Microeconomics Exam #2
3. Profit is defined as a. marginal revenue minus marginal cost. b. total revenue minus total cost. c. average revenue minus average total cost. d. net revenue minus depreciation.
b. total revenue minus total cost.
101. When analyzing the welfare cost of a monopoly, economists use ____ as the measure of economic well-being. a. consumer surplus b. total surplus c. profit d. producer surplus e. total revenue
b. total surplus
69. If price is greater than marginal cost for a profit maximizing firm in a perfectly competitive market, that firm a. may reduce its output. b. will increase its output. c. will reduce its output. d. None of the above.
b. will increase its output
57. If you were to buy a product from a perfectly competitive firm, the price you would pay for the product would be a. equal to the average revenue of the firm. b. equal to the marginal revenue of the firm. c. close to the marginal cost of producing the product. d. All of the above.
d. All of the above
73. When will a perfectly competitive firm be making zero economic profit? a. When price equals minimum average total cost. b. When price equals the level of average cost at efficient scale. c. After the long-run process of entry and exit. d. All of the above
d. All of the above
74. In a perfectly competitive market, the long-run process of entry and exit ends only when a. price equals average total cost and marginal cost. b. marginal revenue equals marginal cost. c. optimum efficiencies of scale are reached. d. All of the above.
d. All of the above
104. If a monopolist sells 100 units at $8 per unit and realizes an average cost of $6 per unit, what is the monopolist's profit? a. $200 b. $800 c. $600 d. None of the above
a. $200
58. If a perfectly competitive firm produces 10 widgets and has a marginal revenue of $5.00, what are the firm's total revenue and the price of widgets? a. $50.00 and $5.00 b. $5.00 and $5.00 c. $5.00 and $0.50 d. Cannot be determined from the information given.
a. $50.00 and $5.00
29. Average total cost (ATC) equals a. (fixed costs + variable costs) / quantity produced. b. (fixed costs + variable costs) / change in quantity produced. c. change in total costs / quantity produced. d. change in total costs / change in quantity produced.
a. (fixed costs + variable costs) / quantity produced
45. A perfectly competitive market is characterized by which of the following attributes: (i) many buyers and many sellers (ii) barriers to entry (iii) goods offered for sale are largely the same (iv) price takers a. (i), (iii) and (iv) b. (i), (ii), and (iv) c. (i) only d. all of the above
a. (i), (iii) and (iv)
33. Over what output range would marginal cost be above average variable cost (AVC) and below average total cost (ATC)? a. 120 to 150 b. 120 to 175 c. 100 to 120 d. it is impossible to tell from the information provided
a. 120 to 150
37. Which of the following cost functions always has a negative slope? a. Average fixed cost b. Average variable cost c. Marginal cost d. Average total cost
a. Average fixed cost
173. ____ is the study of how people behave in strategic situations. a. Game theory b. Welfare economics c. Statistics d. Econometrics
a. Game theory
174. A(n) ____ is a situation in which economic actors interacting with one another each choose their best strategy given the strategies the others have chosen. a. Nash equilibrium b. competitive equilibrium c. open market solution d. socially optimal solution
a. Nash equilibrium
137. Which of the following graphs would represent a profit maximizing monopolistically competitive firm? a. Panel a b. Panel d c. Panel b d. Panel c
a. Panel a
138. Use the graphs below to answer the following questions. Which of the graphs shown would be consistent with a monopolistically competitive firm that is making economic profits? a. Panel a b. Panel d c. Panel c d. Panel b
a. Panel a
149. Which of the panels shown depicts a monopolistically competitive firm earning economic profits in the short run a. Panel c b. Panel d c. both Panels c and d d. none of the above.
a. Panel c
91. Use the Figure below to answer the following questions. A profit maximizing monopolist will choose to produce approximately _____ units of output. a. Q1 b. Q3 c. Q0 d. Q2
a. Q1
92. A profit maximizing monopolist will have total revenue roughly equal to a. Q1 * P4 b. Q2 * P3 c. Q3 * P2 d. Q0 * P5
a. Q1 * P4
114. ____ occur(s) when companies merge in order to lower long-run average costs and achieve large economies of scale. a. Synergies b. Oligopolies c. Collusion d. Monopolies
a. Synergies
79. A firm in a market characterized by significant barriers to entry, products which have no close substitutes, and no competitors, is said to be a. a monopoly. b. an oligopoly. c. competitive. d. monopolistically competitive. e. none of the above.
a. a monopoly
19. Diminishing marginal product of labor occurs when a. adding another unit of labor increases output, but not by as large a margin as the previously employed labor. b. adding another unit of labor decreases output. c. adding another unit of labor increases output, by more than the margin of previously employed labor. d. none of the above.
a. adding another unit of labor increases output, but not by as large a margin as the previously employed labor
154. If regulators were to ensure that monopolistically competitive firms set price equal to marginal cost in the long run a. all monopolistically competitive firms would experience economic losses. b. firms would also operate at maximum efficient scale. c. the most efficient firms are not likely to be affected. d. new firms would be likely to enter the market.
a. all monopolistically competitive firms would experience economic losses
8. Interest paid on a bank loan is a. an explicit cost. b. always lower than money you borrow from yourself. c. an implicit cost. d. always higher than money you borrow from yourself.
a. an explicit cost
28. As the quantity produced increases, a. average fixed cost decreases. b. total fixed cost increases. c. total variable cost decreases. d. None of the above.
a. average fixed cost decreases
53. Use the graph below to answer the following questions. For the perfectly competitive firm depicted in the graph, a. average revenue is equal to $5.00. b. marginal revenue is equal to $3.50. c. accounting profits are zero. d. economic profits are zero. e. there is not enough information to determine MR, AR or profitability.
