UNL Microeconomics Final

8) A purely competitive firm can be identified by the fact that A) it experiences diminishing marginal returns. B) it is making only accounting profits in the short run. C) there are other firms in the industry producing similar products. D) its average revenue equals its marginal revenue.

D) its average revenue equals its marginal revenue.

5) Which characteristic would best be associated with pure competition? A) few sellers C) product differentiation B) nonprice competition D) price takers

D) price takers

6) Which is a feature of a purely competitive market? A) price differences between firms producing the same product B) the industry's demand curve is perfectly elastic C) significant barriers to entry into the industry D) products are standardized or homogeneous

D) products are standardized or homogeneous

7) Price is taken to be a "given" by an individual firm selling in a purely competitive market because A) each seller supplies a negligible fraction of total market. B) the firm's demand curve is downward-sloping. C) product differentiation is reinforced by extensive advertising. D) there are no good substitutes for the firm's product.

A) each seller supplies a negligible fraction of total market.

35) Pure monopolists may obtain economic profits in the long run because A) marginal revenue is constant as sales increase. B) of barriers to entry. C) of rising average fixed costs. D) of advertising.

B) of barriers to entry.

58) Demand and marginal revenue curves are downsloping for monopolistically competitive firms because A) mutual interdependence among all firms in the industry leads to collusion. B) there are a few large firms in the industry and they each act as a monopolist. C) product differentiation allows each firm some degree of monopoly power. D) each firm has to take the market price as given.

C) product differentiation allows each firm some degree of monopoly power.

61) Assume that in a monopolistically competitive industry, firms are earning economic profit. This situation will A) attract other firms to enter the industry, causing the existing firms' profits to shrink. B) cause firms to standardize their product to limit the degree of competition. C) reduce the excess capacity in the industry as firms expand production. D) make the industry allocatively efficient as each firm seeks to maintain its profits.

A) attract other firms to enter the industry, causing the existing firms' profits to shrink.

62) In the long run, a representative firm in a monopolistically competitive industry will end up A) earning a normal profit, but not an economic profit. B) having an elasticity of demand that will be less than it was in the short run. C) producing a level of output at which marginal cost and price are equal. D) having a larger number of competitors than it will in the short run.

A) earning a normal profit, but not an economic profit.

41) Suppose that a monopolist calculates that at its present output level, marginal revenue is $1 and marginal cost is $2. He or she could maximize profits or minimize losses by A) increasing price and decreasing output. B) decreasing output and leaving price unchanged. C) decreasing price and leaving output unchanged. D) decreasing price and increasing output.

A) increasing price and decreasing output.

56) Which of the following is a characteristic of monopolistic competition? A) relatively easy entry B) a relatively small number of firms C) absence of nonprice competition D) standardized product

A) relatively easy entry

Which would contribute most to a firm experiencing "economies of scale"? A) specialization of production within a firm B) rising long-run average costs C) deterioration of information and control within a firm D) the law of diminishing marginal returns

A) specialization of production within a firm

52) Which is not true of price discrimination? A) Successful price discrimination implies that the producer can separate customers into easily identifiable groups B) Successful price discrimination will generally result in a lower level of output than would be the case under a single-price monopoly C) Successful price discrimination will provide the firm with more profit than if it does not discriminate D) Successful price discrimination requires that different segments of the market have different demand elasticities

B) Successful price discrimination will generally result in a lower level of output than would be the case under a single-price monopoly

44) A firm will earn economic profits whenever A) marginal revenue exceeds marginal costs. B) average revenue exceeds average total costs. C) average revenue exceeds average variable costs. D) marginal revenue exceeds variable costs.

B) average revenue exceeds average total costs.

51) To practice long-run price discrimination, a monopolist must A) charge one price to all buyers. B) be able to separate buyers into different markets with different price elasticities. C) be a natural monopoly. D) permit the resale of the product by the original buyers.

B) be able to separate buyers into different markets with different price elasticities.

30) In a purely competitive industry A) economic profits may exist in the long run but not in the short run. B) economic profits may exist in the short run but not in the long run. C) no economic profits will exist in either the short run or the long run. D) economic profits may persist in the long run if consumer demand is strong and stable.

B) economic profits may exist in the short run but not in the long run.

12) A firm sells a product in a purely competitive market. The marginal cost of the product at the current output of 800 units is $3.50. The minimum possible average variable cost is $3. The market price of the product is $4. To maximize profits, the firm should A) continue producing 800 units. B) increase production to more than 800 units. C) continue production, but produce less than 800 units. D) shut down.

B) increase production to more than 800 units.

9) The demand curve faced by a purely competitive firm A) yields constant total revenues even when price changes. B) is the same as its marginal revenue curve. C) is identical to the market demand curve. D) has unitary elasticity.

B) is the same as its marginal revenue curve.

23) A firm should continue to operate even at a loss in the short run if A) it has some fixed costs that cannot be brought down to zero. B) it can cover its variable costs and some of its fixed costs. C) its output is above the break-even point. D) its revenues are less than its fixed costs.

B) it can cover its variable costs and some of its fixed costs.

42) Many people believe that monopolies charge any price they want to without affecting sales. Instead, the output level for a profit-maximizing monopoly is determined by A) marginal revenue = average cost. B) marginal cost = marginal revenue. C) marginal cost = average revenue. D) average total cost = average revenue.

