Econ Ch 12-18 Practice Test

If a firm produces 10 units of output and incurs $35 in average total cost, and $5 in average fixed cost, average variable cost is: A. $30. B. $35. C. $50. D. $300.

A. $30.

(Figure: Marginal Product of Labor) Using the marginal product of labor curve in the figure, the total product of labor for three workers is: A. 51 bushels. B. 45 bushels. C. 39 bushels. D. 15 bushels.

A. 51 bushels.

(Figure: Monopolistic Competition I) Which of the panels in the figure shows a monopolistic competitor earning a profit in the short run? A. Panel a B. Panel b C. Panel c D. Panels a and c

A. Panel a

A monopoly is best characterized by which of the following? A. a product with no close substitutes B. a single buyer and several sellers C. a large number of small firms D. a small number of large firms.

A. a product with no close substitutes

Antitrust policy refers to government: A. attempts to prevent the acquisition of monopoly power. B. attempts to encourage the exercise of monopoly power. C. encouragement of collusion in the marketplace. D. attempts to limit private enterprise.

A. attempts to prevent the acquisition of monopoly power.

(Figure: Short-Run Costs) B is the ________ cost curve. A. average total B. average variable C. marginal D. total

A. average total

If firms are experiencing economic losses in the short run, firms will leave the industry and industry output will ________ and economic losses will ________ in the long run. A. fall; fall B. rise; fall C. rise; rise D. fall; rise

A. fall; fall

Price discrimination leads to a ________ price in the market with a ________ demand. A. higher; less elastic B. higher; more elastic C. higher; perfectly elastic D. lower; less elastic

A. higher; less elastic

A monopolist or an imperfectly competitive firm practices price discrimination primarily to: A. increase profits. B. expand plant size. C. lower total costs. D. reduce marginal costs.

A. increase profits.

(Figure: Marginal Revenue, Costs, and Profits) In the figure, if market price increases to $20, marginal revenue ________ and profit-maximizing output ________. A. increases; increases B. increases; decreases C. decreases; increases D. decreases; decreases

A. increases; increases

If a firm experiences lower costs per unit as it increases production in the long run, this is an example of: A. increasing returns to scale. B. decreasing returns to scale. C. increasing opportunity costs. D. scale reduction.

A. increasing returns to scale.

An externality is said to exist when: A. individuals impose costs or benefits on others but have no incentive to take these costs and benefits into account. B. individuals impose costs or benefits on others, and the market provides incentives to take these costs and benefits into account. C. individual actions are affected by external forces; for example, the loss of U.S. jobs due to competition from abroad is an externality. D. individual actions are affected by government policies (such as taxes) that are externally imposed on the market.

A. individuals impose costs or benefits on others but have no incentive to take these costs and benefits into account.

Lilly is the price-taking owner of an apple orchard. Currently the price of apples is high enough that Lilly is earning positive economic profits. In the long run, Lilly should expect: A. lower apple prices due to entry of new firms. B. higher apple prices due to exit of existing firms. C. lower apple prices due to exit of existing firms. D. higher apple prices due to entry of new firms.

A. lower apple prices due to entry of new firms.

If it produces, a perfectly competitive firm will maximize profits at which: A. marginal revenue equals marginal cost. B. marginal revenue equals price. C. price equals average total cost. D. price exceeds marginal cost.

A. marginal revenue equals marginal cost.

To maximize profit, a monopolistically competitive firm should produce the level of output at which: A. marginal revenue equals marginal cost. B. price equals marginal cost. C. price equals total cost. D. marginal revenue equals price.

A. marginal revenue equals marginal cost.

The practice of selling the same product at different prices in different markets, without corresponding differences in costs, is: A. price discrimination. B. privatizing. C. monopolizing D. output prioritizing.

A. price discrimination.

Suppose a monopolistically competitive firm is in long-run equilibrium. Then: A. price equals average total cost. B. price equals marginal cost. C. marginal revenue equals price. D. price is greater than average total cost.

A. price equals average total cost.

A perfectly competitive firm is a: A. price-taker. B. price-searcher. C. cost-maximizer. D. quantity-taker.

A. price-taker.

An action is a dominant strategy when it is a player's best action: A. regardless of the actions by other players. B. given certain profit-maximizing actions of other players. C. assuming the other players do not correctly anticipate the action. D. if there is only one other competitor.

