question
The respective payments for the resources of natural resources, labor, capital, and entrepreneurial ability are
answer
rent, wages, interest, profit
question
In economics, marginal means
answer
incremental or decremental
question
Opportunity cost is defined
answer
as the value of the best alternative not chosen
question
The law of comparative advantage says that a person should produce a good if she
a. has the lowest opportunity cost of producing that good
b. has an absolute advantage in a related activity
c. has the greatest desire to consume that good
d. is equally good at producing this good as someone else is
e. has a comparative advantage in a related activity
a. has the lowest opportunity cost of producing that good
b. has an absolute advantage in a related activity
c. has the greatest desire to consume that good
d. is equally good at producing this good as someone else is
e. has a comparative advantage in a related activity
answer
a. has the lowest opportunity cost of producing that good
question
Current production at which labeled point would lead to the largest outward shift in the production possibilities frontier in a later year? (a is closer to consumption goods, c is closer to capital goods, and b is in the middle)
a. point c because this point represents a greater production of capital than the other two points
b. point b because this point represents greater total production than the other two points
c. point a because this point represents a greater consumption level than point b
d. point b because this point represents a greater production of capital than point c
e. point c because this point represents a greater consumption level than the other two points
a. point c because this point represents a greater production of capital than the other two points
b. point b because this point represents greater total production than the other two points
c. point a because this point represents a greater consumption level than point b
d. point b because this point represents a greater production of capital than point c
e. point c because this point represents a greater consumption level than the other two points
answer
a. point c because this point represents greater production of capital than =the other two points
question
The term utility means
answer
satisfaction
question
Which of the following taxes is based on the ability-to-pay principle?
a. tolls on a bridge
b. property tax
c. income tax
d. gasoline excise tax
e. user fees that collect the same amount from each person
a. tolls on a bridge
b. property tax
c. income tax
d. gasoline excise tax
e. user fees that collect the same amount from each person
answer
c. income taxes
question
Which of the following taxes is based on the benefits-received principle?
a. gasoline excise tax
b. user fees that collect the same amount from each person
c. property taxes
d. corporate income taxes
e. personal income taxes
a. gasoline excise tax
b. user fees that collect the same amount from each person
c. property taxes
d. corporate income taxes
e. personal income taxes
answer
a. gasoline excise tax
question
A progressive tax means
a. people who make the more money pay less total taxes
b. the same thing as a flat-rate tax
c. people who are poor receive the proceeds of the tax
d. the marginal tax rate increases as income increases
e. the percentage of income paid out decreases as income increases
a. people who make the more money pay less total taxes
b. the same thing as a flat-rate tax
c. people who are poor receive the proceeds of the tax
d. the marginal tax rate increases as income increases
e. the percentage of income paid out decreases as income increases
answer
d. the marginal tax rate increases as income increases
question
In the following situation the tax system is
a. based off of the benefits received
b. there is insufficient information to answer this question
c. regressive
d. proportional
e. progressive
Taxable Income $5,000 $10,000 $20,000
Tax Payments $500 $600 %1,600
a. based off of the benefits received
b. there is insufficient information to answer this question
c. regressive
d. proportional
e. progressive
Taxable Income $5,000 $10,000 $20,000
Tax Payments $500 $600 %1,600
answer
c. regressive
question
The law of demand says that the lower the price of a good, other things constant,
a. the smaller the real income of consumers and the lower the quantity demanded of that good
b. the smaller the quantity demanded of that good
c. the larger the demand for that good
d. the larger the quantity demanded of that good
e. the smaller the demand for that good
a. the smaller the real income of consumers and the lower the quantity demanded of that good
b. the smaller the quantity demanded of that good
c. the larger the demand for that good
d. the larger the quantity demanded of that good
e. the smaller the demand for that good
answer
d. the larger the quantity demanded of that good
question
Which of the following statements about demand is true?
a. The demand curve for bacon will not shift when the price of bacon changes
b. Since most college students want a Mercedes sports coupe, their demand for it is high
c. If a supply curve shifts, thereby changing the price, the demand curve will shift as well.
d. If price increases, the demand curve shifts to the right.
