microeconomics final
The monopoly price that maximizes profits in Exhibit 9-6 is:
$10
Alan Jones owns a company that sells life insurance. When he employs 10 salespersons his firm sells $200,000 worth of contracts per week, and when he employs 11 salespersons, total revenue is $210,000. The marginal revenue product of the 11th salesperson is:
$10,000
Suppose that you have returned from your fishing expedition with 20,000 fish. The market price is $3 per fish. Your average fixed cost was $1 and your total variable cost was $5,000. If the price jumps to $3.50 before you sell your first fish, how much extra profit, if any, do you earn?
$10,000
In Exhibit 11-2, if product price is fixed at $5, the MRP of the 4th worker is equal to:
$100.
In Exhibit 11-3, the total wage cost of hiring 6 employees is:
$108 per hour.
In Exhibit 11-14, the additional labor cost per 10 workers hired when the monopsonist goes from 10 to 20 workers is:
$110
Lorna's Lumberyard is a monopsony. Lorna estimates that at a wage of $10, 100 workers would be willing to work for her. Similarly, at a wage of $12, 200 workers would be willing to work. Her marginal factor cost is:
$14
BigBiz, a local monopsonist, currently hires 50 workers and pays them $6 per hour. To attract an additional worker to its labor force, BigBiz would have to raise the wage rate to $6.25 per hour. What is BigBiz's marginal factor cost?
$18.75 per hour.
Refer to Exhibit 9-2. Using the rule that focuses on the marginal approach to maximizing profits, the monopolist maximizes profit by choosing price equal to:
$20
In Exhibit 11-11, the marginal factor cost of the 13th employee is equal to:
$21.10.
In Exhibit 11-12, at the profit-maximizing level of employment, the firm's MFC is equal to ____ and the firm's MRP is equal to ____.
$30; $30
In Exhibit 11-14, when the monopsonist hires 30 workers, total wage cost is:
$360
Suppose a monopsonist hires its second worker and this hiring has a marginal factor cost of $75 per day. If the market wage is now $62.50 per day, what was the first employee earning when she worked alone?
$50
At a price of $5, 24 units of the good would be sold; at a price of $7, 25 units of output would be sold. The marginal revenue of the 25th unit of output is:
$55
In Exhibit 11-11, the total wage cost of hiring 12 employees is equal to:
$81.60.
Suppose a monopsonist currently employs 100 workers at a wage of $400 per week. If the firm wants to expand employment to 110 workers, and the 110th worker will only work for $450 per week, what is the approximate marginal factor cost of the 110th worker?
$950 per week.
Currently, union membership in the United States is about:
15 percent.
In Exhibit 8-3, if the price of the firm's product is $2.00 per unit, the firm will produce:
15 units per day.
The Clayton Act was passed in:
1914
The Federal Trade Commission Act was passed in:
1914
The Consumer Product Safety Commission (CPSC) was established in:
1972
In Exhibit 11-2, the marginal product of the 4th unit of labor is equal to:
20
In Exhibit 9-9, the profit-maximizing or loss-minimizing output for the monopolist is:
300 units per day.
In Exhibit 11-2, the marginal product of the 3rd unit of labor is equal to:
35
If the security guards can be hired for $45 per day, how many guards should the shop hire?
4
As shown in Exhibit 9-4, in order to maximize its profit (or minimize its loss), how much output should the monopoly produce?
4 units per hour.
Refer to Exhibit 11-1. If the market wage rate is $25 per day, how many workers should the firm hire if it wants to maximize profits?
6
In Exhibit 8-16, suppose the firm faces a price of $80 per unit. How much should the firm produce to earn the largest possible profit?
6 units per hour.
In Exhibit 8-15, if the market price of mowing lawns is $16 per lawn, then E-Z-Care will earn the biggest profit by mowing:
8 lawns a day
In Exhibit 8-15, if the market price of mowing lawns is $16 per lawn, then E-Z-Care will earn the biggest profit by mowing:
8 lawns per day.
