ECON Practice Test 4
A
1) A perfectly competitive firm A) sells a product that has perfect substitutes. B) has a perfectly inelastic demand. C) has a perfectly elastic supply. D) Answers A and B are correct. E) Answers A and C are correct.
B
10) Because perfectly competitive firms are price takers, each firm faces a demand that is A) perfectly inelastic. B) perfectly elastic. C) highly inelastic but never is it perfectly inelastic. D) unit elastic. E) highly elastic but never is it perfectly elastic.
B
11) The market demand curve in a perfectly competitive market is ________ and the demand curve for a perfectly competitive firm's output is ________. A) downward sloping; downward sloping B) downward sloping; horizontal C) horizontal; downward sloping D) horizontal; horizontal E) downward sloping; upward sloping
C
12) For a perfectly competitive firm, marginal revenue is A) less than the price. B) greater than the price. C) equal to the price. D) equal to the change in profit from selling one more unit. E) undefined because the firm's demand curve is horizontal.
E
13) For a perfectly competitive firm, the market price of a good is A) a given which the firm cannot change. B) determined by the firm in order to maximize its profit. C) equal to the firm's marginal revenue. D) Answers A and B are correct. E) Answers A and C are correct.
A
14) The marginal revenue curve for a perfectly competitive firm is A) horizontal. B) vertical. C) upward sloping. D) downward sloping. E) a straight line coming out of the origin with a 45 degree slope.
C
15) For a perfectly competitive firm, profit maximization occurs when output is such that A) total revenue (TR) is maximized. B) total cost (TC) is minimized. C) marginal revenue (MR) = marginal cost (MC). D) average total cost (ATC) is minimized. E) total revenue (TR) equals total cost (TC).
C
16) If a firm shuts down, it A) makes zero economic profit. B) incurs an economic loss equal to its total variable cost. C) incurs an economic loss equal to its total fixed cost. D) makes a normal profit. E) might make an economic profit, zero economic profit, or incur an economic loss.
D
17) A perfectly competitive firm will shut down when the price is just below the minimum point on the A) average fixed cost curve. B) average total cost curve. C) marginal cost curve. D) average variable cost curve. E) marginal revenue curve.
B
18) A perfectly competitive firm will continue to operate in the short run when the market price is below its average total cost if the A) marginal revenue is greater than marginal cost. B) price is at least equal to the minimum average variable cost. C) total fixed costs are less than total revenue. D) marginal cost is minimized. E) price is also less than the minimum average variable cost.
A
19) The perfectly competitive firm's supply curve is its A) marginal cost curve above the average variable cost curve. B) marginal cost curve below the average variable cost curve. C) average variable cost curve above the marginal cost curve. D) average total cost curve above the marginal cost curve. E) marginal revenue curve above the average total cost curve.
A
37) The figure above shows the demand, marginal revenue, and marginal cost curves for Paul's Parrot Pillows, a single-price monopoly producer of pillows stuffed with parrot feathers. When Paul maximizes his profit, the price per pillow is A) $70. B) $60. C) $40. D) $100. E) $30.
D
38) The figure above shows the demand, marginal revenue, and marginal cost curves for Paul's Parrot pillows, a single-price monopoly producer of pillows stuffed with parrot feathers. When Paul maximizes his profit, the difference between marginal cost and price A) $0. B) $40. C) $60. D) $30. E) $20.
B
7) Normal profit is A) the same thing as economic profit. B) the return to entrepreneurship. C) total revenue minus the total opportunity cost of production. D) the point of profit when total revenue is maximized. E) part of the firm's total revenue.
B
70) Game theory reveals that A) firms in oligopoly are not interdependent. B) the equilibrium might not be the best solution for the parties involved. C) each player looks after what is best for the industry. D) if all firms in an oligopoly take the action that maximizes their profit, then the equilibrium will have the largest possible combined profit of all the firms. E) firms in an oligopoly choose their actions without regard for what the other firms might do.
A
8) In a perfectly competitive market, the type of decision a firm has to make is different in the short run than in the long run. Which of the following is an example of a perfectly competitive firm's short-run decision? A) the profit-maximizing level of output B) how much to spend on advertising and sales promotion C) what price to charge buyers for the product D) whether or not to enter or exit an industry E) whether or not to change its plant size
C
9) We know that a perfectly competitive firm is a price taker because A) its MC curve slopes upward. B) its ATC curve is U-shaped. C) its demand curve is horizontal. D) MC and ATC are equal at the profit-maximizing amount of output. E) it has no supply curve.