A. regardless of the actions by other players.

Price leadership occurs if: A. smaller firms in an industry silently agree to charge the same price as the largest firm. B. two or more firms in an industry agree to fix the price at a given level. C. competition among a large number of small firms generates a stable market price. D. competition among a large number of small firms generates similar, but slightly different, prices.

A. smaller firms in an industry silently agree to charge the same price as the largest firm.

Tacit collusion in practice is made more difficult to achieve: A. the larger the number of firms in the industry. B. the fewer the number of products being sold. C. the more similar the marginal costs of each firm. D. if customers have little or no bargaining power.

A. the larger the number of firms in the industry.

A firm's marginal cost is: A. the ratio of the change in total cost to the change in the quantity of output. B. the change in total cost divided by the change in labor input. C. the slope of the average fixed cost curve. D. total cost divided by output.

A. the ratio of the change in total cost to the change in the quantity of output.

Because monopoly firms are price-setters: A. they can only sell more by lowering price. B. they sell more at higher prices than at lower prices. C. they take the market-determined price as given and sell all they can at that price. D. they sell less at lower prices

A. they can only sell more by lowering price.

If a firm produces 10 units of output and incurs $30 in average variable cost and $5 in average fixed cost, average total cost is: A. $30. B. $35. C. $50. D. $300.

B. $35.

A farm can produce 1,000 bushels of wheat per year with two workers and 1,300 bushels of wheat per year with three workers. The marginal product of the third worker is: A. 100 bushels. B. 300 bushels. C. 1,300 bushels. D. 2,300 bushels.

B. 300 bushels.

(Figure: Monopolistic Competition I) Which of the panels in the figure shows a monopolistic competitor earning a loss in the short run? A. Panel a B. Panel b C. Panel c D. None of the panels show a loss in the short run.

B. Panel b

Which of the following would make it difficult for oligopolists to collude? A. There are few firms in the market. B. There are few buyers in the market. C. The oligopolists have similar costs of production. D. Oligopolists usually produce a homogeneous product.

B. There are few buyers in the market.

An extreme case of oligopoly in which firms collude to raise joint profits is known as a: A. duopoly. B. cartel. C. dominant producer. D. price war.

B. cartel.

Marginal revenue: A. is the slope of the average revenue curve. B. equals the market price in perfect competition. C. is the change in quantity divided by the change in total revenue. D. is the price divided by the change in quantity.

B. equals the market price in perfect competition.

Perfect competition is a model of the market that assumes all of the following except: A. a large number of firms. B. firms face downward-sloping demand curves. C. firms produce identical goods. D. many buyers.

B. firms face downward-sloping demand curves.

In monopolistic competition, each firm: A. is a price-taker. B. has some ability to set the price of its differentiated good. C. will set price equal to marginal cost. D. has marginal revenue that is greater than price.

B. has some ability to set the price of its differentiated good.

Suppose the production of DVDs generates sulfur dioxide, an air pollutant. Then the equilibrium market quantity of DVDs produced and consumed: A. is less than the socially optimal quantity. B. is more than the socially optimal quantity. C. equals the socially optimal quantity. D. may be more than, less than, or equal to the socially optimal quantity.

B. is more than the socially optimal quantity.

When economic profits in an industry are zero: A. firms are really doing badly. B. it means that firms are doing as well as they could do in other markets. C. firms should exit, so they can make an economic profit in some other market. D. the industry is not in long-run equilibrium.

B. it means that firms are doing as well as they could do in other markets.

In many cities you can stay at a Holiday Inn in the downtown area, in a suburban community, or near the airport. These Holiday Inn establishments are examples of product differentiation by: A. type. B. location. C. quality. D. style.

B. location.

Most electric, gas, and water companies are examples of: A. unregulated monopolies. B. natural monopolies. C. restricted-input monopolies. D. sunk-cost monopolies.

B. natural monopolies.

A firm that experiences economies of scale: A. at lower levels of output and then encounters diseconomies of scale at higher levels of output is a natural monopoly. B. over the entire range of outputs demanded is called a natural monopoly. C. at any particular level of output is called a natural monopoly. D. has a continually rising long-run average cost curve.

