Chapter 3 eco

27. Which of the following is not a characteristic of a monopoly? a. barriers to entry b. one seller c. one buyer d. a product without close substitutes

C

23. In the short-run, a firm's supply curve is equal to the a. marginal cost curve above its average variable cost curve. b. marginal cost curve above its average total cost curve. c. average variable cost curve above its marginal cost curve. d. average total cost curve above its marginal cost curve.

A

25. If firms are competitive and profit maximizing, the price of a good equals the a. marginal cost of production. b. fixed cost of production. c. total cost of production. d. average total cost of production.

A

28. Which of the following are necessary characteristics of a monopoly? (i) The firm is the sole seller of its product. (ii) The firm's product does not have close substitutes. (iii) The firm generates a large economic profit. (iv) The firm is located in a small geographic market. a. (i) and (ii) only b. (i) and (iii) only c. (i), (ii), and (iii) only d. (i), (ii), (iii), and (iv)

A

37. Deadweight loss a. measures monopoly inefficiency. b. exceeds monopoly profits. c. equals monopoly profits. d. equals monopoly revenues minus profits.

A

4. If Danielle sells 300 wrist bands for $0.50 each, her total revenues are a. $150. b. $299.50. c. $300. d. $600.

A

5. Billy's Bean Bag Emporium produced 300 bean bag chairs but sold only 275 of the units it produced. The average cost of production for each unit of output produced was $100. The price for each of the 275 units sold was $95. Total profit for Billy's Bean Bag Emporium would be a. -$3,875. b. $26,125. c. $28,500. d. $30,000.

A

8. Katherine gives piano lessons for $15 per hour. She also grows flowers, which she arranges and sells at the local farmer's market. One day she spends 5 hours planting $50 worth of seeds in her garden. Once the seeds have grown into flowers, she can sell them for $150 at the farmer's market. Katherine's accounting profits are a. $100, and her economic profits are $25. b. $100, and her economic profits are $75. c. $25, and her economic profits are $100. d. $75, and her economic profits are $125.

A

12. The analysis of competitive firms sheds light on the decisions that lie behind the a. demand curve. b. supply curve. c. way firms make pricing decisions in the not-for-profit sector of the economy. d. way financial markets set interest rates.

B

13. Comparing marginal revenue to marginal cost (i) reveals the contribution of the last unit of production to total profit. (ii) is helpful in making profit-maximizing production decisions. (iii) tells a firm whether its fixed costs are too high. a. (i) only b. (i) and (ii) only c. (ii) and (iii) only d. (i) and (iii) only

B

30. Refer to Figure Above. The shape of the average total cost curve reveals information about the nature of the barrier to entry that might exist in a monopoly market. Which of the following monopoly types best coincides with the figure? a. ownership of a key resource by a single firm b. natural monopoly c. government-created monopoly d. a patent or copyright monopoly

B

31. The market demand curve for a monopolist is typically a. unit price elastic. b. downward sloping. c. horizontal. d. vertical.

B

33. For a monopoly firm, a. price always exceeds average revenue. b. price always exceeds marginal revenue. c. any price-quantity combination will maximize profits. d. All of the above are correct.

B

38. Consider a profit-maximizing monopoly pricing under the following conditions. The profit-maximizing price charged for goods produced is $12.The intersection of the marginal revenue and marginal cost curves occurs where output is 10 units and marginal cost is $6. The socially efficient level of production is 12 units. The demand curve and marginal cost curves are linear. What is the value of the deadweight loss created by the monopolist? a. $4 b. $6 c. $12 d. $16

B

39. Refer to Figure Above. What is the socially efficient price and quantity? a. price = A; quantity = X b. price = B; quantity = Y c. price = B; quantity = X d. price = C; quantity = X

B

40. Refer to Figure 15-8. What is the area of deadweight loss? a. the rectangle (A-C)*X b. the triangle 1/2[(A-C)*(Y-X)] c. the triangle 1/2[(A-B)*(Y-X)] d. the rectangle (A-C)*X plus the triangle 1/2[(A-C)*(Y-X)]

B

26. A competitive firm a. and a monopolist are price takers. b. and a monopolist are price makers. c. is a price taker, whereas a monopolist is a price maker. d. is a price maker, whereas a monopolist is a price taker.

C

Scenario Chelsea wants to start her own Christmas ornament business. She can purchase a suitable factory that costs $100,000. Chelsea currently has $150,000 in the bank earning 3 percent interest per year. 9. Refer to Scenario Above. Suppose Chelsea purchases the factory using her own money. What is Chelsea's annual implicit opportunity cost of purchasing the factory? a. $2,000 b. $3,000 c. $4,500 d. $5,000

B

​ 35. Refer to Figure Above. Which of the following statements is correct? a. Panel C represents the typical demand curve for a perfectly competitive firm, and Panel B represents the typical demand curve for a monopoly. b. Panel B represents the typical demand curve for a perfectly competitive firm, and Panel A represents the typical demand curve for a monopoly. c. Panel A represents the typical demand curve for a perfectly competitive firm, and Panel C represents the typical demand curve for a monopoly. d. Panel C represents the typical demand curve for a perfectly competitive firm, and Panel D represents the typical demand curve for a monopoly

B

1. Economists assume that the typical person who starts her own business does so with the intention of a. donating the profits from her business to charity. b. capturing the highest number of sales in her industry. c. maximizing profits. d. minimizing costs.