e. If a demand curve shifts, the supply curve will shift as well, whether or not the price changes
a. The demand curve for bacon will not shift when the price of bacon changes
b. Since most college students want a Mercedes sports coupe, their demand for it is high
c. If a supply curve shifts, thereby changing the price, the demand curve will shift as well.
d. If price increases, the demand curve shifts to the right.
e. If a demand curve shifts, the supply curve will shift as well, whether or not the price changes
answer
a. The demand curve for bacon will not shift when the price of bacon changes.
question
Which of the following is not true regarding a change in quantity demanded?
a. A change in the price of a good, other things constant, will lead to a change in quantity demanded.
b. The lower the price of a product, other things constant, the higher the quantity demanded.
c. The demand curve shifts whenever the quantity demanded changes
d. A shift of the supply curve might cause a change in quantity demanded
e. A change in quantity demanded is shown by a movement along a given demand curve
a. A change in the price of a good, other things constant, will lead to a change in quantity demanded.
b. The lower the price of a product, other things constant, the higher the quantity demanded.
c. The demand curve shifts whenever the quantity demanded changes
d. A shift of the supply curve might cause a change in quantity demanded
e. A change in quantity demanded is shown by a movement along a given demand curve
answer
c. The demand curve shifts whenever the quantity demanded changes.
question
Which of the following is most likely to be an inferior good?
a. restaurant meals
b. soft drinks
c. airline travel
d. a subscription to the Wall Street Journal
e. used clothing
a. restaurant meals
b. soft drinks
c. airline travel
d. a subscription to the Wall Street Journal
e. used clothing
answer
e. used clothing
question
Two goods are considered substitutes only if a(n)
a. decrease in the supply of one leads producers to switch to production of the other
b. decrease in the demand for one leads to a decrease in the supply of the other
c. increase in the price of one leads to an increase in the demand for the other
d. increase in the demand for one leads to a decrease in the supply of the other
e. decrease in the price of one leads to an increase in the demand for the other
a. decrease in the supply of one leads producers to switch to production of the other
b. decrease in the demand for one leads to a decrease in the supply of the other
c. increase in the price of one leads to an increase in the demand for the other
d. increase in the demand for one leads to a decrease in the supply of the other
e. decrease in the price of one leads to an increase in the demand for the other
answer
c. increase in the price of one leads to an increase in demand for the other
question
Which of the following will cause the demand curve for a normal good to shift right?
a. an increase in the price of a substitute good
b. an expectation of a future price decline
c. a decrease in income
d. a decrease in the price of the good
e. an increase in the price of a complementary good
a. an increase in the price of a substitute good
b. an expectation of a future price decline
c. a decrease in income
d. a decrease in the price of the good
e. an increase in the price of a complementary good
answer
a. an increase in the price of a substitute good
question
If good B is a complement to good A, then a decrease in the price of B
a. decreases the quantity demanded of A
b. will cause the demand for B to increase
c. increases the quantity demanded of A
d. decreases the demand for A
e. increases the demand for A
a. decreases the quantity demanded of A
b. will cause the demand for B to increase
c. increases the quantity demanded of A
d. decreases the demand for A
e. increases the demand for A
answer
e. increases the demand for A
question
Jennifer learns that the price of CDs will be going up 10% next week. She usually buys three CDs per week. What happens to Jennifer's demand for CDs this week?
answer
It increases because the price will be higher next week
question
Which of the following will cause the demand curve for a good to shift to the left?
a. an increase in the price of a substitute good
b. a decrease in the price of the good
c. an increase in the price of the good
d. an expectation of a future price decline
e. a decrease in the price of a complementary good
a. an increase in the price of a substitute good
b. a decrease in the price of the good
c. an increase in the price of the good
d. an expectation of a future price decline
e. a decrease in the price of a complementary good
answer
d. an expectation of a future price decline
question
Which of the following would not cause the demand curve for peaches to shift?
a. a decrease in the income of peach buyers
b. an increase in the price of apricots
c. a change in preferences for peaches
d. a decrease in the price of nectarines
e. an increase in the price of peaches
a. a decrease in the income of peach buyers
b. an increase in the price of apricots
c. a change in preferences for peaches
d. a decrease in the price of nectarines
e. an increase in the price of peaches
answer
.e an increase in the price of peaches
question
Which of the following would shift the supply curve for a product to the right?
