ECON 2000

In cost benefit analysis, regulatory intervention can be justified if the A. Marginal benefits of regulation exceeds its marginal cost B. Economic cost of regulation exceeds the value of the improvements in government intervention C. Value of government failure exceeds the value of market failure D. Intervention improves market outcomes, regardless of costs

A. Marginal benefit of regulation exceeds its marginal cost

Using Figure 27.1, if regulation of the natural monopolist called for marginal cost pricing, the regulatory agency should set the price at A. P1 B. P2 C. P3 D. P4

A. P1

Accounting costs and economic costs differ because A. economic cost include implicit costs and accounting costs do not B. accounting costs include implicit costs and economic costs do not C. economic costs include explicit costs and accounting costs do not D. accounting costs include explicit costs and economic costs do not

A. economic costs include implicit costs and accounting costs do not

Using figure 23. 2, for a perfectly competitive firm, given the current market price of $100, we expect to see A. entry into this industry B. exit from this industry C. no change in the number of firms in this industry D. costs rise to absorb the profits earned by the firms in the industry

A. entry into this industry

The demand curve confronting a competitive firm A. equals the marginal revenue curve B. is horizontal, as is the market demand curve C. sloped downward, while the market demand is horizontal D. sloped downward, and the marginal revenue curve is below it.

A. equals the marginal revenue curve

A monopolist has market power because it A. faces a downward-sloping demand curve for its own output B. can raise price as much as it wishes and not lose any customers C. is a price taker D. is regulated by the government

A. faces a downward-sloping demand curve for its own output

Supply restrictions in the farming industry occur in the form of A. import quotas B. government stockpiles C. price supports D. production subsides

A. import quotas

The long-run average total cost curve of a natural monopolist A. is downward sloping in the relevant range of production B. is U-shaped C. reflects diseconomies of scale D. is below the long-run marginal cost curve in the relevant range of production

A. is downward sloping in the relevant range of production

is an oligopolists is going to change its price or output, its initial concern is A. the response of its competitors B. a change in its cost structure C. the concentration ratio D. the response of the federal trade commission

A. the response of its competitors

Using figure 23.5, if a perfectly competitive firm produces the level of output corresponding to point B in the short run, it will earn A. zero economic profit B. an economic profit C. an accounting loss D. an economic loss

A. zero economic profit

Using figure 23.1, a perfectly competitive firm should shut down in the short run if the market price is below A.$5 B.$10 C.$15 D.$20

A.$5

Which of the following real-world situations is the result of excess capacity in a monopolistically competitive market? A. a factory producing women's clothing produces more than it can sell during a season B. gas stations with infrequently used pumps are located at all four corners of an intersection C. A retail auto tire store orders too much inventory D.monopolistically competitive firms do not exist in the real world

B. Gas stations with infrequently used pumps are located at all four corners of an intersection

Which of the following characterizes the difference between oligopoly and monopolistic competition? A. Oligopolists are independent of each other; monopolistically competitive firms are interdependent B. Monopolistically competitive firms experience zero long-run economic profit; oligopolists my experience positive long-run economic profit C. There are many oligopolists but only a few monopolistically competitive firms D. Monopolistically competitive firms face horizontal demand curves; oligopolists face downward-sloping demand curve

B. Monopolistically competitive firms experience zero long run economic profit; oligopolists may experience positive long-run economic profit.

The concentration ratio for an oligopoly is considered A. Under 40 percent B. Over 60 Percent C. 90 Percent D. 100 Percent

B. Over 60 percent

If tourists are charged a much higher price than the natives of a country for exactly the same item, what kind of pricing is involved? A. monopoly pricing B. price discrimination C. competitive pricing D. MC=MR pricing

B. Price discrimination

Farm price support programs most often take the form of price A. ceilings above the equilibrium price B. floors above the equilibrium price C. ceilings below the equilibrium price D. floors below the equilibrium price

B. floors above the equilibrium price

Sky-High skywriters charges competitive prices fir its skywriting services even though it has no competition. This is most likely because A. there are no economies of scale in this industry B. it operates in a contestable market C. it is a natural monopoly D. it cares more about customers well being than its own well being

B. it operates in a contestable market

Government subsidies on the purchase of fertilizer by farmers result in A. higher fixed cost to farmers. B. Lower costs of production and increased output C. decreased output because variable costs are higher D. no change to fixed or variable costs

B. lower cost of production and increased output

The most desirable rate of output for a firm is the output that A. minimizes total costs B. maximizes total profit C. minimizes marginal costs D. maximizes total revenue

B. maximizes total profit

Large cities typically have many drugstores that offer different levels of service and product selection. The drugstore market in big cities can be classified as A. a competitive market B. monopolistic competition C. oligopoly D. monopoly

B. monopolistic competition

A perfectly competitive firm will maximize profits by choosing an output level where the A. price is greater than marginal cost B. price equals marginal cost C. price equals total cost D. price is greater than total cost

B. price equals marginal cost

A monopoly A. maximizes profits at the output level where MR>MC B. produces less output than a competitive industry, ceteris paribus C. charges the same price as a competitive industry, ceteris paribus D. maximizes profits at the output where P=MR

B. produces less output than a competitive industry, ceteris paribus

When firms are interdependent A. one firm can ignore other companies in the market when making decisions B. the profit of one firm depends on how its rivals respond to its strategic decisions C. they can act independently of one another D. then the market is perfectly competitive

B. the profit of one firm depends on how its rivals respond to its strategic decisions

Using table 28.1 suppose the government allows these two firms to trade pollution permits. The total cost to reduce emissions by a total of two ton could be as low as A.0 B. 480 C. 900 D. 600

