ECON

A monopolist can sell 200 units of output for $36 per unit. Alternatively, it can sell 201 units of output for $35.80 per unit. The marginal revenue of the 201st unit of output is a. $-4.20. b. $-0.20. c. $4.20. d. $35.80.

A. $-4.20 MR= (change in TR/ change in Q) TR 200 units: 7200 TR 201 units: 7195.80 (7195.80-7200)/1

We can measure the profits earned by a firm in a competitive industry as a. (P-ATC) x Q. b. (P-MC) x Q. c. MR x MC. d. (MC-ATC) x Q.

A. (P-ATC) x Q

Implicit costs a. do not require an outlay of money by the firm. b. do not enter into the economist's measurement of a firm's profit. c. are also known as variable costs. d. are not part of an economist's measurement of opportunity cost.

A. Do not require an outlay of money by the firm.

Explicit costs a. require an outlay of money by the firm. b. include all of the firm's opportunity costs. c. include the value of the business owner's time. d. Both b and c are correct.

A. Require an outlay of money by the firm.

The amount of money that a firm pays to buy inputs is called a. total cost. b. variable cost. c. marginal cost. d. fixed cost.

A. Total cost

Economic profit a. will never exceed accounting profit. b. is most often equal to accounting profit. c. is always at least as large as accounting profit. d. is a less complete measure of profitability than accounting profit.

A. Will never exceed account profit.

If a competitive firm is currently producing a level of output at which marginal REVENUE exceeds marginal COST, then a. a one-unit increase in output will increase the firm's profit. b. a one-unit decrease in output will increase the firm's profit. c. total revenue exceeds total cost. d. total cost exceeds total revenue.

A. a one-unit increase in output will increase the firm's profit.

A monopolist that practices perfect price discrimination a. creates no deadweight loss. b. charges one group of buyers a higher price than another group, such as offering a student discount. c. charges a higher price but produces the same monopoly level of output as when a single price is charged. d. charges some customers a price below marginal cost because costs are covered by the high-priced buyers.

A. creates no deadweight loss.

In a competitive market, the actions of any single buyer or seller will a. have a negligible impact on the market price. b. have little effect on market equilibrium quantity but will affect market equilibrium price. c. affect marginal revenue and average revenue but not price. d. adversely affect the profitability of more than one firm in the market.

A. have a negligible impact on the market price.

The length of the short run a. is different for different types of firms. b. can never exceed 3 years. c. can never exceed 1 year. d. is always less than 6 months.

A. is different for different types of firms.

Deadweight loss a. measures monopoly inefficiency. b. exceeds monopoly profits. c. equals monopoly profits. d. equals monopoly revenues minus profits.

A. measures monopoly inefficiency.

In the long run, all of a firm's costs are variable. In this case the exit criterion for a profit-maximizing firm is to shut down if a. price is less than average total cost. b. price is greater than average total cost. c. average revenue is greater than average fixed cost. d. average revenue is greater than marginal cost.

A. price is less than average total cost

Competitive firms that earn a loss in the short run should a. shut down if P < AVC. b. raise their price. c. lower their output. d. All of the above are correct.

A. shut down if P < AVC

Assume a firm in a competitive industry is producing 800 units of output, and it sells each unit for $6. Its average total cost is $4. Its profit is a. $-1,600. b. $1,600. c. $3,200. d. $8,000.

B. $1,600

A profit-maximizing monopolist charges a price of $12. The intersection of the marginal revenue and marginal cost curves occurs where output is 10 units and marginal cost is $6. Average total cost for 10 units of output is $5. What is the monopolist's profit? a. $60 b. $70 c. $100 d. $120

B. $70 ∏ = ($12 x 10 units) - (10 units x $5)

Let L represent the number of workers hired by a firm, and let Q represent that firm's quantity of output. Assume two points on the firm's production function are (L = 12, Q = 122) and (L = 13, Q = 132). Then the marginal product of the 13th worker is a. 8 units of output. b. 10 units of output. c. 122 units of output. d. 132 units of output.

B. 10 units of output.

When a firm is experiencing economies of scale, long-run a. average total cost is minimized. b. average total cost is greater than long-run marginal cost. c. average total cost is less than long-run marginal cost. d. marginal cost is minimized.

B. Average total cost is greater than long-run marginal cost.

When marginal cost exceeds average total cost, a. average fixed cost must be rising. b. average total cost must be rising. c. average total cost must be falling. d. marginal cost must be falling.