a. an increase in the price of a resource used in the good's production
b. the expectation of a higher price in the near future
c. an increase in the price of an alternative good
d. an increase in the price of the product
e. an improvement in the technology for producing a good
a. an increase in the price of a resource used in the good's production
b. the expectation of a higher price in the near future
c. an increase in the price of an alternative good
d. an increase in the price of the product
e. an improvement in the technology for producing a good
answer
e. an improvement in the technology for producing a good
question
An increase in the price of a good normally increases the
a. purchasing power of consumers' dollar incomes
b. supply of complements for the good
c. quantity demanded for all goods that are unrelated to the good in question
d. demand for substitutes
e. money income of the consumer
a. purchasing power of consumers' dollar incomes
b. supply of complements for the good
c. quantity demanded for all goods that are unrelated to the good in question
d. demand for substitutes
e. money income of the consumer
answer
d. demand for its substitutes
question
An increase in demand will cause a(n)
a. increase in supply
b. decrease in equilibrium price
c. decrease in supply
d. increase in quantity supplied
e. decrease in quantity supplied
a. increase in supply
b. decrease in equilibrium price
c. decrease in supply
d. increase in quantity supplied
e. decrease in quantity supplied
answer
d. increase in quantity supplied
question
If the demand for bicycles increases,
a. quantity supplied decreases
b. quantity supplied increases
c. equilibrium price decreases and equilibrium quantity increases
d. equilibrium price increases and equilibrium quantity decreases
e. the quantity demanded decreases
a. quantity supplied decreases
b. quantity supplied increases
c. equilibrium price decreases and equilibrium quantity increases
d. equilibrium price increases and equilibrium quantity decreases
e. the quantity demanded decreases
answer
b. quantity supplied increases
question
An increase in supply will cause equilibrium price to -- and equilibrium quantity to ---.
answer
decrease; increase
question
In this exhibit, suppose a price floor is established at $20.00. What is the result?
answer
There is no change from the situation that exists at the equilibrium price
question
If an increase in the price of a product from $100 to $200 per unit leads to a decrease in the quantity demanded from 10 to 8 units, then demand is
answer
inelastic
question
If a firm raises the price of its product, its total revenue will
a. always increase
b. remain constant, regardless of price elasticity of demand
c. never increase
d. increase only if demand is price inelastic
e. increase only if demand is price elastic
a. always increase
b. remain constant, regardless of price elasticity of demand
c. never increase
d. increase only if demand is price inelastic
e. increase only if demand is price elastic
answer
d. increase only if demand is price inelastic
question
If the demand for a good is elastic, then total revenue
answer
increases as price decreases
question
If city officials expect that an increase in bus fares will raise mass transit revenues, they must think that the demand for bus travel is
answer
inelastic
question
The demand for a good is elastic if
a. total revenue is maximum
b. total revenue is minimum
c. an increase in price leads to an increase in total revenue
d. an increase in price leads to a decrease in total revenue
e. an increase in the price causes no change in total revenue
a. total revenue is maximum
b. total revenue is minimum
c. an increase in price leads to an increase in total revenue
d. an increase in price leads to a decrease in total revenue
e. an increase in the price causes no change in total revenue
answer
d. an increase in price leads to a decrease in total revenue
question
Along a linear demand curve,
a. the price elasticity is constant, but the slope varies
b. total revenues are constant
c. the slope is constant, but the price elasticity varies
d. total revenues are negative
e. both the slope and price elasticity are constant
a. the price elasticity is constant, but the slope varies
b. total revenues are constant
c. the slope is constant, but the price elasticity varies
d. total revenues are negative
e. both the slope and price elasticity are constant
answer
c. the slope is constant, but the price elasticity varies
question
The supply curve will be more elastic if
a. demand is elastic
b. the good has few substitutes
c. the time the producer has to adjust is long
d. demand is inelastic
e. the time frame for adjusting to price changes is short
a. demand is elastic
