Econ midterm 2

A monopolistic firm has a sales schedule such that it can sell 10 prefabricated garages per week at $10,000 each, but if it restricts its output to 9 per week it can sell these at $11,000 each. The marginal revenue of the tenth unit of sales per week is: -$1,000. $9,000. $10,000. $1,000.

$1,000.

Suppose that a business incurred implicit costs of $800,000 and explicit costs of $1 million in a specific year. If the firm sold 6,000 units of its output at $300 per unit, its accounting profits were: $100,000 and its economic profits were zero. $100,000 and its economic profits were $100,000. zero and its economic loss was $200,000. $800,000 and its economic profits were zero.

$800,000 and its economic profits were zero.

Which of the following best expresses the law of diminishing returns? As successive amounts of one resource (labor) are added to fixed amounts of other resources (capital), beyond some point the resulting extra output will decline. Population growth automatically adjusts to that level at which the average product per worker will be at a maximum. Proportionate increases in the inputs of all resources will result in a less-than-proportionate increase in total output. Because large-scale production allows the realization of economies of scale, the real costs of production vary directly with the level of output.

As successive amounts of one resource (labor) are added to fixed amounts of other resources (capital), beyond some point the resulting extra output will decline.

Which of the diagrams correctly portray a nondiscriminating pure monopolist's demand (D) and marginal revenue (MR) curves? D B A C

B

Which of the following definitions is correct? Accounting profit + economic profit = opportunity profit. Economic profit - implicit costs = accounting profits. Economic profit = accounting profit - implicit costs. Economic profit - accounting profit = explicit costs.

Economic profit = accounting profit - implicit costs.

Which of the following is characteristic of a pure monopolist's demand curve? Its elasticity coefficient is 1 at all levels of output. Price and marginal revenue are equal at all levels of output. Average revenue is less than price. It is the same as the market demand curve.

It is the same as the market demand curve.

In the diagram, the range of diminishing marginal returns is: Q1-Q3. 0-Q3. Q1-Q2. 0-Q2.

Q1-Q3.

What do economies of scale, the ownership of essential raw materials, and patents have in common? They all help explain why a monopolist's demand and marginal revenue curves coincide. They are all barriers to entry. They all help explain why the long-run average cost curve is U-shaped. They must all be present before price discrimination can be practiced.

They are all barriers to entry.

Economic profits are calculated by subtracting: explicit and implicit costs from total revenue. implicit costs from explicit costs. explicit costs from total revenue. implicit costs from total revenue.

explicit and implicit costs from total revenue.

A purely monopolistic firm: faces a downsloping demand curve. earns only a normal profit in the long run. has no entry barriers. produces a product or service for which there are many close substitutes.

faces a downsloping demand curve.

Refer to the diagram for a nondiscriminating monopolist. Demand is elastic: for all levels of output greater than q2. in the q1 q3 output range. for all levels of output less than q2. only for outputs greater than q4.

for all levels of output less than q2.

To economists, the main difference between the short run and the long run is that: the law of diminishing returns applies in the long run, but not in the short run in the long run all resources are variable, while in the short run some resources are fixed. in the short run all resources are fixed, while in the long run all resources are variable. fixed costs are more important to decision making in the long run than they are in the short run.

in the long run all resources are variable, while in the short run some resources are fixed.

Refer to the diagram. If price is reduced from P1 to P2, total revenue will: decrease by A minus C. increase by C minus A. decrease by C minus A. increase by A minus C.

increase by C minus A.

Because the monopolist's demand curve is downsloping: the elasticity coefficient will increase as price is lowered. price must be lowered to sell more output. its supply curve will also be downsloping. MR will equal price.

price must be lowered to sell more output.

A pure monopolist is selling 6 units at a price of $12. If the marginal revenue of the seventh unit is $5, then: price of the seventh unit is $11. price of the seventh unit is greater than $12. firm's demand curve is perfectly elastic. price of the seventh unit is $10.

price of the seventh unit is $11.

Suppose that a business incurred implicit costs of $500,000 and explicit costs of $5 million in a specific year. If the firm sold 100,000 units of its output at $50 per unit, its accounting: profits were zero and its economic profits were -$500,000. profits were $100,000 and its economic profits were zero. profits were $500,000 and its economic profits were $1 million. profits were zero and its economic profits were zero.

profits were zero and its economic profits were -$500,000.

The basic characteristic of the short run is that: barriers to entry prevent new firms from entering the industry. the firm does not have sufficient time to change the size of its plant. the firm does not have sufficient time to cut its rate of output to zero. a firm does not have sufficient time to change the amounts of any of the resources it employs.

the firm does not have sufficient time to change the size of its plant.

Implicit and explicit costs are different in that: implicit costs are monetary payments; explicit costs are not. the latter refer to non-expenditure costs and the former to monetary payments. explicit costs are opportunity costs; implicit costs are not. the former refer to opportunity costs and the latter to monetary payments.

the former refer to opportunity costs and the latter to monetary payments.

Which of the following best approximates a pure monopoly? the soft drink market the foreign exchange market the Kansas City wheat market the only bank in a small town

the only bank in a small town

Accounting profits equal total revenue minus: total economic costs. total implicit costs. economic profits. total explicit costs.

total explicit costs.