Econ exam 2 (ch 7,8,9,10) practice questions

Darren runs a barbershop with average fixed costs equal to $60 per day and a total output of 50 haircuts per day. What is his weekly total fixed cost if he is open six days per week? A) $18,000 B) $3,000 C) $60 D) The answer cannot be determined with information available

A

Figure: Average Total Cost Curve) In the accompanying figure, the total cost of producing 5 pairs of boots is approximately: A) $408. B) $82. C) $108. D) $17.

A

For Heidi, the marginal cost of producing one additional photograph equals the ______ divided by ______. A) change in total cost; the change in the number of photographs B) change in marginal cost; the change in the number of photographs C) change in total cost; the change in the marginal product of photographs D) change in average cost; the change in the number of photographs

A

Rebecca knows that Becca Furniture's marginal cost curve is above the average total cost curve. This means Becca Furniture's average total cost curve: A) must be rising. B) must be flat. C) must be falling. D) may be rising, falling, or flat depending on other things

A

Suppose that a profit-maximizing monopoly firm experiences a substantial technological change that reduces its marginal and average total costs by $40. If in response to its reduction in cost the firm changes its price in a profit-maximizing way, then we can predict that its total output will: A) rise. B) fall. C) remain unchanged. D) It is not possible to make a determination from the information given

A

The De Beers company is described as a monopolist in the production of: A) diamonds. B) software. C) oil D) beer.

A

The two theoretical extremes of the market structure spectrum are occupied on one end by perfect competition and on the other end by: A) monopoly. B) duopoly. C) oligopoly. D) monopolistic competition

A

(Figure: Prices, Cost Curves, and Profits) In the accompanying figure, if the price is P2, then the maximum profit the firm can earn is: A) (fg) x Q B) (de) x Q C) (fg) x Q D) (de) x P2

B

(Figure: Revenues, Costs, and Profits) In the accompanying figure, if market price is $12, this firm will: A) minimize its losses by shutting down. B) minimize its losses by continuing to produce. C) break even. D) earn an economic profit

B

(Table: Variable Costs for Lots) During the winter, Alexa runs a snow-clearing service, and snow-clearing service is a perfectly competitive industry. Her only fixed cost is $1,000 for a tractor. Her variable costs per cleared lot, shown in the accompanying table, include fuel and hot coffee. What is Alexa's shutdown price? A) $0 B) $15 C) $50 D) $42

B

Because tourist demand for airline flights is relatively ________, small ________ in price will result in relatively ________ in additional tourists. A) inelastic; reductions; small increases B) elastic; reductions; large increases C) inelastic; increases; small decreases D) elastic; increases; small increases

B

Buffalo Aircraft doubles the amount of all the inputs it uses—the factory doubles in size, and twice as many workers are hired. After this expansion, the number of aircraft produced triples. This means that Buffalo Aircraft is experiencing: A) decreasing marginal cost. B) economies of scale. C) decreasing marginal cost D) decreasing average variable co

B

Cindy operates Birds-R-Us, a small store manufacturing and selling 100 bird feeders per month. Cindy's monthly totals fixed cost are $500, and her monthly total variable costs are $2,500. If for some reason Cindy's fixed cost fell to $400, then her: A) average fixed costs would increase. B) average total costs would decrease. C) marginal costs would decrease. D) average variable costs would decrease

B

In perfectly competitive long-run equilibrium: A) all firms make positive economic profits. B) all firms produce at the minimum point of their average total cost curves. C) the industry supply curve must be upward sloping. D) all firms face the same price, but the value of marginal cost will vary directly with firm size

B

Scenario: Small-Town Monopolist: A monopolist sells its good in a small town and finds that it can sell 100 units when the price is $15 and an additional 75 units when the price is $10. The MC for the provision of the good is $5. (Scenario: Small-Town Monopolist) Deadweight loss: A) increases when this monopolist price-discriminates. B) decreases when this monopolist price-discriminates. C) stays the same when this monopolist price-discriminates D) is equal to zero

B

Suppose that the Yankee Company is a profit-maximizing firm that has a monopoly in the production of baseball caps. The firm sells its baseball caps for $25 each. For this information, we can assume that the Yankee Company is producing a level of output at which: A) marginal revenue equals $25. B) marginal cost equals marginal revenue. C) average total cost equals $25. D) average total cost is greater than $25

B

The total product curve: A) shows the relation between output and the quantity of a variable input for varying levels of the fixed input. B) will become flatter as output increases, if there are diminishing returns to the variable input C) will be downward sloping, if there are diminishing returns to the variable input. D) will become horizontal, when the marginal product of the variable input is constant

B

There are diminishing returns to an input set in when: A) all inputs are fixed. B) some inputs are fixed and some are variable. C) when all inputs are variable. D) only in the long run

B

(Figure: Monopolist) If this monopolist attempts to profit-maximize, it will produce: A) Q1 units and sell them at P1 B) Q2 units and sell them at P4 C) Q2 units and sell them at P2 D) Q3 units and sell them at P3

C

(Figure: Monopolist) If this monopolist were forced to act like a perfect competitor, it would produce: A) Q1 units and sell it at P1 B) Q2 units and sell it at P2 C) Q3 units and sell it at P3 D) Q2 units and sell it at P4

C

. (Figure: Prices, Cost Curves, and Profits) In the accompanying figure, if the price is P1, then the firm earns: A) a loss equal to (ba) x Q1 B) a loss equal to (ca) x Q1 C) a loss equal to (bc) x Q1 D) zero