B. Average total cost must be rising

For a monopoly firm, which of the following equalities is always true? a. price = marginal revenue b. price = average revenue c. price = total revenue d. marginal revenue = marginal cost

B. Price= Average revenue

If the monopolist's linear demand curve intersects the quantity axis at Q = 30, then the monopolist's marginal revenue will be equal to zero at a. Q=10. b. Q=15. c. Q=20. d. Q=30.

B. Q=15

The legislation passed by Congress in 1890 to reduce the market power of large and powerful "trusts" was the a. Morgan Act. b. Sherman Act. c. Clayton Act. d. 14th Amendment.

B. Sherman Act

If a competitive firm is currently producing a level of output at which marginal COST exceeds marginal REVENUE, then a. a one-unit increase in output will increase the firm's profit. b. a one-unit decrease in output will increase the firm's profit. c. total revenue exceeds total cost. d. total cost exceeds total revenue.

B. a one-unit decrease in output will increase the firm's profit.

Which of the following is a characteristic of a natural monopoly? a. Fixed costs are typically a small portion of total costs. b. Average total cost declines over large regions of output. c. The product sold is a natural resource such as diamonds or water. d. All of the above are correct.

B. average total cost declines over large regions of output.

Whenever a perfectly competitive firm chooses to change its level of output, its marginal revenue a. increases if MR < ATC and decreases if MR > ATC. b. does not change. c. increases. d. decreases.

B. does not change

The market demand curve for a monopolist is typically a. unit price elastic. b. downward sloping. c. horizontal. d. vertical.

B. downward sloping.

Patent and copyright laws are major sources of a. natural monopolies. b. government-created monopolies. c. resource monopolies. d. antitrust regulation.

B. government-created monopolies.

A production function describes a. how a firm maximizes profits. b. how a firm turns inputs into output. c. the minimal cost of producing a given level of output. d. the relationship between cost and output.

B. how a firm turns inputs into output

If marginal cost is below average total cost, then average total cost a. is constant. b. is falling. c. is rising. d. may rise or fall depending on the size of fixed costs.

B. is falling

A monopolist produces a. more than the socially efficient quantity of output but at a higher price than in a competitive market. b. less than the socially efficient quantity of output but at a higher price than in a competitive market. c. the socially efficient quantity of output but at a higher price than in a competitive market. d. possibly more or possibly less than the socially efficient quantity of output, but definitely at a higher price than in a competitive market.

B. less than the socially efficient quantity of output but at a higher price than in a competitive market.

Economies of scale occur when a firm's a. marginal costs are constant as output increases. b. long-run average total costs are decreasing as output increases. c. long-run average total costs are increasing as output increases. d. marginal costs are equal to average total costs for all levels of output.

B. long-run average total costs are decreasing as output increases

In order to sell more of its product, a monopolist must a. lobby the government for a subsidy. b. lower its price. c. advertise. d. enact barriers to entry in related markets.

B. lower its price

Free entry means that a. the government pays any entry costs for individual firms. b. no legal barriers prevent a firm from entering an industry. c. a firm's marginal cost is zero. d. a firm has no fixed costs in the short run.

B. no legal barriers prevent a firm from entering an industry.

A firm cannot price discriminate if it a. has perfect information about consumer demand. b. operates in a competitive market. c. faces a downward-sloping demand curve. d. is regulated by the government.

B. operates in a competitive market.

The Doris Dairy Farm sells milk to a dairy broker in Prairie du Chien, Wisconsin. Because the market for milk is generally considered to be competitive, the Doris Dairy Farm does not choose the a. quantity of milk to produce. b. price at which it sells its milk. c. profits it earns. d. All of the above are correct.

B. price at which it sells its milk.

Suppose a firm in a competitive market reduces its output by 20 percent. As a result, the price of its output is likely to a. increase. b. remain unchanged. c. decrease by less than 20 percent. d. decrease by more than 20 percent.

B. remain unchanged.

Price discrimination is the business practice of a. bundling related products to increase total sales. b. selling the same good at different prices to different customers. c. pricing above marginal cost. d. hiring marketing experts to increase consumers' brand loyalty.

B. selling the same good at different prices to different customers.

A natural monopoly occurs when a. the product is sold in its natural state, such as water or diamonds. b. there are economies of scale over the relevant range of output. c. the firm is characterized by a rising marginal cost curve. d. production requires the use of free natural resources, such as water or air.