a. average revenue is equal to $5.00
35. Diseconomies of scale occur when a. average total cost increases as output increases. b. average fixed cost declines as output increases. c. average total cost declines as output increases. d. average fixed cost increases as output increases.
a. average total cost increases as output increases
21. In the short term, all of the following are variable costs of production except a. building rent. b. electricity. c. raw materials. d. overtime pay.
a. building rent
96. As a monopolist increases the quantity of output it sells, the price consumers are willing to pay for the good ______ . a. decreases due to the law of decreasing marginal benefit b. increases due to the law of increasing marginal benefit c. is unaffected. d. Not enough information given.
a. decreases due to the law of decreasing marginal benefit
102. Under conditions of monopoly, the socially efficient level of production occurs where the marginal cost curve intersects the ____ curve. a. demand b. average cost c. supply d. marginal revenue
a. demand
83. The market demand curve for a single-price monopolist is typically a. downward sloping and equal to the market demand curve. b. unitary elastic. c. horizontal and below the market demand curve. d. perfectly elastic at market price.
a. downward sloping and equal to the market demand curve
151. Since a monopolistically competitive firms faces a ________________ demand curve, it will always operate at ___________________. a. downward sloping, excess capacity b. perfectly inelastic, efficient scale c. downward sloping, efficient scale d. perfectly elastic, excess capacity
a. downward sloping, excess capacity
22. Land, buildings, and production equipment are typically considered ____ of production in the short run. a. fixed costs b. variable costs c. opportunity costs d. none of the above
a. fixed costs
157. Advertising that conveys information about the prices of different goods being offered for sale a. is likely to enhance the ability of markets to allocate scarce resources more efficiently. b. is psychological rather than informational. c. increases brand loyalty and product differentiation. d. all of the above.
a. is likely to enhance the ability of markets to allocate scarce resources more efficiently
94. If this monopolist decided to produce (and sell) Q2 units of output a. it would continue to make an economic profit, but would not be operating at a level consistent with profit maximization. b. revenue would be less than if it sold Q0 units of output. c. it would have losses of indeterminate size. d. it could not stay in business in the long run.
a. it would continue to make an economic profit, but would not be operating at a level consistent with profit maximization
26. If XYZ company chooses not to produce anything this month, its ____ will be zero for the month. a. marginal cost b. average cost c. opportunity cost d. total cost
a. marginal cost
117. A perfectly price discriminating monopolist is able to a. maximize profit and produce a level of output consistent with optimal social well-being. b. produce a level of output consistent with optimal social well-being, but not maximize profit. c. exercise illegal preferences over the gender of its employees. d. maximize profit, but not produce a level of output consistent with optimal social well-being.
a. maximize profit and produce a level of output consistent with optimal social well-being
2. Economists normally assume that the goal of a firm is to
a. maximize profit.
84. A ____ arises when there are economies of scale over a relevant range of output usually due to large fixed costs. a. natural monopoly b. government-created monopoly c. resource monopoly d. All of the above.
a. natural monopoly
135. If firms in a monopolistically competitive industry are making economic profits a. new firms will eventually enter the market. b. barriers to entry will be strengthened. c. firms will likely be subject to regulation. d. some firms must eventually exit the market.
a. new firms will eventually enter the market
153. In theory, a monopolistically competitive market could be considered inefficient since a. price exceeds marginal cost leading to a deadweight loss. b. marginal cost exceeds price leading to a deadweight loss. c. mark-up pricing does not occur in any other market structure. d. excess capacity is a short-run problem.
a. price exceeds marginal cost leading to a deadweight loss
150. For a monopolistically competitive firm in long-run equilibrium _______________ like in a monopoly market, and ____________________ like in a competitive market. a. price exceeds marginal cost, price equals average total cost b. price equals average total cost, price exceeds marginal cost c. marginal revenue equals marginal cost, average revenue exceeds average total cost d. average revenue exceed average total cost, marginal revenue exceeds average revenue
a. price exceeds marginal cost, price equals average total cost
63. When a perfectly competitive firm makes a decision to shut down in the short run, it is most likely that a. price is below the average variable cost. b. fixed costs exceed variable costs. c. average fixed costs are rising. d. marginal cost is above average variable cost.
a. price is below the average variable cost
160. Professional organizations and producer groups that represent firms in the same industry have an incentive to ___________ advertising through government regulation in order to ____________ competition on the basis of price. Research suggests that this type of rent-seeking ____________ prices in that industry. a. restrict, reduce, increases b. restrict, enhance, decreases c. encourage, reduce, increases d. encourage, enhance, decreases
a. restrict, reduce, increases
143. In monopolistically competitive markets, economic losses ____________, and ______________ shifts the demand curve of incumbent firms to the ___________________. a. signal some incumbent firms to exit, exit, right b. signal some incumbent firms to exit, exit, left c. signal new firms to enter, entry, right d. signal new firms to enter, entry, left
a. signal some incumbent firms to exit, exit, right
108. If government regulators force a natural monopolist to price its product at a level equal to marginal cost a. the monopolist will likely have economic losses that require a government subsidy to remain in operation. b. the monopolist will likely increase its profit. c. the monopolist will still cause a deadweight loss. d. fewer consumers will have an ability to buy the monopoly product.
a. the monopolist will likely have economic losses that require a government subsidy to remain in operation
15. The production function describes
a. the relationship between quantity of inputs and quantity of output
60. When price is greater than marginal cost for a perfectly competitive firm a. there are profit opportunities to be exploited by increasing production and output. b. the firm should decrease output to maximize profit. c. marginal cost must be rising. d. the firm is likely to be minimizing its losses.
