Economics Test 3

Allocative inefficiency due to unregulated monopoly is characterized by the condition: A. P=MC B. P=MR C. P>MC D. P>AVC

C) P > MC

A monopolistically competitive firm in the short run is producing where price is $3.00 and marginal cost is $1.50. To maximize profits: A. The firm should continue to produce this quantity B. The firm should increase output and decrease price C. The firm should decrease output and increase price D. It is unclear what the firm should do without knowing marginal revenue

D) it is unclear what the firm short do without knowing marginal revenue

The long-run equilibrium of a purely competitive industry ensures: A. Consumer and producer surplus is maximized. B. Consumer and producer surplus is minimized. C. Only producer surplus is maximized. D. Only consumer surplus is maximized.

A) Consumer and producer surplus is maximized

Productive efficiency refers to: A. Cost minimization, where P = minimum ATC B. Production, where P = MC C. Maximizing profits by producing where MR = MC D. Setting TR = TC

A) Cost minimization, where P = minimum ATC

If a monopolist produces 100 units of output at a market price of $5 per unit with marginal revenue per unit equaling $4, we would expect that if the monopolist's good was provided under pure competition, quantity would be: A. Higher than 100 units, price lower than $5, and MR = price B. Lower than 100 units, price greater than $5, and MR = price C. Higher than 100 units, price greater than $5, and MR = price D. Lower than 100 units, price lower than $5, and MR = price

A) Higher than 100 units, price lower than $5 and MR = price

In a duopoly, if one firm increases its price, then the other firm can: A. Keep its price constant and thus increase its market share B. Keep its price constant and thus decrease its market share C. Increase its price and thus increase its market share D. Decrease its price and thus decrease its market share

A) Keep its price constant and thus increase its market share

An economy is producing at the least-cost rate of production when: A. Price and the minimum average total cost are equal B. Marginal cost is greater than average total cost C. Marginal revenue is greater than price D. Price and marginal revenue are equal

A) Price and minimum average total cost are equal

X-inefficiency is said to occur when a firm's: A. Average costs of producing any output are greater than the minimum possible average costs B. Marginal costs of producing any output are greater than the minimum possible total costs C. Total costs of producing any output are greater than the minimum possible average costs D. Short-run costs of producing any output are greater than the long-run costs

A) average cost of producing any output are greater than the min. possible average costs

9. The kinked-demand curve of an oligopolist is based on the assumption that: A. competitors will follow a price cut but ignore a price increase. B. competitors will match both price cuts and price increases. C. competitors will ignore a price cut but follow a price increase. D. there is no product differentiation.

A) competitors will follow a price cut but ignore a price increase

Game theory: A. is the analysis of how people (or firms) behave in strategic situations. B. is best suited for analyzing purely competitive markets. C. reveals that mergers between rival firms are self-defeating. D. reveals that price-fixing among firms reduces profits.

A) is the analysis of how people (or firms) behave in strategic situations

The long-run supply curve in a constant-cost industry would be: A. Vertical B. Horizontal C. Upsloping D. Downsloping

B) Horizontal

Suppose that a monopolist calculates that at present output and sales levels, marginal revenue is $1.00 and marginal cost is $2.00. He or she could maximize profits or minimize losses by: A. Decreasing price and increasing output B. Increasing price and decreasing output C. Decreasing price and leaving output unchanged D. Decreasing output and leaving price unchanged

B) Increasing price and decreasing output

In the short run the individual competitive firm's supply curve is that segment of the: A. average variable cost curve lying below the marginal cost curve. B. marginal cost curve lying above the average variable cost curve. C. marginal revenue curve lying below the demand curve. D. marginal cost curve lying between the average total cost and average variable cost curves.

B) Marginal cost curve lying above the average variable cost curve.

If a purely competitive firm is producing at the MR = MC output level and earning an economic profit, then: A. the selling price for this firm is above the market equilibrium price. B. new firms will enter this market. C. some existing firms in this market will leave. D. there must be price fixing by the industry's firms.

B) New firms will enter this market

When a purely competitive industry is in long-run equilibrium, which statement is true? A. Average total cost is less than marginal cost B. Price and average total cost are equal C. Marginal cost is at its maximum level D. Marginal revenue is greater than price

B) Price and average total cost are equal

A purely competitive firm's short-run supply curve is: A. perfectly elastic at the minimum average total cost. B. upsloping and equal to the portion of the marginal cost curve that lies above the average variable cost curve. C. upsloping and equal to the portion of the marginal cost curve that lies above the average total cost curve. D. upsloping only when the industry has constant costs.

B) Upsloping and equal to the portion of the marginal cost curve that lies above the average variable cost curve.

Which of the following is not a barrier to entry? A. Patents B. X-inefficiency C. economies of scale D. ownership of essential resources

B) X-inefficiency

A constant-cost industry is one in which: A. a higher price per unit will not result in an increased output. B. if 100 units can be produced for $100, then 150 can be produced for $150, 200 for $200, and so forth. C. the demand curve and therefore the unit price and quantity sold seldom change. D. the total cost of producing 200 or 300 units is no greater than the cost of producing 100 units.

B) if 100 units can be produced for $100 then 150 can be produced for $150, 200 for $200 and so forth.

A pure monopolist should never produce in the: A. elastic segment of its demand curve because it can increase total revenue and reduce total cost by lowering price. B. inelastic segment of its demand curve because it can increase total revenue and reduce total cost by increasing price. C. inelastic segment of its demand curve because it can always increase total revenue by more than it increases total cost by reducing price. D. segment of its demand curve where the price elasticity coefficient is greater than one.