b. the good has few substitutes
c. the time the producer has to adjust is long
d. demand is inelastic
e. the time frame for adjusting to price changes is short
answer
c. the time the producer has to adjust is long
question
An inferior good is
answer
one that consumers buy less of as their income rises
question
List the most important determinants of demand
answer
consumer income; consumer preferences, expectations of the future; availability of alternatives and price of complements; number of consumers in the market; currency exchange rate
question
A change in demand is -- and is caused by--. Draw graph
answer
a shift in the demand curve; a change in one of the determinants of demand
question
A change in quantity demanded is -- and is caused by--. Draw graph
answer
a movement along the demand curve; a change in price
question
List the most important determinants of supply
answer
technological advances; price of resources; expectations of the future; price of related goods; number of producers in the market
question
Inelastic Demand means-- and a product example is
answer
that a change in price results in a small change in quantity demanded; gasoline
question
The determinants of Price Elasticity of Demand are
answer
Length of time; availability of substitutes; proportion of the consumer's budget
question
If a product demand is elastic, and price goes down, TR goes
answer
up
question
If a product demand is inelastic and price goes up, TR goes
answer
up
question
If a product demand is inelastic and price goes down, TR goes
answer
down
question
If a product demand is elastic and price goes up, TR goes
answer
down
question
As income rises, the quantity supplied for an inferior good will
answer
decrease
question
A legal price ceiling means by law that it cannot be sold -- that price
answer
above
question
Price Elasticity of Demand is greater in the long run than the short run because
answer
consumer has time to change preference; consumer has time to find a substitute; consumer has time to break a habit
question
Cross-price elasticity of demand is a percentage change of Good A divided by percentage change in Price B. If "positive" the good is --; if negative it is -- and if zero it is --
answer
substitute; complement; unrelated
question
Marginal utility is the
answer
additional satisfaction obtained from consuming one more unit
question
The law of diminishing marginal utility states that
answer
marginal utility falls as more of a good is consumed, other things constant
question
Diminishing marginal utility means that
answer
as you consume more of a good, other things constant, the additional satisfaction you obtain from each additional unit of the good tends to fall
question
What is the total utility of three pretzels?
Pretzels 1 2 3 4
Marginal Utility 30 20 5 -15
Pretzels 1 2 3 4
Marginal Utility 30 20 5 -15
answer
55
question
When the price is P in the exhibit, the shaded area represents
answer
consumer surplus
question
Economic profit is defined as
answer
total revenue minus implicit and explicit costs
question
Sally owns a small business that she operates in a small building she owns. Given the following information, Sally's economic profit is --
Total Revenue=$100,000
Assistant's salary- $20,000
Material and Equipment- $15,000
Foregone Salary--$30,000
Foregone Interest $1,000
Foregone building rental- $10,000
Total Revenue=$100,000
Assistant's salary- $20,000
Material and Equipment- $15,000
Foregone Salary--$30,000
Foregone Interest $1,000
Foregone building rental- $10,000
answer
$24,000
question
The short run is a period of time
answer
during which at least one resource is fixed
question
The long run is a period of time
answer
during which all resources are variable
question
With respect to the average cost curves, the marginal cost curve
a. intersects average total cost where it is increasing and average variable cost where it is decreasing
b. intersects both average total cost and average variable cost at their minimum points
c. intersects only average total cost at its minimum point
d. intersects average total cost, average fixed cost, and average variable cost at their minimum points
e. intersects average total cost, average fixed cost, and average variable cost at their maximum points
a. intersects average total cost where it is increasing and average variable cost where it is decreasing
b. intersects both average total cost and average variable cost at their minimum points
c. intersects only average total cost at its minimum point
d. intersects average total cost, average fixed cost, and average variable cost at their minimum points
e. intersects average total cost, average fixed cost, and average variable cost at their maximum points
answer