In Exhibit 9-1, the marginal revenue curve corresponding to the monopolist's demand curve would be a straight line drawn between points:
A to D
Which of the following may result in a higher equilibrium price for a product?
All of the above answers are true.
Market structure describes which of the following characteristics?
All of these are true.
Which of the following best describes a cartel?
As a monopolist, a group of cooperating oligopolists that jointly reduce output and raise the price.
Which of the following is true about advertising?
Both a. and b. above are correct.
Which of the following explains how a cartel with 100 percent control might raise price to monopoly-like levels?
By setting a group output level equal to a profit-maximizing monopolist, and then assigning binding quota shares to cartel members.
Which of the following market structures describes an industry in which a group of firms formally agree to control prices and output of a product?
Cartel
Which act of Congress extended the government's authority to block horizontal and vertical mergers?
Celler-Kefauver Act.
If a firm acquires the stock of a competing firm that causes a substantial lessening of competition, it would be in violation of the:
Clayton Act
Which barrier to entry results in the creation of a natural monopoly?
Economies of scale.
Suppose that you have returned from your fishing expedition with 20,000 fish. The market price is $3 per fish. Your average fixed cost was $1 and your total variable cost was $5,000. If the price jumps to $3.50 before you sell your first fish, how much extra profit, if any, do you earn?
Extra profit is enough to cover all of the variable costs of your next two trips.
If the labor market shown in Exhibit 11-8 is competitive, the wage rate and number of workers employed will be determined at point:
F
The federal agency established in 1934 to regulate telephones and broadcasting industries is the:
Federal Communications Commission (FCC).
As shown in Exhibit 8-12, if the price is OD, a perfectly competitive firm maximizes profit at which point on its marginal cost curve?
I
Which of the following best explains why a firm in a perfectly competitive market must take the price determined in the market?
If a price taker increased its price, consumers would buy from other suppliers.
In Exhibit 8-4, this firm is currently producing 14 units of output. What would you advise this firm to do?
Increase output to 16.
What should a profit maximizing monopolist do if she is currently producing where MC < MR?
Increase output until MC = MR.
A firm is currently operating where the MC of the last unit produced = $64, and the MR of this unit = $70. What would you advise this firm to do?
Increase output.
According to the information provided in Exhibit 9-7, if the Rudd Ice Company was a monopoly and is currently charging a price of $6, what would you advise Rudd to do?
Increase price and decrease output.
Under the Clayton Act, which of the following was illegal, even if it was not shown to lessen competition substantially?
Interlocking directorates.
Which of the following is not true about a monopsonist?
It can set the wage rate and hire any desired number of workers at that wage.
The fundamental rule of profit maximization for firms is to produce where:
MR=MC
The optimal number of workers to be hired by a firm operating in a competitive labor market is where:
MRP = w.
If cats become a more popular pet in the United States than dogs, what can we expect to happen to the market for cat food workers?
MRP increases.
If a product's price increases, then its:
MRP will increase.
If product price increases, then:
MRP will increase.
Which of the following is a characteristic of the monopolistic competition market structure?
Many firms and differentiated products.
Which of the following statements best describes the price, output, and profit conditions of monopolistic competition?
Marginal revenue will equal marginal cost at the short run, profit-maximizing level of output; in the long run, economic profit will be zero.
Which of the following was not illegal under the original Clayton Act?
Merger by purchase of assets with cash.
Monopolists are criticized because they are inefficient. What is meant by this statement?
Monopolists usually don't produce at the minimum of the ATC.
What is the key feature shared by all oligopoly markets?
Mutual interdependence.
As shown in Exhibit 8-12, if the price is OB, the firm's total cost of producing at its most profitable level of output is:
OYFB
Alcoa had a monopoly in the U.S. aluminum market from the late nineteenth century until the end of World War II. Which barrier to entry was the source of Alcoa's monopoly power?
Ownership of a vital resource.
Profit is maximized when which of the following conditions occurs?
