Chapter 8-10

Marginal revenue equals: A) the change in price divided by change in total revenue. B) the change in total revenue divided by the change in quantity. C) total revenue divided by quantity. D) total revenue divided by price.

b

Normal profits. for. a competitive firm occur when: A) the price equals average variable cost. C) marginal revenue exceeds marginal cost. B) the price equals average total cost. D) marginal cost exceeds marginal revenue.

b

The top eight firms in an industry control, respectively, 15%, 10%, 9%, 8%, 7%, 6%, 5%, and 4% of the industry. What is the four-firm concentration ratio?A) 15 B) 42 C) 64 D) 100

b

Normal profits are equal to: A) negative economic profits. C) zero economic profits. B) marginal revenue. D) marginal cost.

c

The idea that monopolies do not have to act efficiently because they are protected from competition is known as:A) cost containment. B) rent power. C) x-inefficiency. D) monopsonistic action.

c

The market shares in a six-firm industry equal 45, 25, 15, 10, 3, and 2, respectively. The Herfindahl-Hirschman Index for the industry is:A) 100. B) 2,500. C) 2,988. D) 203.

c

The profit- maximizing rule states that a perfectly competitive firm: A) should not produce a unit if its MC < MR. B) should stop production as soon as it experiences diminishing marginal returns. C) should produce that level of output at which MR = MC. D) produces too much if MR = MC.

c

(Figure: Monopoly Pricing and Output Decisions) Based on the graph, what is the equilibrium output for this monopolist?A) 5 units B) 12 units C) 16 units D) 20 units

b

If it is not profitable for more than one firm to operate within an industry, this is an example of: A) a monopoly due to ownership of key resources. B) a monopoly due to governmental entry restrictions. C) pure competition. D) a monopoly due to economies of scale.

d

Which of these is NOT a significant barrier to entry?A) patents B) government franchises C) large economies of scale D) opportunity costs

d

Perfectlycompetitivefirmsandmonopolyfirmsshouldincreaseproductionwhen: A) marginal revenue is less than marginal cost. B) marginal revenue is greater than marginal cost. C) price is less than marginal cost. D) price is equal to marginal cost.

b

Compared to a competitive industry, a monopolist is likely to achieve _____ producer surplus while generating _____ deadweight loss.A) more; more B) more; less C) less; more D) less; less

a

If a competitive firm can increase its profits by increasing its out put, then the firm's: A) P>MC. B) MR<MC. C) P>MR. D) MC>P.

a

If a perfectly competitive market is in long- run equilibrium, then the market is: A) both productively and allocatively efficient. B) neither productively nor allocatively efficient. C) productively efficient only. D) allocatively efficient only.

a

If the owner of a concert hall wishes to use third-degree price discrimination to price its tickets at $20, $15, and $10, it should price tickets lower for customers who are: A) more elastic in their demand for tickets. B) less elastic in their demand for tickets. C) very likely to attend the concert regardless of the price. D) not willing to attend the concert regardless of the price.

a

(Figure:InterpretingShort-RunCostCurves) Given the information from the figure, if price equals $1.00, the firm should: A) stay open because it is making an economic profit. B) stay open in the short run because it is operating at an economic loss. C) stay open because it is making a normal profit. D) shut down.

a

(Figure:InterpretingShort-RunCostCurves)Given the information from the figure, if price equals $0.70, the firm should: A) stay open in the short run because will minimize its loss. B) stay open because it is making a normal profit. C) shut down. D) stay open because it is making an economic profit.

a

A firm in a perfectly competitive industry would exhibit which characteristic?I. An ability to produce as much output as the firm desires at the market priceII. No economic profits in the short run but possible economic profits in the long run A) OnlyI B) OnlyII C) NeitherInorII D) Both IandII

a

Consider the following numbers at which a monopolist is producing, where MR = MC: Quantity = 20; Price = $9; Average Total Cost = $6. What is the total revenue and profit?A) $180; $60 B) $200; $192 C) $160; $200 D) $360; $200

a

If Annie has. sold forty apples in a perfectly competitive market and her total revenue is$80, when she sells her forty-first apple, her marginal revenue will be:A) $2. B) $20. C) $0.75. D) $0.50.