b. intersects both average total cost and average variable cost at their minimum points
question
For each size of plant a manufacturer could build, there is a different
a. long-run marginal cost curve
b. long run average variable cost curve
c. short run average total cost curve
d. long run average fixed cost curve
e. long-run average total cost curve
a. long-run marginal cost curve
b. long run average variable cost curve
c. short run average total cost curve
d. long run average fixed cost curve
e. long-run average total cost curve
answer
c. short-run average total cost curve
question
If General Electric finds that when it doubles both its plant size and the amount of associated inputs, its output level does not double, then
a. long run average costs must be decreasing
b. the firm should increase production
c. the firm is experiencing diseconomies of scale
d. the law of diminishing returns is in effect
e. the firm is experiencing constant returns to scale
a. long run average costs must be decreasing
b. the firm should increase production
c. the firm is experiencing diseconomies of scale
d. the law of diminishing returns is in effect
e. the firm is experiencing constant returns to scale
answer
c. the firm is experiencing diseconomies of scale
question
Suppose Toyota produces 100,000 cars per year at its California plant at an average cost of $6,000 and it doubles output and total costs by building an identical plant in Kentucky. Toyota has exhibited
a. economies of scale
b. diminishing marginal returns
c. an upward sloping planning curve
d. constant average costs
e. production efficiency
a. economies of scale
b. diminishing marginal returns
c. an upward sloping planning curve
d. constant average costs
e. production efficiency
answer
c. constant average costs
question
At a given rate of output, marginal cost equals the slope of the
a. average variable cost curve
b. planning curve
c. total cost curve
d. long-run average cost curve
e. short-run average total cost curve
a. average variable cost curve
b. planning curve
c. total cost curve
d. long-run average cost curve
e. short-run average total cost curve
answer
c. total cost curve
question
Where will the firm maximize profit?
answer
When marginal revenue equals marginal cost/ the greatest difference between total revenue and total cost
question
If a perfectly competitive firm charges the market price of $14 per unit,
a. its average revenue is $14 and its marginal revenue is less than $14
b. its average revenue is $14, and its marginal revenue is $14
c. its marginal revenue is $14, and its average revenue is less than $14 per unit
d. its average and marginal revenue are $14 only for the first unit sold
e. it will sell no output
a. its average revenue is $14 and its marginal revenue is less than $14
b. its average revenue is $14, and its marginal revenue is $14
c. its marginal revenue is $14, and its average revenue is less than $14 per unit
d. its average and marginal revenue are $14 only for the first unit sold
e. it will sell no output
answer
b. its average revenue is $14, and its marginal revenue is $14
question
The slope of the total revenue curve equals
a. marginal revenue, which is greater than price for a perfectly competitive firm
b. marginal revenue, which is less than price for a perfectly competitive firm
c. average revenue, which is less than price for a perfectly competitive firm
d. marginal revenue, which equals price for a perfectly competitive firm
e. average revenue, which is greater than price for a perfectly competitive firm
a. marginal revenue, which is greater than price for a perfectly competitive firm
b. marginal revenue, which is less than price for a perfectly competitive firm
c. average revenue, which is less than price for a perfectly competitive firm
d. marginal revenue, which equals price for a perfectly competitive firm
e. average revenue, which is greater than price for a perfectly competitive firm
answer
d. marginal revenue, which equals price for a perfectly competitive firm
question
If a perfectly competitive firm's marginal revenue is $35,
a. the next unit sold will earn no more revenue
b. its average revenue is $35
c. its demand curve will shift if more units are should
d. the next unit sold will earn the firm less than $35 in revenue
e. the next unit sold will earn the firm more than $35 in revenue
a. the next unit sold will earn no more revenue
b. its average revenue is $35
c. its demand curve will shift if more units are should
d. the next unit sold will earn the firm less than $35 in revenue
e. the next unit sold will earn the firm more than $35 in revenue
answer
b. its average revenue is $35
question
Which of the following is true at each output level for a perfectly competitive firm?
