question
Market Place
answer
consists of three market characteristics: (1) the number of sellers, (2) nature of the product, and (3) the ease or exit from the market.
question
Perfect Competition
answer
the firm is very small relative to the market as a whole, sells a homogeneous product, and firms in the industry are free to enter and exit.
question
Price Taker
answer
A firm in perfect competition is a ________ because it can sell all it wishes at the market determined price, but it will sell nothing above the given market price.
question
Marginal Revenue
answer
A change in total revenue from a one unit change in output is called
question
Firm's Short Run Curve
answer
for a perfectly competitive firm is a curve showing the relationship between the price of a product and the quantity supplied in the short run. The individual firm always produces along its marginal cost curve above its intersection with the average variable cost curve.
question
Industry's Short Run Supply Curve
answer
for a perfectly competitive firm is the horizontal summation of all firm's short-run supply curves in the industry.
question
Industry's Long Run Supply Curve
answer
is a curve that shows the quantities supplied by the industry at different prices after firms complete their entry and exit.
question
Constant-Cost Industry
answer
An industry in which the expansion of industry output by the entry of new firms has no effect on the firm's cost curves is called
question
Decreasing cost industry
answer
is an industry in which the expansion of industry output by the entry of new firms decreases the firm's cost curves.
question
Increasing cost industry
answer
An industry in which the expansion of industry output by the entry of new firms increases the firm's cost curves is called
question
Market structure describes which of the following characteristics?
a. The ease of entry into and exit from the market.
b. The similarity of the product sold.
c. The number of firms in each industry.
d. All of the answers above are correct.
a. The ease of entry into and exit from the market.
b. The similarity of the product sold.
c. The number of firms in each industry.
d. All of the answers above are correct.
answer
d. All of the answers above are correct.
question
. Under perfect competition, a firm is a price taker because:
a. setting a price higher than the going price results in profits.
b. each firm's product is perceived as different.
c. each firm has a significant market share.
d. setting a price higher than the going price results in zero sales.
a. setting a price higher than the going price results in profits.
b. each firm's product is perceived as different.
c. each firm has a significant market share.
d. setting a price higher than the going price results in zero sales.
answer
d. setting a price higher than the going price results in zero sales.
question
In the short run, a perfectly competitive firm's most profitable level of output is where:
a. marginal cost exceeds marginal revenue.
b. total revenue is at a maximum.
c. marginal cost equals marginal revenue.
d. All of the answers above are correct.
a. marginal cost exceeds marginal revenue.
b. total revenue is at a maximum.
c. marginal cost equals marginal revenue.
d. All of the answers above are correct.
answer
c. . marginal cost equals marginal revenue.
question
As shown in Exhibit 1, if the price is either $10, $15, $20, or $40, the firm's economic profit is maximum at which of the following outputs?
a. 20 units per day
b. 40 units per day
c. 60 units per day
d. 80 units per day
a. 20 units per day
b. 40 units per day
c. 60 units per day
d. 80 units per day
answer
d. 80 units per day
question
In Exhibit 1, if the price of the firm's product is $20 per unit, the firm will produce:
a. 20 units per day.
b. 40 units per day.
c. 60 units per day.
d. 80 units per day.
a. 20 units per day.
b. 40 units per day.
c. 60 units per day.
d. 80 units per day.
answer
d. 60 units per day
question
As shown in Exhibit 1, the price at which the firm earns zero economic profit in the short-run is:
a. $10 per unit.
b. $15 per unit.
c. $40 per unit.
d. more than $20 per unit.
e. $20 per unit.
a. $10 per unit.
b. $15 per unit.
c. $40 per unit.
d. more than $20 per unit.
e. $20 per unit.
answer
e. $20 per unit
question
. If the price of the firm's product in Exhibit 1 is $15 per unit, the firm should:
a. shut down permanently.
b. stay in operation for the time being even though it is making a pure economic
loss.
c. shut down temporarily.
d. continue to operate because it is earning a positive economic profit
a. shut down permanently.
b. stay in operation for the time being even though it is making a pure economic
loss.
c. shut down temporarily.
d. continue to operate because it is earning a positive economic profit
answer
b. stay in operation for the time being even though it is making a pure economic
loss.
loss.
question
As shown in Exhibit 1, the firm will produce in the short run if the price is at least equal to:
a. $10 per unit (point A).
b. $15 per unit (point B).
c. $20 per unit (point C).
d. $40 per unit (point D).
a. $10 per unit (point A).
b. $15 per unit (point B).
c. $20 per unit (point C).
d. $40 per unit (point D).
answer
b. $15 per unit (point B).
question
As shown in Exhibit 1, the short-run supply curve for the firm corresponds to which segment of its marginal cost curve?
a. C and all points above.
b. B and all points above.
c. A and all points above.
d. A to C only.
a. C and all points above.
b. B and all points above.
c. A and all points above.
d. A to C only.
answer
B. B and all points above
question
In long-run equilibrium, the typical perfectly competitive firm will:
a. earn zero economic profit.
b. change plant size in the long run.
c. change output in the short run.
d. do any of the above.
a. earn zero economic profit.
b. change plant size in the long run.
c. change output in the short run.
d. do any of the above.
answer
a. Earn zero economic profit
question
In long-run equilibrium for a perfectly competitive firm, price equals which of the following?
a. Economies of real cost.
b. Maximum total revenue.
c. Diseconomies of scale cost.
d. Minimum point on the long-run average cost curve.
a. Economies of real cost.
b. Maximum total revenue.
c. Diseconomies of scale cost.
d. Minimum point on the long-run average cost curve.
answer
d. . Minimum point on the long-run average cost curve.
question
In a perfectly competitive industry, assume there is a permanent increase in demand for a product. The process of transition to a new long-run equilibrium will include:
a. the exit of firms.
b. temporarily lower production costs.
c. Both answers a and b are correct.
d. Neither answers a nor b is correct.
a. the exit of firms.
b. temporarily lower production costs.
c. Both answers a and b are correct.
d. Neither answers a nor b is correct.
answer
d. Neither answers a nor b is correct.
