Micro final exam practice test

A firm has a fixed cost of $500 in its first year of operation. When the firm produces 100 units of output, its total costs are $4,500. The marginal cost of producing the 101st unit of output is $300. What is the total cost of producing 101 units? -$46.53 -$800 - $4,800 -$5,300

- $4,800

Economists normally assume that the goal of a firm is to earn (i) profits as large as possible, even if it means reducing output. (ii) profits as large as possible, even if it means incurring a higher total cost. (iii) revenues as large as possible, even if it reduces profits. - (i) and (ii) only -(i) and (iii) only -(ii) and (iii) only - (i), (ii), and (iii)

- (i) and (ii) only

If a monopolist can sell 7 units when the price is $4 and 8 units when the price is $3, then marginal revenue of selling the eighth unit is equal to -$3. -$4. -$24. - -$4.

- -$4 (negative 4$)

Refer to Figure 15-11. Which area represents the deadweight loss from monopoly? - A+B - C+F - G - A+B+C+F

- G

Monopoly pricing prevents some mutually beneficial trades from taking place. These unrealized, mutually beneficial trades are - of little concern to society. - a deadweight loss to society. - a sunk cost to society. - also observed in competitive markets

- a deadweight loss to society

A monopolist - has a supply curve that is upward-sloping, just like a competitive firm. - does not have a supply curve because the monopolist sets its price at the same time it chooses the quantity to supply. - has a horizontal supply curve, just like a competitive firm. - does not have a supply curve because marginal revenue exceeds the price it charges for its products.

- does not have a supply curve because the monopolist sets its price at the same time it chooses the quantity to supply.

A monopolist's profits with price discrimination will be - lower than if the firm charged a single, profit-maximizing price - the same as if the firm charged a single, profit-maximizing price. - higher than if the firm charged just one price because the firm will capture more consumer surplus. - higher than if the firm charged a single price because the costs of selling the good will be lower.

- higher than if the firm charged just one price because the firm will capture more consumer surplus.

If the market elasticity of demand for potatoes is -0.3 in a perfectly competitive market, then the individual farmer's elasticity of demand -will also be -0.3. -depends on how large a crop the farmer produces. -will range between -0.3 and -1.0. - will be infinite

- will be infinite

Suppose a firm in a competitive market produces and sells 8 units of output and has a marginal revenue of $8.00. What would be the firm's total revenue if it instead produced and sold 4 units of output? -$4 -$8 -$32 -$64

-$32

Refer to Figure 7-18. If the price decreases from $22 to $16 due to a shift in the supply curve, consumer surplus increases by -$120. -$360. -$480. -$600.

-$360.

Refer to Figure 14-1. The firm's short-run supply curve is its marginal cost curve above -$1. -$3. -$4.50. -$6.30.

-$4.50.

Refer to Figure 15-4. A profit-maximizing monopoly's profit is equal to -P4 x Q3. -(P4-P2) x Q3. -(P4-P1) x Q3. -(P5-P0) x Q1.

-(P4-P1) x Q3.

For a monopoly firm, the shape and position of the demand curve play a role in determining the (i) profit-maximizing price. (ii) shape and position of the marginal-cost curve. (iii) shape and position of the marginal-revenue curve. -(i) and (ii) only -(ii) and (iii) only -(i) and (iii) only -(i), (ii), and (iii)

-(i) and (iii) only

Suppose a competitive market is comprised of firms that face identical cost curves. The firms experience an increase in demand that results in positive profits for the firms. Which of the following events are then most likely to occur? (i) New firms will enter the market. (ii) In the short run, price will rise; in the long run, price will rise further. (iii) In the long run, all firms will be producing at their efficient scale. -(i) and (ii) only -(i) and (iii) only -ii) and (iii) only -(i), (ii) and (iii)

-(i) and (iii) only

Refer to Figure 7-19. At equilibrium, total surplus is represented by the area -A+B+C. -A+B+D+F. -A+B+C+D+H+F. -A+B+C+D+H+F+G+I.

-A+B+C+D+H+F.

Which of the following is a commonly-cited benefit of advertising? -Advertising can be a signal of the quality of a product. -Advertising impedes competition. -Advertising reduces the deadweight loss associated with monopolistic competition. -Advertising encourages free entry, which increases profits.

-Advertising can be a signal of the quality of a product

A monopolistically competitive firm -has the usual deadweight loss of monopoly pricing. - experiences a zero profit in a long-run equilibrium. - is said to have excess capacity. -All of the above are correct.

-All of the above are correct.

A particular cable TV company requires a household to subscribe to its high-speed Internet service if it subscribes to cable TV, and vice versa. This practice -is referred to as tying. -is regarded by some economists as a form of price discrimination. -is controversial among economists because they disagree on whether it has adverse effects for society as a whole. -All of the above are correct.

-All of the above are correct.

Suppose a firm operates in the short run at a price above its average total cost of production. In the long run the firm should expect -new firms to enter the market. -the market price to fall. -its profits to fall. -All of the above are correct.