Profit is maximized when which of the following conditions occurs?
If one software company conspired with another software company to raise prices, this would be in violation of the:
Sherman Antitrust Act.
If two or more firms collude to fix prices, this would be outlawed by the:
Sherman Antitrust Act.
The first federal antitrust law was the:
Sherman Antitrust Act.
In long-run equilibrium, which of the following is not equal to price for a perfectly competitive firm?
Short-run average variable cost.
Suppose product price is fixed at $24; MR = MC at Q = 200; AFC = $6; AVC = $25. What do you advise this firm to do?
Shut down operations.
In which antitrust case did the Supreme Court begin to apply the per se rule to determine whether a firm was in violation of the Sherman Antitrust Act?
The Alcoa case.
The Utah Pie case was brought under which of the following laws?
The Robinson-Patman Act.
Which of the following is the most accurate definition of a worker's "marginal revenue product"?
The change in the firm's total revenue as the result of hiring an additional worker.
Which of the following is characteristic of a monopolistically competitive firm?
The firm produces a differentiated product.
Which of the following is a difference between a monopolist and a firm in perfect competition?
The marginal revenue curve is downward-sloping.
A monopolist faces a downward sloping demand curve that is equal to which of the following?
The market demand curve.
Which of the following describes a tying contract?
The seller of one product requires the buyer to purchase some other product(s).
Which of the following is a game theory strategy for oligopolists to avoid a low-price outcome?
Tit-for-tat
Which of the following is illegal under Clayton Act of 1914?
Tying contracts.
As shown in Exhibit 13-2, an unregulated monopolist would operate at point:
W
If the labor market shown in Exhibit 11-9 is a monopsony, the wage rate and number of workers employed will be determined at point:
W
Which of the following determines equilibrium wages in perfectly competitive labor markets?
Where the supply and demand of labor are equal.
Suppose costs are identical for the two firms in Exhibit 10-6. If both firms assume the other will compete and charge a lower price, equilibrium will be established by:
Widget Co. charging the low price and Ajax Co. charging the low price.
Jim Smith runs a company that sells encyclopedia sets for $200 each. When he employs 5 workers, they can sell 20 sets per week, while only 17 sets are sold when 4 workers are employed. If the wage of workers in this skill category is $500 per week, should the fifth worker be hired?
Yes, because the MRP of the fifth worker is more than $500 per week.
A cartel is:
a joining of firms for the purpose of fixing prices and controlling output.
If a firm has substantial market power, it must be operating in an industry that would be classified as:
a monopoly or oligopoly.
Under perfect competition, no matter how much output is produced, the total revenue curve is:
a positively-sloped line.
Price discrimination occurs when:
a seller charges different prices to different consumers of the same product or service.
In monopolistic competition if there is profit, there is:
a signal for new firms to enter.
A natural monopoly is a market where:
a single large firm can produce the entire market output at a lower per-unit cost than a group of smaller firms.
For many years, AT&T required customers to rent telephones from AT&T in order to receive phone service. This is an example of:
a tying contract.
Which of the following statements is true?
all of the above
Deficient information on unsafe products can cause:
all of the above answers are true.
Imperfect knowledge about a product can cause:
all of the above answers are true.
A monopolized market is characterized by:
all of these
A perfectly competitive firm in the short-run maximizes its profit by producing the output where:
all of these
Compared to a perfectly competitive firm, a monopolist:
all of these
In long-run equilibrium, the perfectly competitive firm sets its price equal to which of the following?
all of these
Market structure is defined as the:
all of these
The rule of reason was applied in the:
all of these
Which of the following involved deregulation?
all of these
A cartel:
all of these.
Which of the following factors is not a barrier limiting the entry of potential competitors into a market?
an inelastic demand for a product
An increase in demand for French fries will cause equilibrium wage rates:
and quantities of potato workers hired to rise.
The Celler-Kefauver Act is primarily concerned with prohibiting:
anticompetitive mergers.
