a: A.) net exporter. B.) net importer. C.) autarky. D.) quota rent seeker.

b

According to the graph shown, if the economy were open to free trade, the domestic quantity supplied would: A.) drop from 815 to 500. B.) drop from 815 to 250. C.) increase from 250 to 500. D.) increase from 815 to 1500.

b

According to the graph shown, if the government restricts free trade, area G represents: A.) quota rents, which go to domestic producers. B.) quota rents, which go to foreign firms or governments. C.) government tax revenues, which go to the domestic government. D.) government tax revenues, which go to the foreign government.

b

According to the graph shown, if this economy was to engage in free trade, the good would: A.) be imported. B.) be exported. C.) no longer be produced domestically. D.) not be imported or exported and only be produced domestically.

b

According to the graph shown, if this economy were open to free trade, domestic producers would produce how many units? A.) 115 B.) 60 C.) 150 D.) 90

b

According to the graph shown, if this were depicting an autarky, the equilibrium price would be: A.) $10. B.) $14. C.) $17. D.) $4.

b

According to the matrix shown, the outcome of the "game" will be: A.) both firms will collude and act like a joint monopolist. B.) both firms will compete. C.) Firm A will compete and Firm B will collude. D.) Firm B will compete and Firm A will collude.

b

According to the table shown, what is the firm's marginal cost from producing the 2nd unit? A.) $10.00 B.) $7.50 C.) $27.50 D.) $20.00

b

An example of a standardized good is: A.) cereal. B.) iron. C.) soda. D.) pizza.

b

As a general rule, free trade: A.) increases the supply of factors of production that are domestically abundant. B.) increases demand for factors of production that are domestically abundant. C.) decreases the supply of factors of production that are domestically scarce. D.) decreases the demand for factors of production that are domestically abundant.

b

At any price the monopolist sets, it will sell: A.) as many as it wants. B.) as many as demanders are willing to buy. C.) more than a perfectly competitive market would sell. D.) less than quantity demanded to keep the item rare.

b

DeBeers was able to profit the most from the diamond market by selling a: A.) lot of diamonds at low prices. B.) few diamonds at high prices. C.) lot of diamonds at high prices. D.) few diamonds at low prices.

b

Diseconomies of scale refers to when in the long run: A.) an increase in the quantity of output decreases average total cost. B.) an increase in the quantity of output increases average total cost. C.) average total cost does not depend on the quantity of output. D.) None are correct.

b

Economic profits are calculated as: A.) total revenue minus explicit costs. B.) total revenue minus all opportunity costs, explicit and implicit. C.) total revenue minus implicit costs. D.) None are correct.

b

Exports are goods and services that are produced: A.) in other countries and consumed domestically. B.) domestically and consumed in other countries. C.) and consumed in other countries. D.) and consumers domestically.

b

For a firm in a perfectly competitive market, if it is producing at a level of output where marginal costs are less than marginal revenue, it: A.) should cut back production to increase profits. B.) should increase production to increase profits. C.) is producing a profit-maximizing quantity. D.) should invest more in advertising in order to raise revenues.

b

For a monopoly, when marginal revenue is zero: A.) profits are maximized. B.) total revenue is maximized. C.) marginal revenue is minimized. D.) marginal costs are minimized.

b

Given the exit rule, where does a firm's long-run supply curve derive from? It is the section of the: A.) ATC curve to the right of its minimum. B.) MC curve that lies above the ATC curve. C.) MC curve that lies above the AVC curve. D.) AVC curve to the right of its minimum.

b

Government regulations: A.) always seek to increase competition. B.) sometimes protect monopoly power in certain industries. C.) never protect monopoly rights. D.) usually are ineffective.

b

How long is the long run? A.) A defined, set period of time, usually a year B.) However long it would take a firm to vary all of its costs C.) However long it would take a firm to have at least one variable cost Incorrect D.) None of these defines the long run.

b

If Japan has an absolute advantage over the United States in making TVs, then Japan: A.) probably sells TVs to the United States. B.) produces more TVs than the United States using the same resources. C.) has the ability to produce TVs at a lower opportunity cost than the United States. D.) qit will have no reason to trade with the U.S.

b

If a firm is earning a negative economic profit, it means that: A.) the resources should not be invested in other business opportunities. B.) more profits could be earned with the same resources in another industry. C.) the opportunity cost is smaller than what the firm is earning. D.) it must be earning negative accounting profit.