-All of the above are correct.

Which of the following is a characteristic of a natural monopoly? -Average cost exceeds marginal cost over large regions of output. -Increasing the number of firms increases each firm's average total cost. -One firm can supply output at a lower cost than two firms. -All of the above are correct.

-All of the above are correct.

Refer to Figure 7-19. The efficient price-quantity combination is -P1 and Q1. -P2 and Q2. -P3 and Q1. -P4 and 0.

-P2 and Q2.

Refer to Figure 14-2. Which of the four prices corresponds to a firm earning negative economic profits in the short run but trying to remain open? -P1 -P2 -P3 -P4

-P3

Refer to Figure 15-4. A profit-maximizing monopoly will produce an output level of -Q1. -Q2. -Q3. -Q4

-Q3.

Efficiency in a market is achieved when -A social planner intervenes and sets the quantity of output after evaluating buyers' willingness to pay and sellers' costs. -The sum of producer surplus and consumer surplus is maximized. -All firms are producing the good at the same low cost per unit. -No buyer is willing to pay more than the equilibrium price for any unit of the good.

-The sum of producer surplus and consumer surplus is maximized.

If firms in a monopolistically competitive market are earning economic profits, which of the following scenarios would best describe the change existing firms would face as the market adjusts to the long-run equilibrium? -an increase in demand for each firm -a decrease in demand for each firm -a downward shift in the marginal cost curve for each firm -an upward shift in the marginal cost curve for each firm

-a decrease in demand for each firm

When consumers are exposed to additional choices that result from the introduction of a new product, -their satisfaction is likely to be lowered as a result of their having to make additional choices. -a product-variety externality is said to occur. -an advertising externality is said to occur. -consumers are likely to experience negative consumption externalities.

-a product-variety externality is said to occur.

In the study done by Lee Benham on advertising for eyeglasses, -advertising increased the average price. -advertising decreased the average price. -there was no difference in price, but quality was better in the states that didn't allow advertising. -advertising appeared to have no effect whatsoever in the states that permitted advertising.

-advertising decreased the average price.

For a monopoly, -average revenue exceeds marginal revenue. -average revenue equals marginal revenue. -average revenue is less than marginal revenue. -price equals marginal revenue.

-average revenue exceeds marginal revenue.

When marginal cost is less than average total cost, -marginal cost must be falling. -average variable cost must be falling. -average total cost is falling. -average total cost is rising

-average total cost is falling.

A fundamental source of monopoly market power arises from -perfectly elastic demand. -perfectly inelastic demand. -barriers to entry. -availability of "free" natural resources, such as water or air.

-barriers to entry.

Which of the following industries is most likely to exhibit the characteristic of free entry? -nuclear power -municipal water and sewer -dairy farming -airport security

-dairy farming

When adding another unit of labor leads to an increase in output that is smaller than the increases in output that resulted from adding previous units of labor, the firm is experiencing -diminishing labor. -diminishing output. -diminishing marginal product. -negative marginal product.

-diminishing marginal product.

Monopoly firms have -downward-sloping demand curves, and they can sell as much output as they desire at the market price. -downward-sloping demand curves, and they can sell only a limited quantity of output at each price. -horizontal demand curves, and they can sell as much output as they desire at the market price. -horizontal demand curves, and they can sell only a limited quantity of output at each price.

-downward-sloping demand curves, and they can sell only a limited quantity of output at each price.

One method used to control the ability of firms to capture monopoly profit in the United States is through -government purchase of products produced by monopolists. -government distribution of a monopolist's excess production. -enforcement of antitrust laws. -regulation of firms in highly competitive markets.

-enforcement of antitrust laws.

Which of the following is a characteristic of monopolistic competition? -ownership of a key resource by a single firm -free entry -identical product -patents

-free entry

Because monopolistically competitive firms produce differentiated products, each firm -faces a demand curve that is horizontal. -faces a demand curve that is vertical. -has no control over product price. -has some control over product price

-has some control over product price

If a market is allowed to move freely to its equilibrium price and quantity, then an increase in supply will -increase consumer surplus. -reduce consumer surplus. -not affect consumer surplus. -Any of the above are possible.

-increase consumer surplus.

. As the number of firms in an oligopoly increases, the price approaches -zero. -marginal cost. -infinity. -the monopoly price

-marginal cost.

Refer to Figure 17-2. If this game is played only once, then the most likely outcome is that -Hector and Bart both clean. -Hector cleans and Bart does not clean. -Bart cleans and Hector does not clean. -neither Hector nor Bart cleans.

-neither Hector nor Bart cleans.

. Game theory is important for the understanding of -competitive markets. -monopolies. -oligopolies. -all market structures

-oligopolies.

We must be knowledgeable of how people behave in strategic situations if we are to understand -perfectly competitive markets. -monopolistically competitive markets. -oligopolistic markets. -All of the above are correct.

-oligopolistic markets.