B
2) Each firm in a perfectly competitive industry A) produces a good that is slightly different from that of the other firms. B) produces a good that is identical to that of the other firms. C) attains economies of scale so that its efficient size is large compared to the market as a whole. D) has control over at least one unique resource to separate themselves from their competitors. E) has an important influence on the market price of the good or service being produced.
B
20) In the short run, a perfectly competitive firm A) can make only zero economic profit. B) can possibly make an economic profit or possibly incur an economic loss. C) produces the level of output that sets the average total cost equal to the market price. D) can vary all its inputs. E) can change only its fixed inputs.
B
21) If a perfectly competitive firm's average total cost is less than the price, then the firm A) incurs an economic loss. B) makes an economic profit. C) makes zero economic profit. D) makes either zero economic profit or an economic profit depending on whether the marginal revenue is equal to or greater than the price. E) None of the above answers is correct because the relationship between the price and average total cost has nothing to do with the firm's profit.
A
22) The above figure shows a perfectly competitive firm. If the market price is $5, the firm A) might shut down but more information is needed about the AVC. B) is making an economic profit. C) is making zero economic profit. D) will immediately shut down. E) will not shut down.
C
23) A perfectly competitive firm definitely makes an economic profit in the short run if price is A) equal to marginal cost. B) equal to average total cost. C) greater than average total cost. D) greater than marginal cost. E) greater than average variable cost.
D
24) When new firms enter the perfectly competitive Miami bagel market, the market A) supply curve shifts leftward. B) supply curve does not change. C) demand curve shifts rightward. D) supply curve shifts rightward. E) demand curve shifts leftward.
D
25) If new firms enter a perfectly competitive industry, the market supply A) does not change. B) becomes more price elastic. C) becomes more price inelastic. D) increases. E) decreases because each firm produces less than before the entry.
C
26) If perfectly competitive lawn care firms are making an economic profit, then A) wages will be bid up until the economic profit are gone. B) the firms must be superior and will continue to make an economic profit. C) new firms will enter the industry. D) they are not equating marginal revenue to marginal cost. E) government regulation will be imposed to decrease their profit .
C
27) In the long run, a perfectly competitive firm will A) be able to make an economic profit. B) produce but incur an economic loss. C) make zero economic profit. D) not produce and will incur an economic loss equal to its total fixed cost. E) not produce but not incur an economic loss.
D
28) A permanent decrease in demand definitely A) shifts a firm's average total cost curve downward. B) creates diseconomies for individual firms. C) lowers the market price. D) decreases the number of firms in the industry. E) shifts a firm's average total cost curve upward.
B
29) When a firm adopts new technology, generally its A) cost curves shift upward. B) cost curves shift downward. C) cost curves are unaffected. D) supply curve shifts leftward. E) production permanently decreases.
C
3) A market in which many firms sell identical products is A) a monopoly. B) an oligopoly. C) only perfectly competition. D) only monopolistic competition. E) both perfect competition and monopolistic competition.
D
30) A monopoly is a market with A) many suppliers each producing an identical product. B) no barriers to entry. C) many substitutes. D) one supplier. E) many suppliers each producing a slightly different product.
D
31) Natural barriers to entry arise when, over the relevant range of output, there A) are diseconomies of scale. B) are constant returns to scale. C) are several firms who produce at the lowest average cost. D) are economies of scale. E) is one firm that owns a key natural resource.
C
32) Which of the following is the best example of a natural monopoly? A) ownership of the only ferry across Puget Sound for twenty miles B) the United States Postal Service C) the cable television company in your hometown D) owning the only licensed taxicab in town E) producing a patented drug
B
33) In States where the government runs liquor stores, the monopoly results from A) economies of scale. B) legal restrictions. C) control of an essential resource. D) patents. E) public fear.
B
34) The demand curve facing a single-price monopoly A) lies below the marginal revenue curve. B) lies above the marginal revenue curve. C) is the same as only the marginal revenue curve. D) is the same as only the marginal cost curve. E) is the same as both the marginal revenue curve and the marginal cost curve.
B
36) The figure above shows the demand, marginal revenue, and marginal cost curves for Paul's Parrot Pillows, a single-price monopoly producer of pillows stuffed with parrot feathers. When Paul maximizes his profit, he produces ________ pillows per hour. A) 1,000 B) 3,000 C) 4,000 D) 0 E) 2,000
D
39) The figure above shows the demand, marginal revenue, and marginal cost curves for Paul's Parrot pillows, a single-price monopoly producer of pillows stuffed with parrot feathers. When Paul maximizes his profit, the price is ________ per pillow and the marginal cost is ________ per pillow. A) $60; $60 B) $60; $40 C) $70; $60 D) $70; $40 E) $100; $40
B
4) One requirement for an industry to be perfectly competitive is that in the industry there A) are a few firms who control the market. B) are many firms for whom the efficient scale of production is small. C) is one firm that sells a product with no close substitutes. D) are many firms selling different products. E) is a barrier to entry that makes the entry of new firms difficult.