a

The Fish Shack is the only seafood restaurant in a remote village. It charges $15 for a bowl of fish soup and sells 10 bowls of it a day. In order to increase sales to 11 bowls a day, it must reduce the price to $14. What is the marginal revenue of the eleventh bowl?A) $4 B) $11 C) $14 D) $15

a

The graph represents a firm that produces the profit maximizing quantity. in the short run. What will happen in the long run? A) Market supply will increase, pushing prices lower. B) Market supply will increase, pushing prices higher. C) Market supply will decrease, pushing prices lower. D) Market supply will decrease, pushing prices higher.

a

What market structures share the characteristic of many buyers and sellers? A) perfect competition and monopolistic competition B) perfect competition and oligopoly C) perfect competition and monopoly D) Perfect competition is the only market structure with many buyers and sellers.

a

Which of the answer choices lists market structures in order from the highest number of sellers to the lowest? A) perfect competition, monopolistic competition, oligopoly, monopoly B) oligopoly, perfect competition, monopoly, monopolistic competition C) monopoly, monopolistic competition, perfect competition, oligopoly D) monopoly, oligopoly, monopolistic competition, perfect competition

a

Which of these is an example of third- degree price discrimination? A) charging airline business passengers and regular travelers different prices B) charging block rates on utilities C) charging different prices to consumers at a flea market D) charging different prices at a used car dealership

a

Which sequence describes the long- run adjustment process in a competitive market when firms are earning short-run economic profits? A) new firms enter, industry supply increases, market price falls B) new firms enter, industry demand increases, market price rises C) new firms enter, industry supply decreases, market price falls D) new firms enter, industry supply increases, market price rises

a

(Figure:UnicycleProductionCosts)If the market price is $18, John makes: A) an economic profit but not a normal profit. C) less than a normal rate of profit. B) a normal profit or zero economic profit. D) more than a normal rate of profit.

b

(Table)Based on the table, what is the shape of the demand curve that faces John's Tricycle Company? A) downward sloping B) horizontal C) vertical D) upward sloping

b

(Table)If the toy- making firm in the table faces a market price of $36 in the short run, it will maximize its profits by producing ____ toys. A) 54 B) 91 C) 84 D) 96

b

A regulatory agency has imposed marginal cost pricing on a natural monopolist. We should expect that: A) the natural monopolist's average total cost of production will rise over the relevant range of production. B) the natural monopolist will eventually go out of business. C) the natural monopolist will earn economic profits. D) the natural monopolist will only earn a normal profit.

b

Consumersoftenseekbargainsbypurchasinggoodsinlargequantities;forexample,buyinginbulkat Costco or buying larger boxes of cereal so the price per ounce is lower. These purchasing strategies result in which form of price discrimination? A) first-degree price discrimination C) third-degree price discrimination B) second-degree price discrimination D) fourth-degree price discrimination

b

Contestable markets: A) exist where monopolies charge high prices. B) exist where the threat of easy entry prevents a dominant company from charging excessive prices. C) are markets that are won by pure competition. D) are present only in Socialist countries.

b

Foramonopolyfirm,ifAVC=$20,P=$21,andATC=$22,thenthefirmshould: A) increase production. C) reduce production. B) produce at the point at which MC = MR. D) shut down.

b

If Glass Inc. produces 80. window panes. per day at the market price of$60 in a perfectly competitive market, what would happen to price if Glass Inc. increases production to 120 window panes, all else equal? A) The price would fluctuate in an unknown pattern. B) The price would remain the same. C) The price would increase as production by Glass Inc. rises. D) The price would decrease as production by Glass Inc. rises.