B. over the entire range of outputs demanded is called a natural monopoly.

A wheat farmer operating in the short run produces 100 bushels of wheat. Her average total cost per bushel is $1.75, total revenue is $450, and (total) fixed costs are equal to $100. Then: A. average fixed cost is equal to $1.50. B. profit per bushel is equal to $2.75. C. average variable cost is equal to $1.25. D. economic profit is equal to $250.

B. profit per bushel is equal to $2.75.

Public policies toward monopoly in the United States consist of: A. laws outlawing all of them. B. regulation of natural monopolies. C. government takeover if monopoly profit exceeds a certain level. D. forcing monopoly industries to become perfectly competitive.

B. regulation of natural monopolies.

The kinked demand curve model assumes that: A. rivals will follow a price increase but not a price decrease. B. rivals will follow a price decrease but not a price increase. C. the firm with the kinked demand curve will always behave noncooperatively. D. the firm with the kinked demand curve will always adopt a tit-for-tat strategy.

B. rivals will follow a price decrease but not a price increase.

If a Florida strawberry wholesaler is in a perfectly competitive market, that wholesaler will have a ________ share of the market, and consumers will consider her strawberries to be ________. Therefore, ________ advertising will take place in this market. A. large; standardized; no B. small; standardized; little, if any C. small; differentiated; no D. large; differentiated; extensive

B. small; standardized; little, if any

In the short run, a perfectly competitive firm produces output and breaks even if: A. the firm produces a quantity at which P < ATC. B. the firm produces a quantity at which P = ATC. C. the firm produces a quantity at which P > ATC. D. the firm produces a quantity at which P = (TR/Q + TC/Q) * Q.

B. the firm produces a quantity at which P = ATC.

The demand curve for a monopoly is: A. the sum of the supply curves of all the firms in the monopoly's industry. B. the industry demand curve. C. horizontal because no one can enter. D. perfectly elastic.

B. the industry demand curve.

(Figure: Perfect Competition) In the figure, a perfect competitor will produce at: A. the intersection of marginal revenue and marginal cost. B. the intersection of demand and marginal cost. C. the intersection of demand and average total cost. D. the intersection of marginal revenue and average total cost.

B. the intersection of demand and marginal cost.

A market economy, without any government regulation, will produce: A. too little pollution. B. too much pollution. C. the socially optimal quantity of pollution. D. the amount of pollution that maximizes total surplus.

B. too much pollution.

Average total cost is: A. the change in cost divided by the change in output. B. total cost divided by output. C. the change in output divided by the change in costs. D. total cost times output.

B. total cost divided by output.

The marginal product of labor is the change in: A. labor divided by the change in total product. B. total output divided by the change in the quantity of labor. C. average output divided by the change in the quantity of labor. D. total costs divided by the change in the quantity of labor.

B. total output divided by the change in the quantity of labor.

A duopoly is an industry that consists of: A. a single firm. B. two firms. C. three or more firms. D. a large number of small firms.

B. two firms.

The total product curve: A. shows the relation between output and the quantity of a variable input for varying levels of the fixed input. B. will become flatter as output increases, if there are diminishing returns to the variable input. C. will be downward-sloping, if there are diminishing returns to the variable input. D. will become horizontal, when the marginal product of the variable input is constant.

B. will become flatter as output increases, if there are diminishing returns to the variable input.

The short run is defined as a: A. period of time less than 1 year. B. period of time less than 6 months. C. period in which some inputs are considered to be fixed in quantity. D. time period in which some inputs are fixed, but it cannot exceed 1 year.

C. period in which some inputs are considered to be fixed in quantity.

The slope of a long-run average total cost curve exhibiting decreasing returns to scale is: A. zero. B. infinite. C. positive. D. negative.

C. positive.

The Coase theorem states that in the presence of externalities, a market economy will: A. always reach an efficient solution. B. never reach an efficient solution. C. reach an efficient solution if transaction costs are sufficiently low. D. reach an efficient solution only in the case of government regulation.

C. reach an efficient solution if transaction costs are sufficiently low.

If price is consistently below average variable cost, then in the short run a perfectly competitive firm should: A. raise price. B. sell more output. C. shut down. D. lower price to sell more.

C. shut down.

In the short run: A. all inputs are fixed. B. all inputs are variable. C. some inputs are fixed and some inputs are variable. D. all costs are variable.