a. there are profit opportunities to be exploited by increasing production and output
116. When regulating a natural monopoly, one of the problems with setting price equal to average cost is that a. there is no incentive for the monopolist to lower its costs. b. there is an incentive for the monopolist to overstate its costs. c. total social welfare is not optimized because P > MC. d. consumer surplus is not maximized. e. All of the above.
a. there is no incentive for the monopolist to lower its costs
163. In markets characterized by oligopoly, a. there is often tension between cooperation with rivals and pursuit of self interest. b. collusive agreements will always prevail. c. collective profits are lower under cartel arrangements. d. pursuit of self interest by profit maximizing firms always maximizes collective profits in the market.
a. there is often tension between cooperation with rivals and pursuit of self interest
59. If a perfectly competitive firm receives $500 in total revenue and has a marginal revenue of $10, what is the average revenue, and how many units were sold? a. $5 and 100 b. $10 and 50 c. $10 and 100 d. Cannot be determined from the information given.
b. $10 and 50
121. Use the figure below to answer the following question. A monopolist who is able to engage in perfect price discrimination will have profit equal to a. C + D + F b. A + B + C + D + E c. A + C d. B + D + E
b. A + B + C + D + E
99. The socially efficient level of output will generate a total surplus equal to a. A + C + E b. A + B + C + D + E + F c. B + D + F d. all of the area beneath the demand curve.
b. A + B + C + D + E + F
56. Which of the following industries is generally assumed to be most closely associated with a perfectly competitive market? a. Airline Companies b. Agriculture c. Retail Stores d. Telephone Companies
b. Agriculture
98. Use the figure below to answer the following questions. A profit maximizing monopolist will cause a deadweight loss equal to a. A + B + C + D + F b. F c. E d. A + B + F
b. F
146. Use the panel of figures below to answer the following questions. Which of the panels shown reflects a long run equilibrium in a monopolistically competitive market? a. Panel d b. Panel a c. Panel c d. Panel b
b. Panel a
141. If firms in a monopolistically competitive market are incurring economic losses, which of the graphs shown would reflect the change in demand for incumbent firms (who are able to stay in the market) as the market adjusts to its new equilibrium? a. Panel a b. Panel b c. Panel c d. Panel d
b. Panel b
30. Use this information and the graphic shown to answer the following questions. Bill's Bones is an archeology company and retail outlet that "mines" and sells common fossils directly to the public. The structure of his firm's costs are as follows. The most efficient or optimal scale of production for Bill's Bones occurs at a. Q = 100. b. Q = 150. c. Q = 175. d. Q = 120.
b. Q = 150
44. Decreasing returns to scale occur when output is at a. Decreasing returns to scale are observed over the entire output range. b. Q = 400. c. Q = 120. d. Q = 320.
b. Q = 400
159. Firms which have large advertising budgets, such as those firms that advertise during the Super Bowl, are likely to be providing consumers with a. a good example of wasted resources. b. a potential signal about product quality. c. a glimpse of ostentatious capitalism. d. information about product price.
b. a potential signal about product quality
124. The process of buying a good in one market at a low price and selling it in another market at a higher price, such as in ticket-scalping, is called ________. a. profit discrimination b. arbitrage c. product discrimination d. marginal cost pricing
b. arbitrage
27. The cost to produce the typical unit of output is the firm's a. variable cost. b. average total cost. c. fixed cost. d. marginal cost.
b. average total cost
34. Economies of scale occur when a. average variable cost increases as output increases. b. average total cost declines as output increases. c. average fixed cost increases as output increases. d. average fixed cost declines as output increases.
b. average total cost declines as output increases
77. A 'natural monopoly' occurs when a. the monopolist product is sold in its natural state (such as water or diamonds). b. average total cost of production decreases continuously as more output is produced over the relevant range of product demand. c. firms are characterized by falling marginal cost curves. d. a monopoly firm requires the use of free natural resources (such as water or air) to produce its product.
b. average total cost of production decreases continuously as more output is produced over the relevant range of product demand
183. Individual members of a cartel have a strong incentive to ____________ the cartel agreement because pursuit of ___________ will maximize individual firm profit and potentially increase market share. a. cheat on, collective interest b. cheat on, self-interest c. adhere to, self-interest d. adhere to, collective interest
b. cheat on, self-interest
120. If a monopolist is able to price discriminate a. consumer surplus is increased at a point closer to the socially efficient level of output. b. consumer surplus and deadweight losses are transformed into producer surplus and monopoly profits at a point closer to the socially efficient level of output. c. the price effect dominates the output effect on monopoly revenue at a point farther from the socially efficient level of output. d. deadweight loss is increased at a point closer to the socially efficient level of output.
b. consumer surplus and deadweight losses are transformed into producer surplus and monopoly profits at a point closer to the socially efficient level of output
64. When price is below average total cost, a firm in a competitive market will a. always exit the industry, even in the short run. b. continue to operate as long as average revenue exceeds marginal cost. c. shut down and incur the loss of both variable and fixed costs. d. continue to operate as long as average revenue exceeds average variable cost.
b. continue to operate as long as average revenue exceeds marginal cost
182. In game theory, a strategy is called a ____ if it is the best strategy for a player to follow regardless of the strategies pursued by other players. a. known probability b. dominant strategy c. perfect strategy d. None of the above.
b. dominant strategy
158. When advertising encourages customers to become more informed about all firms in the market, a. the market power of individual firms is strengthened. b. each firm is likely to have less market power and prices are likely to be lower. c. firms are able to foster stronger brand loyalty. d. demand curves for specific brands in the market are likely to become less elastic.
b. each firm is likely to have less market power and prices are likely to be lower
133. Monopolistic competition differs from Oligopoly because in monopolistically competitive markets a. all firms can eventually earn economic profits in perpetuity. b. each of the sellers offers a somewhat different product. c. strategic interactions between firms is vitally important. d. there are barriers to entry.