C
40) Compared to a perfectly competitive market, a single-price monopoly sets A) a lower price. B) the same price. C) a higher price. D) a price that might be higher, lower, or the same depending on whether the monopoly's marginal revenue curve lies above, below, or on its demand curve. E) a price that might be higher, lower, or the same depending on whether the monopoly's marginal cost curve lies above, below, or on its marginal revenue curve.
B
41) A price-discriminating monopoly charges A) the same price to every buyer for the same product. B) a different price to different types of buyers for the same product, even though there are no differences in costs. C) a different price to different buyers, because the costs are different. D) different prices to buyers for different products. E) each customer a price that equals the marginal cost of serving that customer.
D
42) Price discrimination is possible, in part, because A) costs of production vary as output increases. B) monopolies are regulated. C) monopolies don't profit maximize. D) the willingness to pay can vary among groups of buyers. E) monopolies face horizontal demand curves.
B
43) Arnie's Airlines is a monopoly airline that is able to price discriminate. If Arnie's decides to price discriminate, then A) Arnie's profit decreases. B) consumer surplus decreases. C) Arnie's revenues decrease. D) Arnie's sells fewer tickets. E) Arnie's will see all of his tickets at a single price.
A
44) With perfect price discrimination, a monopoly can extract the ________ price each customer is willing to pay and thereby obtain the entire ________ surplus. A) maximum; consumer B) minimum; producer C) maximum; producer D) minimum; consumer E) None of the above answers are correct.
B
45) The figure above shows a natural monopoly that the government must regulate. If the government uses ________, the firm produces ________ units per week. A) the HHI; 50 B) an average cost pricing rule; 30 C) rate of return regulation; 40 D) social interest regulation; 30 E) a marginal cost pricing rule; 20
C
46) The figure above shows a natural monopoly that the government must regulate. Which of the following pairs most likely results in similar outcomes? A) marginal cost pricing and rate of return regulation B) marginal cost pricing and a two-part tariff C) average cost pricing and rate of return regulation D) predatory pricing and price caps E) marginal cost pricing and price cap regulation
E
47) One characteristic of monopolistic competition is that it has A) large barriers to entry. B) one firm producing a unique good. C) a few firms producing a slightly differentiated product. D) many firms producing identical goods. E) many firms producing a slightly differentiated product.
E
48) Product differentiation involves making a product that is A) completely different from the products of competing firms. B) cheaper than the products of competing firms. C) no different than the products of competing firms. D) very different from the products of competing firms. E) slightly different from the products of competing firms.
D
49) Which of the following is true about monopolistic competition but false about perfect competition? A) Firms cannot make an economic profit in the long run. B) Firms can make an economic profit in the short run. C) There are a large number of independently acting sellers. D) Firms compete on their product's price as well as its quality and marketing. E) There are no barriers to entry.
C
5) A perfectly competitive market arises when A) the market demand is small relative to the output of a firm. B) there are many buyers but few sellers. C) the market demand is very large relative to the output of one seller. D) a firm has control over a unique resource. E) each of the many firms produces a slightly different product.
B
50) Firms in monopolistic competition have demand curves that are A) U-shaped. B) downward sloping. C) upward sloping. D) horizontal. E) vertical.
D
51) If the four-firm concentration ratio for the market for diapers is 73 percent, then this industry is best characterized as A) monopolistic competition. B) a monopoly. C) either a monopoly or monopolistic competition. D) an oligopoly. E) perfect competition.
A
52) A market in which the Herfindahl-Hirschman Index exceeds 1,800 is considered to be A) not competitive. B) competitive. C) moderately competitive. D) purely competitive. E) either a monopoly or monopolistic competition.
C
53) The absence of barriers to entry in monopolistic competition means that in the long run firms A) incur an economic loss. B) make an economic profit. C) make zero economic profit. D) make either an economic profit or zero economic profit. E) make either zero economic profit or incur an economic loss.
B
54) Firms in monopolistic competition determine the profit-maximizing level of output by producing A) where price equals average total cost. B) where marginal revenue equals marginal cost. C) where average total cost is minimized. D) at the point of minimum average fixed cost. E) the same output level as rivals do.