B. there are economies of scale over the relevant range of output.

John has decided to start his own lawn-mowing business. To purchase the mowers and the trailer to transport the mowers, John withdrew $1,000 from his savings account, which was earning 3% interest, and borrowed an additional $2,000 from the bank at an interest rate of 7%. What is John's annual opportunity cost of the financial capital that has been invested in the business? a. $30 b. $140 c. $170 d. $300

C. $170 (1000x3%)+(2000x7%)

Suppose a firm in a competitive market produces and sells 8 units of output and has a marginal revenue of $8.00. What would be the firm's total revenue if it instead produced and sold 4 units of output? a. $4 b. $8 c. $32 d. $64

C. $32 (4 x $8.00)

Jacqui decides to open her own business and earns $50,000 in accounting profit the first year. When deciding to open her own business, she turned down three separate job offers with annual salaries of $30,000, $40,000, and $45,000. What is Jacqui's economic profit from running her own business? a. $-55,000 b. $-5,000 c. $5,000 d. $20,000

C. $5,000

Economists normally assume that the goal of a firm is to (i) sell as much of its product as possible. (ii) set the price of the product as high as possible. (iii) maximize profit. a. (i) and (ii) only b. (ii) and (iii) only c. (iii) only d. (i), (ii), and (iii)

C. (iii) only

Monopolies are inefficient because they (i) eliminate barriers to entry. (ii) price their product at a level where marginal revenue exceeds marginal cost. (iii) restrict output below the socially efficient level of production. a. (i) and (ii) only b. (ii) and (iii) only c. (iii) only d. (i), (ii), and (iii)

C. (iii) only

Consider a firm operating in a competitive market. The firm is producing 40 units of output, has an average total cost of production equal to $5, and is earning $240 economic profit in the short run. What is the current market price? a. $9 b. $10 c. $11 d. $12

C. 11 (240/40) + 5

Scenario 13-1 Calvin wants to start his own business making candles. He can purchase a candle factory that costs $400,000. Calvin currently has $500,000 in the bank earning 3 percent interest per year. Refer to Scenario 13-1. If Calvin purchases the factory with his own money, what is the annual implicit opportunity cost of purchasing the factory? a. $0 b. $3,000 c. $12,000 d. $15,000

C. 12,000 400,000 x 3%

The legislation passed by Congress in 1914 to strengthen the government's powers and authorize private lawsuits was the a. Morgan Act. b. Sherman Act. c. Clayton Act. d. 14th Amendment.

C. Clayton Act

Which of the following is not a characteristic of a competitive market? a. Buyers and sellers are price takers. b. Each firm sells a virtually identical product. c. Entry is limited. d. Each firm chooses an output level that maximizes profits.

C. Entry is limited.

The efficient scale of the firm is the quantity of output that a. maximizes marginal product. b. maximizes profit. c. minimizes average total cost. d. minimizes average variable cost.

C. Minimizes average total cost.

The process of buying a good in one market at a low price and selling the good in another market for a higher price in order to profit from the price difference is known as a. sabotage. b. conspiracy. c. arbitrage. d. collusion.

C. arbitrage

The DeBeers company faces very little competition from other firms in the wholesale diamond market. Why isn't the price of the wholesale diamonds $10,000 per carat? a. because the government would not allow such a high price b. because stockholders would not allow such a high price c. because the company would sell so few copies that they would earn higher profits by selling at a lower price d. All of the above are correct.

C. because the company would sell so few copies that they would earn higher profits by selling at a lower price

Who is a price taker in a competitive market? a. buyers only b. sellers only c. both buyers and sellers d. neither buyers nor sellers

C. both buyers and sellers.

A monopoly a. can set the price it charges for its output and earn unlimited profits. b. takes the market price as given and earns small but positive profits. c. can set the price it charges for its output but faces a downward-sloping demand curve so it cannot earn unlimited profits. d. can set the price it charges for its output but faces a horizontal demand curve so it can earn unlimited profits.

C. can set the price it charges for its output but faces a downward-sloping demand curve so it cannot earn unlimited profits.

Competitive firms have a. downward-sloping demand curves, and they can sell as much output as they desire at the market price. b. downward-sloping demand curves, and they can sell only a limited quantity of output at each price. c. horizontal demand curves, and they can sell as much output as they desire at the market price. d. horizontal demand curves, and they can sell only a limited quantity of output at each price.

C. horizontal demand curves, and they can sell as much output as they desire at the market price.

At the profit-maximizing level of output, a. marginal revenue equals average total cost. b. marginal revenue equals average variable cost. c. marginal revenue equals marginal cost. d. average revenue equals average total cost.

C. marginal revenue equals marginal cost.

Which of the following is not a characteristic of a monopoly? a. barriers to entry b. one seller c. one buyer d. a product without close substitutes

C. one buyer

For a firm operating in a competitive industry, which of the following statements is not correct? a. Price equals average revenue. b. Price equals marginal revenue. c. Total revenue is constant. d. Marginal revenue is constant.

