Econ 110 Test 3

A firm produces the welfare-maximizing level of output a. only when the market is perfectly competitive. b. only when the market is a monopoly or monopolistically competitive. c. only when the market is monopolistically competitive or perfectly competitive. d. when the market is perfectly competitive, monopolistically competitive, or monopolistic.

A

A long-run supply curve is flatter than a short-run supply curve because a. firms can enter and exit a market more easily in the long run than in the short run. b. long-run supply curves are sometimes downward sloping. c. competitive firms have more control over demand in the long run. d. firms in a competitive market face identical cost structures.

A

Refer to Figure 13-5. Curve D represents which type of cost curve? a. marginal cost b. average total cost c. average variable cost d. average fixed cost

A

Refer to Figure 13-9. The firm experiences economies of scale at which output levels? a. output levels less than M b. output levels between M and N c. output levels greater than N d. All of the above are correct as long as the firm is operating in the long run.

A

Refer to Figure 13-9. Which of the curves is most likely to characterize the short-run average total cost curve of the smallest factory? a. ATCA b. ATCB c. ATCC d. ATCD

A

Refer to Figure 14-1. The firm will earn a positive economic profit in the short run if the market price is a. above $6.30. b. less than $6.30 but more than $4.50. c. less than $4.50. d. exactly $6.30.

A

Refer to Figure 15-1. The shape of the average total cost curve in the figure suggests an opportunity for a profit-maximizing monopolist to take advantage of a. economies of scale. b. diseconomies of scale. c. diminishing marginal product. d. increasing marginal cost.

A

Refer to Figure 15-4. A profit-maximizing monopoly's total revenue is equal to a. P4 x Q3. b. P5 x Q1. c. P3 x Q4. d. (P4-P2) x Q3.

A

Suppose that a firm operating in perfectly competitive market sells 200 units of output at a price of $3 each. Which of the following statements is correct? (i) Marginal revenue equals $3. (ii) Average revenue equals $600. (iii) Average revenue exceeds marginal revenue, but we don't know by how much. a. (i) only b. (iii) only c. (i) and (ii) only d. (i), (ii), and (iii)

A

The fundamental source of monopoly power is a. barriers to entry. b. profit. c. decreasing average total cost. d. a product without close substitutes.

A

When monopolistically competitive firms advertise, in the long run a. they will still earn zero economic profit. b. they can earn positive economic profit by increasing market share. c. the market price must fall. d. the market price must rise.

A

For a monopolistically competitive firm, a. marginal revenue and price are the same. b. average revenue and price are the same. c. at the profit-maximizing quantity of output, price equals marginal cost. d. at the profit-maximizing quantity of output, price equals the minimum of average total cost.

B

Mrs. Smith operates a business in a competitive market. The current market price is $8.10. At her profit-maximizing level of production, the average variable cost is $8.00, and the average total cost is $8.25. Mrs. Smith should a. shut down her business in the short run but continue to operate in the long run. b. continue to operate in the short run but shut down in the long run. c. continue to operate in both the short run and long run. d. shut down in both the short run and long run.

B

Refer to Figure 13-5. Curve A is always declining because a. of diminishing marginal product. b. we are dividing fixed costs by higher and higher levels of output. c. marginal product first increases, then decreases. d. marginal product first decreases, then increases.

B

Refer to Figure 13-5. Curve C represents which type of cost curve? a. marginal cost b. average total cost c. average variable cost d. average fixed cost

B

Refer to Figure 13-9. The firm experiences constant returns to scale at which output levels? a. output levels less than M b. output levels between M and N c. output levels greater than N d. All of the above are correct as long as the firm is operating in the long run.

B

Refer to Figure 14-1. If the market price is $5.00, the firm will earn a. positive economic profits in the short run. b. negative economic profits in the short run but remain in business. c. negative economic profits and shut down. d. zero economic profits in the short run.

B

Refer to Figure 15-1. Considering the relationship between average total cost and marginal cost, the marginal cost curve for this firm a. must lie entirely above the average total cost curve. b. must lie entirely below the average total cost curve. c. must be upward sloping. d. does not exist.

B

Refer to Figure 15-1. The shape of the average total cost curve reveals information about the nature of the barrier to entry that might exist in a monopoly market. Which of the following monopoly types best coincides with the figure? a. ownership of a key resource by a single firm b. natural monopoly c. government-created monopoly d. a patent or copyright monopoly

B

Refer to Figure 15-4. A profit-maximizing monopoly will charge a price of a. P5. b. P4. c. P3. d. P2.

B

Refer to Table 14-3. For a firm operating in a competitive market, the price is a. $0. b. $7. c. $14. d. $21.