C. some inputs are fixed and some inputs are variable.

Given that there is general agreement that pollution is undesirable and social welfare is increased by reducing pollution, the optimal level of pollution in a society is: A. zero. B. that level that reduces marginal social costs of pollution to zero. C. the level of pollution at which the marginal social cost of pollution is equal to the marginal social benefit of pollution. D. the level of pollution that minimizes the average total cost of producing the product.

C. the level of pollution at which the marginal social cost of pollution is equal to the marginal social benefit of pollution.

Average variable cost is the ratio of: A. total cost to the marginal cost. B. total cost to the amount of variable input. C. variable cost to the quantity of output. D. marginal cost to the quantity of output.

C. variable cost to the quantity of output.

The term diminishing returns refers to: A. a falling interest rate that can be expected as one's investment in a single asset increases. B. a reduction in profits caused by increasing output beyond the optimal point. C. a decrease in total output due to overcrowding, when too much labor is used with too little land or capital. D. a decrease in the extra output due to the use of an additional unit of a variable input, when more and more of the variable input is used and all other things are held constant.

D. a decrease in the extra output due to the use of an additional unit of a variable input, when more and more of the variable input is used and all other things are held constant.

The demand curve for a monopoly is: A. the MR curve above the AVC curve. B. the MR curve above the horizontal axis. C. the entire MR curve. D. above the MR curve.

D. above the MR curve.

In the long run: A. all inputs are fixed. B. inputs are neither variable nor fixed. C. at least one input is variable and one input is fixed. D. all inputs are variable.

D. all inputs are variable.

You own a lemonade stand in a very competitive lemonade market, and as such, you are a price-taking firm. Which of the following events would most likely increase your market power? A. The government abolishes the system of patents and copyrights. B. A booming economy increases the demand for lemonade and attracts entry into the market. C. The average total cost curve for firms in the industry is horizontal. D. You own exclusive rights to harvest lemons from all domestic citrus orchards.

D. You own exclusive rights to harvest lemons from all domestic citrus orchards.

Mr. Porter sells 10 bottles of champagne per week at a price of $50 per bottle. He can sell 11 bottles per week if he lowers the price to $45 per bottle. The quantity and the price effects on total revenue would be, respectively,: A. an increase of $450 and a decrease of $500. B. an increase of $495 and a decrease of $550. C. an increase of $45 and a decrease of $5. D. an increase of $45 and a decrease of $50.

D. an increase of $45 and a decrease of $50.

(Figure: Short-Run Costs) C is the ________ cost curve. A. average total B. total C. marginal D. average variable

D. average variable

When marginal cost is rising: A. average variable cost must be rising. B. average total cost must be rising. C. average variable cost and average total cost must be falling. D. both average variable cost and average total cost may be rising or falling.

D. both average variable cost and average total cost may be rising or falling.

Which of the following is a barrier to entry? A. control of scarce resources B. economies of scale C. government-created barriers such as patents and copyrights D. control of scarce resources, economies of scale, and government-created barriers (i.e., patents and copyrights)

D. control of scarce resources, economies of scale, and government-created barriers (i.e., patents and copyrights)

(Figure: Marginal Revenue, Costs, and Profits) In the figure, if market price decreases to $16, marginal revenue ________ and profit-maximizing output ________. A. increases; decreases B. increases; increases C. decreases; increases D. decreases; decreases

D. decreases; decreases

The average total cost curve in the short run slopes upward due to: A. economies of scale. B. diseconomies of scale. C. increasing returns. D. diminishing returns.

D. diminishing returns.

Monopolistic competition is similar to perfect competition in that firms in both market structures: A. are price-takers. B. produce goods that are perfect substitutes. C. find it beneficial to advertise. D. do not face any barriers to entry into the industry in the long run.

D. do not face any barriers to entry into the industry in the long run.

(Table: Total Cost and Output) The table describes Bart's perfectly competitive ice cream-producing firm. If the market price is $67.50, how many units of output will the firm produce? A. one B. two C. three D. four

D. four

The marginal revenue received by a firm in a perfectly competitive market: A. is unrelated to the market price. B. is less than the market price. C. is greater than the market price. D. is the change in total revenue divided by the change in output.