b

If a firm is earning a profit, then: A.) the ATC must be higher than the market price. B.) total revenue must be higher than total cost. C.) the ATC must be higher than AR. D.) MR is equal to MC.

b

If a monopolistically competitive firm's demand curve is shifting left, it will stop shifting only when: A.) firms stop leaving the industry. B.) firms stop entering the industry. C.) the firm raises its price. D.) the firm lowers its price.

b

Implicit costs are costs that: A.) require a firm to spend money. B.) represent forgone opportunities. C.) do not depend on the quantity of output produced. D.) depend on the quantity of output produced.

b

In general, economic profits are: A.) greater than accounting profits. B.) less than accounting profits. C.) the same as accounting profits. D.) not comparable to accounting profits.

b

In general, the cost of an input: A.) decreases when you've reached the point of diminishing marginal product in your firm. B.) stays the same when you've reached the point of diminishing marginal product in your firm. C.) increases when you've reached the point of diminishing marginal product in your firm. D.) is minimized when you've reached the point of diminishing marginal product in your firm.

b

In general, with a monopolist's outcome, total surplus is: A.) higher than that of a competitive market. B.) lower than that of a competitive market. C.) the same as that of a competitive market. D.) Any of these is possible.

b

In the long run, firms in a monopolistically competitive market operate at: A.) an efficient scale. B.) a less-than-efficient scale. C.) a more-than-efficient scale. D.) Any of these could be true, depending on the individual firm.

b

In the short run, the fixed costs of a firm: A.) can sometimes be avoided in the short run. B.) are irrelevant in deciding whether to shut down production. C.) are equal to zero when quantity produced is zero. D.) are all the costs it incurs when it produces some positive quantity.

b

Marginal cost is: A.) the additional output a firm will get by employing one additional unit of input. B.) the additional cost a firm will incur by producing one additional unit of output. C.) the total cost a firm will incur by producing a given level of output. D.) the costs that sit on the margin, that do not change regardless of the level of output.

b

Most U.S. firms face: A.) perfect competition. B.) some degree of competition. C.) market power resting in a few large firms in every industry. D.) no competition at all.

b

Most countries: A.) protect cartels. B.) have laws against firms making agreements about prices or quantities. C.) protect oligopoly markets. D.) force monopolists to become duopolists.

b

Natural monopolies: A.) are the only monopolies that are efficient. B.) can capture the lowest production costs possible for the industry. C.) are always protected by government policy. D.) generally earn zero accounting profits due to regulations.

b

Of the curves displayed in the graph shown, what does curve B most likely represent? A.) Marginal cost B.) Average total cost C.) Average variable cost D.) Average fixed cost

b

One implication of goods being standardized in a market is: A.) the government regulations must promote competition and lower prices to be efficient. B.) there are no information asymmetries. C.) the similarity in products may be real or perceived. D.) the market has a low degree of competition.

b

Standardized goods are: A.) goods which are regulated by government quality standards. B.) goods which are easily substitutable and not distinguishable. C.) the most common type of good produced. D.) those sold in markets with regulated price systems.

b

The MC of a firm: A.) crosses TC at its minimum. B.) crosses AVC and ATC at its minimum. C.) crosses MR at the above the profit-maximizing level of output. D.) is a horizontal line indicating that costs are constant in perfect competition.

b

The key difference between supply in the short run and supply in the long run is that we assume that firms: A.) are able to enter and exit the market in the short run. B.) are able to enter and exit the market in the long run. C.) will not collude in the short run. D.) will have a total supply that is constant in the long run.

b

The larger the implicit costs of a business: A.) the greater accounting profit will be. B.) the smaller economic profit will be. Correct C.) the more likely it will be a successful venture. D.) the smaller the explicit costs will be.

b

The market supply in a perfectly competitive market is: A.) fixed. B.) the sum of the quantities that each individual producer is willing to supply. C.) the total quantity of a good that the biggest market shareholder supplies at a given price. D.) derived from the MC curves from each firm after MC hits ATC.

b

The monopolist faces a: A.) perfectly elastic demand curve. B.) downward sloping demand curve. C.) perfectly inelastic demand curve. D.) perfectly elastic supply curve.

b

The monopolist's outcome in the long run differs from that of the perfectly competitive firm in that it: A.) has zero profits in the long run. B.) charges a price above average total costs. C.) charges a price where marginal costs equal average revenue. D.) charges a price equal to MC.