a. MR=AR=MC
b. MC=AVC=ATC
c. P>AVC
d. MR=MC
e. AR=MR=P
a. MR=AR=MC
b. MC=AVC=ATC
c. P>AVC
d. MR=MC
e. AR=MR=P
answer
e. AR=MR=P
question
In the short run, if a firm shuts down, its loss is equal to
answer
its fixed costs
question
If a perfectly competitive firm is incurring a short-run loss, it
answer
will continue to operate in the short run if its variable cost is covered
question
A perfectly competitive firm finds that average total cost is $25, average variable cost is $15, marginal cost is $20 and increasing, and price of the product is $22. This firm should
a. raise the price of its product
b. do nothing (it is currently maximizing profit)
c. reduce production without shutting down
d. produce more output
e. shut down (reduce output to zero)
a. raise the price of its product
b. do nothing (it is currently maximizing profit)
c. reduce production without shutting down
d. produce more output
e. shut down (reduce output to zero)
answer
d. produce more output
question
Suppose that, in the short run, a perfectly competitive firm earns a normal profit. Which of the following is incorrect?
a. TR=TC
b. P=AVC
c. MR=Price
d. ARxQ=TR
e. MR=ATC
a. TR=TC
b. P=AVC
c. MR=Price
d. ARxQ=TR
e. MR=ATC
answer
b. P=AVC
question
The price that represents the shutdown point for a perfectly competitive firm is the
a. highest point on the average variable cost curve
b. lowest point on the average total cost curve
c. highest point on the marginal cost curve
d. lowest point on the marginal cost curve
e. lowest point on the average variable cost curve
a. highest point on the average variable cost curve
b. lowest point on the average total cost curve
c. highest point on the marginal cost curve
d. lowest point on the marginal cost curve
e. lowest point on the average variable cost curve
answer
e. lowest point on the average variable cost curve
question
For a perfectly competitive firm operating at the profit-maximizing output level in the short run,
a. MC-ATC
b. MR=TR
c. AFC=price
d. MC=Price
e. MC=AVC
a. MC-ATC
b. MR=TR
c. AFC=price
d. MC=Price
e. MC=AVC
answer
d. MC=price
question
To maximize profit, a perfectly competitive firm that decides not to shut down will choose the rate of output at which
a. price minus average total cost is maximized
b. total revenue is maximized
c. average total cost is minimized
d. price is highest
e. price equals marginal cost
a. price minus average total cost is maximized
b. total revenue is maximized
c. average total cost is minimized
d. price is highest
e. price equals marginal cost
answer
e. price equals marginal cost
(P=MR; produce where MR=MC)
(P=MR; produce where MR=MC)
question
The short-run supply curve of a perfectly competitive firm is the
a. average fixed cost curve at all levels of output
b. upward-sloping portion of its average total cost curve
c. downward-sloping portion of its marginal cost curve
d. marginal cost curve, which lies above the average variable cost curve
e. upward sloping portion of its average variable cost curve
a. average fixed cost curve at all levels of output
b. upward-sloping portion of its average total cost curve
c. downward-sloping portion of its marginal cost curve
d. marginal cost curve, which lies above the average variable cost curve
e. upward sloping portion of its average variable cost curve
answer
d. marginal cost curve, which lies above the average variable cost curve
question
Fixed cost
answer
a cost that does not change in the short run, no matter how many units are produced
question
Variable cost
answer
a cost that changes depending on how many units are produced
question
Marginal cost
answer
the additional cost of producing one more unit
question
Design capacity
answer
the point where the marginal cost and the average total cost curves intersect
question
Short run
answer
a period of time when at least one resource is fixed
question
Normal profit
answer
when the company's total revenue equals its total costs, which includes both explicit and implicit costs. This is also called breakeven
question
The Individual Firm's Short run supply curve
answer
what the firm will produce in the short run. Graphically depicted by the marginal cost curve above the AVC.
