question
1.Suppose a profit-maximizing firm in a competitive market produces rubber bands. When the market price for rubber bands rises above the minimum of its average variable cost, but still lies below the minimum of average total cost, in the short run the firm will
a.earn both economic and accounting profits.
b.shut down.
c.raise the price of its product.
d.experience losses but will continue to produce rubber bands.
a.earn both economic and accounting profits.
b.shut down.
c.raise the price of its product.
d.experience losses but will continue to produce rubber bands.
answer
D
question
2.Monopolies are socially inefficient because the price they charge is
a.above marginal cost.
b.above demand.
c.equal to demand.
d.equal to marginal revenue.
a.above marginal cost.
b.above demand.
c.equal to demand.
d.equal to marginal revenue.
answer
A
question
4. An agreement between two duopolists to function as a monopolist usually breaks down because
a.they cannot agree on the price that a monopolist would charge.
b.each duopolist wants a larger share of the market to capture more profit.
c.each duopolist wants to charge a higher price than the monopoly price.
d.they cannot agree on the output that a monopolist would prod
a.they cannot agree on the price that a monopolist would charge.
b.each duopolist wants a larger share of the market to capture more profit.
c.each duopolist wants to charge a higher price than the monopoly price.
d.they cannot agree on the output that a monopolist would prod
answer
B
question
7. Suppose when a monopolist produces 50 units its average revenue is $8 per unit, its marginal revenue is $4 per unit, its marginal cost is $4 per unit, and its average total cost is $3 per unit. What can we conclude about this monopolist?
a.The monopolist is not currently maximizing its profits; it should produce fewer units and charger a higher price to maximize profit.
b.The monopolist is not currently maximizing its profits; it should produce more units and charge a lower price to maximize profit.
c.The monopolist is currently maximizing profits, and its total profits are $200.
d.The monopolist is currently maximizing profits, and its total profits are $
a.The monopolist is not currently maximizing its profits; it should produce fewer units and charger a higher price to maximize profit.
b.The monopolist is not currently maximizing its profits; it should produce more units and charge a lower price to maximize profit.
c.The monopolist is currently maximizing profits, and its total profits are $200.
d.The monopolist is currently maximizing profits, and its total profits are $
answer
D
question
10.Which of the following is not a difference between monopolies and perfectly competitive markets?a.Monopolies charge a price higher than marginal cost while perfectly competitive firms charge a price equal to marginal cost.
b.Monopolies can earn profits in the long run while perfectly competitive firms break even.
c.Monopolies face downward sloping demand curves while perfectly competitive firms face horizontal demand curves.
d.Monopolies choose to produce the quantity at which marginal revenue equals marginal cost while perfectly competitive firms do not.
b.Monopolies can earn profits in the long run while perfectly competitive firms break even.
c.Monopolies face downward sloping demand curves while perfectly competitive firms face horizontal demand curves.
d.Monopolies choose to produce the quantity at which marginal revenue equals marginal cost while perfectly competitive firms do not.
answer
D
question
11.For a monopolistically competitive firm, at the profit-maximizing quantity of output,
a.marginal revenue exceeds marginal cost.
b.price exceeds marginal cost.
c.marginal cost exceeds average revenue.
d.price equals marginal revenue.
a.marginal revenue exceeds marginal cost.
b.price exceeds marginal cost.
c.marginal cost exceeds average revenue.
d.price equals marginal revenue.
answer
B
question
12.The players in a two-person game are choosing between Strategy X and Strategy Y. If the second player chooses Strategy X, the first player's best outcome is to select X. If the second player chooses Strategy Y, the first player's best outcome is to select X. For the first player, Strategy X is called a
a.dominant strategy.
b.collusive strategy.
c.repeated-trial strategy.
d.cartel strategy.
a.dominant strategy.
b.collusive strategy.
c.repeated-trial strategy.
d.cartel strategy.
answer
A
question
13.In the long run, all of a firm's costs are variable. In this case the exit criterion for a profit-maximizing firm is to shut down if
a.price is greater than average total cost.
b.average revenue is greater than marginal cost.
c.price is less than average total cost.
d.average revenue is greater than average fixed cost
a.price is greater than average total cost.
b.average revenue is greater than marginal cost.
c.price is less than average total cost.