B) inelastic segment of its demand curve because it can increase total revenue and reduce total cost by increasing price.

When a purely competitive firm is in long-run equilibrium: A. marginal revenue exceeds marginal cost. B. price equals marginal cost. C. total revenue exceeds total cost. D. minimum average total cost is less than the product price.

B) price equals marginal cost

Other things equal, a price discriminating monopolist will: A. realize a smaller economic profit than a nondiscriminating monopolist. B. produce a larger output than a nondiscriminating monopolist. C. produce the same output as a nondiscriminating monopolist. D. produce a smaller output than a nondiscriminating monopolist.

B) produce a larger output than a nondiscriminating monopolist

In the short run a purely competitive firm that seeks to max. profit will produce: A) where the demand and the ATC curves intersect B) where total revenue exceeds total cost by the max. amount C) that output where economic profits are zero D) at any point where the total revenue and total cost curves interest

B) where the total revenue exceeds the total cost by the max. amount

The wage rate increases in a purely competitive industry. This change will result in a(n): A) Decrease in average total cost for a firm in the industry B) Decrease in average variable cost for a firm in the industry C) Increase in the marginal cost curve for a firm in the industry D) Increase in the short-run supply curve for a firm in the industry

C) Increase in the marginal cost curve for a firm in the industry

The term oligopoly indicates: A. a one-firm industry. B. many producers of a differentiated product. C. a few firms producing either a differentiated or a homogeneous product. D. an industry whose four-firm concentration ratio is low.

C) a few firms producing either a differentiated or homogenous product

In the short-run, a profit-maximizing monopolistically competitive firm sets it price: A. equal to marginal revenue. B. equal to marginal cost. C. above marginal cost. D. below marginal cost.

C) above marginal cost.

Nonprice competition refers to: A. competition between products of different industries, for example, competition between aluminum and steel in the manufacture of automobile parts. B. price increases by a firm that are ignored by its rivals. C. advertising, product promotion, and changes in the real or perceived characteristics of a product. D. reductions in production costs that are not reflected in price reductions.

C) advertising, product promotion, and changes in the real or perceived characteristics of a product.

If oligopolistic firms facing similar cost and demand conditions successfully collude, price and output results in this industry will be most accurately predicted by which of the following models? A. The kinked demand curve model of oligopoly B. The price-leadership model of oligopoly C. The pure monopoly model D. The monopolistic competition model

C) the pure monopoly model

Price discrimination refers to: A. selling a given product for different prices at two different points in time. B. any price above that which is equal to a minimum average total cost. C. the selling of a given product at different prices that do not reflect cost differences. D. the difference between the prices a purely competitive seller and a purely monopolistic seller would charge.

C) the selling of a given product at different prices that do not reflect cost differences.

Resource costs increase in a purely competitive industry. This change will result in a(n): A. Increase in average fixed cost for a firm in the industry B. Decrease in average variable cost for a firm in the industry C. Decrease in the marginal cost curve for a firm in the industry D. Decrease in the short-run supply curve for a firm in the industry

D) Decrease in the short-run supply curve for a firm in the industry

Which of the following statements is true? A. Nash equilibriums exist only in games with dominant strategies. B. Dominant strategies do not exist in repeated games. C. Collusive agreements will always break down in repeated games. D. Games with a known ending date undermine reciprocity strategies.

D) Games with a known ending date undermine reciprocity strategies

Many people believe that monopolies charge any price they want to without affecting sales. Instead, the output level for a profit-maximizing monopoly is determined by: A. Marginal cost = demand B. Marginal revenue = demand C. Average total cost = demand D. Marginal cost = marginal revenue

D) Marginal cost = marginal revenue

In the short-run purely competitive firms earn ________ in equilibrium while in the long-run firms earn ________ in equilibrium, respectively. A. normal profits; economic profits B. profits or losses; profits or losses C. profits; normal profit D. profits or losses; normal profit

D) Profits or losses; normal profit

In the standard model of pure competition, a profit maximizing entrepreneur will shut down in the short run if: A) Marginal cost is greater than average revenue B) Average cost is greater than average revenue C) Average fixed cost is greater than average revenue D) Total revenue is less than total variable costs

D) Total revenue is less than total variable costs

In a typical graph fora purely competitive firm, the intersection of the total cost and total revenue curves would be: A) A point of max. economic profit B) A point of min. economic loss C) A point where MR = MC D) A break-even point

D) a break even point

Creative destruction A. stimulates growth. B. contributes to the production of new goods. C. forces firms to be innovative. D. does all of the above.

D) does all of the above

In moving down the elastic segment of the monopolist's demand curve, total revenue is: Increasing, and marginal revenue is negative Decreasing, and marginal revenue is positive Decreasing, and marginal revenue is negative D. Increasing, and marginal revenue is positive

D) increasing, and marginal revenue is positive

A firm reaches a break-even point (normal profit position) where: A. marginal revenue cuts the horizontal axis. B. marginal cost intersects the average variable cost curve. C. total revenue equals total variable cost. D. total revenue and total cost are equal.

D) total revenue and total costs are equal

In the long run, new firms will enter a monopolistically competitive industry: A. provided economies of scale are being realized. B. even though losses are incurred in the short run. C. until minimum average total cost is achieved. D. until economic profits are zero.

D) until economic profits are zero

For a purely competitive firm total revenue: A. is price x quantity sold B. increases by a constant absolute amount as output expands. C. graphs as a straight upsloping line from the origin. D. has all of these characteristics

D. Has all of these characteristics

For a purely competitive seller, price equals? A. Average revenue B. Marginal Revenue C. Total revenue divided by output D. all of the above

D. all of the above