b. each of the sellers offers a somewhat different product
184. Games which are repeated and played more than once a. lead to outcomes dominated purely by self-interest. b. generally make collusive arrangements easier to enforce due to reputation building. c. always enhance social well-being. d. encourage more cheating on cartel production quotas in the successive multiple rounds.
b. generally make collusive arrangements easier to enforce due to reputation building
17. The marginal product of capital a. is equal to the incremental profit associated with accessing funds in the stock market. b. is equal to the increase in output obtained from a one unit increase in capital. c. is equal to the increase in capital necessary to generate a one unit increase in output. d. is equal to the incremental cost of equity financing.
b. is equal to the increase in output obtained from a one unit increase in capital
167. When a profit maximizing oligopolist makes a production decision a. it should ensure that the output effect is dominant. b. it generally must consider the behavior of competing firms. c. it should ensure that the price effect is dominant. d. it must always assume that competing firms will maintain their current level of production.
b. it generally must consider the behavior of competing firms.
175. The prisoners' dilemma is an important game to study because a. most games present zero-sum alternatives. b. it identifies the fundamental difficulty in maintaining cooperative agreements. c. strategic decisions faced by prisoners are always identical to those faced by firms engaged in illegal collusive agreements. d. all of the above.
b. it identifies the fundamental difficulty in maintaining cooperative agreements.
109. If a regulated natural monopoly is unable to generate profits at the "marginal-cost pricing" regulated level of production a. the regulated monopolist should try to minimize losses in the long run. b. it may be necessary for the government to subsidize the natural monopolist, which requires raising taxes or cutting public spending elsewhere. c. the regulated monopolist should always exit the industry. d. the government should always purchase the monopoly and run it in the public sector.
b. it may be necessary for the government to subsidize the natural monopolist, which requires raising taxes or cutting public spending elsewhere
165. Equilibrium price in markets characterized by Oligopoly is usually ____________ than in monopoly markets and ___________ than in perfectly competitive markets. a. higher, lower b. lower, higher c. higher, higher d. lower, lower
b. lower, higher
25. The cost to produce one additional unit is called a. fixed cost. b. marginal cost. c. average cost. d. variable cost.
b. marginal cost
87. When a monopolist faces a downward sloping market demand curve, its a. average revenue is less than the price of its product. b. marginal revenue is always less than the price of the units it sells. c. marginal revenue is greater than the price of the units it sells. d. average revenue is always less than marginal revenue.
b. marginal revenue is always less than the price of the units it sells
54. For the perfectly competitive firm depicted in the graph, a. economic profits are equal to $15.00. b. marginal revenue is equal to $5.00. c. marginal revenue is equal to $3.50. d. accounting profits are zero.
b. marginal revenue is equal to $5.00
171. The goal of an oligopolist is assumed to be to a. increase market share. b. maximize profits. c. maximize revenue. d. All of the above.
b. maximize profits
14. When analyzing a firm's behavior, it is important to include all ____ of production.
b. opportunity costs
86. Economists typically assume that monopolists behave as a. cost maximizers. b. profit maximizers. c. price maximizers. d. market share maximizers.
b. profit maximizers
68. If price is less than marginal cost, a perfectly competitive firm will a. increase its output. b. reduce its output. c. reduce its output but only if diseconomies of scale occur. d. None of the above.
b. reduce its output
110. One problem with regulating a natural monopolist on the basis of its average cost is a. a monopolist's costs, by definition, are higher than costs of perfectly competitive firms. b. that it does not provide an incentive for the monopolist to reduce its cost, possibly encouraging the monopolist to overstate costs or become less efficient. c. a monopolist is still able to generate excessive economic profits. d. regulators are unable to control prices and/or production output, possibly encouraging the monopolist to overstate costs or become less efficient..
b. that it does not provide an incentive for the monopolist to reduce its cost, possibly encouraging the monopolist to overstate costs or become less efficient
113. Passed by congress in 1914, ____ strengthened ____ by authorizing private antitrust lawsuits against highly efficient large-scale firms, benefiting less efficient small-scale firms. a. the Sherman Act, the Clayton Act b. the Clayton Act, the Sherman Act c. the Antitrust Act, the Clayton Act d. None of the above.
b. the Clayton Act, the Sherman Act
186. If players in a repeated game follow a tit-for-tat strategy a. self-interest becomes irrelevant to the outcome of the game. b. the cooperative solution is more likely to prevail than otherwise. c. self-interest is likely to lead to a non-cooperative solution. d. a cooperative solution would be impossible to enforce.
b. the cooperative solution is more likely to prevail than otherwise
5. An example of an explicit cost of production would be
b. the cost of flour for a baker
70. When a firm in a perfectly competitive market shuts down production, a. costs of all remaining firms in the market must fall. b. the market supply curve shifts left. c. market supply increases. d. the market supply curve shifts right.
b. the market supply curve shifts left
11. Accounting profit is equal to
b. total revenue minus the explicit cost of producing goods and services
128. Monopolistic competition is characterized by which of the following attributes (i) Many sellers (ii) Product Differentiation (iii) Barriers to entry (iv) Natural monopolies a. (i) and (iii) only b. (ii) and (iv) only c. (i) and (ii) only d. all of the above.