C

A Japanese steel firm sells steel in the United States and in Japan. Since the United States buys steel from a number of different sources, the U.S. demand for Japanese steel is more price-elastic than the Japanese demand for Japanese steel. If the Japanese steel firm wishes to maximize its profits it should: A) charge the same price in both countries (after adjusting for transportation costs). B) charge a higher price in the United States and a lower price in Japan; otherwise it would be accused of unfair trade practices. C) charge a lower price in the United States and a higher price in Japan. D) figure out which market is more profitable and sell only in that market

C

If a monopolist is producing a quantity that generates MC > MR, then profit: A) is maximized. B) is maximized only if MC = P. C) can be increased by increasing price. D) can be increased by decreasing price

C

If all firms in an industry are price-takers, then: A) each firm can take the price that it wants to charge and sell at this price, provided it is not too different from the prices other firms are charging. B) each firm takes the market price as given for its current output level, recognizing that the price will change if it alters its output significantly. C) an individual firm cannot alter the market price even if it doubles its output. D) the market sets the price, and each firm can take it or leave it (by setting a different price).

C

If price is consistently below average variable cost, then in the short run a perfectly competitive firm should: A) raise price. B) sell more output. C) shut down. D) lower price to sell more.

C

In a perfectly competitive industry, the market demand curve is usually: A) perfectly inelastic. B) perfectly elastic. C) downward sloping. D) relatively elastic

C

Suppose a perfectly competitive market is suddenly transformed into one that operates as a monopoly market. We would expect: A) price to rise, output to fall, consumer surplus to rise, producer surplus to rise, and deadweight loss to fall. B) price to rise, output to fall, consumer surplus to fall, producer surplus to fall, and deadweight loss to rise. C) price to rise, output to fall, consumer surplus to fall, producer surplus to rise, and deadweight loss to rise. D) price to fall, output to rise, consumer surplus to rise, producer surplus to fall, and deadweight loss to fall

C

Suppose that you build a high-speed, magnetically powered transportation system from New York to Los Angeles. High fixed costs resulting from the enormous quantity of capital used in this system enable decreasing average cost for any conceivable level of demand. Your monopoly would result from: A) control of a scarce resource or input. B) technological superiority. C) increasing returns to scale. D) government-created barriers

C

The long-run average cost of producing 100 units of output is $4, while the long-run average cost of producing 110 units of output is $4. These numbers suggest that the firm producing this output is experiencing: A) economies of scale. B) diseconomies of scale. C) constant returns to scale. D) diminishing returns

C

(Table: Short Run Supply Curve) The accompanying table below lists three supply points for an individual, perfectly competitive firm operating in the short run. If the industry is composed of 120 identical firms, which of the following will be a point on the short-run industry supply curve? A) Price = $5, Quantity = 1,650 B) Price = $1,200, Quantity = 40 C) Price = $960, Quantity = 3,840 D) Price = $10, Quantity = 4,800

D

. Marginal cost can be calculated as: A) TC/Q, where TC is total cost and Q is output. B) VC/ Q, where VC is variable cost and Q is output. C) the slope of the total cost curve. D) all of the above.

D

A monopoly can be temporary because of: A) high barriers to entry B) a lack of substitutes for the monopolist's product. C) economies of scale. D) technological change

D

The marginal cost curve is the mirror image of the: A) total product curve. B) average product curve. C) marginal product curve. D) average total cost curve

C

The market structure characterized by a few interdependent firms and in which there are barriers to entry is called: A) monopolistic competition. B) perfect competition. C) oligopoly. D) monopoly

C

(Figure: Marginal Revenue, Costs, and Profits) In the accompanying figure, if market price decreases to $16, marginal revenue ______ and profit-maximizing output ______. A) increases; decreases B) increases; increases C) decreases; increases D) decreases; decreases

D

(Figure: Monopoly Model) When the firm is in equilibrium (that is, maximizing its economic profit), its total revenue is the area of rectangle: A) SPDB. B) IPDH. C) 0SBJ. D) 0PDJ.

D

(Figure: Revenues, Costs, and Profits) In the accompanying figure, if the market price is $9, the profit-maximizing quantity of output is: A) 0. B) 1. C) 2. D) 3.

A

(Scenario: Payoff Matrix for Two Firms) If both firms pursue their dominant strategies, they will find that: A) their joint profits are maximized. B) their joint profits will not be maximized. C) their joint profits will reflect an equal sharing of the total profits. D) neither will be able to attain their largest possible profits since there are two dominant strategies for each firm

A

(Table: Output and Costs) Using the information in the accompanying table, when quantity equals 4, total variable cost equals: A) 48. B) 38. C) 58. D) 28

A

18. (Table: Labor and Output) Referring to the accompanying table, the average product when 4 workers are employed is: A) 9. B) 36. C) 10. D) 6.

A

Which of the following is true? A) A monopoly firm is a price-maker. B) MR = P if the demand curve is downward-sloping. C) MR = MC is a profit-maximizing rule for firms in perfect competition only. D) Monopolies tend to charge lower prices than perfectly competitive firms

A

Zoe's Bakery determines that P < ATC and P > AVC. Zoe should: A) continue to operate even though she is enduring an economic loss. B) continue to operate as she is making an economic profit. C) shut down immediately as she is enduring an economic loss. D) raise the price until she has maximized her profit

A

In the short run, a monopoly will stop producing if: A) P < ATC. B) P < AVC. C) P > MR. D) P > ATC.