B) marginal cost = marginal revenue.

33) Which of the following is a barrier to entry? A) diminishing marginal returns C) buyers' incomes B) patents and licenses D) close substitutes

B) patents and licenses

57) Monopolistic competition is characterized by firms A) producing where price equals marginal cost. B) producing differentiated products. C) producing at optimal productive efficiency. D) making economic profits in the long run.

B) producing differentiated products.

26) Assume that the market for corn is purely competitive. Currently, firms growing corn are suffering economic losses. In the long run, we can expect A) new firms to enter causing the market price of corn to rise. B) some firms to exit causing the market price of corn to rise. C) some firms to exit causing the market price of corn to fall. D) new firms to enter causing the market price of corn to fall.

B) some firms to exit causing the market price of corn to rise.

25) Suppose that the corn market is purely competitive. If the corn farmers are currently earning negative economic profits, then we would expect that in the long run the market's A) supply curve will shift to the right. C) demand curve will shift to the left. B) supply curve will shift to the left. D) demand curve will shift to the right.

B) supply curve will shift to the left.

10) Suppose that Joe sells pork in a purely competitive market. The market price of pork is $3 per pound. Joe's marginal revenue from selling the 12th pound would be A) 12 lbs. B) $36. C) $3. D) 1 lb.

C) $3.

32) One feature of pure monopoly is that the firm is A) a price taker. B) a producer of products with close substitutes. C) a price maker. D) one of several producers of a product.

C) a price maker.

34) Barriers to entry A) usually result in pure competition. B) exist in economic theory but not in the real world. C) can result from government regulation. D) are typically the result of wrongdoing on the part of a firm.

C) can result from government regulation.

66) When firms in an industry reach an agreement to fix prices, divide up market share, or otherwise restrict competition, they are practicing the strategy of A) interindustry competition. B) price leadership. C) collusion. D) limit pricing.

C) collusion.

2) When a firm doubles its inputs and finds that its output has more than doubled, this is known as A) a violation of the law of diminishing returns. B) diseconomies of scale. C) economies of scale. D) constant returns to scale.

C) economies of scale.

54) Natural monopolies result from A) pricing strategies. B) control over an essential natural resource. C) extensive economies of scale in production. D) patents and copyrights.

C) extensive economies of scale in production.

36) The nondiscriminating pure monopolist must decrease price on all units of a product sold in order to sell more units. This explains why A) total revenues are greater than total costs at the profit maximizing level of output. B) there are barriers to entry in pure monopoly. C) marginal revenue is less than average revenue. D) a monopoly has a perfectly elastic demand curve.

C) marginal revenue is less than average revenue.

63) A unique feature of an oligopolistic industry is A) standardized products. C) mutual interdependence. B) diminishing marginal returns. D) low barriers to entry.

C) mutual interdependence.

53) Which case below best represents a case of price discrimination? A) An insurance company offers discounts to safe drivers. B) A professional baseball team pays two players with identical batting averages different salaries. C) A utility company charges less for electricity used during "off-peak" hours, when it does not have to operate its less-efficient generating plants. D) A major airline sells tickets to senior citizens at lower prices than to other passengers.

D) A major airline sells tickets to senior citizens at lower prices than to other passengers.

64) The characteristic most closely associated with oligopoly is A) product standardization. B) no control over price. C) easy entry into the industry. D) a few large producers.

D) a few large producers.

48) A non discriminating pure monopolist is generally viewed as A) productively efficient, but allocatively inefficient. B) both productively and allocatively efficient. C) productively inefficient, but allocatively efficient. D) both productively and allocatively inefficient.

D) both productively and allocatively inefficient.

65) Mutual interdependence means that each firm in an oligopoly A) depends on the other firms for its markets. B) depends on the other firms for its inputs. C) faces a perfectly inelastic demand for its product. D) considers the reactions of its rivals when it determines its pricing policy.

D) considers the reactions of its rivals when it determines its pricing policy.

3) If all resources used in the production of a product are increased by 10% and output increases by less than 5%, then the firm is experiencing A) economies of scale. B) constant returns to scale. C) decreasing average total costs. D) diseconomies of scale.

D) diseconomies of scale.

29) In long-run equilibrium, a purely competitive firm will operate where price is A) greater than MR and MC, but equal to minimum ATC. B) greater than MR but equal to MC and minimum ATC. C) greater than MC and minimum ATC, but equal to MR. D) equal to MR, MC, and minimum ATC.

D) equal to MR, MC, and minimum ATC.

11) A purely competitive firm's output is currently such that its marginal cost is $4 and marginal revenue is $5. Assuming profit maximization, the firm should A) cut its price and raise its output. B) raise its price and cut output. C) leave price unchanged and cut output. D) leave price unchanged and raise output.

D) leave price unchanged and raise output.

21) A firm sells a product in a purely competitive market. The marginal cost of the product at the current output of 200 units is $4. The minimum possible average variable cost is $3.50. The market price of the product is $3. To maximize profits or minimize losses, the firm should A) continue production, but produce less than 200 units. B) continue to produce 200 units. C) increase production to more than 200 units. D) shut down.

D) shut down.