c. (i) and (ii) only
75. Barriers to entry may arise if: (i) A key resource is owned by a single firm (ii) The government awards a firm the exclusive right to produce a product, such as a patent or special license (iii) Average total costs are always declining (iv) A firm faces perfectly elastic demand a. (i) only b. (i) or (ii) only c. (i), (ii), or (iii) d. all of the above
c. (i), (ii), or (iii)
180. Given the following prisoners' dilemma table, if Bonnie and Clyde make the appropriate self-interested decision independent of the other, how much time should each spend in jail? Bonnie's Decision Confess Remain Silent Confess 8 years for each Bonnie gets 20 years Clyde goes free Clyde's Decision Bonnie goes free 1 year for each Remain Silent Clyde gets 20 years a. Bonnie goes free, Clyde gets 20 years b. 1 year for each c. 8 years each d. Bonnie gets 20 years, Clyde goes free
c. 8 years each
20. ____ do not vary with the amount of output a firm produces. a. Total costs b. Variable costs c. Fixed costs d. None of the above
c. Fixed costs
140. The graphs below depict the effect on incumbent firms of entry and exit in a monopolistically competitive market. If firms in a monopolistically competitive market are earning economic profits, which of the graphs shown would reflect the change in demand for incumbent firms as the market adjusts to its new equilibrium? a. Panel d b. Panel b c. Panel a d. Panel c
c. Panel a
139. Which of the graphs shown would be consistent with a monopolistically competitive firm that is making economic losses? a. Panel c b. Panel a c. Panel b d. Panel d
c. Panel b
90. Which of the graphs shown below best depicts the demand side of the market for a typical monopolist? a. Panel a b. Panel c c. Panel b d. Panel d
c. Panel b
78. Which of the average total cost curves shown would be consistent with a natural monopolist? a. Panel d. b. Panel a. c. Panel c. d. Panel b.
c. Panel c
111. Which of the graphs shown below best describes the situation of a regulated natural monopolist with marginal-cost pricing regulation? a. Panel b b. Panel a c. Panel d d. Panel c
c. Panel d
147. Which of the panels shown could not characterize a short-run or a long-run equilibrium in a monopolistically competitive market? a. Panel c b. Panel b c. Panel d d. Panel a
c. Panel d
32. At what level of output would marginal cost equal average total cost (ATC)? a. Q = 100. b. Q = 175. c. Q = 150. d. Q = 120.
c. Q = 150
103. Because P > MC, monopoly pricing prevents some mutually beneficial trades from taking place. These unrealized mutually beneficial trades are ____ to society. a. a sunk cost b. not considered a cost c. a deadweight loss or excess burden d. of little concern
c. a deadweight loss or excess burden
40. When average total cost is less than marginal cost, a. average fixed cost is greater than marginal cost. b. the firm is experiencing economies of scale. c. average total cost must be increasing. d. All of the above.
c. average total cost must be increasing
115. Since natural monopolies have a declining average cost curve, regulating natural monopolies by setting price equal to marginal cost would a. maximize producer surplus. b. result in a less than optimal total surplus. c. cause the monopolist to operate at a loss. d. All of the above.
c. cause the monopolist to operate at a loss
169. An agreement among firms over production and price is called _______. This group of firms that are acting in unison is called a ________. a. conspiracy, union b. conspiracy, cartel c. collusion, cartel d. collusion, union
c. collusion, cartel
185. In a two-person repeated game, a tit-for-tat strategy starts with ________________ and then each player ______________________. a. non-cooperation, pursues their own self-interest b. cooperation, is unresponsive to the strategic moves of the other player c. cooperation, mimics the other player's last move d. non-cooperation, cooperates when the other player demonstrates a desire for the cooperative solution
c. cooperation, mimics the other player's last move
72. The entry and exit decisions of firms are signaled by a. high or low demand for a firm's product. b. high capital costs. c. economic profits and economic losses. d. low capital costs.
c. economic profits and economic losses
134. A monopolistically competitive firm differs from a perfectly competitive firm because a monopolistically competitive firm a. is characterized by profit maximization. b. faces a horizontal demand curve at the market clearing price due to product homogeneity. c. faces a downward sloping demand curve for its product due to product differentiation. d. has no barriers to entry.
c. faces a downward sloping demand curve for its product due to product differentiation
176. A prisoners' dilemma game demonstrates how ___________ is often rational even though ________________________. a. a desire to cooperate, cooperation would make everyone worse off b. failure to cooperate, cooperation would make everyone worse off c. failure to cooperate, cooperation would make everyone better off d. all of the above can be demonstrated with a prisoner's dilemma game
c. failure to cooperate, cooperation would make everyone better off
172. An oligopolist is part of a cartel that is collectively producing at the monopoly level of output. The oligopolist, being self-interested will a. lower production below the agreed-upon level and drive up prices further. b. do nothing thus allowing the cartel to realize monopoly profits. c. increase production beyond the agreed-upon level to undercut rivals within the cartel. d. None of the above.
c. increase production beyond the agreed-upon level to undercut rivals within the cartel
166. As the number of firms in an oligopoly market _____________ the market approaches a ____________________________. a. decreases, cartel equilibrium b. increases, monopoly market equilibrium c. increases, competitive market equilibrium d. decreases, competitive market equilibrium
c. increases, competitive market equilibrium
177. When the player of a game chooses a dominant strategy a. it is the best strategy, only if other players are cooperative. b. the game can never reach a Nash equilibrium. c. it is the best strategy, regardless of choices made by other players. d. it is always leads to a Nash equilibrium that makes all players equally well off.
c. it is the best strategy, regardless of choices made by other players
155. Advertising enhances the competitive structure of markets when a. it reduces the elasticity of demand for a product. b. it is psychological rather than informational. c. it provides information that is useful to consumers in choosing among a variety of products. d. it increases brand loyalty.
c. it provides information that is useful to consumers in choosing among a variety of products
127. Monopolistically competitive firms are typically characterized by a. many firms selling identical products. b. few firms selling similar or identical products. c. many firms selling similar, but not identical products. d. few firms selling highly different products.
c. many firms selling similar, but not identical products
67. A firm will choose to increase production when a. marginal cost is less than average total cost. b. marginal revenue is less than marginal cost. c. marginal cost is less than marginal revenue. d. average total cost is less than marginal cost.