B

The profit-maximization problem for a monopolist differs from that of a competitive firm in which of the following ways? a. A competitive firm maximizes profit at the point where marginal revenue equals marginal cost; a monopolist maximizes profit at the point where marginal revenue exceeds marginal cost. b. A competitive firm maximizes profit at the point where average revenue equals marginal cost; a monopolist maximizes profit at the point where average revenue exceeds marginal cost. c. For a competitive firm, marginal revenue at the profit-maximizing level of output is equal to marginal revenue at all other levels of output; for a monopolist, marginal revenue at the profit-maximizing level of output is smaller than it is for larger levels of output. d. For a profit-maximizing competitive firm, thinking at the margin is much more important than it is for a profit-maximizing monopolist.

B

To maximize its profit, a monopolistically competitive firm chooses its level of output by looking for the level of output at which a. price equals marginal cost. b. marginal revenue equals marginal cost. c. average total cost is minimized. d. All of the above are correct.

B

Which of the following statements is correct? a. Monopolistic competition is similar to monopoly because both market structures are characterized by patents. b. Monopolistic competition is similar to perfect competition because both market structures are characterized by each seller being small compared to the market. c. Monopolistic competition is similar to oligopoly because both market structures are characterized by free entry. d. Monopolistic competition is similar to perfect competition because both market structures are characterized by excess capacity.

B

A competitive market is in long-run equilibrium. If demand decreases, we can be certain that price will a. fall in the short run. All firms will shut down, and some of them will exit the industry. Price will then rise to reach the new long-run equilibrium. b. fall in the short run. No firms will shut down, but some of them will exit the industry. Price will then rise to reach the new long-run equilibrium. c. fall in the short run. All, some, or no firms will shut down, and some of them will exit the industry. Price will then rise to reach the new long-run equilibrium. d. not fall in the short run because firms will exit to maintain the price.

C

For a monopolist, marginal revenue is a. positive when the demand effect is greater than the supply effect. b. positive when the monopoly effect is greater than the competitive effect. c. negative when the price effect is greater than the output effect. d. negative when the output effect is greater than the price effect.

C

For a profit-maximizing monopolistically competitive firm, price exceeds marginal cost in a. the short run but not in the long run. b. the long run but not in the short run. c. both the short run and the long run. d. neither the short run nor the long run.

C

In a market that is characterized by imperfect competition, a. firms are price takers. b. there are always a large number of firms. c. there are at least a few firms that compete with one another. d. the actions of one firm in the market never have any impact on the other firms' profits.

C

Price discrimination a. forces monopolies to charge a lower price as a result of government regulation. b. is an attempt by a monopoly to prevent some customers from purchasing its product by charging a high price. c. is an attempt by a monopoly to increases its profit by selling the same good to different customers at different prices. d. increases the consumer surplus associated with a monopolistic market.

C

Refer to Figure 13-5. Curve D intersects curve C a. where the firm maximizes profit. b. at the minimum of average fixed cost. c. at the efficient scale. d. where fixed costs equal variable costs.

C

Refer to Figure 14-1. The firm's short-run supply curve is its marginal cost curve above a. $1. b. $3. c. $4.50. d. $6.30.

C

Refer to Figure 15-4. A profit-maximizing monopoly will produce an output level of a. Q1. b. Q2. c. Q3. d. Q4.

C

Suppose that a "doggie day care" firm uses only two inputs: hourly workers (labor) and a building (capital). In the short run, the firm most likely considers a. both labor and capital to be fixed. b. both labor and capital to be variable. c. labor to be variable and capital to be fixed. d. capital to be variable and labor to be fixed.

C

The competitive firm's long-run supply curve is that portion of the marginal cost curve that lies above average a. fixed cost. b. variable cost. c. total cost. d. revenue.

C

The debate over the efficiency of markets in which products with brand names are sold a. is framed by the role of regulation in advertising. b. is likely to be resolved by reference to anecdotal evidence. c. hinges on whether consumers are rational in their choices. d. hinges on the effectiveness of advertising that identifies price differences.

C

When existing firms lose customers and profits due to entry of a new competitor, a a. predatory-pricing externality occurs. b. consumption externality occurs. c. business-stealing externality occurs. d. product-variety externality occurs.

C

When fixed costs are ignored because they are irrelevant to a business's production decision, they are called a. explicit costs. b. implicit costs. c. sunk costs. d. opportunity costs.

C

When price exceeds average variable cost in the short run, a competitive firm's marginal cost curve is regarded as its supply curve because a. the position of the marginal cost curve determines the price for which the firm should sell its product. b. among the various cost curves, the marginal cost curve is the only one that slopes upward. c. the marginal cost curve determines the quantity of output the firm is willing to supply at any price. d. the firm is aware that marginal revenue must exceed marginal cost in order for profit to be maximized.