B

Consider a perfectly competitive firm in the short run. Assume the firm is producing the profit-maximizing output and assume that it is earning economic profits. At the profit-maximizing output, all of the following are correct except: A) price is equal to marginal cost. B) price is equal to marginal revenue. C) price is equal to average total cost. D) marginal cost is greater than average total cost

C

For large beer breweries, it is common for average total cost to decline as output increases. This indicates that many breweries achieve: A) diseconomies of scale. B) diminishing marginal returns. C) economies of scale D) constant returns to scale

C

The break-even price for a perfectly competitive firm is equal to: A) the minimum value of average variable cost. B) the marginal revenue, provided that marginal revenue is equal to marginal cost. C) the average fixed cost at the output level at which the firm is producing. D) the minimum value of average total cos

D

(Figure: Payoff Matrix for the United States and the EU) Given the payoff matrix in the figure, the Nash equilibrium combination is for: A) both the United States and the EU to use 2 fleets. B) the United States to use 1 fleet and for the EU to use 2 fleets. C) both the United States and the EU to use 1 fleet. D) the EU to use 1 fleet and for the United States to use 2 fleets

A

(Figure: Pricing Strategy in Cable TV Market II) The Nash equilibrium in the cable TV market is when: A) both firms set a low price and each earns $90,000 per month. B) both firms set a high price and each earns $100,000 per month. C) CableNorth sets a high price and earns $80,000 per month, while CableSouth sets a low price and earns $130,000 per month. D) CableNorth sets a low price and earns $130,000 per month, while CableSouth sets a high price and earns $80,000 per month

A

(Figure: The Market for Gas Stations) The figure shows curves facing a typical gas station in a large town. Assume that the market is characterized by many firms, differentiated products, easy entry, and easy exit. If the gas station shown here were to raise its price above the profit-maximizing price, it would experience: A) a reduction in total revenue. B) an increase in total revenue. C) no change in total revenue. D) Not enough information is given to answer the question

A

A monopolist or an imperfectly competitive firm practices price discrimination primarily to: A) increase profits. B) expand plant size. C) lower total costs. D) reduce marginal costs.

A

A monopolistically competitive firm has excess capacity in the long run. This means that it: A) produces less than the output at which average total costs are minimized. B) produces less than the output at which price and marginal cost are equal. C) could produce more by moving to a larger plant size. D) doesn't maximize profits.

A

A situation in which a player has an incentive to cheat regardless of what the other player does, and in which, if both players act in this manner, both players will be worse off, is referred to as: A) prisoners' dilemma. B) tit-for-tat strategy. C) price leadership model. D) kinked demand curve model.

A

Gary's Gas and Frank's Fuel are the only two providers of gasoline in Smalltown. Gary and Frank decide to form a cartel. Later, Gary summarizes his pricing strategy as, "I'll cheat on the cartel because regardless of what Frank does, cheating gives me the best payoff." This is an example of: A) a dominant strategy. B) a tit-for-tat strategy. C) an irrational strategy. D) product differentiation

A

If the Herfindahl-Hirschman Index (HHI) for an industry is 900, this market is considered: A) a strongly competitive market. B) a somewhat competitive market. C) oligopolistic. D) monopolistic.

A

If your farm has the only known source of a rare cocoa bean needed to make chocolate-covered peanuts, your monopoly would result from: A) control of a scarce resource or input. B) technological superiority. C) increasing returns to scale. D) government-created barriers

A

In general, oligopolists find it easier to engage in collusive behavior when the industry is characterized by ________ behavior. A) Cournot B) Bertrand C) noncooperative D) interdependent

A

In monopolistic competition: A) there is free entry and exit in the long run. B) each firm produces a standardized product. C) there are few producers. D) there are barriers to entry

A

In perfect competition, the assumption of easy entry and exit implies that: A) in the long run all firms in the industry will earn zero economic profits. B) in the short run all firms in the industry will earn positive economic profits. C) in the short run all firms in the industry will earn zero economic profits. D) a and b are correct

A

Kaile Cakes is currently producing 10 cakes per day. The marginal cost of the 10th cake is $24, and average total cost of 10 cakes is $6. The average total cost of 9 cakes is: A) $4. B) $5. C) $6. D) $8.

A

One of the major differences between a monopolist and a purely competitive firm is that the monopolist has a ________ demand curve, while the purely competitive firm has a _______ demand curve. A) downward-sloping; perfectly elastic B) perfectly inelastic; perfectly elastic C) downward-sloping; perfectly inelastic D) perfectly elastic; downward-sloping

A

Suppose a monopolistically competitive firm is in long-run equilibrium. Then: A) price equals average total cost. B) price equals marginal cost. C) marginal revenue equals price. D) price is greater than average total cost

A

The cable TV market has only two firms, CableNorth and CableSouth. Through tacit collusion, they each arrive at an equilibrium price and quantity and see their demand curve as kinked. CableNorth will be reluctant to raise its price because it sees that portion of the demand curve as ________ and if it raised its price, total revenue would ________. A) price-elastic; fall B) price-inelastic; fall C) price-elastic; rise D) price-inelastic, rise

A

The existence of a buyer with significant buying power in an industry would make a tacit agreement: A) more difficult to achieve. B) easier to achieve. C) have no effect on tacit agreement negotiations. D) result in a kinked demand curve

A

The most important source of oligopoly is: A) economies of scale. B) government-created barriers. C) technological superiority. D) ownership of resources

A

(Figure and Table: Variable, Fixed, and Total Costs) In the accompanying figure, marginal cost of increasing production from 51 to 64 bushels of wheat is: A) $16. B) $15.38. C) $12.50. D) $18.75.