b

In the graph showing the revenue and cost curves for a monopolist, what is the profit-maximizing output and price? A) 20; 5 B) 20; 10 C) 35; 7 D) 35; 10

b

In the long run: A) all factors of production are fixed. B) firms can enter or leave an industry. C) firms will suffer losses.D) the firm's plant size is fixed.

b

Suppose a combination of population growth and rising in comes increases both the demand for and the price of housing. In response, existing builders and new entrants construct more new housing. As timber use outstrips the ability of forests to regrow, the price of timber rises. Consequently, the price of new housing rises. This scenario describes a(n): A) declining industry. B) increasing cost industry. C) industry in the trough.D) increasing profitability industry.

b

Supposetherearesixfirmsinamarket,withmarketsharesshowninthetable.IfFirms3and4merge, how would the Herfindahl-Hirschman Index (HHI) in this market change? A) HHI increases by 5. C) HHI increases by 484. B) HHI increases by 240. D) HHI increases by 3018.

b

The approximate value of deadweight loss created by this profit-maximizing monopolist is: A) 5 B) 7.5 C) 15 D) 24

b

The perfectly competitive firm's short- run supply curve is the: A) MC curve above the ATC curve. C) AVC curve. B) MC curve above the AVC curve. D) MC curve above the TC curve.

b

When a firm uses price discrimination successfully, the result is that producer surplus _____ while deadweight loss _____ compared to a single-price monopoly. A) rises; rises because less output is produced with price discrimination B) rises; falls because output increases with price discrimination C) falls; rises because less output is produced with price discrimination D) falls; falls because output increases with price discrimination

b

When a theme park sells a 1-day adult pass for $110 and a 2-day adult pass for $180, and a 1-day child pass for $90 and a 2-day child pass for $150, the theme park is engaging in: A) first- and second-degree price discrimination. B) second- and third-degree price discrimination. C) first- and third-degree price discrimination. D) first-, second-, and third-degree price discrimination.

b

When new firms. enter. a perfectly competitive market ,it will cause a(n): A) increase in demand. B) increase in supply. C) decrease in demand. D) decrease in supply.

b

Which of these is NOT a condition. necessary for price discrimination? A) The product cannot be resold to another customer. B) The product must be a durable good. C) The seller must have some market power. D) The price elasticities of demand are different for each group of consumers.

b

Whichofthefollowingisacharacteristicofamonopolyfirm? A) easy entry and exit C) a vertical, individual demand curve B) barriers to entry D) many buyers and sellers

b

(Figure:Determining IndustryCostCharacteristics)Short- run and long- run supply curves with short-run market equilibrium at points A and B are shown in the graph. We can conclude that the industry in the graph is a(n): A) increasing cost industry. C) constant cost industry. B) decreasing cost industry. D) market in long-term disequilibrium.

c

(Table)Based on the table, what is the profit- maximizing output for John's. Tricycle Company? A) 6units B) 7units C) 8units D) 9units

c

(Table)Based on the table, what price does John's Tricycle Company charge for a tricycle? A) $18,500 B) $1,400 C) $1,500 D) The price cannot be determined from the information given.

c

(Table)If the toy- making firm in the table faces a market price of $25 in the short run, it will: A) minimize its losses by producing 27 toys. C) minimize its losses by producing 76 toys. B) maximize its profits by producing 96 toys. D) minimize its losses by shutting down.

c

A characteristic that distinguishes monopolistic competition from perfect competition is: A) no long-run economic profits. C) differentiated products. B) no barriers to market entry or exit. D) many buyers and sellers.

c

A four-firm industry with market shares equal to 40, 30, 20, and 10, respectively, would have a Herfindahl-Hirschman Index of:A) 100. B) 1,000. C) 3,000. D) 10,000.

c

A perfectly competitive firm is a: A) price leader; it can change its price and other firms will adjust. B) price maker; it has the freedom to set the selling price. C) price taker; it must accept the market equilibrium price. D) price participant; it can coordinate its pricing decisions with other firms.

