Ecomonics Test 2

Which of the following U.S. Supreme Court cases ruled that only monopolies that "unreasonably restrain trade" are violating antitrust laws?

U.S. Steel case of 1920

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

equal to one.

Suppose a firm in a purely competitive market discovers that the price of its product is above its minimum AVC point but everywhere below ATC. Given this, the firm

should continue producing in the short run but leave the industry in the long run if the situation persists.

Suppose that a pure monopolist can sell 20 units of output at $10 per unit and 21 units at $9.75 per unit. The marginal revenue of the 21st unit of output is

$4.75.

The total revenue of a purely competitive firm from selling 6 units of output is $48. Based on this information, the unit price of the output must be

$8

Which of the following statements is most consistent with the benefits-received principle of taxation?

A childless couple should not be required to pay taxes for the support of public schools.

Which would definitely not be an example of price discrimination?

An electric power company charges less for electricity used during off-peak hours, when production costs are lower.

Which of the following statements is true for a long-run supply curve that slopes upward?

If total market output is increased, unit costs of production increase.

Which of the following statements about a competitive firm is correct?

In long-run equilibrium, a competitive firm will produce at the point of minimum average total costs.

Economists would describe the U.S. automobile industry as

Oligopoly

Assume the figure applies to a pure monopolist and that MC is the same for both graphs. If this firm is able to price discriminate between children and adults, it should charge prices of

P1 to children andP2 to adults.

In the short run, a purely competitive firm will earn a normal profit when

P=ATC

Allocative efficiency is achieved when the production of a good occurs where

P=MC

Which of the following statements is correct?

Pure monopolists do not always realize positive profits, sometimes they suffer losses.

Refer to the diagrams, which pertain to a purely competitive firm producing output q and the industry in which it operates. The predicted long-run adjustments in this industry might be offset by

a technological improvement in production methods.

Which of the following industries most closely approximates pure competition?

agriculture

In the U.S. Steel case of 1920, the courts held that

although U.S. Steel possessed monopoly power, it had not violated the Sherman Act because it had not unreasonably used that power.

The MR = MC rule

applies both to pure monopoly and pure competition.

A perfectly elastic demand curve implies that the firm

can sell as much output as it chooses at the existing price

Cost-benefit analysis attempts to

compare the benefits and costs associated with any economic project or activity.

Market failure is said to occur whenever

competitive markets do not allocate resources in the most economically desirable way.

The accompanying graph shows the long-run, supply-and-demand curves in a purely competitive market. The curves suggest that in this industry, the dollars' worth of other products that have to be sacrificed in order to produce each unit of the output of this industry is

constant

Possible reasons for X-inefficiency include the following, except

costs of materials rising due to tight supply conditions.

Demand-side market failures occur when

demand curves don't reflect consumers' full willingness to pay for a good or service.

At its profit-maximizing output, the nondiscriminating pure monopolist whose information is in the accompanying table

earns an economic profit of $250.

When a pure monopolist is producing its profit-maximizing output, price will

equal neither MC nor MR.

When there is allocative efficiency in a purely competitive market for a product, the minimum price producers are willing to accept is

equal to the maximum price consumers are willing to pay.

Which of the following is not a basic market model?

free enterprise

Unlike a private good, a public good

has benefits available to all, including nonpayers.

In the short run, fixed costs for a profitable competitive firm are

irrelevant in determining the optimal level of output.

Which of the following statements applies to a purely competitive producer?

it will not advertise its product

The fast-food restaurant industry in a large city would be an example of which market model?

monopolistic competition

In which two market models would advertising be used most often?

monopolistic competition and oligopoly

The practice of price discrimination is associated with pure monopoly because

monopolists have considerable ability to control output and price.

At its profit-maximizing output, a pure nondiscriminating monopolist achieves

neither productive efficiency nor allocative efficiency.

Which of the following is true under conditions of pure competition?

no single firm can influence the market price by changing its production level

Which of the following statements is correct?

the demand curve for a purely competitive firm is perfectly elastic, but the demand curve for a purely competitive industry is down-sloping

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. In the situation described above, we would expect an

overproduction of paper in the mills.

The demand schedule or curve confronted by the individual, purely competitive firm is

perfectly elastic

Economic profit in the long run is

possible for a pure monopoly but not for a pure competitor.

(Applying the Analysis) An unprofitable motel will stay open in the short run if

price (average nightly room rate) exceeds average variable cost

When a purely competitive firm is in long-run equilibrium,

price equals marginal cost.

Because the monopolist's demand curve is down-sloping,

price must be lowered to sell more output.

Which of the following is not a characteristic of pure competition?

pricing strategies by firms

The Ajax Manufacturing Company is selling in a purely competitive market. Its output is 100 units, which sell at $4 each. At this level of output, total cost is $600, total fixed cost is $100, and marginal cost is $4. The firm should

produce zero units of output

If the taxes by state and local governments were combined with the federal tax system, the overall tax structure in the United States would best be characterized as

progressive

Government in a market system can increase economic efficiency by collecting taxes in order to subsidize the production of

public and quasi-public goods.

If a firm has at least some control over the price of its product, then the firmcannot be in which market model?

pure competition

In which of the following industry structures is the entry of new firms the most difficult?

pure monopoly

In which one of the following market models is X-inefficiency most likely to be the greatest?

pure monopoly

The ability-to-pay principle of taxation

suggests that taxes should vary directly with people's income and wealth.

According to the Organization for Economic Cooperation and Development (OECD),

the United States has the most progressive tax system among OECD nations.

If government levies a tax or fee on hunting licenses and uses the resulting revenue for wildlife stocking programs, this would be an example of

the benefits-received principle of taxation.

A purely competitive firm will be willing to produce even at a loss in the short run, as long as

the loss is smaller than its total fixed costs.

Because of the free-rider problem,

the market demand for a public good is nonexistent or understated.

The term productive efficiency refers to

the production of a good at the lowest average total cost.

Antipollution policies can be severe in their design and implementation, resulting in

the social costs of pollution reduction becoming greater than the benefits.

Suppose that Mick and Cher are the only two members of society and are willing to pay $10 and $8, respectively, for the third unit of a public good. Also, assume that the marginal cost of the third unit is $17. We can conclude that

the third unit should be produced.

Even though many ballparks practice price discrimination between adults and children in selling tickets, such discrimination is not applied at the concession stands because

there can be exchange of the product from children, who'd buy it at a lower price, to adults.

External benefits in consumption refer to benefits accruing to

those other than the ones who consumed the product.

Xavier produces and sells tomatoes in a purely competitive market. This implies that Xavier's marginal revenue from an extra unit of tomatoes is always equal to the

unit price

A purely competitive firm's short-run supply curve is

up-sloping and equal to the portion of the marginal-cost curve that lies above the average variable cost curve.

If a firm in a purely competitive industry is confronted with an equilibrium price of $5, its marginal revenue

will also be $5