ECON 2000: Exam #3 Review

A

A non-discriminating monopolist will find that marginal revenue: A) Is less than average revenue or price B) Is identical to price C) Exceeds average revenue or price D) Is sometimes greater and sometimes less than price

A

Answer the question on the basis of the following production possibilities data for Gamma and Sigma. All data are in tons. Gamma's production possibilities: Sigma's production possibilities: On the basis of the given information: A) Gamma should export tea to Sigma and Sigma should export pots to Gamma. B) Gamma should export tea to Sigma, but it will not be profitable for the two nations to exchange pots. C) Gamma should export both tea and pots to Sigma. D) Sigma should export tea to Gamma and Gamma should export pots to Sigma.

B

Assume the market for ball bearings is purely competitive. Currently, each of the firms in this market is earning negative economic profits. In the long run, we can expect the market: A) Supply to increase and firms' profits to decrease B) Supply to decrease and firms' profits to increase C) Demand to decrease and firms' profits to decrease D) Demand to increase and firms' profits to increase

B

At the profit-maximizing level of output for a monopolist: A) Average total cost equals marginal cost B) Price is greater than marginal cost C) Price is greater than average revenue D) Total revenue is greater than total cost

A

Compared to the equilibrium price and quantity sold in a competitive market, a monopolist will charge a ________ price and sell a ________ quantity. A) higher; smaller B) lower; smaller C) higher; larger D) lower; larger E) none of these

B

Deadweight loss from monopoly power is expressed on a graph as the area between the A) competitive price and the demand curve bounded by the quantities produced by the competitive and monopoly markets. B) demand curve and the marginal cost curve bounded by the quantities produced by competitive and monopoly markets. C) competitive price line and the marginal cost curve bounded by the quantities produced by competitive and monopoly markets. D) competitive price line and the monopoly price line bounded by zero output and the output chosen by the monopolist.

D

From a consumer's viewpoint, which of the following policies would be least desirable? A) Free trade. B) Tariffs on imported goods. C) Quotas on imported goods. D) No trade.

B

If a monopolist sets her output such that marginal revenue, marginal cost and average total cost are equal, economic profit must be: A) zero. B) positive. C) negative. D) indeterminate from the given information.

C

If a purely competitive firm is currently facing a situation where the price of its product is lower than the average variable cost, but it believes that the market demand for its product will increase soon, then: A) The firm will produce a low level of output in the short run, but expand its plant in the long run as demand increases soon B) The firm will produce a low level of output in the short run, and leave the industry in the long run C) The firm will shut down in the short run, but stay in the industry in the long run if it expects the product price to rise high enough soon D) The firm will shut down in the short run, and leave the industry in the long run

D

If the incumbent firms in a purely competitive industry are in short-run equilibrium and at their current output level, each firm's marginal cost exceeds its average total cost, then we can conclude that: A) The firm is suffering economic losses B) Some firms will exit the industry in the long run C) The firm is not maximizing profits in the short run D) Other firms will enter the industry in the long run

B

In Figure 9.6 if price is P1, then the industry will: A) expand. B) contract. C) stay the same size. D) merge.

A

In Figure 9.6 if price is P3, then the industry will: A) expand. B) contract. C) stay the same size. D) cease to exist.

C

Monopoly power results from the ability to A) equate marginal cost to marginal revenue. B) set price above average variable cost. C) set price above marginal cost. D) set price equal to marginal cost.

C

Refer to Figure 10.2. At output Qm, and assuming that the monopoly has set her price to maximize profit, the consumer surplus is: A) ADEG. B) 0DEQm. C) CDE. D) BDEF. E) none of the above

C

Refer to Figure 10.2. In moving from the competitive level of output and price to the monopoly level of output and price, the deadweight loss is the area: A) QmEHQc. B) FEH. C) GEH. D) GFH. E) none of the above

B

Refer to the above graphs for a competitive market in the short run. What will happen in the long run to industry supply and the equilibrium price P of the product? A) S will increase, P will increase B) S will decrease, P will increase C) S will decrease, P will decrease D) S will increase, P will decrease

B

Refer to the above table for Nina. What is the change in total revenue if she raises the price from $10 to $12? A) +$300 B) -$120 C) +$120 D) -$300

B

Refer to the graphs above for a purely competitive market in the short run. The graphs suggest that in the long run, as automatic market adjustments occur, the demand curve facing the individual firm will: A) Shift up B) Not shift C) Slope downward D) Shift down

B

Refer to the production possibilities curve. At the onset of the Second World War, the United States had large amounts of idle human and property resources. Its economic adjustment from peacetime to wartime can best be described by the movement from point: A) b to point c. B) a to point b. C) c to point d. D) c to point b.

D

Suppose a hurricane hits Florida, causing widespread damage to houses and businesses. The governor of Florida places price ceilings on all building materials to keep the prices reasonable. Which of the following is the most likely result? A) More people will be able to purchase building materials. B) A faster recovery from the storm. C) The supply of building materials to Florida will increase. D) Shortages of building materials and a slower recovery from the storm.

B

Suppose that a monopolist calculates that at present its output level, 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 output and leaving price unchanged D) Decreasing price and leaving output unchanged

D

The data below relate to a pure monopolist and the product it produces. What is the profit-maximizing output and price for this monopolist A) P = $18; Q = 2 B) P = $12; Q = 5 C) P = $15; Q = 3 D) P = $14; Q = 4

B

The monopolist that maximizes profit A) does not impose a cost on society because price is equal to marginal cost. B) imposes a cost on society because the selling price is above marginal cost. C) does not impose a cost on society because the selling price is above marginal cost. D) imposes a cost on society because the selling price is equal to marginal cost.

B

Which of the following is NOT true for monopoly? A) The profit maximizing output is the one at which the difference between total revenue and total cost is largest. B) At the profit maximizing output, price equals marginal cost. C) The profit maximizing output is the one at which marginal revenue and marginal cost are equal. D) The monopolist's demand curve is the same as the market demand curve. E) Average revenue equals price

B

Which of the following is true at the output level where P=MC? A) The monopolist is earning a positive profit. B) The monopolist is maximizing profit. C) The monopolist is not maximizing profit and should decrease output. D) The monopolist is not maximizing profit and should increase output.