The act of buying a commodity in one market at a lower price and selling it in another market at a higher price is known as:
arbitrage
____ is the act of buying a commodity in one market at a lower price and selling it in another market at a higher price.
arbitrage
Cartel agreements are difficult to maintain because individual members:
are often unable to police the price and output policies of other members.
A profit-maximizing firm will continue to expand output:
as long as the revenues from the production and sale of an additional unit exceeds the marginal cost of the unit.
For a monopolist with a downward-sloping demand curve,
as price decreases, marginal revenue decreases.
A monopolist can earn an economic profit only when:
average total cost is less than price
A monopolist earns an economic profit only when:
average total cost is less than price.
A perfectly competitive firm's supply curve follows the upward-sloping segment of its marginal cost curve above the:
average variable cost curve
In the short run, a perfectly competitive firm's most profitable level of output is where:
both of the above
In order to make oil profits as large as possible, OPEC meets to set oil production quotas for its members. OPEC is best classified as a:
cartel
Suppose a monopolist and a perfectly competitive firm have the same cost curves. The monopolistic firm would:
charge a higher price than the perfectly competitive firm.
An example of price discrimination is the price charged for:
college admission.
If the expansion of output in an industry leads to unchanged resource prices, the industry is most likely to be a(n):
constant cost industry.
The two tendencies of a firm in a cartel are the incentive to:
cooperate to maximize joint profits and to cheat on the agreement in order to increase the firm's share of the profit.
A monopsonist's marginal factor cost (MFC) curve lies above its supply curve because the firm must:
decrease the factor price to hire more.
The demand for a factor of production depends on the:
demand for the products that it helps to produce.
If the MRP of labor decreases, labor:
demand will decrease.
For a monopolist to practice effective price discrimination, one necessary condition is:
differences in the price elasticity of demand among groups of buyers.
For a kinked demand curve, the marginal revenue curve is:
discontinuous.
In the Utah Pie case, the economic effect of the Supreme Court decision was to:
discourage competition by national competitors in the Salt Lake City market.
In the long run in monopolistic competition,
economic profits are zero.
To maximize its profit, a monopoly should choose a price where demand is:
elastic
In the long run, monopolistically competitive firms have:
excess capacity.
Ersatz Kreme will sell its filling to Hunky Donuts only if Hunky Donuts agrees not to buy filling from other suppliers. This is an example of:
exclusive dealing.
If a monopolist finds that at the present level of output marginal revenue exceeds marginal cost, the firm should:
expand output
A monopolist maximizes total revenue.
false
A monopolist that maximizes total revenue earns maximum economic profit.
false
A monopolist will be able to earn positive pure economic profits regardless of the price elasticity of demand.
false
A monopolist will charge a lower price and produce more output than if it was operating in a competitive market.
false
A monopsony hires labor up to the point where the marginal revenue product of labor equals the wage rate.
false
A perfectly competitive industry always has a perfectly elastic (flat) long-run supply curve.
false
A perfectly competitive market is characterized by highly advertised goods.
false
An increase in the demand for a product will shift the demand curve for labor producing the product to the left.
false
If marginal revenue equals marginal cost in the short run, the perfectly competitive firm earns zero profits.
false
In the short run both the monopolistically competitive firm and the perfectly competitive firm will charge a price equal to marginal cost.
false
In the short run, the monopolistic competitive firm will charge a price equal to marginal cost.
false
Interlocking directorates are illegal under the Clayton Act only when their effect is to lessen competition substantially.
false
The Robinson-Patman Act strengthened the merger provisions of the Sherman Antitrust Act.
false
The purchase of Michelin Tire Company by General Motors is an example of a horizontal merger.
false
A price-discriminating monopoly charges the lowest price to the group that:
has the most elastic demand.
Assume the short-run average total cost for a perfectly competitive industry increases as the output of the industry expands. In the long run, the industry supply curve will:
have a positive slope
As compared to a firm that competes for labor, a monopsony will:
hire fewer workers and pay lower wages.