question
. In a perfectly competitive industry, assume the short-run average total cost increases as the output of the industry expands. In the long run, the industry supply curve will:
answer
e. have a positive slope
question
Assume that a firm's marginal revenue just barely exceeds marginal cost. Under these conditions the firm should:
a. expand output.
b. contract output.
c. maintain output.
d. There is insufficient information to answer the question.
a. expand output.
b. contract output.
c. maintain output.
d. There is insufficient information to answer the question.
answer
a. expand output
question
Perfectly competitive markets are characterized by:
a. a small number of very large producers.
b. very strong barriers to entry and exit.
c. firms selling a homgeneous product.
d. All of the answers above are correct.
a. a small number of very large producers.
b. very strong barriers to entry and exit.
c. firms selling a homgeneous product.
d. All of the answers above are correct.
answer
c. firms selling a homogeneous product
question
Which of the following is true of a perfectly competitive firm?
a. The firm is a price maker.
b. If the firm wishes to maximize profits it will produce an output level in which
total revenue equals total cost.
c. The firm will not earn an economic profit in the long run.
d. The firm's short-run supply curve is its MC curve below its AVC curve.
a. The firm is a price maker.
b. If the firm wishes to maximize profits it will produce an output level in which
total revenue equals total cost.
c. The firm will not earn an economic profit in the long run.
d. The firm's short-run supply curve is its MC curve below its AVC curve.
answer
c. The firm will not earn an economic profit in the long run.
question
The profit maximizing, or loss minimizing, quantity of output for any firm to produce exists at that output level in which:
a. total revenue is maximized.
b. total cost is minimized.
c. marginal cost is minimized.
d. marginal revenue equals marginal cost.
a. total revenue is maximized.
b. total cost is minimized.
c. marginal cost is minimized.
d. marginal revenue equals marginal cost.
answer
d. marginal revenue equals marginal cost.
question
If a competitive firm is incurring economic losses, then it should:
a. always shut down.
b. shut down if losses are greater than total fixed costs.
c. shut down if total fixed costs are greater than losses.
d. raise its price.
a. always shut down.
b. shut down if losses are greater than total fixed costs.
c. shut down if total fixed costs are greater than losses.
d. raise its price.
answer
b. shut down if losses are greater than total fixed costs.
question
Which of the following is true of a perfectly competitive market?
a. If economic profits are earned then the price will fall over time.
b. In long-run equilibrium P = MR = SRMC = SRATC = LRAC.
c. A constant-cost industry exists when the entry of new firms has no effect on
their cost curves.
d. All of the answers above are correct.
a. If economic profits are earned then the price will fall over time.
b. In long-run equilibrium P = MR = SRMC = SRATC = LRAC.
c. A constant-cost industry exists when the entry of new firms has no effect on
their cost curves.
d. All of the answers above are correct.
answer
d. All of the answers above are correct.
question
In long run equilibrium, a competitive firm produces the level of output at which:
a. marginal cost is at a minimum.
b. short run average total cost and long-run average cost are at a minimum.
c. total revenue is at a maximum.
d. diseconomies of scale end.
a. marginal cost is at a minimum.
b. short run average total cost and long-run average cost are at a minimum.
c. total revenue is at a maximum.
d. diseconomies of scale end.
answer
...
question
t or f :
A perfectly competitive market is characterized by the free entry and exit of firms.
A perfectly competitive market is characterized by the free entry and exit of firms.
answer
T
question
t or f:
A perfectly competitive market is characterized by highly advertised goods.
A perfectly competitive market is characterized by highly advertised goods.
answer
F
question
t or f:
If marginal revenue exceeds marginal cost, the perfectly competitive firm earns an economic profit in the short-run.
If marginal revenue exceeds marginal cost, the perfectly competitive firm earns an economic profit in the short-run.
answer
F
question
t or f:
If marginal revenue exceeds marginal cost in the short-run, total revenue for the perfectly competitive firm is greater than total cost.
If marginal revenue exceeds marginal cost in the short-run, total revenue for the perfectly competitive firm is greater than total cost.
answer
F
question
t or f:
A perfectly competitive firm will shut down in the short-run when marginal revenue equals marginal cost at a price less than minimum average variable cost.
A perfectly competitive firm will shut down in the short-run when marginal revenue equals marginal cost at a price less than minimum average variable cost.
answer
T
question
t or f:
The short-run supply curve and short-run marginal cost curve for a perfectly competitive firm coincide when the market price is greater than average variable cost.
The short-run supply curve and short-run marginal cost curve for a perfectly competitive firm coincide when the market price is greater than average variable cost.
answer
T
question
t or f:
A perfectly competitive firm shuts down in the short-run when the market price is less than the average variable cost.
A perfectly competitive firm shuts down in the short-run when the market price is less than the average variable cost.
answer
T
question
t or f:
In long-run equilibrium, a perfectly competitive firm's short-run marginal cost curve crosses the long-run average cost curve at the lowest point on the long-run average cost curve.
In long-run equilibrium, a perfectly competitive firm's short-run marginal cost curve crosses the long-run average cost curve at the lowest point on the long-run average cost curve.
answer
T
question
t or f:
In the long run, a competitive firm will earn zero economic
profit.
In the long run, a competitive firm will earn zero economic
profit.
answer
T
question
t or f:
When faced with an economic loss, a competitive firm will exit
the industry in the long run.
