question
A profit-maximizing firm will shut down in the short run when
a. price is less than average variable cost.
b. price is less than average total cost.
c. average revenue is greater than marginal cost.
d. average revenue is greater than average fixed cost.
a. price is less than average variable cost.
b. price is less than average total cost.
c. average revenue is greater than marginal cost.
d. average revenue is greater than average fixed cost.
answer
a. price is less than average variable cost.
question
Firms operating in competitive markets produce output levels where marginal revenue equals
a price.
b. average revenue.
c. total revenue divided by output.
d. All of the above are correct.
a price.
b. average revenue.
c. total revenue divided by output.
d. All of the above are correct.
answer
d. All of the above are correct.
question
Raman's Shoe Repair produces custom-made shoes. When Mr. Raiman produces 12 pairs per week, the marginal cost of the 12ch pair is $84, and the marginal revenue of the 12th pair is $70. What would you advise Mr. Raiman to do?
a. shut down the business
b. produce more custom-made shoes
c. decrease the price
d. produce fewer custom-made shoes
a. shut down the business
b. produce more custom-made shoes
c. decrease the price
d. produce fewer custom-made shoes
answer
d. produce fewer custom-made shoes
question
Refer to Figure 4-7
At what price is the firm's maximum profit zero?
a. $80
b. $90
c. $100
d. $123
At what price is the firm's maximum profit zero?
a. $80
b. $90
c. $100
d. $123
answer
c. $100
question
Table 14-11
Suppose that a firm in a competitive market faces the following prices and costs:
Refer to Table 14-11. The marginal revenue from producing the 3rd unit equals
(i) $6.
(ii) the price.
(iii) the marginal cost.
a. (i) only
b. (i) and (ii) only
c. (iii) only
d. (i), (ii), and (ii)
Suppose that a firm in a competitive market faces the following prices and costs:
Refer to Table 14-11. The marginal revenue from producing the 3rd unit equals
(i) $6.
(ii) the price.
(iii) the marginal cost.
a. (i) only
b. (i) and (ii) only
c. (iii) only
d. (i), (ii), and (ii)
answer
b. (i) and (ii) only
question
Figure 14-13
Suppose a firm in a competitive industry has the following cost curves:
Refer to Figure 14-13. If the price is $6 in the short run, what will happen in the long run?
a. Nothing. The price is consistent with zero economic profits, so there is no incentive for firms to enter or exit the industry.
b. Individual firms will earn positive economic profits in the short run, which will entice other firms to enter the industry.
c. Individual firms will earn negative economic profits in the short run, which will cause some firms to exit the industry.
d. Because the price is below the firm's average variable costs, the firms will shut down.
Suppose a firm in a competitive industry has the following cost curves:
Refer to Figure 14-13. If the price is $6 in the short run, what will happen in the long run?
a. Nothing. The price is consistent with zero economic profits, so there is no incentive for firms to enter or exit the industry.
b. Individual firms will earn positive economic profits in the short run, which will entice other firms to enter the industry.
c. Individual firms will earn negative economic profits in the short run, which will cause some firms to exit the industry.
d. Because the price is below the firm's average variable costs, the firms will shut down.
answer
b. Individual firms will earn positive economic profits in the short run, which will entice other firms to enter the industry.
question
Refer to Table 14-12. What is the marginal revenue from selling the 5th unit?
a. $12
b. $68
c. $80
d. $480
a. $12
b. $68
c. $80
d. $480
answer
c. $80
question
A firm in a competitive market has the following cost structure:
If the firm's fixed cost of production is $3, and the market price is S10, how many units should the firm produce to
maximize profit?
a. 1 unit
b. 2 units
c. 3 units
d. 4 units
If the firm's fixed cost of production is $3, and the market price is S10, how many units should the firm produce to
maximize profit?
a. 1 unit
b. 2 units
c. 3 units
d. 4 units
answer
c. 3 units
question
Authors are allowed to be monopolists in the sale of their books in order to
a. encourage authors to write more and better books.
b. correct for the negative externalities that the Internet and television impose.
c. satisfy literary advocacy groups that exercise their lobbying power.
d. promote a society in which people think for themselves and learn from whichever books they please.
a. encourage authors to write more and better books.
b. correct for the negative externalities that the Internet and television impose.
c. satisfy literary advocacy groups that exercise their lobbying power.
d. promote a society in which people think for themselves and learn from whichever books they please.
answer
a. encourage authors to write more and better books.
question
The monopolist's profit-maximizing quantity of output is determined by the intersection of which of the following two curves?
a. marginal cost and demand
b. marginal cost and marginal revenue
c. average total cost and marginal revenue
d. average variable cost and average revenue
a. marginal cost and demand
b. marginal cost and marginal revenue
c. average total cost and marginal revenue
d. average variable cost and average revenue
answer
b. marginal cost and marginal revenue
question
Refer to Figure 15-17. Which of the following statements best describes the changes that would occur if this firm were to switch from operating as a single price profit-maximizing monopolist to perfect price discrimination?