B.480

Using figure 22.2, for a perfectly competitive firm, the profit maximizing quantity of output is A. B B. C C. D D. E

C. D

In making a production decision, an entrepreneur A. decides weather to enter or exit the market B. decides what level of output will maximize profit C. determines plants and equipment D. can change both fixed and variable inputs

C. Determines plants and equipment

The price charged by a profit-maximizing monopolist occurs A. at the minimum of the long-run average total cost curve B. where P=MR=MC C. at a price on the demand curve about the intersection where MR=MC D. at a price on the long-run average total cost curve below the point where MR=MC

C. at a price on the demand curve about the intersection where MR=MC

High profits in a particular industry indicate that A. consumers want less of that industry's goods. B. consumers are satisfied with the level of production of that industry's good. C. consumers want more of that industry's goods D. producers are satisfied with the level of production of that industry's goods

C. consumers want more of that industry's goods

Economies of scale A. exists in both the short run and the long run B. explain why average variable and average total costs decline in the short run C. explain why average total cost decline as output increases in the long run D. explain why average total cost increase as output increases in the long run

C. explain why average total cost decline as output increases in the long run

Output regulation forces that natural monopolist to produce at an output A. that perfectly competitive firms would choose B. where MR=MC C. greater than its profit-maximizing choice D. where MR equals zero

C. greater than its profit-maximizing choice

A monopolistically competitive firm maximizes profits or minimizes losses in the short run by A. setting price equal to marginal cost B. producing at the output level where ATC is minimized C. producing at the output level where MR equals MC D. producing at the output level where MC equals ATC

C. producing at the output level where MR equals MC

If new firms enter a monopolistically competitive market, the demand curves for the existing firms will A. not change B. become horizontal C. shift to the left D. shift to the right

C. shift to the left

Other things being equal, as more firms enter a market, the market supply curve A. becomes more inelastic B. shifts to the left C. shifts to the right D. intersects the demand curve at a higher price

C. shifts to the right

Normal profit implies that A. economic profit must be positive B. economic profit must be negative C. the factors employed are earning as much as they could in the best alternative employment D. firms will expand their scale of production

C. the factors employed are earning as much as they could in the best alternative employment

Which of the following is characteristic of a perfectly competitive market? A. a small number of firms B. exit of small firms when profits are high for large firms C. zero economic profit in the long run D. marginal revenue lower than price for each firm

C. zero economic profit in the long run

Using table 21.5, the total variable cost of the first unit of output is A. $15.00 B. $12.00 C.$8.00 D.$6.00

C.$8.00

If the social costs of an economic activity are $110 and the private costs are $70, then the external costs of the activity are ___, and market failure___. A. $180; does not occur B. $40; does not occur C. $180; occur D. $40; occurs

D. $40; occurs

Using Table 25.2, assume there are only four films in the pool sweeper industry. What is the market share for Blue Lagoon? A. 20 percent B. 50 percent C. 10 percent D. 5 percent

D. 5 Percent

An emission charge is A. A subsidy to the consumers who are hurt by pollution B. A charge on consumers who buy goods made by firms that pollute C. An attempt to change consumers behavior by direct government intervention D. A fee imposed on polluters based on the quantity of pollution they generate

D. A fee imposed on polluters based on the quantity of pollution they generate

A cartel is A. A type of market structure B. Not illegal in the United States C. An organization intended to increase competition in an industry D. A group of firms with an explicit, formal agreement to fix prices and output shares in a particular

D. A group of firms with an explicit , formal agreement to fix prices and output shares in a particular

Using Figure 26.5, which firm most likely represents monopolistic competition in the long run? A. Firm A B. Firm B C. Firm C D. Firm D

D. Firm D

A kinked demand curve indicates that rival oligopolistic match all A. Increased advertising B. Advertising reductions C. Price increases D. Price reductions

D. Price reductions

Which of the following costs do not change when output changes in the short run? A. average variable costs B. variable costs C. average fixed costs D. fixed costs

D. fixed costs

The marginal cost curve A. is not affected by changes in the price of variable inputs B. slopes downward to the right as output increases C. is the long-run supply curve for a competitive firm at prices below the AVC curve D. is the short-run supply curve for a competitive firm at prices above the AVC curve.

D. is the short-run supply curve for a competitive firm at prices above the ATC curve.

According to the text, one argument in favor of concentration of market power is that A. market power always increases incentives for innovation and invention B. market power results in higher prices and lower quantities C. the exercise of market power provides a more desirable mix of output D. large firms can sometimes produce more efficiently than small firms because of economies of scale in production

D. large firms can sometimes produce more efficiently than small firms because of economies of scale in production

The average total cost (ATC) curve will be downloading sloping so long as the A. average variable cost is less than average total cost B. marginal cost is greater than average total cost C. average fixed cost is less than average total cost D. marginal cost is less than average total cost.

D. marginal cost is less than average total cost

Using figure 21.1, the marginal physical product of labor is negative for the A. third worker B. fourth worker C. fifth worker D. sixth worker

D. sixth worker

Using figure 29.4, the effect of bad weather causing a poor wheat crop in the midwest is best represented in panel A. A B.B C.C D.D

D.D

The collapse of AT&T's natural monopoly in long-distance telephone service was caused by a. cell phone technology that made it easier and less expensive for new companies to provide long-distance services. b. the takeover of the telephone industry by the US government c. government regulation because of illegal collusion between AT&T and foreign competitors d. inadequate profits

a. cell phone technology that made it easier and less expensive for new companies to provide long-distance services.

Economics widely agree that a. the optimal amount of pollution is greater than zero b. all pollution should be eliminated c. the market mechanism can handle pollution without any government intervention d. central planning is the most efficient way to eliminate pollution

a. the optimal amount of pollution is greater than zero