B

(Figure: Cost Curves and Profits) The market for corn is perfectly competitive, and an individual corn farmer faces the cost curves shown in the accompanying figure. If the price of a bushel of corn in the market is $4, then the farmer will produce ______ of corn and earn an economic ______ equal to ______. A) 0 bushels; loss; average fixed costs B) 0 bushels; loss; total fixed costs C) 3 bushels; loss; $30 per bushel D) none of the above

B

A kinked demand curve model shows how oligopolists may choose not to adjust their output and price in order to avoid a breakdown in tacit collusion if: A) they operate under a Bertrand setting. B) they face unique changes in marginal costs within a certain range. C) they are engaged in an arms race. D) a prisoners' dilemma is present

B

A perfectly competitive firm is definitely earning an economic profit when: A) MR > MC B) P > ATC C) P > MC D) P > AVC .

B

A wheat farmer operating in the short run produces 100 bushels of wheat. Her average total cost per bushel is $1.75, total revenue is $450, and (total) fixed costs are equal to $100. Then: A) average fixed cost is equal to $1.50. B) profit per bushel is equal to $2.75. C) average variable cost is equal to $1.25. D) economic profit is equal to $250

B

Assume an industry is dominated by a few firms. Each of these firms acknowledges that its own choices affect the choices of its rivals. Each firm also recognizes that its rivals' choices affect the decisions it makes. This industry is an example of a(n): A) monopoly. B) oligopoly. C) monopolistic competition. D) perfect competition

B

Assuming identical production functions and cost curves, the long-run equilibrium of a monopolistically competitive firm, as compared with that of a perfectly competitive firm, is such that, for the former, price is: A) higher and output is greater. B) higher and output is smaller. C) lower and output is greater. D) lower and output is smaller

B

Attempts by the federal government to prevent the exercise of monopoly power in the United States are called ________ policy. A) stabilization B) antitrust C) fiscal D) government

B

Figure: Firms in Monopolistic Competition) In panel A, economic profit per unit is amount: A) KL. B) LM. C) MN. D) NO.

B

Gary's Gas and Frank's Fuel are the only two providers of gasoline in Smalltown. Gary believes he faces a kinked demand curve. This means Gary thinks the demand curve above the kink is: A) less elastic than the demand curve below the kink. B) more elastic than the demand curve below the kink. C) below the MR curve. D) less elastic than the MR curve

B

If a local California avocado stand operates in a perfectly competitive market, that stand owner will be a price: A) maker. B) taker. C) discriminator. D) maximizer.

B

If the government only allowed one airline to serve the entire U.S. market, there would be a ________ loss associated with ________ efficiency in the airline industry. A) marginal; reduced B) deadweight; reduced C) total; increased D) deadweight; increased

B

If the state government gives you the exclusive right to sell cement to municipalities, your monopoly would result from: A) sunk costs B) government restrictions. C) economies of scale. D) location.

B

In many cities you can stay at a Holiday Inn in the downtown area, in a suburban community, or near the airport. These Holiday Inn establishments are examples of product differentiation by: A) type. B) location. C) quality. D) style.

B

Suppose the dry-cleaning market is monopolistically competitive and economically profitable this year. In the long run, the demand for any one firm's dry-cleaning services will ________ as more firms enter the industry, causing profits to ________. A) decrease; become economic losses B) decrease; fall to zero C) not change; fall D) increase; increase

B

The demand curve for a perfectly competitive firm is: A) perfectly inelastic. B) perfectly elastic. C) downward sloping. D) relatively but not perfectly elastic

B

The largest HHI possible is in the case of ________ and the index is ________ . A) monopoly; 10 B) monopoly; 10,000 C) monopoly; 100,000 D) oligopoly; 100,000

B

When Aishe's Bar-B-Que produces 10 pork sandwiches, the total cost is $5.00. When 11 pork sandwiches are produced, the total cost rises to $6.00. From this we know that: A) the marginal cost of the 11th pork sandwich is equal to the average cost of 11 pork sandwiches. B) the marginal cost of the 11th pork sandwich is greater than the average cost of 11 pork sandwiches. C) the marginal cost of the 11th pork sandwich is less than the average cost of 11 pork sandwiches. D) we do not have enough information to compare the marginal cost to the average cost

B

(Figure: Computing Monopoly Profit) The profit-maximizing price is ________ and will generate total economic profit of ________. A) P2; EF B) P3; the rectangle P1 P2 FG C) P3; the rectangle P2 P3 EF D) P3; EF

C

(Figure: Firms in Monopolistic Competition) In panel A, the profit-maximizing quantity of output is generated by the intersection at point: A) K. B) P. C) N. D) O.

C

(Figure: Revenues, Costs, and Profits) In the accompanying figure, if the market price is $14, the profit-maximizing quantity of output is: A) 2. B) 3. C) 4. D) 5.

C

(Figure: The Restaurant Market) The figure shows curves facing a typical restaurant in a community. Assume that many firms, differentiated products, and easy entry and easy exit characterize the market. For the restaurant shown here, its profit per unit is: A) ae. B) fd. C) bf. D) bd.

C

A monopoly responds to a decrease in marginal cost by ________ price and ________ output. A) increasing; decreasing B) increasing; increasing C) decreasing; increasing D) decreasing; decreasing

C

A perfectly competitive firm operating in the short run producing 100 units of output has ATC = $6 and AFC = $2. The market price is $3 and is equal to MC. In order to maximize profits (or minimize losses), this firm should: A) increase output. B) reduce output, but continue to produce a positive amount of output. C) shut down. D) do nothing; the firm is already maximizing profits

C

A strategy that is the same regardless of the action of the other player in a game is said to be a: A) competitive strategy. B) trigger strategy. C) dominant strategy. D) tit-for-tat strategy.

C

According to the kinked demand model of oligopolies, oligopolistic firms often choose not to compete much on: A) advertising. B) quantity. C) price. D) product differentiation

C

An analytical approach through which strategic choices can be assessed is called: A) benefit-cost analysis. B) econometric theory. C) game theory. D) monopolistic competition.

