Econ 202 Test 3
Refer to Figure 13-5. The efficient scale of production occurs at which quantity?
C
Refer to Figure 13-4. Which of the figures represents the total cost curve for a typical firm?
Figure 2
Refer to Figure 14-4. If there are 300 identical firms in this market, what level of output will be supplied to the market when price is $1.00?
60,000
Refer to Table 17-2. Assume that there are two profit-maximizing internet radio providers operating in this market. Further assume that they are not able to collide on the price and quantity of subscriptions to sell. How much profit will each firm earn when this market reaches a Nash equilibrium?
$52,000
Refer to Table 13-10. What is the average variable cost for the month if 6 instructional modules are produced?
$533.33
Refer to Table 13-10. One month, Teacher's Helper produced 18 instructional modules. What was the average fixed cost for that month?
$60
Billy's Bean Bag Emporium produced 300 bean bad chairs but sold only 275 of the units it produced. The average cost of production for each unit of output produced was $100. The price for each of the 275 units sold was $95. Total profit for Billy's Bean Bag Emporium would be
-$3,875
Refer to Figure 17-1. Suppose this market is served by two firms who each face the marginal cost curve shown in the diagram and have zero fixed cost. The marginal revenue curve that a monopolist would face in this market is also shown. If the firms are able to collude successfully, each firm should earn a profit equal to
$2
Refer to Table 13-10. What is the marginal cost of creating the tenth instructional module in a given month?
$2,500
Refer to Figure 15-5. Given that Bearclaws chooses the profit-maximizing price and quantity, what profit level will it obtain?
$280
Refer to Figure 15-2. A profit-maximizing monopoly's total revenue is equal to
P4xQ5
Refer to Figure 14-7. Assume that the market starts in equilibrium at point W in graph (b) and that graph (a) illustrates the cost curves facing individual firms. Suppose that demand increases from D0 to D1. Which of the following statements is not correct?
Point Y is a long-run equilibrium point.
Assume a firm in a competitive industry is producing 800 units of output, and it sells each unit for $6. Its average total cost is $4. Its profit is
$1,600
Refer to Table 13-10. What is the average fixed cost for the month if 9 instructional modules are produced?
$120.00
Refer to Figure 14-2. If the market price is $10, what is the firm's short-run economic profit?
$15
Refer to Table 13-10. How many instructional modules are produced when marginal cost is $1,300?
8
Suppose that for a particular firm the only variable input into the production process is labor and that output equals zero when no workers are hired. In addition, suppose that when four units of output are produced, the total cost is $175, and the average variable cost is $33.75. What would the average fixed cost be if ten units were produced?
$4
Refer to Table 14-4. What is the total revenue from selling 4 units?
$480
Refer to Table 16-2. Suppose the monopolistically competitive firm faces the following demand curve: To maximize profit (or minimize losses), the firm will produce
30 units
Refer to Figure 14-4. If there are 300 identical firms in this market, what level of output will be supplied to the market when price is $1.00?
30,000
Let L represent the number of workers hired by a firm, and let Q represent that firm's quantity of output. Assume two points on the firm's production function are (L = 12, Q = 122) and (L = 13, Q = 132). Then the marginal product of the 13th worker is
8 units of output
Refer to Figure 13-2. Which of the curves is most likely to represent average fixed cost?
A
Adibok knows that it produces and sells high quality athletic shoes. Wurkout knows that it produces and sells low quality athletic shoes. According to the signaling theory of advertising,
Adibok has an incentive to spend a large amount of money on advertising for its athletic shoes, but Wurkout does not.
Refer to Figure 16-1. Which of the graphs illustrates the demand curve most likely faced by a firm in a monopolistically competitive market?
Graph (b)
Consider a competitive market with a large number of identical firms. The firms in this market do not use any resources that are available only in limited quantities. In this market, and increase in demand will
Increase price in the short run but not in the long run
Refer to Figure 15-4. What price will the monopolist charge in order to maximize profit?
K
Refer to Figure 15-2. Profit can always be increased by increasing the level of output by one unit if the monopolist is currently operating at
Q1 or Q2 only
Which of the following statements about oligopolies is not correct?
Unlike monopolies and monopolistically competitive markets, oligopolies prices do not exceed their marginal revenues.