In Exhibit 10-4, the exhibit represents a kinked-demand oligopoly model. Suppose the current price is $50. If one firm in the oligopoly now attempts to raise price, all firms will:
ignore this price increase and cause the price-raising firm to move along D1.
In Exhibit 8-5, suppose a firm is currently producing 45 units of output. What would you advise this firm to do?
increase output
If marginal costs increase, a monopolist will:
increase price and decrease output.
A technological advance that increases labor productivity will:
increase the demand for labor as MP rises.
The kinked demand theory attempts to explain why an oligopolistic firm:
infrequently changes its price.
The most important weakness of the Sherman Antitrust Act was that:
it wasn't specific about the types of acts which would violate the law.
An increase in marginal cost that remains within the gap of the marginal revenue curve of a kinked demand oligopolist will:
keep price and output the same.
Compared to a competitive input market, a monopsonist will hire:
less and pay a lower input price.
An industry is said to be a natural monopoly when:
long-run average cost continues to decline as the quantity of output increases.
In Exhibit 8-11, when the price rises from $5 to $8, the profit-maximizing (or loss-minimizing) firm goes from making a:
loss to making a profit
If ABC Printing is producing an output level of 100, where MR is $5 and MC is $3, then the firm is:
making an unknown amount of profit or loss.
Which of the following is not associated with the monopoly market structure?
many sellers
A monopoly will be maximizing profits if it is operating at the point where:
marginal revenue = marginal cost.
A profit-maximizing monopolistically competitive firm will expand output to the point where:
marginal revenue equals marginal cost.
The marginal approach to profit maximization means that a firm should produce until:
marginal revenue equals marginal cost.
The profit maximizing or loss minimizing quantity of output for any firm to produce exists at that output level in which:
marginal revenue equals marginal cost.
A profit-maximizing monopolist will continue expanding output as long as:
marginal revenue exceeds marginal cost.
The per se rule refers to the interpretation of the courts that dominant firms should be broken up because of their:
market share of dominance.
Both a perfectly competitive firm and a monopolist:
maximize profit by setting marginal cost equal to marginal revenue.
The Sherman Antitrust Act of 1890 is the federal antitrust law that prohibits:
monopolization and conspiracies to restrain trade.
In Exhibit 9-10, at the profit-maximizing or loss-minimizing output, the monopolist's total economic profit is:
negative
When a perfectly competitive firm or a monopolistically competitive firm is making zero economic profit,
no firms will want to enter or exit.
Which of the following statements concerning the supply of labor is true?
none of these
Mutual interdependence applies to actions of:
oligopolists
The conclusion arrived at from a kinked-demand oligopoly model is that:
oligopoly firms should keep prices at their current level.
In order to obtain a conviction for price fixing under the Sherman Antitrust Act, the government needs to prove:
only that an attempt to fix prices was made.
If price is equal to OD for the firm shown in Exhibit 8-12, total profit is maximized when:
output is Z
Exhibit 8-1 indicates that this firm is operating in which type of market structure?
perfect competition
The demand for the product of a competitive price-taker firm is:
perfectly elastic
At an output of 100 units, marginal revenue for a monopolist with the demand curve shown in Exhibit 9-1 would be:
positive
The practice of firms temporarily reducing prices in order to eliminate competition is called:
predatory pricing.
In Exhibit 13-3, if this industry is regulated and the regulatory commission wants price to be set equal to marginal cost, the proper price and output combination to be set is:
price = $3; output = 50.
Under perfect competition, which of the following are the same (equal) at all levels of output?
price and marginal revenue
The Robinson-Patman Act is primarily concerned with:
price discrimination.
For both a monopolist and a monopolistically competitive firm:
price is above marginal revenue.
A monopolistic competitive firm is inefficient because the firm:
produces an output where average total cost is not minimum.
A cartel maximizes industry profit by:
producing where MR = MC.
The demand curve in monopolistic competition slopes downward because of:
product differentiation.
By producing at the point where MR = MC, the firm:
profit is maximized.