C

An industry with two firms producing is generally called: A) a monopoly. B) monopolistic competition. C) a duopoly. D) perfect competition.

C

Figure: Pricing Strategy in Cable TV Market I) If both CableNorth and CableSouth advertise, then without any collusion: A) CableNorth will stop advertising to maximize profits. B) CableSouth will stop advertising to maximize profits. C) there will be no tendency for either CableNorth or CableSouth to stop advertising. D) there is a tendency for both CableNorth and CableSouth to stop advertising.

C

Figure: Pricing Strategy in Cable TV Market II) If CableNorth followed a high-price strategy one month just to find it only earned $80,000 because CableSouth followed a low-price strategy, and CableNorth then decided to lower prices for the next month, we would say that they are following: A) a kinked demand model. B) a dominant strategy. C) a tit-for-tat strategy. D) a collusive strategy

C

Firm X is a typical firm in a market characterized by the model of monopolistic competition. Suppose that the market is initially in long-run equilibrium, and then there is an increase in demand for services. We can assume that in the long run, the economic profits of typical firms in the industry will be: A) typical of those earned by monopoly firms. B) positive but less than the level typically earned by monopoly firms. C) zero. D) negative

C

In the short run: In the short run: A) all inputs are fixed. B) all inputs are variable. C) some inputs are fixed and some inputs are variable. D) all costs are variable

C

Long-run equilibrium in perfect competition and in monopolistic competition are similar because, in both, firms: A) produce at the minimum point of the average total cost curve. B) set price equal to marginal cost. C) make zero economic profits. D) have excess capacity

C

Monopolistic competition is different from perfect competition due to the fact that within monopolistic competition: A) firms experience easy entry and exit. B) there are many firms. C) products are differentiated. D) to maximize profits, a firm will produce where MR = MC

C

Product differentiation under monopolistic competition means that each firm: A) charges the same price. B) maximizes profit where MC = P. C) faces a downward-sloping demand curve. D) receives economic profits

C

The pricing in monopoly prevents some mutually beneficial trades from taking place. The value of these unrealized mutually beneficial trades is called: A) sunk costs. B) opportunity costs. C) a deadweight loss. D) inequities

C

Which of the following is true? A) When choosing the profit-maximizing quantity, the short-run decision-making process for a firm in perfect competition and a firm in monopolistic competition is the same, since they produce the quantity where P >MC. B) In the long run in perfect competition, economic profits = 0, and in monopolistic competition in the long run, economic profits are very large. C) In perfect competition, P = MC, and in monopolistic competition, MR = MC, but P > MC and there is excess capacity. D) In both perfect competition and monopolistic competition, P equals minimum average total cost in the long run

C

A monopoly is a market structure characterized by: A) a single buyer and several sellers. B) a product with many close substitutes. C) a large number of small firms. D) barriers to entry and exit.

D

Advertising is an economically productive activity and not a waste of resources because: A) advertisements increase profits. B) advertisements can convey information about the product. C) in a situation in which consumers don't have good information about a product, ads can serve as indirect signals about the provider. D) advertisements can convey information about the product, and because in a situation in which consumers don't have good information about a product, ads can serve as indirect signals about the provider

D

Figure: Average Total Cost Curve) In the accompanying figure, the total cost of producing 3 pairs of boots is approximately: A) $24. B) $72. C) $75. D) $216

D

If a monopolist is producing a quantity that generates MC = P, then profit: A) is maximized. B) is maximized only if MR = P. C) can be increased by increasing production. D) can be increased by decreasing production

D

If firms are making positive economic profits in the short run, then in the long run: A) the short-run industry supply curve will shift rightwards. B) firms will enter the industry. C) industry output will rise and price will fall D) all of the above will occur

D

If price is consistently below average total cost, then in the short run a perfectly competitive firm should: A) shut down. B) continue to produce to minimize losses. C) raise price. D) There is not enough information given to answer this question

D

Scenario: Monopolist: The demand curve for a monopolist is as follows: P = 75 - 1/2Q and the monopolist has the following MC expressed as P = 2Q. Assume also that ATC at the profit-maximizing level of production is equal to $12.50. (Scenario: Monopolist) At the profit-maximizing level of production, the firm is earning a profit per unit equal to: A) $62.50. B) $0. C) $75. D) $50

D

The municipal swimming pool charges lower entrance fees to local residents than to nonresidents. Assuming that this pricing strategy increases the profits of the pool, we can conclude that nonresidents must have a ________ for swimming at the pool than residents. A) greater demand B) lower demand C) more elastic demand D) less elastic demand

D

Two firms, Firm A and Firm B, have identical cost curves, yet Firm A operates in perfect competition and Firm B operates in monopolistic competition. In the long run, what can we say about the price and output that each firm charges? A) Firm A's price will be lower than Firm B's price, and Firm A's output will be lower than Firm B's output. B) Firm A's price will be greater than Firm B's price, and Firm A's output will be greater than Firm B's output. C) Firm A's price will be greater than Firm B's price, and Firm A's output will be lower than Firm B's output. D) Firm A's price will be lower than Firm B's price, and Firm A's output will be greater than Firm B's output.

D

When marginal cost is rising: A) average variable cost must be rising. B) average total cost must be rising. C) both a and b must hold. D) both average variable cost and average total cost may be rising or falling

D

Which of the following is not a characteristic of monopolistic competition? A) product differentiation B) lack of barriers to entry and exit in the long run C) many competing producers D) tacit collusion

D

(Figure: Profit Maximization in Monopolistic Competition) A firm in monopolistic competition will maximize profits by producing the level of output at which: A) P = MC. B) MR = MC. C) P = MR. D) price minus ATC (i.e., economic profit per unit) is the largest

B

(Figure: Pricing Strategy in Cable TV Market II) The dominant strategy for CableSouth: A) is to charge a high price. B) is to charge a low price. C) is to charge what CableNorth does. D) does not exist.