b

The principle of diminishing marginal product states: A.) the total output produced increases as the quantity of the input increases. B.) the marginal product of an input decreases as the quantity of the input increases. C.) the marginal product of an input eventually will be negative. D.) the total output produced decreases as the quantity of the input increases.

b

Tina withdraws $20,000 from her money market account to start up her own house cleaning business. Over that time, the account would have earned 3 percent interest. In order to properly account for all costs of her business, Tina must not forget: A.) the opportunity cost of $2,600. B.) the opportunity cost of $600. C.) the fixed cost of $20,600. D.) the fixed cost of $20,600 and the opportunity cost of $600.

b

Variable costs are: A.) costs that don't depend on the quantity of output produced. B.) costs that depend on the quantity of output produced. C.) one-time costs. D.) None are correct.

b

When a Nash equilibrium is reached: A.) the outcome will only change if the "lead" player changes his strategy. B.) no one has an incentive to break the equilibrium by changing his strategy. C.) it must be true that all players have a dominant strategy. D.) None of these statements is true.

b

When a country gains from trade: A.) everyone in that country benefits from the trade. B.) the net gain of surplus is positive for that country. C.) the total producer surplus increased in the country. D.) the total consumer surplus increased in the country.

b

When a firm faces a perfectly competitive market and buys its inputs from perfectly competitive markets, the only choice the firm has to affect its profits is to: A.) increase its selling price. B.) change the quantity it produces. C.) decrease the selling price. D.) decrease its cost of production lower than other firms.

b

When a monopolist chooses the level of output where marginal cost equals marginal revenue the price: A.) equals marginal revenue. B.) equals average revenue. C.) is lower than average revenue. D.) is lower than marginal revenue.

b

When economic profits are zero for a firm in a perfectly competitive market, it means that: A.) average total costs are zero. B.) price is equal to minimum average total cost. C.) average variable costs are minimized. D.) MR is equal to AVC.

b

Who is likely to be in favor of a country that would be a net-importer if it moved from autarky to free trade? A.) Domestic producers B.) Domestic consumers C.) Foreign consumers D.) Foreign governments

b

m A.) causes the variable cost curve to become flatter. B.) causes the variable cost curve to become steeper. C.) has no relation to the variable cost curve. Incorrect D.) causes the fixed cost curve to become flatter.

b

Assume the table shown is for a hat factory, and shows the total production of hats given various numbers of employees. What is the marginal product of the ninth worker? A.) 10 B.) 5 C.) 15 D.) 290

c

A dominant strategy is: A.) when one strategy is chosen by a firm first and determines the best strategies of the other players that follow. B.) when one strategy is chosen and cannot be changed without making at least one of the players worse off. C.) when one strategy is always the best for a player to choose, regardless of what other players do. D.) None of these statements is true.

c

A monopolist can maximize profits by: A.) selling as much as he can produce. B.) producing at the level of output at which MR = 0. C.) following the same rules as a perfectly competitive firm. D.) selling an output where P = ATC.

c

A preference for policies that place limits on trade is called: A.) liberalization. B.) free trade. C.) protectionism. D.) autarky.

c

A price taker is a buyer or seller who: A.) has complete control over setting the market price. B.) can influence the market price. C.) has no control over setting the market price. D.) has the goal of maximizing market share, not profits.

c

A sandwich shop has six months left on its lease to its storefront and equipment and currently employs three workers who work on an on-call basis, with no contract. Ingredients are bought daily. How long is the long run for the sandwich shop? A.) A year, the typical term for long run, as there is nothing unusual about this business B.) The long and short run are the same in this case C.) Six months, after which all inputs listed become variable D.) None are correct.

c

According to the graph shown, at point C the firm is earning: A.) higher profits than at point B, and they should produce more. B.) fewer profits than at point B, and they should produce more. C.) fewer profits than at point B, and they should produce less. D.) higher profits than at point B, and they should produce less.

c

According to the graph shown, if the economy were operating under free trade and then imposed a tariff, the overall impact on surplus would be a net: A.) gain of IJKL. B.) loss of IJKL. C.) loss of IL. D.) gain of FGHIJKL.

c

According to the graph shown, the amount of consumer surplus domestic consumers enjoy once a tariff has been imposed is: A.) A B.) ABC C.) ABCDEFG D.) ABCDEFGHIJKL

c

According to the table shown, the firm's marginal costs: A.) are constant. B.) increase as output increases. C.) decrease until the 2nd unit, then increase. D.) increase until the 4th unit, then decrease.