When faced with an economic loss, a competitive firm will exit
the industry in the long run.
answer
T
question
Monopoly
answer
is a single seller facing the entire industry demand curve. The reason for this type of market structure is that the firm sells a unique product and extremely high barriers to entry protect it from competition. These barriers to entry include: (1) ownership of an essential resource, (2) legal barriers, and (3) economies of scale.
question
A Natural Monopoly
answer
arises because of the existence of economies of scale in which the LRAC falls as production increases. As a result, smaller firms leave the industry, new firms fear competing with the monopolist, and the result is that a monopoly emerges naturally.
question
Price Maker
answer
A firm that faces a downward sloping demand curve is called a (an)
question
Price Discrimination
answer
allows the monopolist to increase profits by charging buyers' different prices rather than a single price. There are three necessary conditions for this condition to exist: (1) the demand curve must be downward sloping, (2) buyers in different markets must have different demand curves, and (3) the buyer must be able to prevent arbitrage which is reselling the product at a higher price than the purchase price.
question
Which of the following is a market structure of monopoly?
a. Few firms operating as price takers.
b. Single firm operating as a price taker.
c. Single firm that is a price maker.
d. All of the answers above are correct.
a. Few firms operating as price takers.
b. Single firm operating as a price taker.
c. Single firm that is a price maker.
d. All of the answers above are correct.
answer
c. single firm that is a price maker
question
A monopolist earns an economic profit only when:
a. average total cost equals price.
b. marginal cost equals price.
c. marginal revenue equals price.
d. average total cost is less than price.
a. average total cost equals price.
b. marginal cost equals price.
c. marginal revenue equals price.
d. average total cost is less than price.
answer
d. average total cost is LESS than price
question
. Suppose a monopolist's demand curve lies below its average variable cost curve. The firm will:
a. stay in operation in the short run.
b. earn an economic profit.
c. earn an economic profit in the long run.
d. shut down.
a. stay in operation in the short run.
b. earn an economic profit.
c. earn an economic profit in the long run.
d. shut down.
answer
d. shut down
question
Assume a monopolist charges a price corresponding to the intersection of the marginal cost and marginal revenue curves. If this price is between its average variable cost and average total cost curves, the firm will:
a. earn an economic profit.
b. assume demand will increase in the future.
c. shut down.
d. All of the answers above are correct.
a. earn an economic profit.
b. assume demand will increase in the future.
c. shut down.
d. All of the answers above are correct.
answer
b. assume deamand will increase in the future
question
Which of the following statements best describes the price, output, and profit
conditions of monopoly?
a. Price will equal marginal cost at the profit-maximizing level of output and
profits will be positive in the long-run.
b. Price will always equal average variable cost in the short-run and either profits
or losses may result in the long run.
c. In the long-run, positive economic profit will be earned.
d. All of the answers above are correct.
conditions of monopoly?
a. Price will equal marginal cost at the profit-maximizing level of output and
profits will be positive in the long-run.
b. Price will always equal average variable cost in the short-run and either profits
or losses may result in the long run.
c. In the long-run, positive economic profit will be earned.
d. All of the answers above are correct.
answer
c. In the long-run, positive economic profit will be earned.
question
Which of the following is a difference between a monopolist and a firm in perfect competition?
a. The marginal revenue curve is downward sloping.
b. Marginal revenue equals price.
c. Economic profits are zero in the long run.
d. The marginal revenue curve lies above the demand curve.
a. The marginal revenue curve is downward sloping.
b. Marginal revenue equals price.
c. Economic profits are zero in the long run.
d. The marginal revenue curve lies above the demand curve.
answer
a. The marginal revenue curve is downward-sloping.
question
. 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:
a. $14.
b. $55.
c. $6.
d. $168.
e. $175.
a. $14.
b. $55.
c. $6.
d. $168.
e. $175.
answer
b. $55
question
In Exhibit 1, the profit maximizing or loss minimizing output for the monopolist is:
a. 200 units per day.
b. 300 units per day.
c. 400 units per day.
d. 500 units per day.
e. 600 units per day.
a. 200 units per day.
b. 300 units per day.
c. 400 units per day.
d. 500 units per day.
e. 600 units per day.
answer
b. 300 units per day
question
In Exhibit 1, at the profit maximizing or loss minimizing output, the monopolist's total economic profit is:
a. positive.
b. negative.
c. zero.
d. minimum.
a. positive.
b. negative.
c. zero.
d. minimum.
answer
b. negative
question
In Exhibit 1, the monopolist would charge which of the following prices to maximize profit or minimize its loss?
a. $20.
b. $40.
c. $60.
d. $70.
e. $100.
a. $20.
b. $40.
c. $60.
d. $70.
e. $100.
answer
d. $70
question
is the act of buying a commodity in one market at a lower price and selling it in another market at a higher price.
a. Buying short.
b. Discounting.
c. Tariffing.
d. Arbitrage.
a. Buying short.
b. Discounting.
c. Tariffing.
d. Arbitrage.
answer
d. arbitrage
question
Under both perfect competition and monopoly, a firm:
a. is a price taker.
b. is a price maker.
c. will shut down in the short-run if price falls short of average total cost.
d. always earns a pure economic profit.
e. sets marginal cost equal to marginal revenue.
a. is a price taker.
b. is a price maker.
c. will shut down in the short-run if price falls short of average total cost.
d. always earns a pure economic profit.
e. sets marginal cost equal to marginal revenue.
answer
e. sets marginal cost equal to marginal revenue.
question
At the point at which the marginal revenue equals zero for a monopolist facing a straight-line demand curve, the total revenue is:
a. minimum.
b. maximum.
c. rising.
d. equal to zero.
a. minimum.
b. maximum.
c. rising.
d. equal to zero.
answer
b. maximum.
question
Which of the following is true for the monopolist?
a. Marginal revenue is less than the price charged.
b. Economic profit is possible in the long run.
c. Profit maximizing or loss minimizing occurs when marginal revenue equals
marginal cost.
d. All of the answers above are correct.
a. Marginal revenue is less than the price charged.
b. Economic profit is possible in the long run.
c. Profit maximizing or loss minimizing occurs when marginal revenue equals
marginal cost.
d. All of the answers above are correct.
answer
d. all of the answers above are correct
question
For a monopolist to practice effective price discrimination, one necessary condition is:
a. identical price elasticity among groups of buyers.
b. differences in the price elasticity of demand among groups of buyers.
c. that the product is a homogeneous market.
d. None of the answers above are correct.
a. identical price elasticity among groups of buyers.
b. differences in the price elasticity of demand among groups of buyers.
c. that the product is a homogeneous market.
d. None of the answers above are correct.
answer
b. differences in the price elasticity of demand Amon group of buyers
question
A monopolized market is characterized by:
a. sole seller of a product for which there are few suitable substitutes.
b. very strong barriers to entry.
c. a single firm facing the market demand curve.