D. is the change in total revenue divided by the change in output.

In an oligopolistic market structure, collusion between firms usually leads to higher profits than noncooperative behavior. However, formal, overt collusion doesn't usually occur in the United States because: A. it is illegal. B. there is an incentive for each firm to cheat on a collusive agreement. C. an oligopolistic firm will typically prefer lower profits if the only way to make higher profits is to improve the profit position of its rivals. D. it is illegal and because there is an incentive for each firm to cheat on a collusive agreement.

D. it is illegal and because there is an incentive for each firm to cheat on a collusive agreement.

The slope of a long-run average total cost curve exhibiting increasing returns to scale is: A. zero. B. infinite. C. positive. D. negative.

D. negative.

Unwritten or unspoken understandings through which firms collude to restrict competition are called: A. cartelization. B. oligopolization. C. overt collusion. D. tacit collusion.

D. tacit collusion.

The break-even price for a perfectly competitive firm is equal to: A. the minimum value of average variable cost. B. the marginal revenue, provided that marginal revenue is equal to marginal cost. C. the average fixed cost at the output level at which the firm is producing. D. the minimum value of average total cost.

D. the minimum value of average total cost.

A monopolistically competitive industry such as baked goods and a perfectly competitive industry like wheat farming are alike in that: A. firms in both types of industries produce identical products. B. firms in both types of industries produce similar but not identical products. C. barriers to entry in both industries are large. D. there are many firms in each industry.

D. there are many firms in each industry.

Total revenue is a firm's: A. change in revenue resulting from a unit change in output. B. ratio of revenue to quantity. C. difference between revenue and cost. D. total output times the price at which it sells that output.

D. total output times the price at which it sells that output.

Average variable cost equals all the following except: A. variable cost divided by output. B. (total cost - fixed cost) divided by output. C. average total cost minus average fixed cost. D. variable cost times output.

D. variable cost times output.

A fixed input is one: A. that exists in nature and there is only so much of it. B. that can be used for one thing only. C. that can never produce more or less in any time period. D. whose quantity cannot be changed in a particular time period.

D. whose quantity cannot be changed in a particular time period.

Austin's total fixed cost is $3,600. Austin employs 20 workers and pays each worker $60. If labor is his only variable cost, what is Austin's total cost? A. $3,600 B. $3,660 C. $4,800 D. $400

C. $4,800

(Table: Variable Costs for Lawns) During the summer, Alex runs a lawn-mowing service, and lawn-mowing is a perfectly competitive industry. His only fixed cost is $1,000 for the mower. His variable costs include fuel and mower parts. He calculates the variable costs per lawn as shown in the table. What is Alex's break-even price? A. $100 B. $10 C. $50 D.$27.50

C. $50

If a firm produces 10 units of output and incurs $30 in average variable cost and $35 in average total cost, total fixed cost is: A. $30. B. $35. C. $50. D. $300.

C. $50.

In perfect competition, the firm produces the output such that ________, and in monopoly, the firm produces the output such that ________. A. P > MR = MC; P = MR = MC B. P = MR = MC; P < MR = MC C. P = MR = MC; P > MR = MC D. P = MR = MC; P = MR = MC

C. P = MR = MC; P > MR = MC

(Figure: Monopolistic Competition I) Which of the panels in the figure shows a monopolistic competitor in long-run equilibrium? A. Panel a B. Panel b C. Panel c D. Panels a, b, and c

C. Panel c

The pricing in monopoly prevents some mutually beneficial trades from taking place. The value of these unrealized mutually beneficial trades is called: A. sunk costs. B. opportunity costs. C. a deadweight loss. D. inequities.

C. a deadweight loss.

Oligopoly is a market structure characterized by: A. independence in decision making. B. a horizontal demand curve. C. a small number of interdependent firms. D. relatively easy entry and exit.

C. a small number of interdependent firms.

If all firms in an industry are price-takers, then: A. each firm can take the price that it wants to charge and sell at this price, provided it is not too different from the prices other firms are charging. B. each firm takes the market price as given for its current output level, recognizing that the price will change if it alters its output significantly. C. an individual firm cannot alter the market price even if it doubles its output. D. the market sets the price, and each firm can take it or leave it (by setting a different price).

