ECON100 - Quiz 2

Drug dealers agreeing to sell drugs at a certain price is an example of a. a monopoly b. collective bargaining c. an entrepreneur d. a cartel

d. a cartel

A cartel is a. legal in the United States b. always successful in raising profits c. a form of covert collusion d. a formal agreement among firms to collude

d. a formal agreement among firms to collude

Use the following table to answer the next question and assume that the total fixed cost incurred by the firm is $500. Output: 1 2 3 4 5 6 TVC: $400 720 1K 1.4K 2K 3.6K The total cost associated with the production of 5 units of output is a. $2500 b. $2000 c. $3000 d. $1500

a. $2500

To maximize profits, the perfectly competitive firm should produce output at a. C b. B c. A d. K

a. C

Select the marginal cost. a. change in TVC/change in Q b. change in TVC/Q c. change in TFC/change in Q d. P-Q/change in Q

a. change in TVC/change in Q

Which of the following is a barrier to entry? a. infrastructure costs b. close substitutes c. diminishing marginal returns d. buyers' incomes

a. infrastructure costs

The main goal of the Clayton Act was to a. limit mergers and price-fixing contracts b. make deceptive practices illegal c. limit competition among small firms d. make restraint of trade illegal

a. limit mergers and price-fixing contracts

A perfectly competitive firm does not try to sell more of its product by lowering its price below the market price because a. this would be considered unethical price chiseling b. it can sell all it wants to at the market price c. its demand curve is inelastic, so total revenue will decline d. its competitors would not permit it

b. it can sell all it wants to at the market price

If the short-run average variable cost of production for a firm is decreasing, then it follows that a. average variable cost must be greater than marginal cost b. marginal cost must be decreasing c. average variable cost must be greater than average fixed cost d. average fixed cost must be constant

b. marginal cost must be decreasing

A major reason that firms form a cartel is to a. reduce the elasticity of demand for the product b. maximize joint profits c. enlarge the market share for each producer d. minimize the costs of production

b. maximize joint profits

If the long-run average total cost for a firm is horizontal in a relevant range of production, then it indicates that there a. are diseconomies of scale b. are economies of scale c. are constant returns to scale d. isn't a minimum efficiency

c. are constant returns to scale

To an economist, the economic costs associated with the use of resources include a. implicit, but not explicit cost b. explicit, but not implicit cost c. explicit and implicit costs d. neither implicit nor explicit costs

c. explicit and implicit costs

In an oligopolistic market there are a. few buyers b. many buyers c. few sellers d. many sellers

c. few sellers

If you owned a small farm, which of the following would most likely be a fixed cost of production in the short run? a. fertilizer b. seed c. hail insurance d. harvest labor

c. hail insurance

A pure monopoly will find that marginal revenue a. is sometimes greater and sometimes less than price b. exceeds price c. is less than price d. is identical to price

c. is less than price

A rising short-run average variable cost of production for a firm indicates that a. average total cost is at its maximum b. marginal cost is below average variable cost c. marginal cost is above average variable cost d. average fixed cost is constant

c. marginal cost is above average variable cost

Which factor could contribute to a firm experiencing economics of scale? a. the law of diminishing marginal returns b. a rising long-run average total cost c. productivity gains from more specialized labor d. deterioration of information and control within a firm

c. productivity gains from more specialized labor

In which industry is monopolistic competition most likely to be found? a. mining b. agriculture c. retail trade d. utilities

c. retail trade

Assume that in a monopolistically competitive industry, firms are earning economic profit. This situation will a. reduce the excess capacity in the industry as firms expand production b. make the industry allocatively efficient as each firm seeks to maintain its profits c. cause firms to standardize their product to limit the degree of competition d. attract other firms to enter the industry, causing the existing firms' profits to shrink

d. attract other firms to enter the industry, causing the existing firms' profits to shrink