a. The quantity would increase from I to J, the profit would increase from BCFE to ACG, and the deadweight loss would decrease from EFG to zero.
b. The quantity would remain constant, the profit would increase from BCFE to ABCFB and the deadweight loss would decrease from EFG to zero.
c. The quantity would decrease from J to I, the profit would decrease from ACG to BCFE, and the deadweight loss would increase from EFG to ACG.
d. The quantity would increase from I to J, the profit would decrease from BCFE to FFG, and the deadweight loss remain constant.
a. The quantity would increase from I to J, the profit would increase from BCFE to ACG, and the deadweight loss would decrease from EFG to zero.
b. The quantity would remain constant, the profit would increase from BCFE to ABCFB and the deadweight loss would decrease from EFG to zero.
c. The quantity would decrease from J to I, the profit would decrease from ACG to BCFE, and the deadweight loss would increase from EFG to ACG.
d. The quantity would increase from I to J, the profit would decrease from BCFE to FFG, and the deadweight loss remain constant.
answer
a. The quantity would increase from I to J, the profit would increase from BCFE to ACG, and the deadweight loss would decrease from EFG to zero.
question
An airline knows that there are two types of travelers; business travelers and vacationers. For a particular flight, there are 100 business travelers who will pay $600 for a ticket while there are 50 vacationers who will pay $300 for a ticket. There are 150 seats available on the plane. Suppose the cost to the airline of providing the flight is $20,000, which includes the cost of the pilots, flight attendants, fuel, etc.
Refer to Scenario 15-5, How much additional profit can the airline earn by charging each customer a flat price $600 for a ticket relative to charging their willingness to pay?
a. $15,000
b. $25,000
c. $40,000
d. $70,000
Refer to Scenario 15-5, How much additional profit can the airline earn by charging each customer a flat price $600 for a ticket relative to charging their willingness to pay?
a. $15,000
b. $25,000
c. $40,000
d. $70,000
answer
a. $15,000
question
Which of the following is not a reason for the existence of a monopoly?
a. sole ownership of a key resource
b. patents
c. copyrights
d. diseconomies of scale
a. sole ownership of a key resource
b. patents
c. copyrights
d. diseconomies of scale
answer
d. diseconomies of scale
question
What happens to the price and quantity sold of a drug when its patent runs out?
(i)The price will fall.
(i) The quantity sold will fall.
(iii) The marginal cost of producing the drug will rise
a. (i) only
b. (i) and (ii) only
c. (ii) and (iii) only
d. (i), (ii), and (iii)
(i)The price will fall.
(i) The quantity sold will fall.
(iii) The marginal cost of producing the drug will rise
a. (i) only
b. (i) and (ii) only
c. (ii) and (iii) only
d. (i), (ii), and (iii)
answer
a. (i) only
question
Scenario 15-8
Mega Media Cable TV is able to purchase an exclusive right to sell a premium sports channel in its market area. Let's assume that Mega Media pays $100,000 a year for the exclusive marketing rights to the sports channel. Since Mega Media has already installed cable to all of the homes in its market area, the marginal cost of delivering the sports channel to subscribers is zero. The manager of Mega Media needs to know what price to charge for the sports channel service to maximize her profit. Before setting price, she hires an economist to estimate demand for the sports channel. The economist discovers that there are two types of subscribers who value premium sporting channels, First are the 3,000 die-hard sports fans who will pay as much as $150 a year for the new channel. Second, the premium sports channel will appeal to 20,000 occasional sports viewers who will pay as much as $25 a year for a subscription to it.
7. Refer to Scenario 15-8, If Mega Media Cable TV is able to price discriminate, what would be the maximum amount of
profit it could generate?
a. $950,000
b. $850,000
c. $400,000
d. $350,000
Mega Media Cable TV is able to purchase an exclusive right to sell a premium sports channel in its market area. Let's assume that Mega Media pays $100,000 a year for the exclusive marketing rights to the sports channel. Since Mega Media has already installed cable to all of the homes in its market area, the marginal cost of delivering the sports channel to subscribers is zero. The manager of Mega Media needs to know what price to charge for the sports channel service to maximize her profit. Before setting price, she hires an economist to estimate demand for the sports channel. The economist discovers that there are two types of subscribers who value premium sporting channels, First are the 3,000 die-hard sports fans who will pay as much as $150 a year for the new channel. Second, the premium sports channel will appeal to 20,000 occasional sports viewers who will pay as much as $25 a year for a subscription to it.