question
Four basic characteristics that describes perfect competition
answer
many buyers and sellers; no barriers to entry; buyers and sellers are fully informed; the product is a commodity
question
T/F: If MC is rising, it will always pull up ATC
answer
False
question
T/F: AFC will always diminish as output increases
answer
True
question
T/F: The curved shape of the firm's cost curves is caused by diminishing returns in the short run and long run
answer
False
question
T/F: If the firm produces where MR=MC, it will always make a profit
answer
False
question
T/F: If the firm's TF<VC it will close down and go out of business
answer
False
question
T/F: If the firm produces where TR=TC it makes no profit
answer
False
question
Natural Monopolies form when
a. small firms merge to form larger firms
b. one firm has control over the entire supply of a basic input required to produce the product
c. one firm's monopoly position is created and enforced by the government
d. one firm receives patent protection for certain basic production processes
e. long-run average cost declines as a firm expands output
a. small firms merge to form larger firms
b. one firm has control over the entire supply of a basic input required to produce the product
c. one firm's monopoly position is created and enforced by the government
d. one firm receives patent protection for certain basic production processes
e. long-run average cost declines as a firm expands output
answer
e. long-run average cost declines as a firm expands output
question
For a monpolist,
a. P=MR=AR
b. P=MR>AR
c. P>MR=AR
d. P=MR<AR
e. P=AR>MR
a. P=MR=AR
b. P=MR>AR
c. P>MR=AR
d. P=MR<AR
e. P=AR>MR
answer
e. P=AR>MR
question
Suppose that a monopolist must choose between two points on its demand curve: it can sell 100 units for $3 each or it can sell 160 units for $2 each. Which of the following is true?
a. The monopolist is facing an elastic demand
b. The monopolist is facing unit elastic demand
c. The monopolist is facing inelastic demand
d. The monopolist is facing perfectly elastic demand
e. The elasticity of demand cannot be determined with the information given
a. The monopolist is facing an elastic demand
b. The monopolist is facing unit elastic demand
c. The monopolist is facing inelastic demand
d. The monopolist is facing perfectly elastic demand
e. The elasticity of demand cannot be determined with the information given
answer
a. The monopolist is facing an elastic demand
question
A profit-maximizing monopolist never produces along the -- portion of the demand curve because marginal revenue is -- there
a. elastic; positive
b. elastic; negative
c. inelastic, negative
d. inelastic, positive
e. inelastic; zero
a. elastic; positive
b. elastic; negative
c. inelastic, negative
d. inelastic, positive
e. inelastic; zero
answer
c. inelastic; negative
question
A monopolist
a. can charge whatever price it wants
b. charges more than almost any consumer is willing to pay
c. is constrained by marginal cost in setting price
d. is constrained by demand in setting price
e. always earns an economic profit
a. can charge whatever price it wants
b. charges more than almost any consumer is willing to pay
c. is constrained by marginal cost in setting price
d. is constrained by demand in setting price
e. always earns an economic profit
answer
Saccardo had d. is constrained by demand in setting price, but we argued with him about a. can charge whatever price it wants
question
Which of the following is true in both perfect competition and monopoly?
a. Firms produce a differentiated product
b. firms cannot earn economic profit in the long run
c. individual firms have no ability to control the price of their output but must accept the market price
d. Firms go out of business in the long run if total revenue cannot cover total cost
e. firms can earn economic profit in the long run
a. Firms produce a differentiated product
b. firms cannot earn economic profit in the long run
c. individual firms have no ability to control the price of their output but must accept the market price
d. Firms go out of business in the long run if total revenue cannot cover total cost
e. firms can earn economic profit in the long run
answer
d. firms go out of business in the long run if total revenue cannot cover cost
question
If a monopolistically competitive firm raises its price,m it
answer
loses some, but not all, of its customers
question
A monopolistically competitive firm is producing an output level at which marginal revenue is greater than marginal cost. This firm should -- quantity and -- price to increase profit or reduce losses
answer
increase; decrease
question
Because of easy entry, monopolistically competitive firms will
answer
earn no economic profit in the long run
question
In the long run in monopolistic competition, the demand curve facing the typical firm
a. is perfectly elastic
b. slopes upward
c. is tangent to the firm's average total cost curve
d. lies above the firm's average total cost curve
e. is the same as the portion of the firm's marginal cost curve above the average variable cost
a. is perfectly elastic
b. slopes upward
c. is tangent to the firm's average total cost curve
d. lies above the firm's average total cost curve
e. is the same as the portion of the firm's marginal cost curve above the average variable cost
answer
c. is tangent to the firm's average total cost curve
question
Which of the following characteristics does perfect competition share with monopolistic competition?