B

(Figure: Monopolistic Competition IV) The monopolistic competitor in the figure is producing at the output level that maximizes profits (minimizes losses). The shaded rectangle depicts the level of: A) profit. B) loss. C) fixed cost. D) variable cost.

A

. The average total cost curve in the short run slopes upward due to: A) economies of scale. B) diseconomies of scale. C) increasing returns. D) diminishing returns.

D

17. If Jakob knows the marginal cost of producing the 7th sports jersey is $21, then the total cost of 7 sports jerseys is: A) $21. B) $60. C) $147. D) The answer cannot be determined from the above information

D

(Figure: Marginal Product of Labor) Using the marginal product of labor curve in the accompanying figure, the total product of labor for 3 workers is: A) 51 bushels. B) 45 bushels. C) 39 bushels. D) 15 bushels

A

3When most cars sold in the United States were produced by the Big Three auto companies, General Motors would announce its prices for the new model year first and then the other companies would match it. This practice was an example of: A) price leadership. B) noncooperative behavior. C) a kinked demand model. D) a cartel.

A

Figure: Firms in Monopolistic Competition) Economic profit is earned if the profit-maximizing price is price ________ in panel ________. A) F; A B) G; A C) H; B D) I; C

A

Figure: Monopoly Through Collusion) Given the industry illustrated in the figure, the efficient solution is found at which price is ________ and quantity is ________. A) P1; Q4 B) P2; Q2 C) P2; Q1 D) P3; Q1

A

Figure: Payoff Matrix for Gehrig and Gabriel) The figure shows the payoff matrix for two producers, Gehrig and Gabriel, who sell handmade Davy Crockett figurines in San Antonio. Both Gehrig and Gabriel have two strategies available to them: to produce 5,000 figurines each month or to produce 7,000 figurines each month. If both follow a tit-for-tat strategy, equilibrium will be reached when: A) they each produce 5,000 figurines. B) they each produce 7,000 figurines. C) Gehrig produces 7,000 figurines and Gabriel produces 5,000 figurines. D) Gehrig produces 5,000 figurines and Gabriel produces 7,000 figurines

A

If the only two firms in an industry openly agree to fix the price at a given level, then this is an example of: A) overt collusion. B) price leadership. C) contestability. D) tacit collusion

A

Perfect competitors and monopolistic competitors both earn ________ economic profit in the long run, but perfect competitors produce at the ________ of the ATC curve, while monopolistic competitors produce ________ of the ATC curve. A) zero; minimum point; on the downward-sloping portion B) positive; minimum point; on the upward-sloping portion C) negative; minimum point; at the minimum point D) zero; downward-sloping portion; at the minimum point

A

Price leadership occurs if: A) smaller firms in an industry silently agree to charge the same price as the largest firm. B) two or more firms in an industry agree to fix the price at a given level. C) competition among a large number of small firms generates a stable market price. D) competition among a large number of small firms generates similar, but slightly different, prices

A

Situations in which the more users of a product there are, the more useful the product becomes are called: A) network effects. B) monopolies. C) conglomerates. D) exclusive franchises.

A

Suppose Cyd knows the average cost of producing 9 scones is $5, while the average cost of producing 10 scones is $5.20. What is the marginal cost of the 10th unit? A) The marginal cost is $7. B) The marginal cost is $5.20. C) The marginal cost is $0.20. D) None of the above is correct

A

Suppose that each of two prisoners has the independent choice of confessing to a crime or not confessing. Note that they cannot communicate with each other. If neither confesses, they spend 4 years in jail; if both confess, they spend 6 years in jail; and if one confesses while the other does not, the confessor gets off with 2 years in jail while the other gets 10 years in jail. According to game theory, the likely strategy by the prisoners is: A) both will confess. B) neither will confess. C) one will confess and the other will not. D) both may or may not confess.

A

Which of the following curves is not affected by the existence of diminishing returns? A) the average fixed cost curve B) the average variable cost curve C) the average total cost curve D) the marginal cost curve

A

(Figure: The Market for Gas Stations) Assume that the market for gas stations is characterized by many firms, differentiated products, easy entry, and easy exit. For the typical gas station shown in the figure, the profit-maximizing price would be: A) P1 B) P2 C) P3 D) Not enough information is given to answer the question

B

(Table: Demand for Wooden Stakes) The table shows the demand for wooden stakes in the town of Sunnyvale. Suppose the marginal cost of producing stakes is zero. The only two firms producing wooden stakes, Spike Inc. and Buffy Co., agree to produce only 50 stakes, with each firm producing only 25. What is Buffy's quantity effect if she cheats on the agreement and produces 30 stakes? A) $10 B) $45 C) $20 D) $9

B

Figure: Payoff Matrix I for Blue Spring and Purple Rain) The figure shows the payoff matrix for two producers of bottled water, Blue Spring and Purple Rain. The Nash equilibrium in the figure is reached when: A) both firms charge a high price. B) both firms charge a low price. C) Blue Spring charges a high price and Purple Rain charges a low price. D) Purple Rain charges a high price and Blue Spring charges a low price

B

In the long run, monopolistically competitive firms tend to experience: A) high economic profits. B) zero economic profits. C) negative economic profits. D) substantial economic losses.

