Economics 2000 Exam 3 (Abrahams LSU) 2023

Which of the following represents the firm's short-run condition for shutting down? Select one: a. Shut down if TR < VC b. Shut down if TR < FC c. Shut down if TR < TC d. Shut down if P < ATC

a. Shut down if TR < VC

Marginal Cost =

Change in Total Cost / Change in Quantity

Marginal Revenue =

Change in Total Revenue / Change in Quantity

Refer to Figure 14-3. In the short run, if the market price is higher than P4 but less than P6, individual firms in a competitive industry will earn

Positive profit, because above the P4 price average cost is less than the price so firm will earn positive economic profit.

Total Revenue =

Price x Quantity

Assume a certain firm in a competitive market is producing Q = 1,000 units of output. At Q = 1,000, the firm's marginal cost equals $15 and its average total cost equals $11. The firm sells its output for $12 per unit. Refer to Scenario 14-1. At Q = 1,000, the firm's profits equal

Profit = Q x (P - ATC) = 1,000 x $(12 - 11) = 1,000 x $1 = $1,000

ATC =

TC / Q

AFC =

TFC/Q or ATC-AVC

AVC =

TVC/Q or ATC-AFC

Price discrimination Select one: a. can maximize profits if the seller can prevent the resale of goods between customers. b. is illogical because it does not maximize profits. c. is illegal in the United States and Europe. d. can occur in both perfectly competitive and monopoly markets.

a. can maximize profits if the seller can prevent the resale of goods between customers.

A key characteristic of a competitive market is that..? a. producers sell nearly identical products. b. firms minimize total costs. c. firms have price setting power. d. government antitrust laws regulate competition.

a. producers sell nearly identical products.

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

a. profit is maximized.

A government-created monopoly arises when Select one: a. the government gives a firm the exclusive right to sell some good or service. b. government spending in a certain industry gives rise to monopoly power. c. the government exercises its market control by encouraging competition among sellers. d. the government collects taxes in a particular industry.

a. the government gives a firm the exclusive right to sell some good or service.

The long-run market supply curve in a competitive market will Select one: a. typically be more elastic than the short-run supply curve. b. be above the competitive firm's efficient scale. c. be the portion of the MC that lies above the minimum of AVC for the marginal firm. d. always be horizontal.

a. typically be more elastic than the short-run supply curve.

Which of the following statements regarding a competitive firm is correct? Select one: a. Because each firm faces a downward sloping demand, if a firm increases its level of output, the firm will have to charge a lower price to sell the additional output. b. For all firms, average revenue equals the price of the good. c .If a firm raises its price, the firm may be able to increase its total revenue even though it will sell fewer units. d. By lowering its price below the market price, the firm will benefit from selling more units at the lower price than it could have sold by charging the market price.

b. For all firms, average revenue equals the price of the good.

Which of the following is a necessary characteristic of a monopoly? Select one: a. The firm generates a large economic profit. b. The firm is the sole seller of its product. c. The firm's product has many close substitutes. d. The firm is located in a small geographic market.

b. The firm is the sole seller of its product.

When some resources used in production are only available in limited quantities, it is likely that the long-run supply curve in a competitive market is Select one: a. horizontal. b. upward sloping. c. downward sloping. d. vertical.

b. upward sloping.

When an industry is a natural monopoly, Select one: a. it is characterized by constant returns to scale. b. a larger number of firms may lead to a lower average total cost. c. a larger number of firms will lead to a higher average total cost. d. it is characterized by diseconomies of scale.

c. a larger number of firms will lead to a higher average total cost.

A market structure with only a few sellers, each offering similar or identical products, is known as Select one: a. perfect competition. b. monopoly. c. oligopoly. d. monopolistic competition.

c. oligopoly.

When regulators use a marginal-cost pricing strategy to regulate a natural monopoly, the regulated monopoly Select one: a. will experience a price above average total cost. b. will experience positive profit. c. will experience a loss. d. does not need a government subsidy to remain in business.

c. will experience a loss.

The profit-maximization problem for a monopolist differs from that of a competitive firm in which of the following ways? Select one: a. 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. b. For a profit-maximizing competitive firm, thinking at the margin is much more important than it is for a profit-maximizing monopolist. c. 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. d. 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.

d. 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.

Adibok knows that it produces and sells high-quality athletic shoes. Wurkout knows that it produces and sells low-quality athletic shoes. According to the signaling theory of advertising, Select one: a. Wurkout has an incentive to spend a large amount of money on advertising for its athletic shoes, but Adibok does not. b. neither Adibok nor Wurkout has an incentive to spend a large amount of money on advertising for their athletic shoes. c. both Adibok and Wurkout have incentives to spend large amounts of money on advertising for their athletic shoes. d. Adibok has an incentive to spend a large amount of money on advertising for its athletic shoes, but Wurkout does not.

d. Adibok has an incentive to spend a large amount of money on advertising for its athletic shoes, but Wurkout does not.

Bubba is a shrimp fisherman who could earn $5,000 as a fishing tour guide. Instead, he is a full-time shrimp fisherman. In calculating the economic profit of his shrimp business, the $5,000 that Bubba gave up is counted as part of the shrimp business's Select one: a. explicit costs. b. total revenue. c. marginal costs. d. implicit costs.

d. implicit costs (the opportunity costs of using resources that the firm already owns)

A law that restricts the ability of hotels/motels to advertise on billboards outside of a resort community would likely lead to Select one: a. no change in profits for all hotels/motels. b. a request by consumers to increase the number of billboards. c. increased price competition among hotels/motels in the community. d. reduced efficiency of local lodging markets.

d. reduced efficiency of local lodging markets.

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

d. total cost.