d. All of the answers above are correct.
a. sole seller of a product for which there are few suitable substitutes.
b. very strong barriers to entry.
c. a single firm facing the market demand curve.
d. All of the answers above are correct.
answer
d. all of the answers above are correct
question
A monopoly will price its product:
a. where total revenue is maximized.
b. where total costs are minimized.
c. at that point on the market demand curve corresponding to an output level in
which marginal revenue equals marginal cost.
d. at that point on the market demand curve which intersects the marginal cost
curve.
a. where total revenue is maximized.
b. where total costs are minimized.
c. at that point on the market demand curve corresponding to an output level in
which marginal revenue equals marginal cost.
d. at that point on the market demand curve which intersects the marginal cost
curve.
answer
c. at that point on the market demands curve corresponding to an output level in which marginal revenue equals marginal cost.
question
A monopoly:
a. faces the market demand curve which is downward sloping.
b. has a marginal revenue curve which slopes downward and lies below its
demand curve.
c. will maximize profits by producing an output level where MR = MC.
d. All of the answers above are correct.
a. faces the market demand curve which is downward sloping.
b. has a marginal revenue curve which slopes downward and lies below its
demand curve.
c. will maximize profits by producing an output level where MR = MC.
d. All of the answers above are correct.
answer
D. all of the answers above are correct
question
One of the necessary conditions for price discrimination to occur is that:
a. buyers in different markets have different elasticities of demand.
b. the demand curve is upward sloping.
c. buyers must be allowed to resell the good at a higher price elsewhere.
d. All of the answers above are necessary for price discrimination to occur.
a. buyers in different markets have different elasticities of demand.
b. the demand curve is upward sloping.
c. buyers must be allowed to resell the good at a higher price elsewhere.
d. All of the answers above are necessary for price discrimination to occur.
answer
a. buyers in different markets have different elasticities of demand
question
A price-discriminating monopoly charges the lowest price to the group that:
a. has the most elastic demand.
b. purchases the largest quantity.
c. engages in the most arbitrage.
d. is least responsive to price changes.
a. has the most elastic demand.
b. purchases the largest quantity.
c. engages in the most arbitrage.
d. is least responsive to price changes.
answer
a. has the most elastic demand
question
t or f:
A monopolist is a price searcher because it has the ability to select the price along its demand curve of its product.
A monopolist is a price searcher because it has the ability to select the price along its demand curve of its product.
answer
T
question
t or f:
Costs in a natural monopoly are lower because there is only one producer.
Costs in a natural monopoly are lower because there is only one producer.
answer
T
question
t or f:
A natural monopoly maximizes profits at the point at which price equals minimum average total cost.
A natural monopoly maximizes profits at the point at which price equals minimum average total cost.
answer
F
question
t or f:
A monopolist that maximizes total revenue earns maximum economic profit.
A monopolist that maximizes total revenue earns maximum economic profit.
answer
F
question
t or f:
regardless of the demand for its product, a monopolist will be able to earn positive economic profits.
regardless of the demand for its product, a monopolist will be able to earn positive economic profits.
answer
F
question
t or f:
In order for a monopolist to earn a pure economic profit in short run equilibrium, price must exceed average total cost.
In order for a monopolist to earn a pure economic profit in short run equilibrium, price must exceed average total cost.
answer
T
question
t or f:
To earn an economic profit in the short run, a monopolist sets marginal revenue equal to zero.
To earn an economic profit in the short run, a monopolist sets marginal revenue equal to zero.
answer
F
question
t or f:
An argument in favor of price discrimination is that this pricing strategy permits some consumers who otherwise would be excluded from a market to buy a good or service.
An argument in favor of price discrimination is that this pricing strategy permits some consumers who otherwise would be excluded from a market to buy a good or service.
answer
T
question
t or f:
For a monopoly, price always equals marginal revenue.
For a monopoly, price always equals marginal revenue.
answer
F
question
t or f:
Monopolies may earn economic losses in the long run
Monopolies may earn economic losses in the long run
answer
F
question
Monopolistic Competition Characteristic
answer
is a market structure characterized by (1) many small sellers, (2) a differentiated product, and (3) easy entry and exit.
question
Product Differentiation
answer
The process of creating real or apparent differences between goods and services is called
question
Non-price competition
answer
Advertising, packaging, product development, better quality, and better service are examples of
question
Oligopoly
answer
is a market structure characterized by (1) few sellers, (2) a homogeneous or differentiated product, and (3) difficult entry.
question
Mutual Interdependence
answer
means an action by one firm may cause a reaction on the part of other firms.
question
Game Theory
answer
The strategic moves and countermoves of rival firms can be explained using
question
Price leadership
answer
occurs when a dominant firm in an industry raises or lowers its price, and other firms follow suit.
question
Cartel
answer
is a formal agreement among firms to set prices and output quotas. The goal is to maximize profits, but firms have an incentive to cheat.
question
Imperfect competition
answer
A market structure between the extremes of perfect competition and monopoly is called
question
A kinked demand curve
answer
faces an oligopolistic that assumes rivals will match a price decrease, but ignores a price increase.
question
Which of the following is a characteristic of the monopolistic competition market structure?
a. Many firms and a homogeneous product.
b. Few firms and differentiated products.
c. Few firms and similar products.
d. Few firms and a homogeneous product.
e. Many firms and differentiated products.
a. Many firms and a homogeneous product.
b. Few firms and differentiated products.
c. Few firms and similar products.
d. Few firms and a homogeneous product.
e. Many firms and differentiated products.
answer
e. many firms and differentiated products
question
. Supporters of advertising claim that it:
a. promotes the public interest.
b. is a barrier to entry.
c. allows new competitors a chance to gain market share.
d. All of the answers above are correct.
a. promotes the public interest.
b. is a barrier to entry.
c. allows new competitors a chance to gain market share.
d. All of the answers above are correct.
answer
c. allows new competitors a chance to gain market share.
question
Critics of advertising argue that it:
a. lowers price by increasing competition.
b. results in more variety of products.
c. establishes brand loyalty, which promotes competition.
d. serves as a barrier to entry for new firms.
