Microeconomics Exam #3

Refer to Figure 15-22. Based upon the information shown, what price will Bearclaws charge to maximize profits? a.​$10.50. b.​$12. c.​$7. d.​$14.

d

Refer to Figure 15-22. Given that Bearclaws chooses the profit maximizing price and quantity, what profit level will it obtain? a.​$490. b.​$700. c.​$980. d.​$280.

d

Refer to Table 13-16. What is the marginal cost of the 4th unit of output? a.$​40 b.​$136 c.​$68 d.​$52

d

A benefit of a monopoly is a.greater creativity by authors who can copyright their novels. b.decreasing long-run average total costs. c.a wide variety of similar products. d.lower prices.

a

A firm has a fixed cost of $500 in its first year of operation. When the firm produces 100 units of output, its total costs are $3,500. When it produces 101 units of output, its total costs are $3,750. What is the marginal cost of producing the 101st unit of output? a.$250 b.$340.91 c.$350 d.$275

a

A monopolist maximizes profits by a.producing an output level where marginal revenue equals marginal cost. b.charging a price equal to marginal revenue and marginal cost. c.charging a price where marginal cost equals average total cost. d.Both a and b are correct.

a

Analyzing the behavior of the firm enhances our understanding of a.what decisions lie behind the market supply curve. b.how financial institutions set interest rates. c.how consumers allocate their income to purchase scarce resources. d.whether resources are allocated fairly.

a

Consider a firm operating in a competitive market. The firm is producing 40 units of output, has an average total cost of production equal to $5, and is earning $240 economic profit in the short run. What is the current market price? a.$11 b.$9 c.$10 d.$12

a

Diseconomies of scale occur when a firm's a.long-run average total costs are increasing as output increases. b.marginal costs are equal to average total costs for all levels of output. c.long-run average total costs are decreasing as output increases. d.marginal costs are constant as output increases.

a

Refer to Figure 14-1. If the market price falls below $4.50, the firm will earn a.negative economic profits in the short run and shut down. b.positive economic profits in the short run. c.zero economic profits in the short run. d.negative economic profits in the short run but remain in business.

a

Refer to Figure 14-13. If the price is $2 in the short run, what will happen in the long run? a.Individual firms will earn negative economic profits in the short run, which will cause some firms to exit the industry. b.Nothing. The price is consistent with zero economic profits, so there is no incentive for firms to enter or exit the industry. c.Because the price is below the firm's average variable costs, the firms will shut down. d.Individual firms will earn positive economic profits in the short run, which will entice other firms to enter the industry.

a

Refer to Figure 15-5. A profit-maximizing monopoly's total revenue is equal to a.P2 x Q3. b.P3 x Q4. c.(P2-P4) x Q3. d.P1 x Q1.

a

Refer to Figure 15-9. The deadweight loss caused by a profit-maximizing monopoly amounts to a.$500. b.$750. c.$1,000. d.$250.

a

Refer to Table 14-16. For this firm, when output is equal to 12 units, average revenue is a.​$15. b.​always greater than marginal revenue. c.​decreasing. d.​$150.

a

Sebastian decides to open a tree farm. When deciding to open his own business, he turned down two separate job offers of $25,000 and $30,000 and withdrew $20,000 from his savings. Sebastian's savings account paid 3 percent interest. He also borrowed $20,000 from his brother, whom he pays 2 percent interest per year. He spent $15,000 to purchase supplies and earned $50,000 in revenue during his first year. Which of the following statements is correct? a.​Sebastian's economic profit is $4,000, and his accounting profit is $34,600. b.​Sebastian's economic profit is -$16,000, and his accounting profit is $14,600. c.​Sebastian's economic profit is $4,600, and his accounting profit is $35,000. d.​Sebastian's economic profit is -$16,000, and his accounting profit is $34,600.

a

A firm cannot price discriminate if it a.is regulated by the government. b.operates in a competitive market. c.faces a downward-sloping demand curve. d.has perfect information about consumer demand.

b

A firm's marginal cost has a minimum value of $4, its average variable cost has a minimum value of $6, and its average total cost has a minimum value of $7. Then the firm will shut down in the short run once the price of its product falls below a.$7. b.$6. c.$4. d.We do not have enough information to answer the question.