7. Refer to Scenario 15-8, If Mega Media Cable TV is able to price discriminate, what would be the maximum amount of
profit it could generate?
a. $950,000
b. $850,000
c. $400,000
d. $350,000
answer
b. $850,000
question
Refer to Table 15-10. If the monopolist has total fixed costs of $40 and a constant marginal cost of $5, what is the profit-maximizing level of output?
a. 7 units
b. 16 units
c. 23 units
d. 31 units
a. 7 units
b. 16 units
c. 23 units
d. 31 units
answer
b. 16 units
question
Refer to Figure 16-10. In response to the situation represented by the figure, we would expect
a. some of the firms that are currently in the market to exit.
b. the demand for this firm's product to increase, assuming this firm does not exit.
c. this firm's profit to move from its current value toward zero.
d. All of the above are correct.
a. some of the firms that are currently in the market to exit.
b. the demand for this firm's product to increase, assuming this firm does not exit.
c. this firm's profit to move from its current value toward zero.
d. All of the above are correct.
answer
d. All of the above are correct.
question
Critics of advertising argue that advertising
a. creates desires that otherwise might not exist.
b. hinders competition.
c. often fails to convey substantive information.
d. All of the above are correct.
a. creates desires that otherwise might not exist.
b. hinders competition.
c. often fails to convey substantive information.
d. All of the above are correct.
answer
d. All of the above are correct.
question
Refer to Table 16-6. When maximizing profit, what price does Beatrice's charge for a cake?
a. $24
b. $30
c. $36
d. $42
a. $24
b. $30
c. $36
d. $42
answer
c. $36
question
Refer to Figure 16-5. Which of the graphs depicts a short-run equilibrium that will encourage the entry of other firms into a monopolistically competitive industry?
a. panel a
b. panel b
c. panel c
d. panel d
a. panel a
b. panel b
c. panel c
d. panel d
answer
c. panel c
question
Both monopolistic competition and oligopoly are market structures
a. that fail to achieve the total surplus achieved by perfect competition.
b. that feature only a few firms in each market.
c. to which the concept of Nash equilibrium is frequently applied by economists.
d. in which firms car zero economic profit in the long run.
a. that fail to achieve the total surplus achieved by perfect competition.
b. that feature only a few firms in each market.
c. to which the concept of Nash equilibrium is frequently applied by economists.
d. in which firms car zero economic profit in the long run.
answer
a. that fail to achieve the total surplus achieved by perfect competition.
question
Table 16-3
The following table shows the output produced by each top eight firms in four industries as well as the total industry output for those industries.
Refer to Table 16-3, What is the concentration ratio for Industry D?
a. approximately 48%
b. approximately 54%
c. approximately 60%
d. approximately 66%
The following table shows the output produced by each top eight firms in four industries as well as the total industry output for those industries.
Refer to Table 16-3, What is the concentration ratio for Industry D?
a. approximately 48%
b. approximately 54%
c. approximately 60%
d. approximately 66%
answer
c. approximately 60%
question
A monopolistically competitive firm's choice of output level is virtually identical to the choice made by
a. a perfectly competitive firm.
b. a duopolist.
c. a monopolist.
d. an oligopolist.
a. a perfectly competitive firm.
b. a duopolist.
c. a monopolist.
d. an oligopolist.
answer
c. a monopolist.
question
Examples of monopolistically competitive markets include the markets for
a. restaurants and furniture.
b. wheat and corn
c. postage stamps and wooden pencils.
d. All of the above are correct.
a. restaurants and furniture.
b. wheat and corn
c. postage stamps and wooden pencils.
d. All of the above are correct.
answer
a. restaurants and furniture.
question
Table 17-24
Two firms are considering going out of business and selling their assets. Each considers what happens if the other goes out of business. The payoff matrix below shows the net gain or loss to each firm.
Refer to Table 17-24. What is the Nash equilibrium?
a. A and B both stay in business
b. A stays in business, B sells
c. B stays in business, A sells
d. Both A and B sell
Two firms are considering going out of business and selling their assets. Each considers what happens if the other goes out of business. The payoff matrix below shows the net gain or loss to each firm.
Refer to Table 17-24. What is the Nash equilibrium?
a. A and B both stay in business
b. A stays in business, B sells
c. B stays in business, A sells
d. Both A and B sell
answer
b. A stays in business, B sells
question
Suppose a market is initially perfectly competitive with many firms selling an identical product. Over time, however, suppose the merging of firms results in the market being served by only three or four firms selling this same product. As a result, we would expect
a. an increase in market output and an increase in the price of the product.
b. an increase in market output and an decrease in the price of the product.
c. a decrease in market output and an increase in the price of the product.
d. a decrease in market output and a decrease in the price of the product.
a. an increase in market output and an increase in the price of the product.
b. an increase in market output and an decrease in the price of the product.
c. a decrease in market output and an increase in the price of the product.
d. a decrease in market output and a decrease in the price of the product.
answer
c. a decrease in market output and an increase in the price of the product.
question
Figure 17-3, Hector and Bart are roommates. On a particular day, their apartment needs to be cleaned. Each person has to decide whether to take part in cleaning, At the end of the day, either the apartment will be completely clean (if one or both roommates take part in cleaning), or it will remain dirty (if neither roommate cleans). With happiness measured on a scale of 1 (very unhappy) to 10 (very happy), the possible outcomes are as follows:
Refer to Figure 17-3. If this game is played only once, then the most likely outcome is that
a. Hector and Bart both clean.
b. Hector cleans and Bart does not clean.
c. Bart cleans and Hector does not clean.
d. neither Hector nor Ban cleans.