c

Amonopolydiffersfromaperfectlycompetitivemarketinthat: A) a monopolist always earns a normal profit in the long run. B) a monopoly market is easy to enter. C) no close substitutes exist for the monopolist's product. D) there is a lot of market power in a perfectly competitive market.

c

An industry in which there is a proposed merger has an Her findahl-Hirsch man Index(HHI) measurement of 3,000. The likely merger will raise the HHI by 100 points. This merger will be: A) approved. B) closely evaluated but not challenged. C) challenged because of the high initial HHI and the anticipated high post merger increase in the HHI. D) not given approval.

c

Compared with a single- price monopolist, a price- discriminating monopolist:A) earns the same profit. B) earns lower profits. C) earns higher profits. D) has lower costs.

c

For both the monopolist and the perfectly competitive firm: A) the profit-maximizing output occurs where P = MC. B) the profit-maximizing output occurs where P = MR. C) the profit-maximizing output occurs where MR = MC. D) profits are not maximized.

c

If the marginal cost pricing rule is used to regulate a natural monopolist, the monopolist:A) earns an economic profit. B) earns a normal profit. C) sustains an economic loss. D) earns a monopoly profit.

c

In a __________ market, the threat of entry keeps prices low.A) competitive B) natural monopoly C) contestable D) public

c

In the graph, which shows a firm in a perfectly competitive market, calculate the total profit. A) $80 B) $90 C) $42 D) $525

c

Marta takes her 72- year-old mother and her 11- year- old son to the local water park. Marta pays$12 for her ticket, $8 for her mother's senior citizen ticket, and $6 for her son's children's ticket. This is an example of: A) perfect price discrimination. C) third-degree price discrimination. B) second-degree price discrimination. D) a kinked oligopoly demand curve.

c

Miguel. ownsatacoshopinacityinwhichtherearemanyothertacoshops.Therearenobarriersto entry. Miguel can charge a higher price for his food because he uses a special sauce recipe passed down to him from his grandmother. Miguel stays in the taco business because he makes the same profit he would make if he devoted his resources to his next best option. What aspect of Miguel's business indicates that he is not in a perfectly competitive industry? A) Miguel makes economic profits in the long run. B) Miguel is one of many taco shop owners. C) Miguel has some control over his price. D) Tacos are a homogeneous product.

c

The market price of pomegranates is$2, and JoAnne sells. 25 pomegranates at the local farmer's market. The total revenue is _____ and the marginal revenue is _____. A) $12.50; $12.50 B) $12.50; $2.00 C) $50.00; $2.00 D) $50.00; $12.50

c

The reason a monopoly imposes a deadweight loss on society is that: A) there is a gain in profitability to firms that would have been in the industry had there been no monopoly. B) the government is concerned about the negative impact of a monopoly on consumers. C) consumers are denied output for which they are willing to pay more than the cost of producing it. D) social losses weigh heavily on public authorities.

c

Thedemandcurvefacingamonopolyfirmis: A) horizontal at the market equilibrium price. B) equivalent to the firm's marginal cost curve. C) equivalent to the market demand curve. D) upward sloping when the firm experiences economies of scale.

c

Which characteristic is found in a perfectly competitive market? A) no close substitutes for the product B) mutually interdependent decisions C) no barriers to market entry or exitD) potential for long-run economic profit

c

Which sequence of market structures ranks the barriers to entry from the fewest to the most? A) monopolistic competition; monopoly; oligopoly B) oligopoly; monopolistic competition; monopoly C) perfect competition; oligopoly; monopoly D) oligopoly; perfect competition; monopoly

c

WhichoftheseBESTrepresentsabarriertoentry? A) having an ability to acquire inputs from multiple sources B) relatively low fixed costs with high variable costs C) a research patent awarded to an inventor of a product D) government policies to promote competition among utility companies

c

(Figure: Effects of Monopolies on Markets) Based on the graph, which area represents the inefficiency caused by a monopoly? A) e B) f C) g D) h

d

(Figure: Monopoly Pricing and Output Decisions) Based on the graph, what is the equilibrium price for this monopolist? A) $12 B) $16 C) $20 D) $30

d

(Figure: Monopoly Pricing and Output Decisions) Based on the graph, which statement is TRUE about this monopolist? A) It is operating at a profit. C) It will shut down. B) It is operating at a loss in the short run. D) It is making normal profits.