C

Which of the following represents the firm's long-run condition for exiting a market? a. exit if P < MC b. exit if P < FC c. exit if P < ATC d. exit if MR < MC

C

Which of the following statements is correct? Monopolies are socially inefficient because they (i) charge a price above marginal cost. (ii) produce too little output. (iii) earn profits at the expense of consumers. (iv) maximize the market's total surplus. a. (iii) only b. (iii) and (iv) only c. (i) and (ii) only d. (i), (ii), (iii), and (iv)

C

Which of the following statements is not correct? a. Monopolistic competition is similar to monopoly because in each market structure the firm can charge a price above marginal costs. b. Monopolistic competition is similar to perfect competition because both market structures are characterized by free entry. c. Monopolistic competition is similar to oligopoly because both market structures are characterized by barriers to entry. d. Monopolistic competition is similar to perfect competition because both market structures are characterized by many sellers.

C

With perfect price discrimination the monopoly a. eliminates all price discrimination by charging each customer the same price. b. charges each customer an amount equal to the monopolist's marginal cost of production. c. eliminates deadweight loss. d. eliminates profits and increases consumer surplus.

C

A firm maximizes its profit by producing output up to the point where marginal revenue equals marginal cost a. only when the market is a monopoly. b. only when the market is a monopoly or monopolistically competitive. c. only when the market is monopolistically competitive or perfectly competitive. d. when the market is perfectly competitive, monopolistically competitive, or monopolistic.

D

Advertising a. provides information about products, including prices and seller locations. b. has been proven to increase competition and reduce prices compared to markets without advertising. c. signals quality to consumers, because advertising is expensive. d. All of the above are correct.

D

Because monopoly firms do not have to compete with other firms, the outcome in a market with a monopoly is often a. not in the best interest of society. b. one that fails to maximize total economic well-being. c. inefficient. d. All of the above are correct.

D

Grace is a self-employed artist. She can make 20 pieces of pottery per week. She is considering hiring her sister Kate to work for her. Both she and Kate can make 35 pieces of pottery per week. What is Kate's marginal product? a. 55 pieces of pottery b. 35 pieces of pottery c. 22.5 pieces of pottery d. 15 pieces of pottery

D

Monopolistic competition is characterized by which of the following attributes? (i) free entry (ii) product differentiation (iii) many sellers a. (i) and (iii) only b. (i) and (ii) only c. (ii) and (iii) only d. (i), (ii), and (iii)

D

Mrs. Smith operates a business in a competitive market. The current market price is $7.50. At her profit-maximizing level of production, the average variable cost is $8.00, and the average total cost is $8.25. Mrs. Smith should a. shut down her business in the short run but continue to operate in the long run. b. continue to operate in the short run but shut down in the long run. c. continue to operate in both the short run and long run. d. shut down in both the short run and long run.

D

Refer to Figure 13-3. Which of the following is true of the production function (not pictured) that underlies this total cost function? (i) Total output increases as the quantity of inputs increases but at a decreasing rate. (ii) Marginal product is diminishing for all levels of input usage. (iii) The slope of the production function decreases as the quantity of inputs increases. a. (i) only b. (ii) and (iii) only c. (i) and (iii) only d. (i), (ii), and (iii)

D

Refer to Figure 13-5. Curve A represents which type of cost curve? a. marginal cost b. average total cost c. average variable cost d. average fixed cost

D

Refer to Figure 13-9. Which curve represents the long-run average total cost? a. ATCA b. ATCB c. ATCC d. ATCD

D

Refer to Figure 14-1. If the market price is $6.30, the firm will earn a. positive economic profits in the short run. b. negative economic profits in the short run but remain in business. c. negative economic profits and shut down. d. zero economic profits in the short run.

D

Refer to Figure 14-1. The firm should shut down if the market price is a. above $8. b. above $6.30 but less than $8. c. above $4.50 but less than $6.30. d. less than $4.50.

D

Suppose that for a particular firm the only variable input into the production process is labor and that output equals zero when no workers are hired. In addition, suppose that the average total cost when 5 units of output are produced is $30, and the marginal cost of the sixth unit of output is $60. What is the average total cost when six units are produced? a. $10 b. $25 c. $30 d. $35

D

When a monopolist increases the number of units it sells, there are two effects on revenue. They are the a. demand effect and the supply effect. b. competition effect and the cost effect. c. competitive effect and the monopoly effect. d. output effect and the price effect.

D