C. an individual firm cannot alter the market price even if it doubles its output.

The idea of diminishing returns to an input in production suggests that if a local college adds more and more custodians, the marginal product of labor for the custodial staff will ________ over time. A. increase at an increasing rate B. increase at a decreasing rate C. decrease D. not change

C. decrease

Monopolistically competitive firms have zero economic profits in the long run because of: A. excess capacity. B. price wars among firms. C. easy entry and exit. D. excessive advertising.

C. easy entry and exit.

In a monopoly in the long run: A. economic profits will be eliminated by the entry of rival firms. B. economic profits will be reduced, but not eliminated entirely, by the entry of rival firms. C. entry will not occur. D. social surplus is maximized.

C. entry will not occur.

Economic profits in a perfectly competitive industry induce ________, and losses induce ________. A. exit; entry B. entry; entry C. entry; exit D. exit; exit

C. entry; exit

Game theory is commonly used to explain behavior in oligopolies, because oligopolies are characterized by: A. large profits in the long run. B. either homogeneous or heterogeneous products. C. interdependence. D. imperfect competition.

C. interdependence.

The marginal revenue received by a firm in a perfectly competitive market: A. is greater than the market price. B. is less than the market price. C. is equal to its average revenue. D. increases with the quantity of output sold.

C. is equal to its average revenue.

Monopolistic competition is an industry characterized by a: A. small number of firms producing identical products, with barriers to entry for firms. B. small number of firms producing similar products, with relatively easy entry for firms. C. large number of firms producing similar products, with relatively easy entry for firms. D. large number of firms producing identical products, with relatively easy entry for firms.

C. large number of firms producing similar products, with relatively easy entry for firms.

Marginal revenue for a monopolist is: A. equal to price. B. greater than price. C. less than price. D. equal to average revenue.

C. less than price.

(Figure: Short-Run Costs) A is the ________ cost curve. A. average total B. average variable C. marginal D. total

C. marginal

The ________ is the increase in output obtained by hiring an additional worker. A. average product B. total product C. marginal product D. marginal cost

C. marginal product

Compared to perfect competition: A. monopoly produces more at a lower price. B. monopoly produces where MR > MC, and a perfectly competitively firm produces where P = MC. C. monopoly may have economic profits in the long run, but in perfect competition in the long run economic profits are zero. D. perfect competition may have economic profits in the long run, but in monopoly the long run economic profits are zero.

C. monopoly may have economic profits in the long run, but in perfect competition in the long run economic profits are zero.

A monopoly will have a Herfindahl-Hirschman Index (HHI) equal to about: A. 1. B. 100. C. 1,000. D. 10,000.

D. 10,000.

(Figure: Monopolistic Competition I) Which of the panels in the figure shows a monopolistic competitor producing where price is greater than marginal revenue? A. Panel a B. Panel b C. Panel c D. All of the panels show a monopolistic competitor producing where price is greater than marginal revenue.

D. All of the panels show a monopolistic competitor producing where price is greater than marginal revenue.

(Figure: Payoff Matrix for Jake and Zoe) Jake and Zoe are the only producers of slushies in Vacatown. Each week, each firm decides whether to price high or price low for the following week. The figure shows the profit per week earned by the two firms. What is the Nash equilibrium for Jake and Zoe? A. Jake prices high; Zoe prices high B. Jake prices high; Zoe prices low C. Jake prices low; Zoe prices high D. Jake prices low; Zoe prices low

D. Jake prices low; Zoe prices low

The following are four differences between monopoly and perfect competition. Which of these is incorrect? A. A monopolist has market power while a perfect competitor does not. B. Unlike a perfectly competitive firm, a monopoly can make positive economic profits in the long run. C. A monopoly will charge a higher price and produce a smaller quantity than a competitive market with the same demand and cost structure. D. Monopoly profits can continue to exist in the long run, because the monopoly produces more and charges a higher price than a comparable perfectly competitive industry.

D. Monopoly profits can continue to exist in the long run, because the monopoly produces more and charges a higher price than a comparable perfectly competitive industry.

(Figure: Change in Total Product) The figure shows a production function changing from TP1 to TP2. Which of the following choices is a likely cause of this shift? A. Workers in the firm are less productive on average. B. The firm employed more of a variable input in the short run. C. The firm has suffered a decrease in available technology. D. The firm employed more of a fixed input in the long run.

D. The firm employed more of a fixed input in the long run.