a. lowers price by increasing competition.
b. results in more variety of products.
c. establishes brand loyalty, which promotes competition.
d. serves as a barrier to entry for new firms.
answer
d. serves as a barrier to entry for new firms
question
The theory of monopolistic competition predicts that in long-run equilibrium a monopolistically competitive firm will:
a. produce the output level at which price equals long-run marginal cost.
b. operate at minimum long-run average cost.
c. overutilize its insufficient capacity.
d. produce the output level at which price equals long-run average cost.
a. produce the output level at which price equals long-run marginal cost.
b. operate at minimum long-run average cost.
c. overutilize its insufficient capacity.
d. produce the output level at which price equals long-run average cost.
answer
d. produce the output level at which price equals long-run average cost.
question
A monopolistic competitive firm is inefficient because the firm:
a. earns positive economic profit in the long run.
b. is producing at an output corresponding to the condition that marginal cost equals
price.
c. is not maximizing its profit.
d. produces an output where average total cost is not minimum.
a. earns positive economic profit in the long run.
b. is producing at an output corresponding to the condition that marginal cost equals
price.
c. is not maximizing its profit.
d. produces an output where average total cost is not minimum.
answer
d. Produces an output where average total cost is not minimum
question
As presented in Exhibit 1, the long-run profit-maximizing output for the monopolistic competitive firm is:
a. zero units per week.
b. 200 units per week.
c. 400 units per week.
d. 600 units per week.
e. 800 units per week.
a. zero units per week.
b. 200 units per week.
c. 400 units per week.
d. 600 units per week.
e. 800 units per week.
answer
c. 400 units per week
question
To maximize long-run profits, the monopolistically competitive firm shown in Exhibit 1 will charge a price per unit of:
a. zero.
b. $10
c. $20.
d. $30.
e. $40.
a. zero.
b. $10
c. $20.
d. $30.
e. $40.
answer
D. $30
question
As represented in Exhibit 1, the maximum long-run economic profit earned by this monopolistic competitive firm is:
a. zero.
b. $10 per week.
c. $4,000 per week.
d. $40,000 per week.
a. zero.
b. $10 per week.
c. $4,000 per week.
d. $40,000 per week.
answer
a. zero
question
If all firms in a monopolistic competitive industry have demand and cost curves like those shown in Exhibit 1, we would expect that in the long run:
a. a number of new firms will enter the industry.
b. some firms will leave the industry.
c. firms in the industry earn zero economic profits.
d. all firms will leave the industry.
a. a number of new firms will enter the industry.
b. some firms will leave the industry.
c. firms in the industry earn zero economic profits.
d. all firms will leave the industry.
answer
c. firms in the industry earn zero economic profits
question
Which of the following is a characteristic of an oligopoly?
a. Mutual interdependence in pricing decisions.
b. Independent pricing decisions.
c. Lack of control over prices.
d. All of the answers above are correct.
a. Mutual interdependence in pricing decisions.
b. Independent pricing decisions.
c. Lack of control over prices.
d. All of the answers above are correct.
answer
a. Mutual interdependence in pricing decisions
question
A kink in the demand curve facing an oligopolist is caused by:
a. the belief that competitors will follow price increases but not match price decreases.
b. excessive advertising.
c. rapidly rising marginal revenues.
d. the assumption that competitors will follow price reductions but not price increases.
a. the belief that competitors will follow price increases but not match price decreases.
b. excessive advertising.
c. rapidly rising marginal revenues.
d. the assumption that competitors will follow price reductions but not price increases.
answer
d. the assumption that competitors will follow price reductions but not price increases.
question
Which of the following is evidence that OPEC is an effective cartel?
a. Output changes are dictated by changes in demand.
b. Price changes are dictated by changes in demand.
c. Members do not agree on output quotas.
d. None of the answers above are correct.
a. Output changes are dictated by changes in demand.
b. Price changes are dictated by changes in demand.
c. Members do not agree on output quotas.
d. None of the answers above are correct.
answer
d. none of the above answers are correct
question
An oligopoly is a market structure in which:
a. one firm has 100 percent of a market.
b. there are many small firms.
c. there are many firms with no control over price.
d. there are few firms selling either a homogeneous or differentiated product.
a. one firm has 100 percent of a market.
b. there are many small firms.
c. there are many firms with no control over price.
d. there are few firms selling either a homogeneous or differentiated product.
answer
d. there are few firms selling either a homogeneous or differentiated product.
question
Assume that an oligopolist has a kinked demand curve. Suppose that the marginal cost curve passes through the gap in the marginal revenue curve. This means price and output will be shown by a point:
a. above the curve.
b. below the curve.
c. at the kink.
d. on the upper part of the curve.
e. on the lower part of the curve.
a. above the curve.
b. below the curve.
c. at the kink.
d. on the upper part of the curve.
e. on the lower part of the curve.
answer
c. at the kink
question
Which of the following is true about an oligopoly equilibrium in comparison with equilibrium under similar circumstances but with perfect competition?
a. Output is larger and price is lower than under perfect competition.
b. Output is larger but price is higher than under perfect competition.
c. Output is smaller and price is higher than under perfect competition.
d. Output is smaller and price is lower than under perfect competition
a. Output is larger and price is lower than under perfect competition.
b. Output is larger but price is higher than under perfect competition.
c. Output is smaller and price is higher than under perfect competition.
d. Output is smaller and price is lower than under perfect competition
answer
c. Output is smaller and price is higher than under perfect competition.
question
A monopolistically competitive market is characterized by:
a. many small sellers selling a differentiated product.
b. a single seller of a product that has few suitable substitutes.
c. very strong barriers to entry.
d. mutual interdependence in pricing decisions.
a. many small sellers selling a differentiated product.
b. a single seller of a product that has few suitable substitutes.
c. very strong barriers to entry.
d. mutual interdependence in pricing decisions.
answer
a. many small sellers selling a differentiated product.
question
. A monopolistically competitive firm will:
a. maximize profits by producing where MR = MC.
b. not likely earn an economic profit in the long run.
c. shut down if price is less than average variable cost.
d. All of the answers above are correct.