Suppose that the market for corn is perfectly competitive. If corn farmers are currently generating losses, then we would expect that in the long run the market a. supply curve will shift to the left b. demand curve will shift to the left c. supply curve will shift to the right d. demand curve will shift to the right

a. supply curve will shift to the left

Oligopolistic firms tend to make large economic profits over time because a. they charge higher than average total cost prices b. they have complete control in the market to charge any price they want c. they produce at a point that is allocatively efficient d. they are productively efficient and produce the least costly way

a. they charge higher than average total cost prices

A pure monopoly is not allocatively efficient because at the profit-maximizing level of output a. P>ATC b. P>MC c. P>MR d. P>AVC

b. P>MC

The curves suggest that this is a. a decreasing-cost industry b. a constant-cost industry c. not possible, because the supply curve is always upward sloping d. an increasing-cost industry

b. a constant-cost industry

One feature of pure monopoly is that the firm is a. a producer of products with close substitutes b. a price maker c. one of the several producers of a product d. a price taker

b. a price maker

Monopolistic competitive firms are productively inefficient because production occurs where a. marginal cost is not at its lowest b. average total cost is not at its lowest c. price is greater than marginal revenue d. marginal cost is less than price

b. average total cost is not at its lowest

Which of the following is most likely to be a variable cost of production in the short run? a. real estate taxes b. fuel and power payments c. the interest on a business d. rental payments on IBM equipment

b. fuel and power payments

Under monopolistic competition entry to the industry is a. completely free of barriers b. more difficult than under pure competition but not nearly as difficult as under pure monopoly c. more difficult than under pure monopoly d. blocked

b. more difficult than under pure competition but not nearly as difficult as under pure monpoly

Which of the following is true under conditions of perfect competition? a. the market demand curve is perfectly elastic b. no single firm can influence the market price c. there are differentiated products d. each individual firm has the ability to set its own price

b. no single firm can influence the market price

In which market model is there mutual interdependence? a. pure monopoly b. oligopoly c. pure competition d. monopolistic competition

b. oligopoly

The law of diminishing marginal returns in a manufacturing plant of a fixed capacity implies that, eventually, employing a. one less worker will decrease the average product per worker b. one more worker will decrease the average product per worker c. one less worker will not affect the average product per worker d. one more worker will increase the average product per worker

b. one more worker will decrease the average product per worker

Which of the following is not a barrier to entry in an industry? a. government licensing b. profit maximization c. economies of scale d. strategic pricing

b. profit maximization

Use the following table to answer this question, which provides information on the production of a product that requires one variable input. Input: 0 1 2 3 4 5 6 7 8 9 Total Product: 0 5 20 32 42 50 55 58 58 56 Diminishing marginal returns set in with the addition of the a. fourth unit of input b. third unit of input c. first unit of input d. second unit of input

b. third unit of input

Assume a perfectly competition constant-cost industry is initially at long-run equilibrium. Now suppose that a decrease in market demand occurs. After all the long-run adjustments have been completed, the new equilibrium price a. and industry output will be less than the initial price and output b. will be the same as the initial price, and the output will be less c. will be less than the initial price, but the new output will be greater d. will be greater than the initial price, but the new output will be less

b. will be the same as the initial price, and the output will be less

The marginal revenue curve faced by a perfectly competition firm a. lies below the firm's demand curve b. has all of these characteristics c. is downward sloping, because price must be reduced to sell more output d. is horizontal at the market price

d. is horizontal at the market price

A non-discriminating pure monopoly is generally viewed as being a. both productively and allocatively efficient b. productively efficient, but not allocatively efficient c. allocatively efficient, but not productively efficient d. neither productively efficient nor allocatively efficient

d. neither productively efficient nor allocatively efficient

One major barrier to entry under pure monopoly arises from a. diseconomies of scale b. the price taking ability of the monopoly c. the availability of close substitutes for a product d. the cost of the infrastructure needed to produce

d. the cost of the infrastructure needed to produce