ECON 101 MIDTERM 3 PRACTICE QUESTIONS

If a perfectly competitive gardening shop sells 30 evergreen bushes at $10 per bush, its marginal revenue is:

$10

Suppose a local floral shop has explicit costs of $200,000 per year and implicit costs of $50,000 per year. If the store earned an economic profit of $50,000 last year, the store's accounting profit equaled:

$100,000

(look at graph).. (Figure: A Profit-Maximizing Monopoly Firm) Look at the figure A Profit-Maximizing Monopoly Firm. This firm's profit per unit is:

$12

Wendy has a monopoly in the retailing of motor homes. She can sell five per week at $21,000 each. If she wants to sell six, she can charge only $20,000 each. The quantity effect of selling the sixth motor home is:

$20,000

(look at graph).. (Figure: Demand, Revenue, and Cost Curves) Look at the figure Demand, Revenue, and Cost Curves. Figglenuts-R-Us is a monopolist in the figglenut market. If the government wanted to regulate Figglenuts-R-Us such that the entire deadweight loss would be eliminated in the short run, it would impose a price ceiling of:

$40

After earning your BA, you have to decide whether to take a job that will pay you $45,000 per year or spend an additional two years earning an MBA. If you decide to pursue the graduate degree, your annual expenses for tuition, books, board, and lodging will be $32,000. You have been offered a scholarship for $10,000 per year, but to pay the remaining $22,000 per year, you would have to cash in savings bonds from your grandparents that have been earning $500 in interest per year. The annual opportunity cost of earning your MBA is:

$67,500

(look at graph).. (Figure: PPV) Look at the figure PPV, which shows the demand and marginal revenue for a pay-per-view football game on cable TV. Assume that the marginal cost and average cost are a constant $20. If the cable company is a monopoly, how much is deadweight loss when the monopolist maximizes profit?

$80

Sarah's accountant tells her that she made a profit of $43,002 running a pottery studio in Orlando. Sarah's husband, an economist, claims Sarah lost $43,002 running her pottery studio. This means her husband is claiming that she incurred _____ in _____ costs.

$86,004; implicit

Wendy has a monopoly in the retailing of motor homes. She can sell five per week at $21,000 each. If she wants to sell six, she can only charge $20,000 each. The price effect of selling the sixth motor home is:

-$5,000

(look at graph).. (Figure: Cost Curves for Corn Producers) Look at the figure Cost Curves for Corn Producers. The market for corn is perfectly competitive. If the price of a bushel of corn is $4, in the short run the farmer will produce _____ bushels of corn and earn an economic _____ equal to _____.

0; loss; total fixed costs

(look at table) (Table: Total Product and Marginal Product) Look at the table Total Product and Marginal Product. The marginal product of the fourth worker is _____ units.

20

(look at graph).. (Figure: Cost Curves for Corn Producers) Look at the figure Cost Curves for Corn Producers. The market for corn is perfectly competitive. If the price of a bushel of corn is $14, in the short run, the farmer will produce _____ of corn and earn an economic _____ equal to _____.

4 bushels; profit $0

(look at table).. (Table: Prices and Demand) Look at the table Prices and Demand. Professor Dumbledore has a monopoly on magic hats. The marginal cost of producing a hat is $18. Suppose Dumbledore can perfectly price-discriminate. How many hats will he produce?

6

Which of the following is NOT an example of price discrimination? A) a Fourth of July sale B) a coupon in the newspaper offering a 10% discount on a product C) a higher price for front row seats at a concert than for seats at the back D) a lower price charged to the grandfather who bought his airline ticket to Chicago three weeks in advance and will stay over a Saturday night than to the businesswoman who bought her ticket the day of the flight and will not stay over Saturday night

A. a Fourth of July sale

(look at graph).. (Figure: Long-Run and Short-Run Average Cost Curves) Look at the figure Long-Run and Short-Run Average Cost Curves. If a firm faced the long-run average total cost curve shown in the figure and it expected to produce 100,000 units of the good in the long run, the firm should build the plant associated with:

ATC2

The lowest point on a perfectly competitive firm's short-run supply curve corresponds to the minimum point on the _____ curve.

AVC

Which of the following statements concerning monopoly is TRUE? A) Monopoly firms are always larger than perfectly competitive firms. B) A monopoly has no rivals. C) Barriers to entry do not prevent other firms from entering a monopolized industry. D) Monopolists produce more output than a competitive market with the same demand and cost structure.

B. a monopoly has no rivals

Which of the following is NOT a characteristic of a perfectly competitive industry? A) Firms seek to maximize profits. B) Profits may be positive in the short run. C) There are many firms. D) Products are differentiated.

D. products are differentiated

The perfectly competitive model assumes all of the following EXCEPT: A) a great number of buyers. B) easy entry to and exit from the market. C) a standardized product. D) that firms attempt to maximize their total revenue.

D. that firms attempt to maximize their total revenue

Which of the following statements about the differences between monopoly and perfect competition is INCORRECT?

Monopoly profits can continue in the long run because the monopoly produces more and charges a higher price than a comparable perfectly competitive industry.

Suppose that the market for haircuts in a community is a perfectly competitive constant-cost industry and that the market is initially in long-run equilibrium. Subsequently, an increase in population increases the demand for haircuts. In the long run, firms will _____ the market, driving the price of haircuts _____ and the profits of individual firms _____.

enter; down; back to zero

Economic profits in a perfectly competitive industry encourage firms to _____ the industry, and losses encourage firms to _____ the industry.

enter; exit

For most restaurants, the average total cost curve _____ at _____ levels of output, then _____ at _____ levels.

falls; low; rises; high

Once diminishing returns have set in, as output increases, the total cost curve:

gets steeper

Price discrimination leads to a _____ price for consumers with a _____ demand.

higher; less elastic

The marginal cost curve intersects the average variable cost curve at:

its lowest point

The municipal swimming pool charges lower entrance fees to local residents than to nonresidents. Assuming that this pricing strategy increases the profits of the pool, we can conclude that nonresidents must have a _____ demand for swimming at the pool than residents.

less elastic

When a fine caterer produces 30 catered meals, its marginal cost and average variable cost each equal $10. Therefore, assuming normally shaped cost curves, at 29 meals its marginal cost is _____ $10 and its average variable cost is _____ $10.

less than; more than

A monopolist is likely to produce _____ and charge _____ than a comparable perfectly competitive firm.

less; more

The short-run supply curve for a perfectly competitive firm is its:

marginal cost curve above its AVC curve

The _____ is the increase in output that is produced when a firm hires an additional worker.

marginal product

Most electric, gas, and water companies are examples of:

natural monopolies

If the price is greater than average total cost at the profit-maximizing quantity of output in the short run, a perfectly competitive firm will:

produce at a profit

The equilibrium price of a guidebook is $35 in the perfectly competitive guidebook industry. Our firm produces 10,000 guidebooks for an average total cost of $38, marginal cost of $30, and average variable cost of $30. Our firm should:

produce more guidebooks, because the next guidebook produced increases profit by $5

A monopoly:

produces a product with no close substitutes

(look at graph).. (Figure: Long-Run and Short-Run Average Cost Curves) Look at the figure Long-Run and Short-Run Average Cost Curves. If a firm is producing at point C on the ATC2 but anticipates increasing output to 225,000 units in the long run, the firm will build a _____ plant and have _____ of scale.

bigger; diseconomies