b

A monopoly firm is a price a.maker and has an upward-sloping supply curve. b.maker and has no supply curve. c.taker and has no supply curve. d.taker and has an upward-sloping supply curve.

b

After the patent runs out on a brand name drug, generic drugs enter the market. What happens next in the market? a.Price decreases, and total surplus decreases. b.Price decreases, and total surplus increases. c.Price increases, and total surplus decreases. d.Price increases, and total surplus increases.

b

In a competitive market, no single producer can influence the market price because a.producers agree not to change the price. b.many other sellers are offering a product that is essentially identical. c.consumers have more influence over the market price than producers do. d.government intervention prevents firms from influencing price.

b

In a perfectly competitive market, the horizontal sum of all the individual firms' supply curves is a.equal to the industry profits. b.the market supply curve. c.zero. d.a horizontal line.

b

Marginal cost is equal to average total cost when a.average variable cost is falling. b.average total cost is at its minimum. c.average fixed cost is rising. d.marginal cost is at its minimum.

b

Refer to Figure 13-3. Which of the following statements best captures the nature of the underlying production function (not pictured)? a.Output decreases at an increasing rate with additional units of input. b.Output increases at a decreasing rate with additional units of input. c.Output decreases at a decreasing rate with additional units of input. d.Output increases at an increasing rate with additional units of input.

b

Refer to Figure 15-22. Based up on the information shown, what is the deadweight loss created by Bearclaws?​ a.​$60. b.​$70. c.​$14. d.​$140.

b

Refer to Figure 15-4. The demand curve for a monopoly firm is depicted by curve a.D. b.B. c.A. d.C.

b

Refer to Figure 15-8. What is the monopoly price and quantity? a.price = B; quantity = X b.price = A; quantity = X c.price = C; quantity = X d.price = B; quantity = Y

b

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

c

A key characteristic of a competitive market is that a.firms minimize total costs. b.government antitrust laws regulate competition. c.producers sell nearly identical products. d.firms have price setting power.

c

A perfectly price-discriminating monopolist is able to a.maximize profit, but not produce a socially-optimal level of output. b.produce a socially-optimal level of output, but not maximize profit. c.maximize profit and produce a socially-optimal level of output. d.exercise illegal preferences regarding the race and/or gender of its employees.

c

Anya has decided to start her own hair-styling salon. To purchase the necessary equipment, Anya withdrew $10,000 from her savings account, which was earning 3% interest, and borrowed an additional $5,000 from the bank at an interest rate of 8%. What is Anya's annual opportunity cost of the financial capital that has been invested in the business? a.$400 b.$1,650 c.$700 d.$300

c

Bill operates a boat rental business in a competitive industry. He owns 10 boats and pays $1,000 per month on the loan that he took out to buy them. He rents each boat for $200 per month. The variable cost for each boat rental is $50. In the off season, Bill should a.raise the price he charges per boat rental. b.operate his business as long as he rents all 10 boats each month. c.operate his business as long as he rents at least 1 boat per month. d.operate his business as long as he rents at least 7 boats per month.

c

Chloe's Café sells gourmet cinnamon rolls. In the long run, the café incurs a total cost of $500 to produce 1,000 cinnamon rolls. If Chloe's Café exhibits economies of scale between 1,000 and 2,000 cinnamon rolls, the long-run average total cost for 1,500 cinnamon rolls is a.​higher than $0.50. b.​equal to $0.50. c.​lower than $0.50. d.​higher than $500.

c

If a competitive firm is selling 500 units of its product at a price of $8 per unit and earning a positive profit, then a.its average revenue is greater than $8. b.its marginal revenue is less than $8. c.its total cost is less than $4,000. d.All of the above are correct.

c

In a competitive market, the actions of any single buyer or seller will a.discourage entry by competitors. b.influence the profits of other firms in the market. c.have a negligible impact on the market price. d.Both a and b are correct.

c

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

c

In the long run, a.inputs that were fixed in the short run remain fixed. b.variable inputs are rarely used. c.inputs that were fixed in the short run become variable. d.inputs that were variable in the short run become fixed.

