ECO 251- Principles of Microeconomics (Final Exam)
Which of the following is not a characteristic of a perfectly competitive market?
Many firms have market power.
Refer to Figure 14-14. When the market is in long-run equilibrium at point A in panel (b), the firm represented in panel (a) will
have a zero economic profit.
Round-trip airline tickets are usually cheaper if you stay over a Saturday night before you fly back. What is the reason for this price discrepancy?
All of the above are correct. (Airlines are practicing imperfect price discrimination to raise their profits; airlines charge a different rate based on the different nature of peoples travel needs; airlines are attempting to charge people based on their willingness to pay.)
Tommy's Tie Company, a monopolist, has the following cost and revenue information. Assume that Tommy's is able to engage in perfect price discrimination. Refer to Table 15-18. If the monopolist can engage in perfect price discrimination, what is the total revenue when 3 ties are sold?
$450
Table 15-6 A monopolist faces the following demand curve: Refer to Table 15-6. What is the marginal revenue from the sale of the 2nd unit?
$9
Table 5-5 The following table shows a portion of the demand schedule for a particular good at various levels of income. Refer to Table 5-5. Using the midpoint method, at a price of $8, what is the income elasticity of demand when income rises from $7,500 to $10,000?
1.00
Refer to Figure 16-3. At the profit-maximizing, or loss-minimizing, output level, how many units of output will the firm in this figure produce?
15
Refer to Table 13-4. What is the marginal product of the third worker?
15 students
If the price elasticity of supply is 0.2, and a price increase led to a 3% increase in quantity supplied, then the price increase is about
15%
Refer to Figure 15-14. To maximize its profit, a monopolist would choose which of the following outcomes?
Q = 30 and P = 60
When the price of bubble gum is $0.50, the quantity demanded is 400 packs per day. When the price falls to $0.40, the quantity demanded increases to 600. Given this information and using the midpoint method, we know that the demand for bubble gum is
elastic
Each firm in a monopolistically competitive market
faces a downward-sloping demand curve.
When OPEC raised the price of crude oil in the 1970s, it caused the United States'
nonbinding price ceiling on gasoline to become binding.
Antitrust laws in general are used to
prevent oligopolists from acting in ways that make markets less competitive.
When a profit-maximizing firm in a monopolistically competitive market is in long-run equilibrium,
price exceeds marginal cost.
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
shut down in the short run and exit in the long run.
A binding price floor (i) causes a surplus. (ii) causes a shortage. (iii) is set at a price above the equilibrium price. (iv) is set at a price below the equilibrium price.
(i) and (iii) only
Monopolistic competition is characterized by which of the following attributes? (i) free entry (ii) product differentiation (iii) many sellers
(i), (ii), and (iii)
A binding price ceiling (i) causes a surplus. (ii) causes a shortage. (iii) is set at a price above the equilibrium price. (iv) is set at a price below the equilibrium price.
(ii) and (iv) only
Scenario 17-4. Consider two cigarette companies, PM Inc. and Brown Inc. If neither company advertises, the two companies split the market and earn $50 million each. If they both advertise, they again split the market, but profits are lower by $10 million since each company must bear the cost of advertising. Yet if one company advertises while the other does not, the one that advertises attracts customers from the other. In this case, the company that advertises earns $60 million while the company that does not advertise earns only $30 million. Refer to Scenario 17-4. What will these two companies do if they behave as individual profit maximizers?
Both companies will advertise.
If consumers view cappuccinos and lattés as substitutes, what would happen to the equilibrium price and quantity of lattés if the price of cappuccinos falls?
Both the equilibrium price and quantity would decrease.
If consumers view cappuccinos and lattés as substitutes, what would happen to the equilibrium price and quantity of lattés if the price of cappuccinos rises?
Both the equilibrium price and quantity would increase.
Figure 4-19 The diagram below pertains to the demand for turkey in the United States. Refer to Figure 4-19. All else equal, an increase in the income of buyers who consider turkey to be an inferior good would cause a move from
Da to Db.
Which of the following statements is correct?
If the monopolists marginal revenue is greater than its marginal cost, the monopolist can increase profit by selling more units at a lower price per unit.