c. marginal cost is less than marginal revenue
66. Firms maximize profits when marginal cost equals a. average cost. b. supply. c. marginal revenue. d. All of the above.
c. marginal revenue
51. To the best of their ability, a profit maximizing producer always chooses to produce the level of output where a. average revenue is greater than marginal cost. b. average variable cost exceeds marginal cost. c. marginal revenue equals marginal cost. d. average total cost is less than average revenue.
c. marginal revenue equals marginal cost
88. A profit maximizing monopolist will produce the number of units that coincides with the level of output at which a. average revenue is just equal to marginal cost. b. total economic revenue is just equal to opportunity cost. c. marginal revenue is just equal to marginal cost. d. average revenue is just equal to average total cost.
c. marginal revenue is just equal to marginal cost
179. Oligopolies would like to act like ________, but self-interest drives them closer to ________. a. competitive firms, monopolies b. monopolies, duopolies c. monopolies, competition d. None of the above.
c. monopolies, competition
168. There are two types of markets in which firms face some competition yet are still able to have some control over the prices of their products. The names given these market structures are a. duopoly and imperfect competition. b. imperfect competition and monopolistic competition. c. monopolistic competition and oligopoly. d. oligopoly and duopoly.
c. monopolistic competition and oligopoly
85. In order to sell more of its product a monopolist a. must sell in international markets. b. must sell to the government. c. must lower its price on all units it sells. d. must use its market power to force up the price of complementary products.
c. must lower its price on all units it sells
82. An industry is a(n) ____ when a single firm can supply a good or service to an entire market at a lower cost than two or more firms could. a. government-created monopoly b. resource monopoly c. natural monopoly d. efficient monopoly
c. natural monopoly
89. When a monopolist increases the number of units it sells, there are two effects on revenue, the _____________ and the _______________________. a. competitive effect, monopoly effect b. demand effect, supply effect c. output effect, price effect d. competition effect, cost effect
c. output effect, price effect
61. If rational, profit maximizing firms (like rational people) think at the margin, then marginal adjustments to production a. will increase market share of the firm. b. will increase homogeneity in the market. c. should always increase profit (or decrease loss). d. should always lower cost.
c. should always increase profit (or decrease loss)
129. In a monopolistically competitive market structure, because each good sold in the market is _____________ each firm is considered a _________________. a. slightly different, price taker b. the same, price setter or price maker c. slightly different, price setter or price maker d. the same, price taker
c. slightly different, price setter or price maker
112. Passed by congress in 1890, ____ attempted to reduced the market power and the economies of scale of large and powerful "trusts". a. the 14th Amendment b. the Clayton Act c. the Sherman Act d. None of the above.
c. the Sherman Act
7. An example of an implicit cost of production would be
c. the cost of space in your home used for a home office
50. If marginal cost exceeds marginal revenue a. the firm may be at the profit maximizing level of output. b. a profit maximizing firm should always increase the level of production. c. the firm may still be generating economic profit, but will not be maximizing profit. d. the firm must be incurring economic losses.
c. the firm may still be generating economic profit, but will not be maximizing profit
6. An example of an implicit cost of production would be
c. the income an entrepreneur could have earned working for someone else
46. For a firm that operates in a perfectly competitive market a. it is restricted in the amount it can produce, otherwise price would be too low to make a profit. b. the price of the product will decrease as production increases. c. the price it charges for its product is not dependent on the quantity sold. d. as quantity produced rises, the price of the final product must also rise.
c. the price it charges for its product is not dependent on the quantity sold
23. Categorizing a factor of production, such as a large piece of machinery, as a fixed cost or a variable cost often depends on a. if it is being categorized for accounting or for economic decision making purposes. b. the cost of the factor of production. c. the time horizon being considered. d. All of the above.
c. the time horizon being considered
119. Price discrimination is a rational strategy for a profit-maximizing monopolist when a. there is an opportunity for arbitrage across market segmentations. b. consumers are unable to be segmented into identifiable markets. c. there is no opportunity for arbitrage across market segmentations. d. they want to increase the deadweight loss that results from profit-maximizing behavior.
c. there is no opportunity for arbitrage across market segmentations
10. Economic profit is equal to
c. total revenue minus the total opportunity cost of producing goods and services
24. Over a sufficiently long period of time, all costs are a. fixed. b. sunk. c. variable. d. None of the above.
c. variable
4. XYZ corporation produced 300 units of output but sold only 275 of the units it produced. The average cost of production for each unit of output produced was $100. Each of the 275 units were sold for a price of $95. Total revenue for the XYZ corporation would be:
d. $26,125
105. What is the deadweight loss due to monopoly pricing under the following conditions: The price charged for goods produced is $16. The intersection of the marginal revenue and marginal cost curves occurs where output is 10 units and price is $8. The socially efficient level of production is 12 units. a. $48 b. $16 c. $24 d. $8 e. None of the above
d. $8
93. A profit maximizing monopolist will have economic profits roughly equal to a. (P5 - P2) * Q0 b. (P3 - P1) * Q2 c. (P5 - P0) * Q0 d. (P4 - P1) * Q1
d. (P4 - P1) * Q1
181. Given the following prisoners' dilemma table, if Bonnie and Clyde could successfully collude regarding their decisions, how much time should each spend in jail? Bonnie's Decision Confess Remain Silent Confess 8 years for each Bonnie gets 20 years Clyde goes free Clyde's Decision Bonnie goes free 1 year for each Remain Silent Clyde gets 20 years a. 8 years each b. Bonnie goes free, Clyde gets 20 years c. Bonnie gets 20 years, Clyde goes free d. 1 year for each
d. 1 year for each
47. Use the table below to answer the following questions. Quantity Price 1 $13 2 $13 3 $13 4 $13 5 $13 6 $13 7 $13 8 $13 9 $13 What level of output is associated with maximum revenue? a. 3 b. 6 c. 1 d. 9
d. 9
122. In theory, price discrimination a. decreases deadweight loss. b. decreases consumer surplus. c. increases the monopolist's profits. d. All of the above.