Refer to Figure 17-3. If this game is played only once, then the most likely outcome is that
a. Hector and Bart both clean.
b. Hector cleans and Bart does not clean.
c. Bart cleans and Hector does not clean.
d. neither Hector nor Ban cleans.
answer
d. neither Hector nor Bart cleans.
question
An agreement among firms regarding price and/or production levels is called
a. an antitrust market.
b. a free-trade arrangement.
c. collusion.
d. a Nash agreement.
a. an antitrust market.
b. a free-trade arrangement.
c. collusion.
d. a Nash agreement.
answer
c. collusion.
question
The Clayton Act of 1914 allows those harmed by illegal arrangements to restrain trade to
a. sue for up to two times the damages they incurred.
b. sue for up to three times the damages they incurred.
c. sue for up to four times the damages they incurred.
d. sue for damages, but only for the actual amount of damages they incurred.
a. sue for up to two times the damages they incurred.
b. sue for up to three times the damages they incurred.
c. sue for up to four times the damages they incurred.
d. sue for damages, but only for the actual amount of damages they incurred.
answer
b. sue for up to three times the damages they incurred.
question
Refer to Figure 17-2. Which of the following statements is correct?
a. Acme can potentially earn its highest possible profit if it produces a good quality product, and for that reason in is a dominant strategy for Acme to produce a good quality product.
b. The highest possible combined profit for the two firms occurs when both produce a poor quality product, and for that reason producing a poor quality product is a dominant strategy for both firms
c. Regardless of the strategy pursued by Acme, Pinnacle's best strategy is 1o produce a good quality product, and for that reason producing a good quality product is a dominant strategy for Pinnacle.
d. Our knowledge of game theory suggests that the most likely outcome of the game, if it is played only once, is for one firm to produce a poor quality product and for the other firm to produce a good quality product.
a. Acme can potentially earn its highest possible profit if it produces a good quality product, and for that reason in is a dominant strategy for Acme to produce a good quality product.
b. The highest possible combined profit for the two firms occurs when both produce a poor quality product, and for that reason producing a poor quality product is a dominant strategy for both firms
c. Regardless of the strategy pursued by Acme, Pinnacle's best strategy is 1o produce a good quality product, and for that reason producing a good quality product is a dominant strategy for Pinnacle.
d. Our knowledge of game theory suggests that the most likely outcome of the game, if it is played only once, is for one firm to produce a poor quality product and for the other firm to produce a good quality product.
answer
c. Regardless of the strategy pursued by Acme, Pinnacle's best strategy is to produce a good quality product, and for that reason producing a good quality product is a dominant strategy for Pinnacle.
question
A lack of cooperation by oligopolists trying to maintain monopoly profits
a. is desirable for society as a whole.
b. is not desirable for society as a whole.
c. may or may not be desirable for society as a whole.
d. is not a concern due to antitrust laws.
a. is desirable for society as a whole.
b. is not desirable for society as a whole.
c. may or may not be desirable for society as a whole.
d. is not a concern due to antitrust laws.
answer
a. is desirable for society as a whole.
question
Table 17-17
This table shows a game played between two firms, Firm A and Firm B. In this game each firm must decide how much output (Q) to produce: 2 units or 3 units. The profit for each firm is given in the table as (Profit for Firm A, Profit for Firm B
Refer to Table 17-17. Which of the following outcomes represent the Nash equilibrium in this game?
a Q=2 for Firm A and Q=3 for Firm B,
b. Q=3 for Firm A and Q=2 for Firm B.
c. There is no Nash equilibrium in this game since neither player has a dominant strategy.
d. Both a and b are correct.
This table shows a game played between two firms, Firm A and Firm B. In this game each firm must decide how much output (Q) to produce: 2 units or 3 units. The profit for each firm is given in the table as (Profit for Firm A, Profit for Firm B
Refer to Table 17-17. Which of the following outcomes represent the Nash equilibrium in this game?
a Q=2 for Firm A and Q=3 for Firm B,
b. Q=3 for Firm A and Q=2 for Firm B.
c. There is no Nash equilibrium in this game since neither player has a dominant strategy.
d. Both a and b are correct.
answer
d. Both a and b are correct.
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