c

Refer to Figure 13-2. If the figure represented production at a cookie factory, the factory would be experiencing a.decreasing output of cookies. b.decreasing cost of cookie production. c.diminishing marginal product of workers. d.diminishing marginal cost of cookie production.

c

Refer to Figure 14-2. Which of the four prices corresponds to a firm earning negative economic profits in the short run but trying to remain open? a.Pa b.Pd c.Pc d.Pb

c

Refer to Figure 14-6. Firms will be encouraged to enter this market for all prices that exceed a.P1. b.P2. c.P3. d.None of the above is correct.

c

Refer to Figure 15-4. The marginal cost curve for a monopoly firm is depicted by curve a.B. b.A. c.C. d.D.

c

Refer to Table 14-16. For this firm, the price is a.​$120 b.​$5 c.​$15 d.​$10

c

The monopolist has fixed costs of $1,000 and has a constant marginal cost of $2 per unit. If the monopolist were able to perfectly price discriminate, how many units would it sell? a.4,200 b.400 c.900 d.500

c

​Refer to Table 13-7. ​What is total output when 1 worker is hired? a.​85 b.45 c.​40 d.​0

c

A firm cannot price discriminate if a.it has a constant marginal cost. b.it has declining marginal revenue. c.buyers only reveal the price they are willing to pay for the product. d.it operates in a competitive market.

d

A movie theater can increase its profits through price discrimination by charging a higher price to adults and a lower price to children if it a.can prevent children from buying the lower-priced tickets and selling them to adults. b.has some degree of monopoly pricing power. c.can easily distinguish between the two groups of customers. d.All of the above are correct.

d

A natural monopoly occurs when a.the product is sold in its natural state, such as water or diamonds. b.the firm is characterized by a rising marginal cost curve. c.production requires the use of free natural resources, such as water or air. d.there are economies of scale over the relevant range of output.

d

A patent gives the inventor monopoly control over the patented good. Patents also a.​lead to increased entry into the market for the patented good. b.lead to an increase in the number of producers of the patented good. c.​lead to lower prices for goods. d.​create incentives to develop new products.

d

Average total cost tells us the a.cost of the last unit of output, if total cost does not include a fixed cost component. b.total cost of the first unit of output, if total cost is divided evenly over all the units produced. c.variable cost of a firm that is producing at least one unit of output. d.cost of a typical unit of output, if total cost is divided evenly over all the units produced.

d

By comparing marginal revenue and marginal cost, a firm in a competitive market is able to adjust production to the level that achieves its objective, which we assume to be a.minimizing variable cost. b.minimizing average total cost. c.maximizing total revenue. d.maximizing profit.

d

Consider a firm operating in a perfectly competitive market. At its current output of 200 units, marginal revenue is $25. At this output, average total cost is decreasing and equals $22. Given this information, what should the firm do? a.​Decrease output below 200 units, since a lower output will result in the profit maximizing output level. b.​Continue to produce 200 units, because this maximizes profits. c.​More information is needed to determine the firm's next step. d.​Increase output beyond 200 units, since a higher output will yield the profit maximizing output level.

d

Economies of scale occur when a.average fixed costs are constant. b.average fixed costs are falling. c.long-run average total costs rise as output increases. d.long-run average total costs fall as output increases.

d

If a production function shows declining marginal product of an input as the quantity of the input increases, then the production function exhibits a.increasing marginal product. b.diminishing profitability. c.increasing returns to scale. d.diminishing marginal product.

d

If marginal cost is rising, a.marginal product must be rising. b.average variable cost must be falling. c.average fixed cost must be rising. d.marginal product must be falling.

d

Perfectly competitive markets are characterized by a.​conditions that presume that each firm produces a unique product. b.​conditions that force firms to advertise their product heavily, to compete with other producers. c.​conditions that discourage new firms from entering the market. d.​conditions that allow firms to determine how much they wish to produce, without influencing the market price.

d

Refer to Figure 14-13. If the price is $6 in the short run, what will happen in the long run? a.Individual firms will earn negative economic profits in the short run, which will cause some firms to exit the industry. b.Nothing. The price is consistent with zero economic profits, so there is no incentive for firms to enter or exit the industry. c.Because the price is below the firm's average variable costs, the firms will shut down. d.Individual firms will earn positive economic profits in the short run, which will entice other firms to enter the industry.

d