A
55) Kevin owns a personal training gymnasium in Orlando. The above figure shows the demand and cost curves for his firm, which competes in a monopolistically competitive market. Kevin will train how many clients per day? A) 4 B) 6 C) between 2 and 4 D) 10 E) None of the above answers is correct.
B
56) Kevin owns a personal training gymnasium in Orlando. The above figure shows the demand and cost curves for his firm, which competes in a monopolistically competitive market. What price will Kevin charge per session? A) $80 B) $60 C) $100 D) $40 E) $20
A
57) In long-run equilibrium, a firm in monopolistic competition makes A) zero economic profit. B) an economic profit, an economic loss, or zero economic profit. C) an economic profit but the economic profit is less than it would be if the firm was a monopoly. D) an economic profit that is higher than what it would be if the firm was a monopoly. E) an economic profit that is the same amount as it would be if the firm was a monopoly.
D
58) In monopolistic competition, the entry of new firms A) shifts existing firms' supply curves rightward. B) shifts existing firms' demand curves rightward. C) has no effect on the existing firms' demand curves. D) shifts existing firms' demand curves leftward. E) only results in a movement along the existing firms' demand curves.
E
59) The figure above shows Firm X. The ________ firm charges a markup of ________. A) monopolistically competitive; $20 per unit because prices exceeds average total cost B) perfectly competitive; $20 per unit because price exceeds average total cost C) monopolistically competitive; $10 per unit because the demand curve lies above the marginal revenue curve D) perfectly competitive; $10 per unit because price equals average total cost E) monopolistically competitive; $10 per unit because price exceeds marginal cost
C
6) The firm's over-riding objective is to A) earn a normal profit. B) maximize normal profit. C) maximize economic profit. D) maximize total revenue. E) avoid an economic loss.
B
60) Advertising is a ________ cost that is incurred by ________. A) variable; monopolies B) fixed; monopolistically competitive firms C) variable; perfectly competitive firms D) marginal; monopolistically competitive firms E) fixed; perfectly competitive firms
A
61) In an oligopoly, there are A) few firms and barriers to entry. B) many firms and no barriers to entry. C) few firms and no barriers to entry. D) many firms and barriers to entry. E) barriers to entry and only one firm.
B
62) A cartel is A) another name for an oligopoly. B) a group of firms acting together to raise price, decrease output, and increase economic profit. C) a market with only two firms. D) a market structure with a small number of large firms. E) a market structure with a large number of small firms.
A
63) A market with only two firms is called a A) duopoly. B) cartel. C) two-firm quasi monopoly. D) two-firm monopolistic competition. E) two-firm monopoly.
C
64) If firms in an oligopolistic industry consistently cut their price to sell more output, what price and output will result? A) the monopolistically competitive price and output B) a price lower than the competitive price and more output than the competitive amount C) the competitive price and output D) the monopoly price and output E) a price lower than the competitive price and less output than the competitive amount
B
65) Economists use game theory to analyze strategic behavior, which takes into account A) non-price competition. B) the expected behavior of others and the recognition of mutual interdependence. C) that increased demand decreases the market power of the firms in the market. D) the price-taking behavior of oligopolists. E) monopoly situations.
D
66) The table above shows the payoff matrix offered to two suspected criminals, Bonnie and Clyde. The payoffs are the years they will spend in prison. The suspected criminals are not allowed to communicate. Given the information in the payoff matrix, the Nash equilibrium is that Bonnie ________ and Clyde ________. A) denies; confesses B) denies; denies C) confesses; denies D) confesses; confesses E) denies; either confess or denies, either outcome is consistent with the Nash equilibrium
B
67) Firms in oligopoly can achieve an economic profit A) only if the demand for their products is inelastic. B) if they cooperate. C) if they reach the non-cooperative equilibrium. D) always in the long run. E) only if the demand for their products is elastic.
D
68) Section 1 of the Sherman Antitrust Act declares what to be illegal? A) mergers of a horizontal nature B) sharing of technology among competing firms or mergers where the effect is to lessen competition C) exiting an industry if the remaining firm or firms have a market share that is too large D) every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations E) any attempt to monopolize an industry
D
69) Suppose there are 6 firms in an industry with the following market shares. If the two smallest firms want to merge, how will the Federal Trade Commission reply? Firm 1 30 Firm 2 25 Firm 3 25 Firm 4 10 Firm 5 7 Firm 6 3 A) The firms will be challenged because the merger will raise the HHI by more than 100 points. B) The firms will not be allowed to merge. C) The firms will be challenged because the merger will raise the HHI by more than 50 points. D) The firms will be allowed to merge and compete with the larger firms. E) The firms will be challenged because the merger will raise the HHI by more than 250 points.