d. All of the above
41. When marginal cost is less than average total cost, a. average total cost is greater than average variable cost. b. average total cost must be decreasing. c. the firm is experiencing economies of scale. d. All of the above.
d. All of the above
55. Firms in a perfectly competitive market are said to be price takers because a. firms have no incentive to charge less than the going market price. b. each firm can sell as much as it wants at the going market price. c. if a firm were to charge more than the going market price, it would sell none of its goods. d. All of the above.
d. All of the above
81. Which of the following is a reason that barriers to entry exist? a. The government gives a single firm the exclusive right to produce some good, or government product regulations hinder competitive entry by rivals. b. A key resource is owned by a single firm. c. The relatively high fixed costs of production make a single producer more efficient than a large number of producers. d. All of the above.
d. All of the above
38. Economies of scale can occur when a. marginal cost is less than average total cost. b. average variable cost is less than average total cost. c. a firm has large fixed costs. d. All of the above are possible.
d. All of the above are possible
48. Over what range of output is marginal revenue declining? a. 3 to 7 b. 7 to 9 c. 1 to 6 d. None. Marginal revenue is constant over the whole range of output.
d. None. Marginal revenue is constant over the whole range of output
31. At what level of output would marginal cost equal average variable cost (AVC)? a. Q = 150. b. Q = 175. c. Q = 100. d. Q = 120.
d. Q = 120
43. Increasing returns to scale occur when output is at a. Increasing returns to scale are observed over the entire output range. b. Q = 480. c. Q = 320. d. Q = 120.
d. Q = 120
42. Use the graph below to answer the following questions. Constant returns to scale occur when output is at a. Q = 240. b. Q = 480. c. Constant returns to scale are observed over the entire output range. d. Q = 320.
d. Q = 320
178. Dominant strategies in a two-person game often lead to a. one person gaining advantage at the expense of the other person. b. the best possible outcome for both players. c. a disequilibrium outcome. d. a less preferred outcome for both players.
d. a less preferred outcome for both players
148. Panel b in the set of images shown is consistent with a. a perfectly competitive firm that is incurring economic losses. b. a monopolistically competitive firm in both a short-run and a long-run equilibrium. c. a monopolistically competitive firm in a long-run equilibrium, but not a short-run equilibrium. d. a monopolistically competitive firm in short-run equilibrium, but not a long-run equilibrium.
d. a monopolistically competitive firm in short-run equilibrium, but not a long-run equilibrium
130. In a monopolistically competitive industry, price is likely to be ________________ marginal cost since each firm is a ___________________. a. always a fraction of, price setter or price maker b. below, price setter or price maker c. equal to, price taker d. above, price setter or price maker
d. above, price setter or price maker
156. Advertising that identifies the location and hours of operation of retail outlets a. enhances the ability of markets to allocate scarce resources more efficiently. b. enhances the competitive structure of markets. c. gives consumers more information to make better choices. d. all of the above.
d. all of the above
49. For a firm in a perfectly competitive market, ______________ equals the price of the good. a. marginal revenue b. average revenue c. demand price d. all of the above
d. all of the above
9. Foregone interest from investing your savings in a business is an example of
d. an implicit cost
162. When large-scale firms have tacit agreements among themselves on the quantity to produce and the price to sell output, they are organized a. on a competitive scale. b. as a Nash arrangement. c. as competitive oligopolists. d. as a cartel.
d. as a cartel
76. The fundamental source of monopoly market power arises from a. perfectly inelastic demand. b. perfectly elastic demand. c. availability of "free" natural resources, such as water or air. d. barriers to entry.
d. barriers to entry
131. When many sellers are involved in selling their products in a market, the market structure is which of the following: (i) perfect competition (ii) monopolistic competition (iii) monopoly (iv) oligopoly a. (ii) only b. (i), (ii) and (iv) only c. (i) only d. both (i) and (ii) e. all of the above
d. both (i) and (ii)
36. Typically, the marginal cost curve ____ as output increases. a. briefly increases then decreases b. always decreases c. always increases d. briefly decreases then increases e. None of the above.
d. briefly decreases then increases
170. Individual members of a cartel almost always have an incentive to ____ to increase their profits further. a. lower production b. limit membership c. collude by lowering ouptut and increasing price d. cheat by increasing output and reducing price
d. cheat by increasing output and reducing price
145. As some incumbent firms exit a monopolistically competitive market, economic losses of existing firms ________ and product diversity in the market _________________. a. decline, increases b. rise, increases c. rise, decreases d. decline, decreases
d. decline, decreases
144. As new firms enter a monopolistically competitive market, economic profits of existing firms ____________ and product diversity in the market _________________. a. rise, increases b. rise, decreases c. decline, decreases d. decline, increases
d. decline, increases
71. When new firms enter a market in pursuit of economic profit, a. all firms will see their share of market production increase. b. no firms in the industry will earn economic profit in the short run, all else equal. c. the market demand curve will rise. d. economic profit of existing firms in the market will begin to fall, all else equal.
d. economic profit of existing firms in the market will begin to fall, all else equal
95. The slope of the demand curve faced by a monopolist is ____ the slope of the market demand curve. a. can be less than or equal to b. greater than c. less than d. equal to
d. equal to
97. For a competitive firm, marginal revenue ____ the price of its good, and for a monopolist, marginal revenue ____ the price of its good. a. is less than, equals b. is greater than, is less than c. equals, is greater than d. equals, is less than
d. equals, is less than
132. When freedom of entry is one of the attributes of a market structure, economic profits are a. sacrificed to excess capacity. b. negative for all firms. c. always positive. d. eventually driven to zero.
