ECON EXAM 3

25. Firms that spend the greatest percentage of their revenue on advertising tend to be firms that sell a. highly-differentiated consumer goods. b. goods produced by natural monopolies. c. agricultural products. d. products with a limited shelf life such as milk and lettuce.

A

27. A monopolistically competitive industry is characterized by a. many firms selling products that are similar but not identical. b. many firms selling identical products. c. a few firms selling products that are similar but not identical. d. a few firms selling highly different products.

A

29. Total revenue equals a. price x quantity. b. price/quantity. c. (price x quantity) - total cost. d. output - input.

A

17. Each of the following would be considered a common resource except a a. water reservoir. b. streetlight. c. a congested road. d. book from a public library.

B

20. Which field of economics studies how the number of firms affects the prices in a market and the efficiency of market outcomes? a. macroeconomics b. industrial organization c. labor economics d. monetary economics

B

30. Economists assume that monopolists behave as a. cost minimizers. b. profit maximizers. c. price maximizers. d. maximizers of social welfare.

B

36. A monopolistically competitive industry is characterized by a. many firms, differentiated products, and barriers to entry. b. many firms, differentiated products, and free entry. c. a few firms, identical products, and free entry. d. a few firms, differentiated products, and barriers to entry.

B

37. By comparing marginal revenue and marginal cost, a firm in a competitive market is able to adjust production to the level that achieves its objective, which we assume to be a. maximizing total revenue. b. maximizing profit. c. minimizing variable cost. d. minimizing average total cost.

B

39. Monopolies are socially inefficient because the price they charge is a. equal to marginal revenue. b. above marginal cost. c. equal to demand. d. above demand.

B

40. Suppose a firm in a competitive market produces and sells 8 units of output and has a marginal revenue of $8. What would be the firm's marginal revenue if it instead produced and sold 4 units of output? a. $2 b. $8 c. $32 d. $64

B

A typical firm in the US economy would be classified as a. perfectly competitive. b. imperfectly competitive. c. a duopolist. d. an oligopolist.

B

The provision of public goods gives rise to a. positive externalities, as does the use of common resources. b. positive externalities, whereas the use of common resources gives rise to negative externalities. c. negative externalities, whereas the use of common resources gives rise to positive externalities. d. negative externalities, as does the use of common resources.

B

18. A firm's opportunity costs of production are equal to its a. explicit costs only. b. implicit costs only. c. explicit costs + implicit costs. d. explicit costs + implicit costs + total revenue.

C

23. Marginal cost is equal to a. TC/Q. b. ΔATC/Q. c. ΔTC/ΔQ. d. ΔQ/ΔTC.

C

24. Suppose that in a competitive market the equilibrium price is $2.50. What is marginal revenue for the last unit sold by the typical firm in this market? a. less than $2.50 b. more than $2.50 c. exactly $2.50 d. The marginal revenue cannot be determined without knowing the actual quantity sold by the typical firm.

C

26. The process of buying a good in one market at a low price and selling the good in another market for a higher price in order to profit from the price difference is known as a. sabotage. b. conspiracy. c. arbitrage. d. collusion.

C

28. For a firm, the production function represents the relationship between a. implicit costs and explicit costs. b. quantity of inputs and total cost. c. quantity of inputs and quantity of output. d. quantity of output and total cost.

C

34. A monopolistically competitive firm chooses the quantity to produce where a. price equals marginal cost. b. demand equals marginal cost. c. marginal revenue equals marginal cost. d. Both a and c are correct.

C

38. With respect to monopolistic competition, a. both the business-stealing externality and the product-variety externality are positive externalities. b. the business-stealing externality is a positive externality, while the product-variety externality is a negative externality. c. the business-stealing externality is a negative externality, while the product-variety externality is a positive externality. d. both the business-stealing externality and the product-variety externality are negative externalities.

C

A competitive market is in long-run equilibrium. If demand decreases, we can be certain that price will a. fall in the short run. All firms will shut down, and some of them will exit the industry. Price will then rise to reach the new long-run equilibrium. b. fall in the short run. No firms will shut down, but some of them will exit the industry. Price will then rise to reach the new long-run equilibrium. c. 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. d. not fall in the short run because firms will exit to maintain the price.

C

The parable called the Tragedy of the Commons applies to goods such as a. fire protection and cable TV. b. tornado sirens and basic research. c. clean air and clean water. d. antipoverty programs and national defense.

C

Which of the following statements is correct? a. The benefits that accrue to a monopoly's owners are equal to the costs that are incurred by consumers of that firm's product. b. The deadweight loss that arises in monopoly stems from the fact that the profit-maximizing monopoly firm produces a quantity of output that exceeds the socially-efficient quantity. c. The deadweight loss caused by monopoly is similar to the deadweight loss caused by a tax on a product. d. The primary social problem caused by monopoly is monopoly profit.

C

19. Firms that spend the greatest percentage of their revenue on advertising tend to be firms that sell a. industrial products. b. homogeneous products. c. consumer goods for which there are no close substitutes. d. highly-differentiated consumer goods.

D

21. Which of the following statements about private goods and public goods is correct? a. Private goods and public goods are both excludable. b. Private goods and public goods are both rival in consumption. c. Private goods are not excludable and public goods are excludable. d. Private goods are rival in consumption and public goods are not excludable.

D

Explicit costs a. do not require an outlay of money by the firm. b. enter into the accountant's measurement of a firm's profit. c. enter into the economist's measurement of a firm's profit. d. Both b and c are correct.

D

Entry by new firms into a monopolistically competitive market

creates additional consumer surplus