a. maximize profits by producing where MR = MC.
b. not likely earn an economic profit in the long run.
c. shut down if price is less than average variable cost.
d. All of the answers above are correct.
answer
d. all of the above answers are correct
question
. Which of the following is true about advertising by a firm?
a. It is not always successful in increasing demand for a firm's product.
b. It can increase demand and make demand more inelastic.
c. It may reduce per unit costs of production when economies of scale exist.
d. All of the answers above are correct.
a. It is not always successful in increasing demand for a firm's product.
b. It can increase demand and make demand more inelastic.
c. It may reduce per unit costs of production when economies of scale exist.
d. All of the answers above are correct.
answer
d. all of the answers above are correct
question
Which of the following is an outcome of advertising for a monopolistically competitive firm?
a. Long-run average costs shift downward.
b. The firm's demand curve becomes flatter and shifts inward.
c. The firm's demand curve keeps the same slope and shifts inward.
d. Long-run average costs shift upward.
a. Long-run average costs shift downward.
b. The firm's demand curve becomes flatter and shifts inward.
c. The firm's demand curve keeps the same slope and shifts inward.
d. Long-run average costs shift upward.
answer
d. long-run average costs shift upward
question
An oligopoly:
a. and monopolistically competitive market produce less and charge higher prices than if their markets were perfectly competitive.
b. is characterized by mutual interdependence of pricing decisions.
c. may be characterized by a kinked demand curve.
d. All of the answers above are correct.
a. and monopolistically competitive market produce less and charge higher prices than if their markets were perfectly competitive.
b. is characterized by mutual interdependence of pricing decisions.
c. may be characterized by a kinked demand curve.
d. All of the answers above are correct.
answer
d. all of the answers above are correct
question
A cartel:
a. is a group of firms formally agreeing to control the price and the output of a product.
b. has as its primary goal to reap monopoly profits by replacing competition with cooperation.
c. is illegal in the United States, but not in other nations.
d. All of the answers above are correct.
a. is a group of firms formally agreeing to control the price and the output of a product.
b. has as its primary goal to reap monopoly profits by replacing competition with cooperation.
c. is illegal in the United States, but not in other nations.
d. All of the answers above are correct.
answer
d. all of the answers above are correct
question
Game theory is useful for analysis in _________________ and for describing pricing among firms that are _________________.
a. monopoly; merging
b. perfect competition; regulated
c. oligopoly; interdependent
d. monopolistic competition; independent
a. monopoly; merging
b. perfect competition; regulated
c. oligopoly; interdependent
d. monopolistic competition; independent
answer
c. oligopoly: interdependent
question
. A game theory strategy for oligopolists to avoid a low-price outcome is ___________.
a. tit-for-tat
b. price leadership
c. second best
d. win-win
a. tit-for-tat
b. price leadership
c. second best
d. win-win
answer
a. tit-for-tat
question
Assume costs are identical for the two firms in Exhibit 2. If both firms were allowed to form a cartel and agree on their prices, equilibrium would be established by:
a. Exxon charging the high price and Texaco charging the high price.
b. Exxon charging the high price and Texaco charging the low price.
c. Exxon charging the low price and Texaco charging the low price.
d. Exxon charging the low price and Texaco charging the low price.
a. Exxon charging the high price and Texaco charging the high price.
b. Exxon charging the high price and Texaco charging the low price.
c. Exxon charging the low price and Texaco charging the low price.
d. Exxon charging the low price and Texaco charging the low price.
answer
a. Exxon charging the high price and Texaco charging the high price
question
Suppose costs are identical for the two firms in Exhibit 2. Each firm assumes without formal agreement that if it sets the high price its rival will not charge a lower price. Under these "tit-for-tat" conditions, equilibrium will be established by:
a. Exxon charging the high price and Texaco charging the low price.
b. Exxon charging the low price and Texaco charging the high price.
c. Exxon charging the low price and Texaco charging the low price.
d. Exxon charging the high price and Texaco charging the high price.
a. Exxon charging the high price and Texaco charging the low price.
b. Exxon charging the low price and Texaco charging the high price.
c. Exxon charging the low price and Texaco charging the low price.
d. Exxon charging the high price and Texaco charging the high price.
answer
d. Exxon charging the high price and Texaco charging the high price
question
t or f:
In the short run, the monopolistic competitive firm will charge a price equal to marginal cost.
In the short run, the monopolistic competitive firm will charge a price equal to marginal cost.
answer
F
question
t or f:
In a monopolistic competitive industry, short-run economic profit encourages entry of new firms until there are no economic profits in the long-run.
In a monopolistic competitive industry, short-run economic profit encourages entry of new firms until there are no economic profits in the long-run.
answer
T
question
t or f:
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.
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.
answer
T
question
t or f:
A monopolistic competitive firm in the long run sets price equal to the minimum point on the long-run average cost curve.
A monopolistic competitive firm in the long run sets price equal to the minimum point on the long-run average cost curve.
answer
F
question
t or f:
In an oligopoly, the outcome is uncertain because price and output decisions depend on the response of rivals.
In an oligopoly, the outcome is uncertain because price and output decisions depend on the response of rivals.
answer
T
question
t or f:
A cartel is an agreement among firms to divide output of a product among members.
A cartel is an agreement among firms to divide output of a product among members.
answer
T
question
t or f:
A major cartel problem is that member firms cheat by attempting to steal customers from one another.
A major cartel problem is that member firms cheat by attempting to steal customers from one another.
answer
T
question
t or f:
Cartels are generally legal in the United States.
Cartels are generally legal in the United States.
answer
F
question
t or f:
A monopolistic competitive firm in the long run sets price equal to the minimum point on the long run average cost curve.
A monopolistic competitive firm in the long run sets price equal to the minimum point on the long run average cost curve.
answer
F
question
t or f: In order from the most to the least competitive market structure is the perfectly competitive, monopolistically competitive, monopolist and then the oligopolistic market structure.
answer
F
question
A graph of the actual cumulative distribution of income compared to a perfectly equal cumulative distribution of income is called the
answer
Lorenz Curve
question
The is the level of income below which a person or a family is considered as being poor.
answer
Poverty line
question
Government payments in the form of goods and services, rather than cash, including such government programs as food stamps, Medicaid, and housing are called
.