B

Scenario: Payoff Matrix for Firms X and Y) If Firm Y were to choose its dominant strategy, it would: A) choose a low price. B) choose a high price. C) encounter a dilemma since there are two dominant strategies. D) allow Firm X to dominate the industry.

B

Which of the following choices is true of firms in both perfect competition and monopolistic competition? A) The long-run price is equal to marginal revenue, marginal cost, and average total cost. B) Long-run economic profits are equal to zero. C) The long-run level of output is at the point where average total cost is minimized. D) Price is equal to marginal cost, insuring the allocatively efficient level of output is produced.

B

Which of the following is most likely to be observed when firms engage mainly in non-price competition? A) actively encouraging the sale of generic, as opposed to brand-name, products B) advertising and product differentiation C) discounts offered through coupons D) low interest rates for financing the purchase of big-ticket item

B

Which of the following is(are) correct about celebrity spokespersons advertising products? A) Celebrities are better informed about the relative merits of different products than the rest of us. B) Celebrity advertising signals consumers that the product is reliable, because the firm is willing to pay the high fees associated with hiring a celebrity. C) Consumers assume that the celebrity has researched the product and that the claims being made on his or her behalf are true. D) None of the statements are correct

B

Game theory is commonly used to explain behavior in oligopolies, because oligopolies are characterized by: A) large profits in the long run. B) either homogeneous or heterogeneous products. C) interdependence. D) imperfect competition.

C

In long-run equilibrium, firms in a monopolistically competitive industry sell at a price________. A) equal to marginal cost B) less than marginal cost C) greater than marginal cost D) less than marginal revenue

C

In oligopoly, a firm must realize that: A) what it does has no effect on the other firms in the industry. B) it must pursue policies while always remembering those policies will be ignored by other firms in the industry. C) it is in an industry in which another major firm may dominate, and the firm will need to judge its actions accordingly. D) collusion was made legal in 2004

C

Industry Z is made up of five firms. Three of the firms make up 20% of the total market sales, one firm makes up 25% of the total market sales, and the remaining firm makes up 15% of the total market sales. What is the HHI for this industry? A) 100 B) 1,200 C) 2,050 D) 1,800

C

Since a monopolistically competitive firm faces a downward-sloping demand curve for its product, its price will be: A) equal to marginal revenue. B) less than marginal revenue. C) greater than marginal revenue. D) equal to total revenue

C

Suppose that you build a new jumbo jet that can carry five times more passengers than any other competitor. You experience high fixed costs due to the quantity of capital used to build the jets. There's decreasing average cost for all levels of demand. In this case, your monopoly would result from which of the following? A) sunk costs B) location C) economies of scale D) government restrictions

C

The HHI for ________ where ________ have (has) ________ of the market is ________ . A) monopolistic competition; four firms each; 25%; 10,000 B) oligopoly; three firms each; 50%; 5,000 C) oligopoly; two firms each; 50%; 5,000 D) monopoly; one firm; 100%; 100,000

C

The model of monopolistic competition can characterize the market for plumbing services in a city. Suppose that the market is initially in long-run equilibrium, and then there is an increase in demand for plumbing services. We expect that in the long run, the economic profits of typical firms in the industry will be: A) typical of those earned by monopoly firms. B) negative. C) zero. D) positive, but less than the level typically earned by monopoly firm

C

(Figure: Monopolistic Competition I) Which of the panels in the figure shows a monopolistic competitor producing where price is greater than marginal revenue? A) Panel a B) Panel b C) Panel c D) All of the panels show a monopolistic competitor producing where price is greater than marginal revenue.

D

(Figure: Prisoners' Dilemma for Thelma and Louise) Given the payoff matrix in the figure, the optimal combination is for: A) Thelma to confess and for Louise not to confess. B) both Thelma and Louise to confess. C) Louise to confess and for Thelma not to confess. D) neither Thelma nor Louise to confess

D

(Figure: Revenues, Costs, and Profits) In the accompanying figure, if market price is $18, the profit-maximizing quantity of output is: A) 2. B) 3. C) 4. D) 5.

D

A monopolistic competitor is likely to engage in advertising to: A) create a greater perception of product differentiation in the minds of potential consumers. B) shift the demand curve for its product rightward. C) convey information about the product it is offering for sale. D) All of these answer choices are correct

D

A monopolistically competitive industry such as baked goods and a perfectly competitive industry like wheat farming are alike in that: A) firms in both types of industries produce identical products. B) firms in both types of industries produce similar but not identical products. C) barriers to entry in both industries are large. D) there are many firms in each industry

D

If monopolistically competitive firms are earning positive economic profits in the short run, then in the long run: A) firms will leave the industry. B) the demand curves faced by existing firms will move to the right. C) economic profits will increase. D) economic profits will be reduced to zero

D

The cable TV market has only two firms, CableNorth and CableSouth. Through tacit collusion, they each arrive at an equilibrium price and quantity and see their demand curve as kinked. Any decrease in marginal cost: A) will encourage both firms to produce more. B) may encourage both firms to produce less. C) will encourage both firms to charge a lower price. D) will most likely leave price and quantity unchanged at both firm

D

The profit-maximizing rule MC = MR is followed by firms under: A) monopolistic competition, but not perfect competition. B) perfect competition, but not monopolistic competition. C) either monopolistic competition or perfect competition, depending on the costs of production. D) both monopolistic competition and perfect competition

D

Unwritten or unspoken understandings through which firms collude to restrict competition are called: A) cartelization. B) oligopolization. C) overt collusion. D) tacit collusion.

