Econ 121: Exam 3 Ch, 13-17

Refer to Figure 14-3. If the market price is $6, what is the firm's short-run economic profit? a. $0 b. $12 c. $15 d. $18

a. $0 Price = MATC so profit is 0

Katherine gives piano lessons for $15 per hour. She also grows flowers, which she arranges and sells at the local farmer's market. One day she spends 5 hours planting $50 worth of seeds in her garden. Once the seeds have grown into flowers, she can sell them for $150 at the farmer's market. Katherine's accounting profits are a. $100, and her economic profits are $25. b. $100, and her economic profits are $75. c. $25, and her economic profits are $100. d. $75, and her economic profits are $125.

a. $100, and her economic profits are $25. Accounting Profits: 150 - 50 = 100 Economic Profits: 150 - (75 + 50) = 25

If a monopolist sells 100 units at $8 per unit and realizes an average total cost of $6 per unit, what is the monopolist's profit? a. $200 b. $400 c. $600 d. $800

a. $200 (P x Q) - (ATC x Q) (8 x 100) - (6 x 100) = 200

Refer to Table 13-7. What is the value of J? a. $25 b. $50 c. $110 d. $220

a. $25 AFC = FC/Q 50/2 = 25

Refer to Figure 14-2. Which of the four prices corresponds to a firm earning positive economic profits in the short run? a. Pa b. Pb c. Pc d. Pd

a. Pa Pa is the only one above MATC

A firm in a monopolistically competitive market faces a a. downward-sloping demand curve because the firm's product is different from those offered by other firms. b. downward-sloping demand curve because there are only a few firms in the market. c. horizontal demand curve because there are many firms in the market. d. horizontal demand curve because firms can enter the market without restriction.

a. downward-sloping demand curve because the firm's product is different from those offered by other firms.

When a firm's demand curve is tangent to its average total cost curve, the a. firm's economic profit is zero. b. firm must be earning economic profits. c. firm must be incurring economic losses. d. firm must be operating at its efficient scale.

a. firm's economic profit is zero.

Assume a certain firm regards the number of workers it employs as variable but regards the size of its factory as fixed. This assumption is often realistic a. in the short run but not in the long run. b. in the long run but not in the short run. c. both in the short run and in the long run. d. neither in the short run nor in the long run.

a. in the short run but not in the long run.

The profit-maximizing rule for a firm in a monopolistically competitive market is to always select the quantity at which a. marginal revenue is equal to marginal cost. b. average total cost is equal to marginal revenue. c. average total cost is equal to price. d. average revenue exceeds average total cost.

a. marginal revenue is equal to marginal cost.

Refer to Figure 16-5. Panel b is consistent with a firm in a monopolistically competitive market that is a. not in long-run equilibrium. b. in long-run equilibrium. c. producing its efficient scale of output. d. earning a positive economic profit.

a. not in long-run equilibrium.

For a monopolistically competitive firm, at the profit-maximizing quantity of output, a. price exceeds marginal cost. b. marginal revenue exceeds marginal cost. c. marginal cost exceeds average revenue. d. price equals marginal revenue.

a. price exceeds marginal cost.

When price is below average variable cost, a firm in a competitive market will a. shut down and incur fixed costs. b. shut down and incur both variable and fixed costs. c. continue to operate as long as average revenue exceeds marginal cost. d. continue to operate as long as average revenue exceeds average fixed cost.

a. shut down and incur fixed costs.

A firm operating in a monopolistically competitive market can earn economic profits in a. the short run but not in the long run. b. the long run but not in the short run. c. both the short run and the long run. d. neither the short run nor the long run.

a. the short run but not in the long run.

The Wacky Widget company has total fixed costs of $100,000 per year. The firm's average variable cost is $5 for 10,000 widgets. At that level of output, the firm's average total costs equal a. $10 b. $15 c. $100 d. $150

b. $15 ATC = TC/Q (100,000 + 50,000)/10,000

Refer to Table 13-14. What is the marginal cost of the 2nd unit of output? a. $10 b. $15 c. $24 d. $38

b. $15 MC = change in TC 33 - 48 = 15

Refer to Table 13-11. The average fixed cost of producing 5 posters is a. $1. b. $2. c. $3. d. $5.

b. $2. AFC = FC/Q 10/5 = 2

Refer to Table 15-8. What is the maximum profit that the monopolist can earn? a. $10 b. $20 c. $30 d. $40

b. $20 Calculate Revenue and Total Cost, then subtract them to get Profit

Refer to Table 13-7. What is the value of D? a. $25 b. $50 c. $100 d. $200

b. $50 AFC = FC/Q 50/1 = 50

Refer to Figure 14-7. Suppose the price of the good is $175. If the firm produces and sells 515 units of output, its total revenue is a. $100,525. b. $90,125. c. $84,500. d. $75,250.