If a firm decreases output when MR > MC, then:
profit will decrease
The Clayton Act of 1914:
prohibited price discrimination that reduces competition and cannot be justified based on cost differences
Supporters of advertising claim that it:
promotes better quality products.
Product differentiation:
refers to the attempt of firms to make real or apparent differences in essentially substitutable products look different in the minds of the consumers.
Which of the following is the best example of a monopolistically competitive market?
retail sales
An increase in the demand for a product will shift the demand for labor used to produce the product:
rightward
A firm that is a price taker can:
sell all of its output at the market price.
The importance of the Federal Trade Commission Act of 1914 is that it:
set up an independent antitrust agency with the power to bring court cases.
As a result of a kinked demand curve, the price:
settles at the kink.
In Exhibit 8-18, assume the perfectly competitive firm is in long-run equilibrium and there is an increase in demand. As a result, the firm in the short run will increase output along its:
short-run marginal cost curve B.
If a competitive firm is losing money then it should:
shut down if its losses are greater than total fixed costs.
A monopsony is a:
single buyer
If resource prices rise and the per-unit cost of producing a product increases as the firms in an industry expand output in response to an increase in demand, the long-run market supply curve for the product will:
slop upward to the right
If the price of the firm's product in Exhibit 8-3 is $1.50 per unit, which intersects AVC at point B, the firm should:
stay in operation for the time being even though it is making a pure economic loss.
If regulation imposes marginal cost pricing on a natural monopoly, then the monopoly will:
suffer persistent economic losses.
In the United States, regulation increased steadily in the areas of health, safety, and the environment during:
the 1970s.
If the demand for a product increases in an increasing cost industry, as the market adjusts in the long run:
the firm's per-unit cost will increase.
The best number of workers for any employer to hire is that quantity in which:
the marginal revenue product equals the marginal factor cost.
The marginal cost of labor for a perfectly competitive firm is given by:
the market wage rate.
A horizontal merger between two firms occurs when:
the merger partners were competitors.
If the average total cost curve is always above the demand curve for a monopolist:
the monopolist will suffer economic losses.
Costume jewelry is produced in a monopolistically competitive market. One producer finds that MR = MC = $3 when output is 700 necklaces. An economist studying this information can conclude that:
the producer charges a price greater than $3.
An example of price discrimination is the price charged for:
theater tickets that offer lower prices for children.
An oligopoly is a market structure in which:
there are few firms selling either a homogeneous or differentiated product.
Perfect competition and monopolistic competition are similar because under both market structures,
there are zero economic profits in the long run.
Marginal revenue is the change in:
total revenue resulting from a one unit change in output.
A monopolist is a price searcher because it has the ability to select the price along its demand curve of its product.
true
An improvement in technology that increases the marginal product will shift the demand for labor curve to the right.
true
If a firm buys the assets of a firm with cash, it may be in violation of the Celler-Kefauver Act.
true
In a monopolistically competitive market like retail trade, firms can easily enter and exit the market.
true
In a natural monopoly, the long-run average cost curve declines and therefore average cost is lower when there is only one seller.
true
In an oligopoly, the outcome is uncertain because price and output decisions depend on the response of rivals.
true
In the long run, marginal cost must equal marginal revenue for a monopolistic competitive firm, but not at the minimum point of the long-run average cost curve.
true
Monopsony means a labor market with a single buyer.
true
To maximize profit, a monopsonist hires workers up to the point at which marginal factor cost (MFC) equals marginal revenue product (MRP).
true
Under fair-return pricing, a regulated natural monopoly will earn zero economic profit.
true
A merger between two firms that have a supplier-purchaser relationship is:
vertical
Graphically, the marginal revenue curve of a monopolist:
will always lie below the demand curve of the monopolist.
As represented in Exhibit 10-1, the maximum long-run economic profit earned by this monopolistic competitive firm is:
zero
In the long run, both monopolistic competition and perfect competition result in:
zero economic profit for firms.