D

Which of the following is true? A) Oligopoly is a goal toward which an economy should strive. B) Monopolistic competition results in excess capacity, since in the long run MR = MC is to the right of the minimum of the ATC curve. C) One might characterize monopolistic competition as an industry, such as gasoline stations, which in the long run experience large economic profits. D) One might characterize monopolistic competition as an industry, such as fast-food restaurants, which in the longrun experience zero economic profits.

D

(Figure: Cost Curves and Profits) The market for corn is perfectly competitive, and an individual corn farmer faces the cost curves shown in the accompanying figure. If the price of a bushel of corn in the market is $10, then the farmer will produce ______ of corn and earn an economic ______ equal to ______. A) 0 bushels; loss; average fixed costs B) 0 bushels; loss; total variable costs C) 3 bushels; loss; total fixed costs D) 3 bushels, loss; $30 per bushel

C

(Figure: Marginal Product of Labor) Using the marginal product of labor curve in the accompanying figure, the total product of labor for 8 workers is: A) 40 bushels. B) 35 bushels C) 96 bushels. D) 75 bushels

C

Conditions that prevent the entry of new firms in a monopoly market are: A) barriers to entry. B) terms of sale. C) labor market stipulations. D) production controls.

A

(Figure and Table: Variable, Fixed, and Total Costs) In the accompanying figure, when 51 bushels of wheat are produced, average fixed cost is ______, average variable cost is ______, and average total cost is ______. A) $7.84; $11.76; $19.60 B) $133.33; $200; $333.33 C) $400; $600; $1,000 D) $5.33; $13.33; $18.67

A

(Figure: Cost Curves and Profits) The market for corn is perfectly competitive, and an individual corn farmer faces the cost curves shown in the accompanying figure. If the price of a bushel of corn in the market is $14, then the farmer will produce ______ of corn and earn an economic ______ equal to ______. A) 4 bushels; profit; $0. B) 4 bushels; profit; just less than $80 per bushel C) 2 bushels; profit; $0 D) 2 bushels; loss; just more than $80 per bushel

A

(Figure: Demand, Revenue, and Cost Curves) The figure shows the demand, marginal revenue, marginal cost, and average total cost curves for Figglenuts-R-Us, a monopolist in the figglenut market. If the government wanted to regulate Figglenuts-R-Us such that the entire deadweight loss would be eliminated, it would impose a price ceiling of ________ in the market. A) $40 B) $46 C) $50 D) $65

A

(Figure: Marginal Revenue, Costs, and Profits) In the accompanying figure, if market price increases to $20, marginal revenue ______ and profit-maximizing output ______. A) increases; increases B) increases; decreases C) decreases; increases D) decreases; decreases

A

. (Table: Workers and Output) After graduation you achieve your dream of opening your own art shop that specializes in selling mud statues. You pay $10 per day on a loan from your uncle, and you pay $10 per day to each of your workers (who make the mud statues). After careful study, you determine the information in the accompanying table. How many workers should you hire to minimize your marginal costs? A) 2 B) 3 C) 4 D) 5

A

A competitive firm operating in the short run is producing at the output level at which ATC is at a minimum. If ATC = $8 and MR = $9, in order to maximize profits (or minimize losses), this firm should: A) increase output. B) reduce output. C) shut down. D) do nothing; the firm is already maximizing profits

A

Malthus's predictions for disaster were humorously summarized in the anonymous verse: "To get land's fruit in quantity/ Takes jolts of labor ever more./ Hence food will grow like one, two, three.../ While numbers grow like one, two, four..." Population has in fact increased six-fold since Malthus's time, and land area in the world hasn't increased, so why haven't Malthus's gloomy forecasts been realized? A) Diminishing returns is a theoretical construct that is not applicable to actual farming conditions. B) Over most of the last two centuries, the average food intake per person has decreased at a steady rate. C) Enough people were killed during the two World Wars and in other twentieth- century conflicts to stave off world starvation temporarily. D) Technological improvements in farming have offset the effect of diminishing returns

D

Sadia wants to practice price discrimination in her bakery. Which of the following techniques should Sadia not use? A) discounts for people who buy a large volume of bread B) higher prices for people who buy on the day bread is baked and lower prices for people who place advance orders C) creating an annual fee for customers who want to shop at a discount in her store D) charging all consumers the same price for freshly baked goods

D

Scenario: Monopolist: The demand curve for a monopolist is as follows: P = 75 - 1/2Q and the monopolist has the following M expressed as P = 2Q. Assume also that ATC at the profit-maximizing level of production is equal to $12.50. (Scenario: Monopolist) For this monopolist, the profit-maximizing output is ________ and the profit-maximizing price is equal to ________. A) 25 units; $75 B) 20 units; $62.50 C) 25 units; $75.50 D) 25 units; $62.50

D

Suppose the marginal cost curve in the short run first decreases, then reaches a minimum, and then increases. If we are at an output where marginal cost is increasing, then: A) marginal product must be increasing. B) average variable cost must be increasing. C) average total cost must be increasing. D) none of the above

D

Which of the following statements about monopoly equilibrium and perfectly competitive equilibrium is incorrect? A) Price is greater than marginal cost in monopoly, and price equals marginal cost is perfect competition. B) When a monopoly exists, the consumer surplus is less than if the market were perfectly competitive. C) Monopoly output will be less than the output of a comparable perfectly competitive industry. D) In the long run, economic profits are driven to zero in both a monopoly and a perfect competitive market

D

Zoe's Bakery operates in a perfectly competitive industry. The variable costs at Zoe's Bakery increase, so all the cost curves (with the exception of fixed cost) shift leftward. The demand for Zoe's pastries does not change, nor does the firm shut down. Hence, Zoe's Bakery will ______ its price and ______ its level of production. A) raise; increase B) decrease; increase C) raise; decrease D) not change; decreashe

D