Refer to Figure 14-3. In the short run, if the market price is P4, individual firms in a competitive industry will earn
Zero profits?
Which of the following examples illustrates an oligopoly market?
a city with two firms who are licensed to sell school uniforms for the local schools
When an oligopoly market reaches a Nash equilibrium,
a firm will have chosen its best strategy, given the strategies chosen by other firms in the market.
Average total cost is very high when a small amount of output is produced because
average fixed cost is high
For an individual firm operating in a competitive market, marginal revenue equals
average revenue and the price for all levels of output
Profit maximizing firms enter a competitive market when existing firms in that market have
average total costs less than market price
If a firm in a monopolistically competitive market successfully uses advertising to decrease the elasticity of demand for its product, the firm will
be able to increase its markup over marginal cost.
Refer to Figure 13-3. Why doesn't the total cost curve begin at the origin(the point 0,0)?
because fixed costs are positive when output is zero
When existing firms lose customers and profits due to entry of a new competitor, a
business-stealing externality occurs.
Free entry means that
no legal barriers prevent a firm from entering an industry
Price discrimination
can maximize profits if the seller can prevent the resale of goods between customers
For a firm, marginal revenue minus marginal cost is equal to
change in profits
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 in some markets advertising may
decrease elasticity of demand allowing firms to charge a larger markup over marginal cost.
In the prisoners' dilemma game, self-interest leads
each prisoner to confess
If long-run average total cost decreases as the quantity of output increases, the firm is experiencing
economies of scale
In the long run a company that produces and sells popcorn incurs total costs of $1,050 when output is 90 canisters and $1,200 when output is 120 canisters. The popcorn company exhibits
economies of scale because average total cost is falling as output rises.
A benefit to society of the patent and copyright laws is that those laws
encourage creative activity
If a firm in a perfectly competitive market triples the quantity of output sold, then total revenue will
exactly triple
Firms may experience diseconomies of scale when
large management structures are bureaucratic and inefficient
An oligopolist will increase production if the output effect is
greater than the price effect
A government-created monopoly arises when
the government gives a firm the exclusive right to sell some good or service
Whenever a cartel in a duopoly breaks down,
total output in the market will rise.
If a firm produces nothing, which of the following costs will be zero?
variable cost
Refer to Figure 15-4. What area measures the monopolist's profit?
(K-B)xW
Cold Duck Airlines flies between Tacoma and Portland. The company leases planes on a year-long contract at a cost that averages $600 per flight. Other costs (fuel, flight attendants, etc.) amount to $550 per flight. Currently, Cold Duck's revenues are $1,000 per flight. All prices and costs are expected to continue at their present levels. If it wants to maximize profit, Cold Duck Airlines should
continue flying until the lease expires and then drop the run
A cooperative agreement among oligopolists is more likely to be maintained,
the more likely it is that the game among the oligopolists will be played over and over again.
Farmer McDonald sells wheat to a broker in Kansas City, Missouri. Because the market for wheat is generally considered to be competitive, Mr. McDonald maximizes his profit by choosing
the quantity at which market price is equal to Mr. McDonald's marginal cost of production.
A monopolistically competitive firm chooses
the quantity of output to produce, but the price of its output is determined by demand.
Refer to Figure 17-1. Suppose this market is served by two firms who each face the marginal cost curve shown in the diagram. The marginal revenue curve that a monopolist would face in this market is also shown. If the firms are able to collude successfully,
the total output will be 2 units and the price will be $8.00 per unit
Robin owns a horse stables and riding academy and gives riding lessons for children at "pony camp." Her business operates in a competitive industry. Robin gives riding lessons to 20 children per month. Her monthly total revenue is $4,000. The marginal cost of pony camp is $100 per child. In order to maximize profits, Robin should
give riding lessons to fewer than 20 children per month.
A monopolist's profits with price discrimination will be
higher than if the firm charged just one price because the firm will capture more consumer surplus
The equilibrium quantity in markets characterized by oligopoly is
higher than in monopoly markets and lower than in perfectly competitive markets.
Refer to Figure 16-6. The firm's maximum profit
is -$2,000
A firm cannot price discriminate if
it operates in a competitive market
Refer to Figure 15-1. The shape of the average total cost curve reveals information about the nature of the barrier to entry that might exist in a monopoly market. Which of the following monopoly types best coincides with the figure?
natural monopoly
Monopolistic competition is considered inefficient because
price exceeds marginal cost
If duopoly firms that are not colluding were able to successfully collude, then
price would rise and quantity would fall.