b. $90,125. TR = Q x P 175 x 515 = 90,125

A monopolist can sell 300 units of output for $45 per unit. Alternatively, it can sell 301 units of output for $44.60 per unit. The marginal revenue of the 301st unit of output is a. -$120.00. b. -$75.40. c. -$0.40. d. $75.40.

b. -$75.40. (45 x 300) - (44.60 x 301) = 75.40

Refer to Table 15-2. What is Tanya's profit-maximizing level of output? a. 1 b. 2 c. 3 d. 4

b. 2 Calculate Revenue and Marginal Cost, then subtract them to get Profit

Refer to Table 14-9. At which quantity of output is marginal revenue equal to marginal cost? a. 3 units b. 5 units c. 7 units d. 9 units

b. 5 units make table for MR and MC 40 - 32 = 8 = 35 - 27

Refer to Table 14-14. At what quantity will Bob maximize his profit? a. 5 units b. 6 units c. 7 units d. 8 units

b. 6 units

Refer to Figure 16-3. What is the profit-maximizing price, quantity, and resulting profit? a. P=$60, Q=20 units, profit=$200 b. P=$80, Q=20 units, profit=$200 c. P=$75, Q=25 units, profit=$100 d. P=$60, Q=40 units, profit=$0

b. P=$80, Q=20 units, profit=$200

Mrs. Smith operates a business in a competitive market. The current market price is $8.10. 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 a. shut down her business in the short run but continue to operate in the long run. b. continue to operate in the short run but shut down in the long run. c. continue to operate in both the short run and long run. d. shut down in both the short run and long run.

b. continue to operate in the short run but shut down in the long run.

In the long run, a. inputs that were fixed in the short run remain fixed. b. inputs that were fixed in the short run become variable. c. inputs that were variable in the short run become fixed. d. variable inputs are rarely used.

b. inputs that were fixed in the short run become variable.

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.

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

b. producers sell nearly identical products.

For a firm, the relationship between the quantity of inputs and quantity of output is called the a. profit function. b. production function. c. total-cost function. d. quantity function.

b. production function.

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.

Refer to Table 13-7. What is the value of E? a. $25 b. $50 c. $100 d. $150

c. $100 AVC = VC/Q 100/1 = 100

Refer to Table 13-7. What is the value of C? a. $25 b. $50 c. $100 d. $200

c. $100 MC = change in TC 50 - 150 = 100

Refer to Table 16-6. At the profit-maximizing quantity, what is Beatrice's total profit? a. $43 b. $89 c. $101 d. $144

c. $101 Calculate Revenue and Total Cost, then subtract them to get Profit

Refer to Figure 15-7. A profit-maximizing monopolist would earn profits of a. $96. b. $117. c. $120. d. $126.

c. $120. P x Q at Demand Curve minus P x Q at ATC

Refer to Table 14-3. For this firm, the marginal revenue is a. $39. b. $26. c. $13. d. $0.

c. $13. MR = change in R 13 - 0 = 13

Refer to Table 13-14. What is the average total cost of producing 2 units of output? a. $15 b. $19 c. $24 d. $48

c. $24 ATC = TC/Q (10 + 38)/2 = 24

Refer to Figure 14-7. When the price of the good is $175, the firm's maximum profit is a. $16,500. b. $20,375. c. $25,750. d. $90,125.

c. $25,750. 175 x 515 = 90,125 , 125 x 515 = 64,375 90,125 - 64,375 = 25,750

Refer to Table 15-7. What is total profit at the profit-maximizing quantity? a. $100 b. $245 c. $265 d. $395

c. $265 Calculate Revenue and Total Cost, then subtract them to get Profit

Refer to Table 14-13. What is Diana's economic profit at the profit maximizing point? a. $78 b. $243 c. $278 d. $375

c. $278

A firm in a monopolistically competitive market is similar to a monopoly in the sense that (i) they both face downward-sloping demand curves. (ii) they both charge a price that exceeds marginal cost. (iii) free entry and exit determines the long-run equilibrium. a. (i) only b. (ii) only c. (i) and (ii) only d. (i), (ii), and (iii) only

c. (i) and (ii) only

Which of the following is not an example of a barrier to entry? a. Mighty Mitch's Mining Company owns a unique plot of land in Tanzania, under which lies the only large deposit of Tanzanite in the world. b. A chemist receives a patent for a new skin cream. c. An entrepreneur opens a cupcake bakery. d. A taxi cab driver in New York City obtains a license to legally provide transportation in New York City.

c. An entrepreneur opens a cupcake bakery.