In a long-run equilibrium, -only a perfectly competitive firm operates at its efficient scale. -only a monopolistically competitive firm operates at its efficient scale. -neither a competitive firm nor a monopolistically competitive firm charges a markup over marginal cost. -both a perfectly competitive firm and a monopolistically competitive firm operate at their efficient scale of production.

-only a perfectly competitive firm operates at its efficient scale.

In calculating accounting profit, accountants typically don't include -long-run costs. -sunk costs. -explicit costs of production. -opportunity costs that do not involve an outflow of money.

-opportunity costs that do not involve an outflow of money.

For a monopoly firm, which of the following equalities is always true? -price = marginal revenue -price = average revenue -price = total revenue -marginal revenue = marginal cost

-price = average revenue

If duopolists colluded but then stopped colluding, -price and quantity would rise. -price would rise and quantity would fall. -price would fall and quantity would rise -price and quantity would fall.

-price would fall and quantity would rise

Refer to Figure 17-2. The dominant strategy for Hector is to -clean, and the dominant strategy for Bart is to clean. -clean, and the dominant strategy for Bart is to refrain from cleaning. -refrain from cleaning, and the dominant strategy for Bart is to clean. -refrain from cleaning, and the dominant strategy for Bart is to refrain from cleaning.

-refrain from cleaning, and the dominant strategy for Bart is to refrain from cleaning

The Sherman Antitrust Act -was passed to encourage judicial leniency in the review of cooperative agreements. -was concerned with self-interest dominated Nash equilibriums in prisoners' dilemma games. -enhanced the ability to enforce cartel agreements. -restricted the ability of competitors to engage in cooperative agreements.

-restricted the ability of competitors to engage in cooperative agreements.

A similarity between monopoly and monopolistic competition is that in both market structures -strategic interactions among sellers are important. -there are a small number of sellers. -sellers are price makers rather than price takers. -there are only a few buyers but many sellers.

-sellers are price makers rather than price takers.

Because the goods offered for sale in a competitive market are largely the same, -there will be few sellers in the market. -there will be few buyers in the market. -only a few buyers will have market power. -sellers will have little reason to charge less than the going market price

-sellers will have little reason to charge less than the going market price

The long-run supply curve for a competitive industry may be upward sloping if -there are barriers to entry. -firms that enter the industry are able to do so at lower average total costs than the existing firms in the industry. -some resources are available only in limited quantities. -accounting profits are positive.

-some resources are available only in limited quantities.

The accountants hired by the Brookside Racquet Club have determined total fixed cost to be $75,000, total variable cost to be $130,000, and total revenue to be $145,000. Because of this information, in the short run, the Brookside Racquet Club should -shut down. -exit the industry. -stay open because shutting down would be more expensive. -stay open because the firm is making an economic profit.

-stay open because shutting down would be more expensive.

In a game, a dominant strategy is -the best strategy for a player to follow only if other players are cooperative. -the best strategy for a player to follow, regardless of the strategies followed by other players. -a strategy that must appear in every game. -a strategy that leads to one player's interests dominating the interests of the other players.

-the best strategy for a player to follow, regardless of the strategies followed by other players.

For a large firm that produces and sells automobiles, which of the following costs would be a variable cost? -the $20 million payment that the firm pays each year for accounting services -the cost of the steel that is used in producing automobiles --the rent that the firm pays for office space in a suburb of St. Louis - All of the above are correct

-the cost of the steel that is used in producing automobiles

Many movie theaters allow discount tickets to be sold to senior citizens because -senior-citizen laws mandate such discounts. -goodwill efforts earn community respect and win loyal patrons. -the theaters are profit maximizers. -senior citizens lobby city councils for lower prices.

-the theaters are profit maximizers.

When price is greater than marginal cost for a firm in a competitive market, -marginal cost must be falling. -the firm must be minimizing its losses. -there are opportunities to increase profit by increasing production. -the firm should decrease output to maximize profit.

-there are opportunities to increase profit by increasing production.

Refer to Table 13-4. Charles's math tutoring company experiences diminishing marginal productivity with the addition of the -first worker. -second worker. -third worker. -fourth worker.

-third worker.

If we observe a great deal of advertising of men's shaving products, we can infer that -the market for those products is perfectly competitive. -it costs firms very little to produce those products. -those products are highly differentiated. -firms are irrational in their decisions to advertise

-those products are highly differentiated.

From society's standpoint, cooperation among oligopolists is -desirable, because it leads to less conflict among firms and a wider variety of products for consumers. -desirable, because it leads to an outcome closer to the competitive outcome than what would be observed in the absence of cooperation. -undesirable, because it leads to output levels that are too low and prices that are too high. -undesirable, because it leads to output levels that are too high and prices that are too high.

-undesirable, because it leads to output levels that are too low and prices that are too high.

A firm will shut down in the short run if the total revenue that it would get from producing and selling its output is less than its -opportunity costs. -fixed costs. -variable costs. -total costs

-variable costs.