If one firm left a duopoly market where the firms did not cooperate then
price would rise and quantity would fall.
If the government forces this firm to produce at its efficient scale, it will
produce 5 units and lose $5
A key characteristic of a competitive market is that
producers sell nearly identical products
Refer to Figure 13-1. The graph illustrates a typical
production function
A law that restricts the ability of hotels/motels to advertise on billboards outside of a resort community would likely lead to
reduced efficiency of local lodging markets
Suppose a firm in a competitive market reduces its output by 20 percent. As a result, the price of its output is likely to
remain unchanged
The Sherman Antitrust Act
restricted the ability of competitors to engage in cooperative agreements.
As the number of firms in an oligopoly increases,
the total quantity of output produced by firms in the market gets closer to the socially efficient quantity.
Refer to Figure 13-2. Curve A is always declining because
we are dividing fixed costs by higher and higher levels of output
Refer to Figure 14-1. The firm should shut down if the market price is
less than $6
For a long while, electricity producers were thought to be a classic example of a natural monopoly. People held this view because
the average cost of producing units of electricity by one producer in a specific region was lower than if the same quantity were produced by two or more producers in the same region.
In which of the following markets are strategic interactions among firms most likely to occur?
the market for tennis balls
Refer to Figure 15-2. If the monopoly firm is currently producing Q4 units of output, then a decrease in output, then a decrease in output will necessarily cause a profit to
increase if the output is between Q3 and Q4
Average total cost is increasing whenever
marginal cost is greater than average total cost
If marginal cost is rising,
marginal product must be falling
If a profit-maximizing monopolist faces a downward-sloping market demand curve, its
marginal revenue is less than the price of the product
A market structure with only a few sellers, each offering similar or identical products, is known as
oligopoly
Refer to Figure 16-2. How much consumer surplus will be derived from the purchase of this product at the monopolistically competitive price?
$200
Refer to Figure 16-3. How much profit will the monopolistically competitive firm earn in this situation?
$200
Refer to Figure 16-2. What price will the monopolistically competitive firm charge in this market?
$80
Refer to Figure 16-2. How much output will the monopolistically competitive firm produce in this situation?
20 units
Refer to Table 17-1. If Rochelle and Alex operate as a profit-maximizing monopoly in the market for water, how many gallons of water will be produced and sold?
600
Refer to Figure 15-5. Based upon the information shown, how many units will Bearclaws produce to maximize profits?
70
Refer to Figure 16-2. Which of the following will occur in the long run in this industry?
Firms will enter this industry
Refer to Figure 15-3. A profit-maximizing monopoly will produce an output level of
Q3
Refer to Figure 15-7. To maximize total surplus, a benevolent social planner would choose which of the following outcomes?
Q=45 and P=45
Two suspected drug dealers are stopped by the highway patrol for speeding. The officer searches the car and finds a small bag of marijuana and arrests the two. During the interrogation, each is separately offered the following: "If you confess to dealing drugs and testify against your partner, you will be given immunity and released while your partner will get 10 years in prison. If you both confess, you will each get 5 years." If neither confesses, there is no evidence of drug dealing, and the most they could get is one year each for possession of marijuana. If each suspected drug dealer follows a dominant strategy, what should he/she do?
confess regardless of the other person
A competitive market is in long-run equilibrium. If demand decreases, we can be certain that price will
fall in the short run. All, some, or no firms will shut down, and some of them will exit the industry. Price will then rise to reach the new long-run equilibrium.
Refer to Figure 16-2. Assuming the firm is maximizing profit, this firm is operating
in the short run and earning a positive economic profit.
A firm that shuts down temporarily has to pay
its fixed costs but not its variable costs
A monopolistically competitive industry is characterized by
many firms, differentiated products, and free entry
In a long-run equilibrium,
only a perfectly competitive firm operates at its efficient scale
According to one theory, advertising sends a signal to consumers about the quality of the product being offered. An implication of this theory is that
the existence of an expensive advertisement is more important than the content of the advertisement.
A natural monopoly occurs when
there are economies of scale over the relevant range of output