.
answer
In-kind transfers
question
is a requirement that a family's income not exceed a certain level to be eligible for public assistance.
answer
Means test
question
The government insurance program that pays income for a short time period to unemployed workers is called .
answer
Unemployment compensation
question
A plan under which families below a certain break-even level of income would receive cash payments that decrease as their incomes increase is called a
answer
Negative income tax
question
is the principle that employees who work for the same employer must be paid the same wage when their jobs, even if different, require similar levels of education, training, experience, and responsibility. It involves a non-market wage-setting process to evaluate and compensate jobs according to point scores assigned to different jobs.
answer
Comparable worth
question
According to the statistics, the distribution of money income:
a. has not changed greatly since 1929.
b. changed significantly in favor of the top 5 percent since 1929.
c. fluctuated widely since 1947.
d. has not fluctuated greatly since 1947.
a. has not changed greatly since 1929.
b. changed significantly in favor of the top 5 percent since 1929.
c. fluctuated widely since 1947.
d. has not fluctuated greatly since 1947.
answer
d. has not fluctuated greatly since 1947.
question
The highest fifth of all families receive approximately percent of the distribution of annual money income among families.
a. 5.
b. 10.
c. 25.
d. 75.
e. 50.
a. 5.
b. 10.
c. 25.
d. 75.
e. 50.
answer
e. 50
question
. The Lorenz curve measures the:
a. distribution of wealth.
b. effectiveness of government transfer payments.
c. extent to which family incomes are affected by welfare.
d. All of the answers above are correct.
a. distribution of wealth.
b. effectiveness of government transfer payments.
c. extent to which family incomes are affected by welfare.
d. All of the answers above are correct.
answer
d. all of the above answers are correct
question
. Between 1929 and 2014, as measured by the Lorenz curve, income inequality:
a. increased sharply.
b. remain unchanged.
c. declined.
d. increased.
a. increased sharply.
b. remain unchanged.
c. declined.
d. increased.
answer
c. declined
question
. As shown in Exhibit 1, the perfect equality line is drawn between points:
a. W and Y along the curve.
b. X and Z.
c. W and Y along the straight line.
d. W and X.
a. W and Y along the curve.
b. X and Z.
c. W and Y along the straight line.
d. W and X.
answer
c. W and Y along the straight line
question
As shown in Exhibit 1, 20 percent of families earned a cumulative share of about
percent of income.
a. 5.
b. 10.
c. 30.
d. 50.
percent of income.
a. 5.
b. 10.
c. 30.
d. 50.
answer
b. 10
question
As shown in Exhibit 1, 40 percent of families earned a cumulative share of about
percent of income.
a. 5.
b. 15.
c. 20.
d. 50.
percent of income.
a. 5.
b. 15.
c. 20.
d. 50.
answer
c. 20
question
. The official poverty line is defined as:
a. two times the cost of minimal food requirement.
b. one-third the average family income.
c. one-half the average family income.
d. None of the answers above are correct
a. two times the cost of minimal food requirement.
b. one-third the average family income.
c. one-half the average family income.
d. None of the answers above are correct
answer
d. none of the answers above are correct
question
Which of the following might increase the supply curve of labor?
a. Increasing licensing requirements.
b. Increasing discrimination against females.
c. Increasing discrimination against blacks.
d. All of the answers above are correct.
e. None of the answers above are correct
a. Increasing licensing requirements.
b. Increasing discrimination against females.
c. Increasing discrimination against blacks.
d. All of the answers above are correct.
e. None of the answers above are correct
answer
e. none of the answers above are correct
question
Comparable worth is the principle that:
a. men and women should be paid comparably.
b. the wage rate equals the value of productivity.
c. goods and services priced the same have about the same worth.
d. employees who perform comparable jobs should be paid the same wage.
a. men and women should be paid comparably.
b. the wage rate equals the value of productivity.
c. goods and services priced the same have about the same worth.
d. employees who perform comparable jobs should be paid the same wage.
answer
d. employees who perform comparable jobs should be paid the same wage
question
. Which of the following most closely represents the share of total U.S. income for the poorest 20 percent of all U.S. families?
a. 47 percent.
b. 23 percent.
c. 10 percent.
d. 4 percent.
a. 47 percent.
b. 23 percent.
c. 10 percent.
d. 4 percent.
answer
d. 4 percent
question
Which of the following correctly describes the Lorenz curve?
a. The Lorenz curve shows that the increasing income inequality in U.S. society is
actually good for the economy, and makes everyone better off.
b. The Lorenz curve shows the growth rate in real median family income over time.
c. The Lorenz curve shows the cumulative distribution of family income, ranked from
the poorest to the richest families, and compares that curve with the straight line
indicating perfectly equal income distribution.
d. The Lorenz curve shows the cumulative distribution of family income, ranked from
the richest to the poorest families, and compare that curve with the ideal of having
all income received by the richest 5 percent of society.
a. The Lorenz curve shows that the increasing income inequality in U.S. society is
actually good for the economy, and makes everyone better off.
b. The Lorenz curve shows the growth rate in real median family income over time.
c. The Lorenz curve shows the cumulative distribution of family income, ranked from
the poorest to the richest families, and compares that curve with the straight line
indicating perfectly equal income distribution.
d. The Lorenz curve shows the cumulative distribution of family income, ranked from
the richest to the poorest families, and compare that curve with the ideal of having
all income received by the richest 5 percent of society.
answer
C. The Lorenz curve shows the cumulative distribution of family income, ranked from
the poorest to the richest families, and compares that curve with the straight line
indicating perfectly equal income distribution.
the poorest to the richest families, and compares that curve with the straight line
indicating perfectly equal income distribution.
question
Which of the following are not counted when we compare a family's income to the poverty line?
a. In-kind transfers such as food stamps, Medicaid, and public housing.
b. Cash welfare payments such as from social security.
c. Cash payments when a worker become unemployed.
d. Both answers a. and b. above are correct.