C. total revenue is constant.

Suppose a firm in a competitive market earned $1,000 in total revenue and had a marginal revenue of $10 for the last unit produced and sold. What is the average revenue per unit, and how many units were sold? a. $5 and 50 units b. $5 and 100 units c. $10 and 50 units d. $10 and 100 units

D. $10 and 100 units (1,000/$10)

Scenario 13-1 Calvin wants to start his own business making candles. He can purchase a candle factory that costs $400,000. Calvin currently has $500,000 in the bank earning 3 percent interest per year. Refer to Scenario 13-1. Suppose Calvin purchases the factory using $200,000 of his own money and $200,000 borrowed from a bank at an interest rate of 6 percent. What is Calvin's annual opportunity cost of purchasing the factory? a. $3,000 b. $6,000 c. $15,000 d. $18,000

D. $18,000 (200,000 x 3%) + (200,000 x 6%)

How long does it take a firm to go from the short run to the long run? a. six months b. one year c. two years d. It depends on the nature of the firm.

D. It depends on the nature of the firm

A firm that is the sole seller of a product without close substitutes is a. perfectly competitive. b. monopolistically competitive. c. an oligopolist. d. a monopolist.

D. a monopolist

Firms operating in competitive markets produce output levels where marginal revenue equals a. price. b. average revenue. c. total revenue divided by output. d. All of the above are correct.

D. all of the above are correct P=MR=AR

A movie theater can increase its profits through price discrimination by charging a higher price to adults and a lower price to children if it a. can prevent children from buying the lower-priced tickets and selling them to adults. b. has some degree of monopoly pricing power. c. can easily distinguish between the two groups of customers. d. All of the above are correct.

D. all of the above are correct.

Which of the following is an example of price discrimination? a. Nabisco provides cents-off coupons for its products. b. Amtrak offers a lower price for weekend travel compared to weekday rates on the same routes. c. Hotel rates for AAA members are lower than for nonmembers. d. All of the above are correct.

D. all of the above are correct.

Profit-maximizing firms enter a competitive market when existing firms in that market have a. total revenues that exceed fixed costs. b. total revenues that exceed total variable costs. c. average total costs that exceed average revenue. d. average total costs less than market price.

D. average total costs less than market price

The economic inefficiency of a monopolist can be measured by the a. number of consumers who are unable to purchase the product because of its high price. b. excess profit generated by monopoly firms. c. poor quality of service offered by monopoly firms. d. deadweight loss.

D. deadweight loss.

Which of the following explains why long-run average cost at first decreases as output increases? a. diseconomies of scale b. less-efficient use of inputs c. fixed costs becoming spread out over more units of output d. gains from specialization of inputs

D. gains from specialization of outputs.

The simplest way for a monopoly to arise is for a single firm to a. decrease its price below its competitors' prices. b. decrease production to increase demand for its product. c. make pricing decisions jointly with other firms. d. own a key resource.

D. own a key resource

When buyers in a competitive market take the selling price as given, they are said to be a. market entrants. b. monopolists. c. free riders. d. price takers.

D. price takers.

Which of the following formulas would correctly calculate a monopolist's profit? a. profit = price - marginal cost b. profit = price - average total cost c. profit = (price - marginal cost) x quantity d. profit = (price - average total cost) x quantity

D. profit = (price - average total cost) x quantity

The intersection of a firm's marginal revenue and marginal cost curves determines the level of output at which a. total revenue is equal to variable cost. b. total revenue is equal to fixed cost. c. total revenue is equal to total cost. d. profit is maximized.

D. profit is maximized.

The short-run supply curve for a firm in a perfectly competitive market is a. horizontal. b. likely to slope downward. c. determined by forces external to the firm. d. the portion of its marginal cost curve that lies above its average variable cost.

D. the portion of its marginal cost curve that lies above its average variable cost.

Sam sells soybeans to a broker in Chicago, Illinois. Because the market for soybeans is generally considered to be competitive, Sam maximizes his profit by choosing a. to produce the quantity at which average variable cost is minimized. b. to produce the quantity at which average fixed cost is minimized. c. to sell at a price where marginal cost is equal to average total cost. d. the quantity at which market price is equal to Sam's marginal cost of production.

D. the quantity at which market price is equal to Sam's marginal cost of production.

Most markets are not monopolies in the real world because a. firms usually face downward-sloping demand curves. b. supply curves slope upward. c. firms usually equate price with marginal cost. d. there are reasonable substitutes for most goods.

D. there are reasonable substitutes for most goods.