c

According to the table shown, what is the firm's total revenue when 4 units are produced? A.) $160 B.) $50 C.) $200 D.) $40

c

Americans whose jobs have been lost to free trade should, in theory: A.) leave the workforce, in the long run. B.) gain surplus, as the income effect outweighs the price effect of their labor. C.) be able to find new jobs, given time. D.) have extended bouts of unemployment due to static job skills.

c

Assuming the firm in the graph shown is producing Q1 and charging P3, it is likely showing the cost and revenue curves of a monopolistically competitive firm that is: A.) earning positive economic profits. B.) earning negative economic profits. C.) earning zero economic profits. D.) It is impossible to tell from the graph provided.

c

Assuming the firm in the graph shown is producing Q1 and charging P3, it is likely showing the cost and revenue curves of a monopolistically competitive firm that is: A.) making positive economic profits. B.) earning negative economic profits. C.) in long-run equilibrium. D.) All of these statements are true.

c

Average variable costs: A.) always trend upward as output increases. B.) always trend downward as output increases. C.) decrease, then increase as output increases. D.) increase, then decrease as output increases.

c

Collusion is: A.) buyers acting in unison against a company in efforts to change its practices. B.) the act of firms undercutting one another in competition until zero profits are earned. C.) the act of firms working together to make decisions about price and quantity. D.) None of these statements is true.

c

Constant returns to scale refers to when: A.) an increase in the quantity of output decreases average total cost in the long run. B.) an increase in the quantity of output increases average total cost in the long run. C.) average total cost does not depend on the quantity of output in the long run. D.) None are correct.

c

Costs that require a firm to spend money are considered: A.) fixed costs. B.) variable costs. C.) explicit costs. D.) implicit costs.

c

Firms have incentive to enter a monopolistically competitive market if: A.) positive profits are being earned and the price is below MC. B.) zero profits are being made and they can duplicate the product exactly. C.) positive profits are being earned and they can create a similar product. D.) zero profits are being made and they can create a similar product.

c

Firms in perfectly competitive markets who wish to maximize profits should produce: A.) more as long as marginal cost is greater than marginal revenue. B.) less as long as marginal cost is less than marginal revenue. C.) at the level where marginal cost equals marginal revenue. D.) All are correct.

c

Fixed costs are: A.) costs that depend on the quantity of output produced. B.) inputs costs that stay the same price per unit. C.) costs that don't depend on the quantity of output produced. D.) costs that are negotiated to stay the same throughout the life of a contract.

c

For an oligopoly, when the quantity effect does not outweigh the price effect, the firm: A.) has an incentive to increase output. B.) has no incentive to decrease output. C.) has no incentive to increase output. D.) None of these statements is true.

c

If Spain sells soccer balls to the United States, then Spain: A.) has an absolute advantage over the United States in making soccer balls. B.) can produce more soccer balls than the United States given the same resources. C.) has the ability to produce soccer balls at a lower opportunity cost than the United States can. D.) does not have any trade barriers with the U.S.

c

If a country has a comparative advantage in wine moved from autarky to free trade, this would cause what reaction in the world market? A.) Foreign wine producers would be opposed. B.) Domestic wine consumers would be opposed. C.) Domestic wine producers would be opposed. D.) Domestic wine consumers would not be influenced.

c

If a monopolistically competitive firm is earning profits in the short run: A.) barriers to entry will allow the firm to enjoy them in the long run as well. B.) it is acting like a perfectly competitive firm. C.) other firms have an incentive to enter the market. D.) it should leave the industry before it gets competed away

c

If firms are producing at a profit-maximizing level of output where the price exceeds the average total cost: A.) accounting profits must be negative. B.) economic profits must be zero. C.) other firms will enter the market. D.) firms will exit the market.

c

If the market price falls below a firm's minimum average total cost, the firm should: A.) definitely stop production. B.) definitely continue to operate at a loss. C.) consider how to minimize its losses. D.) pay only fixed costs.

c

If the monopolist charges a high price, he will sell: A.) as many as he supplies to the market at that price. B.) more than demanders want to buy at that price. C.) less than if he were to charge a lower price. D.) more than if he were to charge a lower price.