a. In-kind transfers such as food stamps, Medicaid, and public housing.
b. Cash welfare payments such as from social security.
c. Cash payments when a worker become unemployed.
d. Both answers a. and b. above are correct.
answer
A. In-kind transfers such as food stamps, Medicaid, and public housing.
question
Which of the following statements is true?
a. Income distribution in the United States has gotten progressively more unequal since
1929.
b. The Lorenz curve indicates the degree of discrimination in an economy.
c. The Lorenz curve indicates the degree of income inequality in an economy.
d. The richest 5 percent of Americans earn approximately half of the nation's income.
e. All of the answers above are correct.
a. Income distribution in the United States has gotten progressively more unequal since
1929.
b. The Lorenz curve indicates the degree of discrimination in an economy.
c. The Lorenz curve indicates the degree of income inequality in an economy.
d. The richest 5 percent of Americans earn approximately half of the nation's income.
e. All of the answers above are correct.
answer
C. The Lorenz curve indicates the degree of income inequality in an economy.
question
The poverty line:
a. separates those on welfare from those not on welfare.
b. equals three times an economy food budget.
c. equals the median income level.
d. All of the answers above are correct.
a. separates those on welfare from those not on welfare.
b. equals three times an economy food budget.
c. equals the median income level.
d. All of the answers above are correct.
answer
b. equals three times an economy food budget
question
Which of the following statements is true?
a. All people in poverty are on welfare.
b. Unemployment compensation is an in-kind transfer.
c. Temporary Assistance to Needy Families (TANF) is an example of a cash payment made by government to the impoverished.
d. After cash assistance and in-kind transfers are considered, the distribution of income in the United States is more unequal.
e. All of the answers above are correct.
a. All people in poverty are on welfare.
b. Unemployment compensation is an in-kind transfer.
c. Temporary Assistance to Needy Families (TANF) is an example of a cash payment made by government to the impoverished.
d. After cash assistance and in-kind transfers are considered, the distribution of income in the United States is more unequal.
e. All of the answers above are correct.
answer
C. Temporary Assistance to Needy Families (TANF) is an example of a cash payment made by government to the impoverished.
question
Which of the following statements is true?
a. Discrimination against women and blacks reduces the demand for these workers
resulting in lower wages paid these workers.
b. Discrimination is no longer a problem in the United States.
c. A negative income tax system is a plan in which everyone pays the same percentage
of their income as taxes.
d. A negative income tax system is a plan where those below a certain income receive a cash payment from the government.
a. Discrimination against women and blacks reduces the demand for these workers
resulting in lower wages paid these workers.
b. Discrimination is no longer a problem in the United States.
c. A negative income tax system is a plan in which everyone pays the same percentage
of their income as taxes.
d. A negative income tax system is a plan where those below a certain income receive a cash payment from the government.
answer
A. Discrimination against women and blacks reduces the demand for these workers
resulting in lower wages paid these workers.
resulting in lower wages paid these workers.
question
Which of the following government programs provides recipients with in-kind benefits?
a. Temporary Assistance to Needy Families (TANF).
b. Social Security.
c. The food stamp program.
d. Unemployment compensation.
a. Temporary Assistance to Needy Families (TANF).
b. Social Security.
c. The food stamp program.
d. Unemployment compensation.
answer
C. The food stamp program.
question
Under a negative income tax program.
a. the poor would have no incentive to work.
b. other welfare programs such as food stamps would become even larger.
c. government bureaucracy could be decreased.
d. people with incomes slightly above the break-even level could still receive cash
payments.
a. the poor would have no incentive to work.
b. other welfare programs such as food stamps would become even larger.
c. government bureaucracy could be decreased.
d. people with incomes slightly above the break-even level could still receive cash
payments.
answer
c. government bureaucracy could be decreased.
question
Consider a law that limits women's access to certain "dangerous" occupations like coal mining and military combat service. Such a law would likely reduce women's wages because:
a. women would be overqualified for "non-dangerous" jobs.
b. labor supply in female-intensive occupations would increase.
c. women would be less likely to obtain college degrees.
d. comparable worth would no longer exist between men's and women's occupations.
a. women would be overqualified for "non-dangerous" jobs.
b. labor supply in female-intensive occupations would increase.
c. women would be less likely to obtain college degrees.
d. comparable worth would no longer exist between men's and women's occupations.
answer
B. labor supply in female-intensive occupations would increase.
question
t or f:
Critics of an equal distribution of income argue that the effect would be to raise the incentive to be productive.
Critics of an equal distribution of income argue that the effect would be to raise the incentive to be productive.
answer
F
question
t or f:
Official figures indicate that the percentage of persons below the poverty level in the U.S. is more today than it was in 1965
Official figures indicate that the percentage of persons below the poverty level in the U.S. is more today than it was in 1965
answer
F
question
t or f:
When determining whether a family's income is below the official poverty line, non-cash benefits from the government, such as food, housing and medical benefits, are not included.
When determining whether a family's income is below the official poverty line, non-cash benefits from the government, such as food, housing and medical benefits, are not included.
answer
T
question
t or f:
The Lorenz curve represents the distribution of non-cash benefits.
The Lorenz curve represents the distribution of non-cash benefits.
answer
F
question
t or f:
The Lorenz curve is best used to measure the distribution of income.
The Lorenz curve is best used to measure the distribution of income.
answer
T
question
t or f:
The government defines poverty as an income level less than three times the cost of a minimal diet.
The government defines poverty as an income level less than three times the cost of a minimal diet.
answer
T
question
t or f:
Wage discrimination means minority workers are paid unequal wages.
Wage discrimination means minority workers are paid unequal wages.
answer
F
question
t or f:
Negative income tax plans have the disadvantage of decreasing work incentives in comparison to existing welfare programs without work incentives.
Negative income tax plans have the disadvantage of decreasing work incentives in comparison to existing welfare programs without work incentives.
answer
F
question
t or f:
Discrimination raises the average wage of members of one group of workers in spite of laws that require equal pay for all workers.
Discrimination raises the average wage of members of one group of workers in spite of laws that require equal pay for all workers.
answer
F
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