C

14. At the profit-maximizing level of output, a. marginal revenue equals average total cost. b. marginal revenue equals average variable cost. c. marginal revenue equals marginal cost. d. average revenue equals average total cost.

C

15. If a competitive firm is selling 900 units of its product at a price of $10 per unit and earning a positive profit, then a. its total cost is more than $9,000. b. its marginal revenue is less than $10. c. its average total cost is less than $10. d. the firm cannot be a competitive firm because competitive firms cannot earn positive profits.

C

18. Refer to Table Above. What is the marginal cost of the 5th unit? (Look at graph on review) a. $55 b. $60 c. $68 d. $80

C

19. Refer to Table Above. What is the total revenue from selling 4 units? Look at review a. $80 b. $137 c. $320 d. $480

C

2. Economists normally assume that the goal of a firm is to (i) sell as much of its product as possible. (ii) set the price of the product as high as possible. (iii) maximize profit. a. (i) and (ii) only b. (ii) and (iii) only c. (iii) only d. (i), (ii), and (iii)

C

20. Refer to Table Above. What is Bob's total fixed cost? a. $0 b. $3 c. $5 d. $9

C

21. Refer to Figure Above If there are 300 identical firms in this market, what level of output will be supplied to the market when price is $1.00? a. 300 b. 6,000 c. 30,000 d. 60,000

C

3. Total revenue equals a. marginal revenue - marginal cost. b. price/quantity. c. price x quantity. d. output - input.

C

32. If a profit-maximizing monopolist faces a downward-sloping market demand curve, its a. average revenue is less than the price of the product. b. average revenue is less than marginal revenue. c. marginal revenue is less than the price of the product. d. marginal revenue is greater than the price of the product.

C

34. Without price discrimination, the monopolist sells every unit at the same price. As a consequence, a. marginal revenue is equal to price. b. marginal revenue is equal to average revenue. c. price is greater than marginal revenue. d. Both a and b are correct. ANSWER: c

C

36. Monopolies are inefficient because they (i) eliminate barriers to entry. (ii) price their product at a level where marginal revenue exceeds marginal cost. (iii) restrict output below the socially efficient level of production. a. (i) and (ii) only b. (ii) and (iii) only c. (iii) only d. (i), (ii), and (iii)

C

41. Refer to Figure Above. To maximize total surplus, a benevolent social planner would choose which of the following outcomes? a. 100 units of output and a price of $20 per unit b. 150 units of output and a price of $20 per unit c. 150 units of output and a price of $30 per unit d. 200 units of output and a price of $20 per unit

C

6. A firm's opportunity costs of production are equal to its a. explicit costs only. b. implicit costs only. c. explicit costs + implicit costs. d. explicit costs + implicit costs + total revenue.

C

Suppose that a firm in a competitive market faces the following revenues and costs: Marginal. Marginal. Quantity. Cost. Revenue 12. $5. $7.50 13. $6. $7.50 14. $7. $7.50 15. $8. , $7.50 16. $9. $7.50 17. $10 $7.50 16. Refer to Table Above. If the firm is currently producing 14 units, what would you advise the owners? a. decrease quantity to 13 units b. increase quantity to 15 units c. continue to operate at 14 units d. increase quantity to 16 units

C

Table Number of Workers. Output. Fixed Cost. Variable Cost. Total Cost 0. 0. $50. $0. $50 1. 90. $50. $20. $70. 2. 170. $50. $40. $90 3. 230. $50. $60. $110 4. 240. $50. $80. $130 11. Refer to Table Above. The marginal product of the second worker is a. 90 units. b. 85 units. c. 80 units. d. 20 units.

C

17. Refer to Table Above. If the firm is maximizing profit, how much profit is it earning? a. $0.50 b. $7.50 c. $10 d. There is insufficient data to determine the firm's profit.

D

24. In a market with 1,000 identical firms, the short-run market supply is the a. marginal cost curve above average variable cost for a typical firm in the market. b. quantity supplied by the typical firm in the market at each price. c. sum of the prices charged by each of the 1,000 individual firms at each quantity. d. sum of the quantities supplied by each of the 1,000 individual firms at each price.

D

29. Patent and copyright laws encourage a. creative activity. b. research and development. c. competition among firms. d. Both a and b are correct.

D

7. Explicit costs a. do not require an outlay of money by the firm. b. enter into the accountant's measurement of a firm's profit. c. enter into the economist's measurement of a firm's profit. d. Both b and c are correct.

D

10. Which of these assumptions is often realistic for a firm in the short run? a. The firm can vary both the size of its factory and the number of workers it employs. b. The firm can vary the size of its factory but not the number of workers it employs. c. The firm can vary the number of workers it employs but not the size of its factory. d. The firm can vary neither the size of its factory nor the number of workers it employs.

c