c

Imagine Tom's annual salary as an assistant store manager is $30,000, he owns a building that rents for $10,000 yearly, and his financial assets generate $1,000 per year in interest. One day, after deciding to be his own boss, he quits his job, evicts his tenants, and uses his financial assets to establish a bicycle repair shop. To run the business, he outlays $15,000 in cash to cover all the costs involved with running the business, and earns revenues of $50,000. What are Tom's accounting profits? A.) $50,000 B.) $24,000 C.) $35,000 D.) -$6,000

c

In the short run, we assume that the number of firms in a perfectly competitive market: A.) varies if perfect information is present. B.) varies more than the long-run equilibrium. C.) is fixed. D.) is equal to the number of firms in the long-run.

c

Innovation creates the opportunity to: A.) quickly exit industries. B.) lose money spent on research and development. C.) earn positive economic profits. D.) sustain zero economic profits in a single industry in the long run.

c

Knowing that Coke controls 80 percent of the cola market and Pepsi controls 20 percent, we can conclude the cola market is: A.) perfectly competitive. B.) monopolistically competitive. C.) an oligopoly. D.) a monopoly.

c

Marginal product is represented by: A.) the x-axis of the total production curve. B.) total product minus the total cost. C.) the slope of the total production curve. Correct D.) total revenue minus total cost.

c

Of the curves displayed in graph shown, what does curve C most likely represent? A.) Marginal cost B.) Average total cost C.) Average variable cost D.) Marginal revenue

c

Some argue that the best response to monopolies is no response at all, because: A.) they are too powerful to be dealt with effectively. B.) no one can ever decide which monopolies to regulate. C.) the creation of regulation may be too difficult. D.) left unchecked, all monopolies eventually shut down.

c

The additional cost a firm will incur by producing one additional unit of output is the: A.) variable cost. B.) fixed cost. C.) marginal cost. D.) total cost.

c

The equilibrium price and quantity in a monopoly market: A.) is efficient. B.) is the same as a perfectly competitive market. C.) causes a loss of total surplus. D.) causes no welfare costs.

c

The fixed cost curve: A.) is steep when output levels are low, then flattens as output increases. B.) is flatter when output levels are low, then gets steeper as output increases. C.) is a constant, flat line. D.) is a constant, vertical line.

c

The increase in output that is generated by an additional unit of input is called the: A.) input-output relationship. B.) production function. C.) marginal product. D.) resource product.

c

Total revenue decreases as output increases when demand is: A.) downward sloping. B.) perfectly elastic. C.) price inelastic. D.) price elastic.

c

Using the information in the table shown, the marginal revenue for the 3rd unit is: A.) $100 B.) $800 C.) $600 D.) $500

c

When the monopolist decides to supply a given amount to the market, it will: A.) set the price equal to marginal cost. B.) set the price higher than what demanders are willing to pay for that amount. C.) only sell that amount if it charges what the demanders are willing to pay for that amount. D.) set the price lower than the demand curve to create a perceived shortage.

c

A firm currently employs four workers in a sandwich shop, and produces sandwiches at a total cost per sandwich (ATC) of $3. The sandwiches sell for $5. If the marginal cost of hiring another worker to produce sandwiches is $5.50 per sandwich, then: A.) it will cost $5.50 to make another sandwich, which can only be sold for $5. B.) the firm will lose $0.50 per sandwich if it hires another worker. C.) the firm should not hire a fifth worker. D.) All are correct.

d

A government-owned monopoly is more likely to: A.) provide a greater quantity of output than a private one. B.) provide output at a lower price than a private one. C.) serve public interest than maximize profit. D.) All of these statements are true.

d

A long-run ATC curve shows: A.) the minimum average total cost possible for every possible size firm across an industry. B.) which size firm can capture the lowest costs per unit for an industry. C.) what size firms can capture economies of scale by expanding. D.) All are correct.

d

A quota has all of the following impacts except: A.) drive up prices. B.) create deadweight loss. C.) help poorer countries. D.) generate revenues for government.

d

According to the graph shown, if Q1 units are being produced, this monopolist should: A.) increase production. B.) charge P0 to maximize profits. C.) charge P1 to maximize profits. D.) charge P3 to maximize profits.

d

According to the graph shown, if a firm is producing at Q2: A.) profits are being maximized. B.) average total costs are minimized. C.) it is producing at an efficient scale. D.) All are correct.

d

According to the matrix shown, the firms: A.) both have a dominant strategy. B.) both have an incentive to renege on collusion. C.) both have an incentive to compete. D.) All of these statements are true.

d

An example of a public policy response to a monopoly is: A.) antitrust laws. B.) public ownership. C.) doing nothing. D.) All of these are examples.

