Microeconomics Unit 3 Sample Questions
43. If AAA advertises and Acme does not, Acme's profits will change by
(A) -$100.
41. Which of the following is true of a cartel?
(A) A cartel is a coalition of firms that seek to coordinate their decisions so all firms can earn a higher economic profit.
39. Based on the payoffs above, which of the following statements is true?
(A) Brewer's has a dominant strategy to con- centrate on fries.
32. Allocative and productive efficiency are possible in which of the following unregulated market structures?
(A) I only Perfectly competitive
45. Which of the following statements is true?
(A) If AAA advertises, Acme's dominant strategy is to advertise.
8. Assume that a perfectly competitive firm is operating where marginal revenue is greater than marginal costs. To increase profits, the firm should
(A) increase production.
9. If the average variable cost of producing five units of a product is $100 and the average variable cost of producing six units is $125, then the marginal cost of producing the sixth unit is
(B) $2.
21. Assume that the firm in the graph is an unregulated monopolist. It will earn long-run profits of
(B) $300.
23. Consumer surplus for this profit-maximizing monopolist will be represented by area
(B) ACP4.
15. According to the graphs above, in which of the following ways are the industry supply curve and the equilibrium price most likely to change in the long run?
(B) Decrease Increase
14. Which of the following represents the correct relationship between the demand curve for a perfectly competitive industry and the demand curve for a perfectly competitive firm?
(B) Downward slope Perfectly elastic to the right
28. The profit per unit will be
(B) PP3.
26. To maximize profit, this monopolist should produce at which of the following levels of output?
(B) Q1
44. If AAA advertises, Acme will
(B) advertise because this is its dominant strategy.
36. If all of the firms in an oligopoly could, without cost, form an industry-wide cartel to jointly maximize profits, the demand curve facing the cartel would be
(B) the same as the industry demand curve.
20. Assume that the firm in the graph above is an unregulated monopolist. It will produce
(C) 100 units at a price of $8.00.
40. What is the Nash Equilibrium in this game?
(C) Brewer's should choose to concentrate on fries, and Royal's should choose to concentrate on burgers.
30. Under the usual regulated monopoly, the price that allows fair return (where all costs are covered and includes a normal rate of return) is
(C) C.
22. For the firm in the graph — an unregulated monopolist — the price elasticity of demand is unit elastic at a price and an output of
(C) P3 and Q2.
2. On the graph above, the onset of diminishing marginal returns occurs beyond
(C) Point C.
33. Which of the following is true of monopolists who practice price discrimination?
(C) They charge customers different prices according to different elasticities of demand.
19. Average fixed cost is shown as the distance between
(C) average variable cost and average total cost.
4. According to graph above, if the firm is producing any quantity greater than Q2 experiencing
(C) diseconomies of scale.
5. For a perfectly competitive firm, if the market price is $8 then
(C) marginal revenue is equal to $8.
17. If price is P1, the firm will
(C) produce Q1 units and earn a normal profit.
16. If price is P2, the firm will
(C) produce Q2 units and earn an economic profit.
31. What happens to a monopolist's price, profits and output if its fixed costs decrease?
(C)No change Increase No change
29. Under the usual regulated monopoly, the socially optimal regulated price is
(D) D.
3. Which of the following statements about a firm's production function are true?
(D) I, III and IV only When total product is at its maximum, marginal product is zero. When marginal product is greater than average product, average product is rising. When marginal product is less than average product, average product is falling.
34. Characteristics of an oligopolistic market include which of the following?
(D) II and III only Few firms Interdependence among firms
25. Total revenue will be maximized when price is equal to
(D) P3.
27. The price the monopolist charges at the profitmaximizing level of output will be
(D) P3.
24. The profit-maximizing price for this firm is
(D) P4.
12. Which price-quantity combination represents long-run equilibrium for this perfectly competitive firm?
(D) Point D
6. A firm's short-run marginal cost curve will eventually increase because of
(D) diminishing marginal returns.
13. According to the graph above, if the firm is producing at Q, the firm is
(D)making normal profits because the price just covers average total cost.
37. Characteristics of an oligopoly, which can be demonstrated by game theory, include which of the following?
(E) I, II and III ALL Collusion can increase oligopolists' profits. Oligopolistic firms are interdependent. Independent price decision making leads to lower returns.
1. True statements about the theory of the firm in the short run and long run include which of the following?
(E) II and III only All input costs are variable in the long run. At least one input price is fixed in the short run.
18. Which of the following is true of a pure monopolist's demand curve?
(E) It lies above its marginal revenue curve.
11. At which price will this perfectly competitive firm make an economic profit?
(E) P4
10. If the firm is in short-run equilibrium at a price of P4, a perfectly competitive firm will maximize profits by producing at which of the following levels of output?
(E) Q4
42. Which of the following best characterizes the firms in an oligopoly industry?
(E) They use strategic decision making.
38. The shapes of the marginal product curve and the total product curve are best explained by the
(E) law of diminishing returns.
7. Assume that in the short run at the profit-maximizing output, the price is lower than average variable cost. The perfectly competitive firm should
(E) shut down.
35. In the long run, a monopolistically competitive firm will make
(E) zero economic profit.