Which of the following statements best reflects the production decision of a profit-maximizing firm in a competitive market when price falls below the minimum of average variable cost?
The firm will immediately stop production to minimize its losses.
A firm in a competitive market currently produces and sells 500 doorknobs for a price of $10 per doorknob. Which of the following events would decrease the firms average revenue?
The market price of doorknobs falls below $10.
A key determinant of the price elasticity of supply is the time period under consideration. Which of the following statements best explains this fact?
The number of firms in a market tends to be more variable over long periods of time than over short periods of time.
Refer to Figure 4-22. Panel (d) shows which of the following?
a decrease in quantity demanded and a decrease in supply
Suppose the government wants to encourage Americans to exercise more, so it imposes a binding price ceiling on the market for in-home treadmills. As a result,
a shortage of treadmills will develop.
If firms in a monopolistically competitive market are incurring economic losses, which of the following scenarios would best describe the change remaining firms would face as the market adjusts to the long-run equilibrium?
an increase in demand for each firm
Refer to Figure 6-15. Suppose a tax of $2 per unit is imposed on this market. How much will sellers receive per unit after the tax is imposed?
between $3 and $5
Who is a price taker in a competitive market?
both buyers and sellers
Scenario 17-3. Consider two countries, Muria and Zenya, that are engaged in an arms race. Each country must decide whether to build new weapons or to disarm existing weapons. Each country prefers to have more arms than the other because a large arsenal gives it more influence in world affairs. But each country also prefers to live in a world safe from the other countrys weapons. The following table shows the possible outcomes for each decision combination. The numbers in each cell represent the country's ranking of the outcome (4 = best outcome, 1 = worst outcome). Refer to Scenario 17-3. If Zenya chooses to build new weapons, then Muria will
build new weapons in order to prevent the loss of influence in world affairs.
Refer to Figure 6-24. Suppose D1 represents the demand curve for paperback novels, D2 represents the demand curve for gasoline, and S1 represents the supply curve for paperback novels and gasoline. After the imposition of the $2 on paperback novels and on gasoline, the
buyers of gasoline bear a higher burden of the $2 tax than buyers of paperback novels.
Refer to Table 14-1. The price and quantity relationship in the table is most likely a demand curve faced by a firm in a
competitive market.
Critics of advertising argue that advertising
creates demand for products that people otherwise do not want or need.
An early frost in the vineyards of Napa Valley would cause a(n)
decrease in the supply of wine, increasing price.
If Farmer Brown plants no seeds on his farm, he gets no harvest. If he plants 1 bag of seeds, he gets 5 bushels of wheat. If he plants 2 bags, he gets 9 bushels. If he plants 3 bags, he gets 12 bushels. A bag of seeds costs $120, and seeds are his only cost. Refer to Scenario 13-12. Farmer Brown's total-cost curve is
increasing at an increasing rate.
The average-fixed-cost curve
is always decreasing.
As the number of firms in an oligopoly increases, the price approaches
marginal cost.
When a monopolist is able to sell its product at different prices, it is engaging in
price discrimination.
If a market is a duopoly and additional firms enter and do not cooperate, then
price falls and quantity rises.
Total revenue equals
price x quantity.
Total revenue
remains unchanged as price increases when demand is unit elastic.
Refer to Figure 4-15. At a price of $15, there would be a
shortage of 400 units.
If sellers expect higher basket prices in the near future, the current
supply of baskets will decrease.
If the price of walnuts rises, many people would switch from consuming walnuts to consuming pecans. But if the price of salt rises, people would have difficulty purchasing something to use in its place. These examples illustrate the importance of
the availability of close substitutes in determining the price elasticity of demand.
Suppose that Juan Carlos is filling out a survey that he received in the mail. The survey asks him what he would do if the price of his favorite toothpaste increased. Juan Carlos reports that he would switch to a different brand. The survey asks what he would do if the price of all toothpastes increased. Juan Carlos reports that he must use toothpaste, so he would have to adjust his spending elsewhere. These examples illustrate the importance of
the definition of a market in determining the price elasticity of demand.
Cartels are difficult to maintain because
there is always tension between cooperation and self-interest in a cartel.
Refer to Table 13-4. Charles's math tutoring company experiences diminishing marginal productivity with the addition of the
third worker.