d

(Figure: Multiple-Price Monopolist) The monopolist in the graph has market power; she can separate the market into different consumer groups based on their elasticities of demand and she can prevent arbitrage. If the monopolist knows the willingness to pay for each of its customers and has marginal costs of $10, the producer surplus for the monopolist would be: A) $1,000,000. B) $800,000. C) $400,000. D) $200,000.

d

(Figure:InterpretingShort-RunCostCurves)Given the information from the figure, if price equals $0.40, the firm should: A) stay open because it is making an economic profit. B) stay open in the short run because it is operating at an economic loss. C) stay open because it is making a normal profit. D) shut down.

d

(Table)If the. toy- making firm in the table faces a market price of $20 in the short run , it should: A) produce 40 toys. B) produce 96 toys. C) produce 76 toys. D) shut down.

d

AmonopolyfirmexhibitsallofthefollowingcharacteristicsEXCEPT: A) the ability to earn economic profits in the long run. B) significant barriers to entry. C) an individual demand curve that is the same as the market demand curve. D) a marginal revenue curve that equals price at all quantities.

d

As a single seller in her area, Jasmine could sell 15 units at $12 per unit and 16 units at $11.25 per unit. Her marginal revenue for the sixteenth unit is:A) $45. B) $135. C) $11.25. D) $0.

d

Firms hiring lobbyists to keep out new entrants and avoid competition is an example of: A) regulatory restrictions. B) economies of scale. C) enforcing a free market. D) rent seeking.

d

If Tire Guy Tommy negotiates a separate deal with each customer, Tommy is engaging in: A) fourth-degree price discrimination. B) second-degree price discrimination. C) third-degree price discrimination. D) perfect price discrimination.

d

If a firm is producing where price exceeds average variable cost, the firm should continue production even though it will incur a loss, since: A) it is important to show stockholders that the company can turn itself around. B) it must adhere to union rules against layoffs. C) the loss will quickly revert to a profit. D) it can cover its variable costs (payroll, utilities, etc.) and have some funds left over to apply toward paying fixed costs.

d

If the snowboard industry is dominated by four large firms, each with 20% of market share, and 2 small firms, each with 10% market share, what is the four-firm concentration ratio and what is the Herfindahl-Hirschman Index (HHI)? A) four-firm concentration ratio = 60; HHI = 1,600 B) four-firm concentration ratio = 60; HHI = 1,800 C) four-firm concentration ratio = 80; HHI = 1,600 D) four-firm concentration ratio = 80; HHI = 1,800

d

In a perfectly competitive industry, short-run economic. profits will lead firms to_____ the market, causing market price to _____. A) exit; increase B) exit; decrease C) enter; increase D) enter; decrease

d

In the graph, which shows. a firm in a perfectly competitive market, what is the profit- maximizing price and quantity? A) Price = $8; Quantity = 10 B) Price = $9; Quantity = 14 C) Price = $12; Quantity = 18 D) Price = $12; Quantity = 14

d

Suppose that the only café in town can sell five fish dinners per night at a price of $10 each. If this monopoly firm wants to sell six fish dinners, it must reduce the price to $9 each. When the business pursues this strategy to increase sales, the marginal revenue from the sixth dinner sold is:A) $54. B) $50. C) $9. D) $4.

d

The taxi industry in many cities has lobbied politicians to increase driver requirements for ride-sharing companies such as Uber in order for them to operate legally. The money spent by the taxi industry for this purpose is:A) producer surplus. B) x-inefficiency. C) deadweight loss. D) rent-seeking.

d

With perfect competition ,the. price of the good or service is determined by: A) the individual producers. C) government agencies. B) the individual consumers. D) market supply and market demand.

d