d. eventually driven to zero
161. When compared to perfect competition, the theoretical disadvantages of monopolistic competition are ______ and __________, whereas the practical benefit that consumers get in return is __________. a. product variety, excess capacity, marginal cost pricing b. deadweight losses, product variety, excess capacity c. product variety, deadweight losses, average cost pricing d. excess capacity, deadweight losses, product variety
d. excess capacity, deadweight losses, product variety
164. Equilibrium quantity in markets characterized by Oligopoly is usually____________ than in monopoly markets and ___________ than in perfectly competitive markets. a. lower, higher b. higher, higher c. lower, lower d. higher, lower
d. higher, lower
126. In general, market structures that fall somewhere in between Monopoly and Perfect Competition are called a. oligopoly markets. b. incomplete markets. c. monopolistically competitive markets. d. imperfectly competitive markets.
d. imperfectly competitive markets
152. Hotels in New York City frequently experience an average vacancy rate of about 20% (i.e., on an average night, 80% of their rooms are full). This excess capacity is indicative of a (an) ____________ industry. a. competitive b. monopolistic c. oligopoly d. monopolistically competitive
d. monopolistically competitive
125. Markets which are characterized by only a few sellers with large market shares that sell similar or nearly identical (homogenous) products are typically referred to as a. monopoly markets. b. competitive markets. c. aggressive markets. d. oligopoly markets.
d. oligopoly markets
12. Firms can have (i) accounting profits and economic losses. (ii) accounting profits and economic profits. (iii) accounting losses and economic losses. (iv) accounting losses and economic profits.
d. only (i), (ii), and (iii
118. When a monopolist is able to sell its product at different prices to different consumers, it is engaging in a. price differentiation. b. distribution pricing. c. quality adjusted pricing. d. price discrimination.
d. price discrimination
106. Antitrust laws may _____ the ability of firms to ______________. a. enhance, reduce economic losses b. restrict, operate at the socially efficient level of production c. enhance, capture profits from concentration of market power d. restrict, capture efficiencies in production through mergers and economies of scale (synergies)
d. restrict, capture efficiencies in production through mergers and economies of scale (synergies)
65. When price is below average variable cost, a firm in a competitive market will a. continue to operate as long as average revenue exceeds average variable cost. b. shut down and incur the loss of fixed costs. c. continue to operate as long as average revenue exceeds marginal cost. d. shut down and incur the loss of both variable and fixed costs.
d. shut down and incur the loss of both variable and fixed costs
142. In monopolistically competitive markets, economic profits ____________, and ______________ shifts the demand curve of incumbent firms to the ___________________. a. signal some incumbent firms to exit, exit, right b. signal some incumbent firms to exit, exit, left c. signal new firms to enter, entry, right d. signal new firms to enter, entry, left
d. signal new firms to enter, entry, left
13. A ____ cost is a cost that has already been committed and cannot be recovered.
d. sunk
107. One problem with government regulation of natural monopolies is that a. a benevolent government is likely to be interested in generating profits for political gain. b. a government regulated outcome may increase the profitability of the monopoly. c. regulated industries typically have rising average costs or diseconomies of scale d. the government typically has poor information about the socially optimal level of production.
d. the government typically has poor information about the socially optimal level of production
52. The market for wheat is usually a good example of a perfectly competitive market because a. farmers generally have to put more effort into their work than workers in other industries just to be competitive. b. wheat farmers have high fixed costs for land and machinery. c. there are usually a few large farms in a particular region. d. the wheat produced by farmers is largely the same from one farmer to another.
d. the wheat produced by farmers is largely the same from one farmer to another
100. The real economic problem with monopolies is their ability a. to profiteer at the expense of consumers. b. to buy political favors with their excessive profits. c. to price their product at a level that forces consumers to pay more than they are willing or able. d. to restrict output below the socially efficient level of production. e. All of the above
d. to restrict output below the socially efficient level of production
18. The marginal product of labor can be defined as a. ∆ quantity of labor / ∆ total output, where ∆ denotes "change in". b. ∆ quantity of labor / ∆ total cost, where ∆ denotes "change in". c. ∆ profit / ∆ quantity of labor, where ∆ denotes "change in". d. ∆ total output / ∆ quantity of labor, where ∆ denotes "change in".
d. ∆ total output / ∆ quantity of labor, where ∆ denotes "change in"
39. The efficient scale of a firm occurs when a. the firm is experiencing neither economies nor diseconomies of scale. b. the firm is experiencing constant returns to scale. c. average total cost is minimized. d. marginal cost equals average total cost. e. All of the above.
e. All of the above
80. The goal of a(n) ____ is to maximize profit. a. oligopoly b. monopoly c. monopolistically competitive firm d. perfectly competitive firm e. all of the above
e. all of the above
62. The supply curve for an individual firm in a perfectly competitive market a. is determined by forces external to the firm. b. is reflected in its marginal cost curve above average variable cost in the short run. c. is reflected in its marginal cost curve above average total cost in the long run. d. is likely to slope downward. e. both b and c are correct
e. both b and c are correct
123. Price discrimination requires the firm to a. differentiate between different units of their product. b. engage in arbitrage among buyers of their product. c. separate customers according to their willingness to pay. d. prevent arbitrage among buyers of their product. e. both c and d.
e. both c and d
136. In the short run, a firm in a monopolistically competitive market a. earns economic profits. b. earns economic losses. c. will never shut down. d. all of the above e. only a or b are possible
e. only a or b are possible
1. Industrial organization is the study of
how firms' decisions regarding prices and quantities depend on the market conditions they face.