Which of the following is a characteristic of a monopoly? a. low fixed costs as a portion of total costs b. free entry and exit c. barriers to entry d. declining marginal cost

c. barriers to entry

For a profit-maximizing monopolistically competitive firm, price exceeds the marginal cost in a. the short run but not in the long run. b. the long run but not in the short run. c. both the short run and the long run. d. neither the short run nor the long run.

c. both the short run and the long run.

When existing firms lose customers and profits due to entry of a new competitor, a a. predatory-pricing externality occurs. b. consumption externality occurs. c. business-stealing externality occurs. d. product-variety externality occurs.

c. business-stealing externality occurs.

The socially efficient level of production occurs where the marginal cost curve intersects a. average variable cost. b. average total cost. c. demand. d. marginal revenue.

c. demand.

A difference between explicit and implicit costs is that a. explicit costs must be greater than implicit costs. b. explicit costs do not require a direct monetary outlay by the firm, whereas implicit costs do. c. implicit costs do not require a direct monetary outlay by the firm, whereas explicit costs do. d. implicit costs must be greater than explicit costs.

c. implicit costs do not require a direct monetary outlay by the firm, whereas explicit costs do.

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.

A profit-maximizing monopolist will produce the level of output at which a. average revenue is equal to average total cost. b. average revenue is equal to marginal cost. c. marginal revenue is equal to marginal cost. d. total revenue is equal to opportunity cost.

c. marginal revenue is equal to marginal cost.

Monopolistic competition is characterized by which of the following attributes? (i) free entry (ii) product differentiation (iii) many sellers a. (i) and (iii) only b. (i) and (ii) only c. (ii) and (iii) only d. (i), (ii), and (iii)

d. (i), (ii), and (iii)

In a long-run equilibrium, the marginal firm has a. price equal to average total cost. b. total revenue equal to total cost. c. economic profit equal to zero. d. All of the above are correct.

d. All of the above are correct.

Which of the following is a characteristic of a natural monopoly? a. Average cost exceeds marginal cost over large regions of output. b. Increasing the number of firms increases each firm's average total cost. c. One firm can supply output at a lower cost than two firms. d. All of the above are correct.

d. All of the above are correct.

Which of the following statements regarding monopolistic competition is not correct? a. In the long-run equilibrium, price equals average total cost. b. In the long-run equilibrium, firms earn zero economic profit. c. In the long-run equilibrium, firms charge a price above marginal cost. d. In the long-run equilibrium, firms produce a quantity in excess of their efficient scale.

d. In the long-run equilibrium, firms produce a quantity in excess of their efficient scale.

Which of the following statements is not correct about competitive firms? a. In a long-run equilibrium, firms must be operating at their efficient scale. b. In the short run, the number of firms in an industry may be fixed. c. In the long run, the number of firms can adjust to changing market conditions. d. In the short run, firms must be operating at a level of output where price equals average variable cost.

d. In the short run, firms must be operating at a level of output where price equals average variable cost.

Refer to Figure 15-11. Which area represents the deadweight loss from monopoly? a. J b. H c. A+B+C+D+F+I+J+H d. J+H

d. J+H

Refer to Figure 14-2. Which of the four prices corresponds to a firm earning negative economic profits in the short run and shutting down? a. Pa b. Pb c. Pc d. Pd

d. Pd Pd is way bellow all other Prices and MATC

Refer to Table 16-4. How much profit will this firm earn when it chooses its output to maximize profit? a. a $12 loss b. an $8 profit c. a $25 profit d. a $32 profit

d. a $32 profit Calculate Revenue and Total Cost, then subtract them to get Profit

Refer to Figure 16-9. Given this firm's cost curves, if the firm were perfectly competitive rather than monopolistically competitive, then in a long-run equilibrium it would produce a. less than 100 units of output. b. between 100 and 133.33 units of output. c. 133.33 units of output. d. more than 133.33 units of output.

d. more than 133.33 units of output.

In the short run, a firm incurs fixed costs a. only if it incurs variable costs. b. only if it produces no output. c. only if it produces a positive quantity of output. d. whether it produces output or not.

d. whether it produces output or not.

​Refer to Figure 15-22. Given that Bearclaws chooses the profit maximizing price and quantity, what profit level will it obtain? a. ​$700. b. ​$980. c. ​$490. d. ​$280.

d. ​$280. P x Q at Demand Curve minus P x Q at ATC