a. price-taking firms
b. zero long-run economic profit
c. homogeneous product
d. some barriers to entry
e. economies of scale in production
a. price-taking firms
b. zero long-run economic profit
c. homogeneous product
d. some barriers to entry
e. economies of scale in production
answer
b. zero long-run economic profit
question
Which of the following is true of the relationship between price and marginal cost under monopolistic competition?
a. P=MC at all levels of output
b. P=MC only at the profit-maximizing quantity
c. P>MC at the profit-maximizing quantity
d. P<MC at the profit maximizing quantity
e. P<MC at the quantities below the profit-maximizing quantity
a. P=MC at all levels of output
b. P=MC only at the profit-maximizing quantity
c. P>MC at the profit-maximizing quantity
d. P<MC at the profit maximizing quantity
e. P<MC at the quantities below the profit-maximizing quantity
answer
c. P>MC at the profit maximizing quantity
question
Which of the following is unique to oligopoly among all market structures?
a. product differentiation
b. profit maximization
c. mutual interdependence
d. advertising
e. long-run economic profits
a. product differentiation
b. profit maximization
c. mutual interdependence
d. advertising
e. long-run economic profits
answer
c. mutual interdependence
question
An oligopoly is characterized by
answer
few firms, which have control over the price
question
In which market structures might firms produce an undifferentiated product?
a. perfect competition only
b. perfect competition and oligopoly
c. monopolistic competition only
d. perfect competition and monopolistic competition
e. monopoly only
a. perfect competition only
b. perfect competition and oligopoly
c. monopolistic competition only
d. perfect competition and monopolistic competition
e. monopoly only
answer
b. perfect competition and oligopoly
question
Which of the following is not an example of an oligopolistic barrier to entry?
a. diseconomies of scale
b. legal restrictions
c. advertising and brand proliferation
d. high start up costs
e. control over an essential resource
a. diseconomies of scale
b. legal restrictions
c. advertising and brand proliferation
d. high start up costs
e. control over an essential resource
answer
a. diseconomies of scale
question
Why is any monopoly able to exist without competition?
answer
legal restrictions such as patents and licenses; economies of scale; control over essential resources
question
List three differences of monopoly and monopolistic competition
answer
only one producer in monopoly but many in monopolistic competition; there is product differentiation in monopolistic competition but not in monopoly; there are low barriers to entry for monopolistic competition and high barriers to entry for monopoly
question
List five similarities of monopoly and monopolistic competition
answer
downward-sloping demand curve; both have some control over price; there are many buyers; price is greater than it would be under perfect competition; quantity is less than it would be under perfect competition
question
Perfect competition v. pure monopoly: monopoly price is -- and output level is --
answer
higher; lower
question
Perfect competition v. pure monopoly: Perfect competition price is -- and output is --
answer
lower; higher
question
Perfect competition v. pure monopoly: cost of production by the monopolist is --
answer
higher
question
Perfect competition v. pure monopoly: consumer surplus is -- which became -- for the monopolist
answer
lower; economic profit
question
Perfect competition v. pure monopoly: The graph shows more efficient production results from the -- firm
answer
perfectly competitive
question
Perfect competition v. pure monopoly: In the long run, monopolistic economic profit -- guaranteed
answer
is not
question
Price discrimination
answer
charging two or more groups different prices for the same good
question
Three conditions necessary for a monopolist to practice price discrimination
answer
two or more groups of consumers with different price elasticities of demand; the cost to the producer of charging the different price is low, the consumers can be separated by time or prevented from reselling the product
question
Two main characteristics of oligopoly
answer
interdependence and a few firms with many buyers producing similar goods
question
Make a brief comment: A monopolist gets most profit possible when producing at the minimum point of the ATC curve.
answer
This is not true. A monopolist maximizes profit when producing such that marginal cost equals marginal revenue. This is always at the minimum point of the ATC curve.
question
Make a brief comment: Unlike monopolistic competition, a monopolist always makes economic profit in the long run.
answer
This is false because a monopolist is not guaranteed to make an economic profit in the long run
question
Make a brief comment: Since monopoly firms have no competition they can charge any price they want to.
answer
Although a monopoly firm can charge any price it chooses, it will produce where marginal cost equals marginal revenue and base price off of that quantity to maximize profit
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