d

An oligopolist's production decision affects: A.) its profits. B.) the profits of other firms in the market. C.) the prices charged by each firm. D.) All of these statements are true.

d

As a general rule, free trade: A.) acts to equalize the supply of and demand for factors of production across countries. B.) causes factor prices to converge across countries. C.) increases the supply of factors that are domestically scarce. D.) All of these are true.

d

As long as average revenue remains above average total cost: A.) total revenue will be higher than total cost. B.) the firm will be making profits. C.) price will be greater than average total cost. D.) All are correct.

d

Assume the table shown is for a hat factory, and shows the total production of hats given various numbers of employees. Adding a third worker increases production: A.) by 60 hats. B.) by more than the second worker. C.) to 110 hats. D.) All are correct.

d

Commodities: A.) are a special type of standardized good. B.) have no product differentiation. C.) are identical regardless of who produced them. D.) All are correct.

d

Every government has its own set of policies to govern the economy such as: A.) safety policies. B.) labor standards. C.) environmental regulations. D.) All of these are true.

d

Explicit costs include: A.) out-of-pocket costs. B.) fixed costs. C.) variable costs. D.) All of these are included in explicit costs.

d

If England buys hockey sticks from Canada, then: A.) England has an absolute advantage over Canada in making hockey sticks. B.) Canada has an absolute advantage over England in making hockey sticks. C.) England has the comparative advantage over Canada in making hockey sticks. D.) Canada has the comparative advantage over England in making hockey sticks.

d

If the market price ever drops below a firm's average variable costs at its profit-maximizing level of output the: A.) firm should shut down immediately. B.) loss-minimizing quantity of output is zero. C.) firm is not earning enough revenue to cover the variable costs of production. D.) All are correct.

d

In the real world, price discrimination is more difficult because: A.) it is difficult to identify and verify different groups. B.) to perfectly discriminate, the firm must read people's minds to know their willingness to pay. C.) it can be challenging to prevent the resale of goods from one group to another. D.) All of these statements are true.

d

Mika borrows $100,000 to start up her own beauty shop. She pays 5 percent interest on her loan. In order to account for all costs of her business, Mika must not forget: A.) the implicit cost of $100,000. B.) the implicit cost of $5,000. C.) the explicit cost of $105,000. D.) the explicit cost of $5,000.

d

Suppose Larry's Lariats produces lassos, and uses nine feet of rope to make each lasso. The rope is put into a machine that automatically cuts it to the right length, then seals the ends to prevent fraying. The rope is then hand tied, dipped, and wound before being placed in a packaging machine to prepare it for retail sale. The total costs for this company would include: A.) the cost of rope. B.) employee's wages. C.) the rope-cutting machine. D.) All of these expenses would be included in total cost.

d

The profit-maximizing decision for the monopoly is: A.) to choose the quantity where marginal cost equals marginal revenue. B.) the same as that of the perfectly competitive firm. C.) to choose price according to demand. D.) All of these statements are true.

d

The total cost curve: A.) is the sum of the variable cost curve and fixed cost curve. B.) is parallel to the variable cost curve. C.) is always above the variable cost curve. D.) All are correct.

d

The welfare loss associated with the outcome in a colluding oligopoly is: A.) smaller than that of a perfectly competitive outcome. B.) smaller than that of a competitive oligopoly. C.) the same as that of a perfectly competitive outcome. D.) None of these statements is true.

d

Total costs: A.) are fixed costs plus variable costs. B.) include explicit and implicit costs. C.) increases as the firm increases output. D.) All are correct.

d

Which is not an essential characteristic of a perfectly competitive market? A.) Goods are standardized. B.) Buyers have perfect information. C.) Goods from one seller cannot be distinguished from another's. D.) Firms have limited market power.

d

Which of the following would be considered an ongoing expense? A.) Employee salaries B.) Raw materials C.) Advertising D.) All of these could be considered ongoing expenses.

d

When a price-taking country joins the global market for some good, it: A.) shifts the world demand and supply to the right. B.) has a negligible effect on the world equilibrium. C.) shifts the world demand and supply to the left. D.) shifts the world demand to the right, and the world supply to the left.

not a, or d

According to the graph shown, the change to government revenue brought about by the introduction of a tariff to an economy once operating under free trade is: A.) an increase of area JK. B.) an increase of area FGJK. C.) an increase of area IJKL. D.) a decrease of area IL.

not b, or c