d.average revenue is greater than average fixed cost
answer
C
question
16.In a perfectly competitive market, the process of entry and exit will end when
a.total revenue is equal to average total cost.
b.marginal revenue is equal to long-run average total cost.
c.accounting profits is equal to zero.
d.average revenue is greater than marginal cost.
a.total revenue is equal to average total cost.
b.marginal revenue is equal to long-run average total cost.
c.accounting profits is equal to zero.
d.average revenue is greater than marginal cost.
answer
B
question
17.Suppose a firm in a competitive market earned $1,000 in total revenue and had a marginal revenue of $10 for the last unit produced and sold. What is the average revenue per unit, and how many units were sold?
a.$5 and 100 units
b.$10 and 100 units
c.$10 and 50 units
d.$5 and 50 units
a.$5 and 100 units
b.$10 and 100 units
c.$10 and 50 units
d.$5 and 50 units
answer
B
question
19.When a competitive firm doubles the quantity of output it sells, its
a.marginal revenue doubles.
b.average revenue doubles.
c.profits must increase.
d.total revenue double
a.marginal revenue doubles.
b.average revenue doubles.
c.profits must increase.
d.total revenue double
answer
D
question
26.A firm in a monopolistically competitive market is similar to a monopoly in the sense that
(i)they both face downward-sloping demand curves.(ii)they both charge a price that exceeds marginal cost.
(iii)free entry and exit determines the long-run equilibrium.
a.(i), (ii), and (iii) only
b.(i) only
c.(ii) only
d.(i) and (ii) only
(i)they both face downward-sloping demand curves.(ii)they both charge a price that exceeds marginal cost.
(iii)free entry and exit determines the long-run equilibrium.
a.(i), (ii), and (iii) only
b.(i) only
c.(ii) only
d.(i) and (ii) only
answer
D
question
27.A profit-maximizing firm in a competitive market is maximizing profit and is able to sell its product for $7. At its current level of output, the firm's average total cost is $10. The firm's marginal cost curve crosses its marginal revenue curve at an output level of 9 units. The firm is earning a
a.loss of more than $27.
b.profit of more than $27.
c.profit of exactly $27.
d.loss of exactly $27.
a.loss of more than $27.
b.profit of more than $27.
c.profit of exactly $27.
d.loss of exactly $27.
answer
D
question
28.Which of the following conditions is characteristic of a monopolistically competitive firm in long-run equilibrium?
a.P > AR and P = MR
b.P < ATC and AR > MR
c.ATC > AR and MR = MC
d.P > MC and AR = ATC
a.P > AR and P = MR
b.P < ATC and AR > MR
c.ATC > AR and MR = MC
d.P > MC and AR = ATC
answer
D
question
30.The deadweight loss associated with a monopoly occurs because the monopolist
a.produces an output level less than the socially optimal level.
b.maximizes profits.
c.equates marginal revenue with marginal cost.
d.produces an output level greater than the socially optimal
a.produces an output level less than the socially optimal level.
b.maximizes profits.
c.equates marginal revenue with marginal cost.
d.produces an output level greater than the socially optimal
answer
A
question
A perfectly competitive market exhibits which of the following characteristics.
A.Both buyers and sellers are price takers.
B.The good offered by the sellers is largely the same across sellers.
C.Sellers can freely enter or exit the market.
D.All of the above are correct.
A.Both buyers and sellers are price takers.
B.The good offered by the sellers is largely the same across sellers.
C.Sellers can freely enter or exit the market.
D.All of the above are correct.
answer
D
question
Which of the following statements expresses a firm's profit-maximizing decision rule?
A. If marginal revenue is greater than marginal cost, the firm should increase its output.
B. If marginal revenue is less than marginal cost, the firm should decrease its output.
C. If marginal revenue equals marginal cost, the firm should continue producing its current level of output.
D. All of the above are correct.
A. If marginal revenue is greater than marginal cost, the firm should increase its output.
B. If marginal revenue is less than marginal cost, the firm should decrease its output.
C. If marginal revenue equals marginal cost, the firm should continue producing its current level of output.
D. All of the above are correct.
answer
D
question
If a competitive firm is selling 500 units of its product at a price of $8 per unit and earning a positive profit, then
A. its average revenue is greater than $8.
B. its marginal revenue is less than $8.
C. its total cost is less than $4,000.
D. All of the above are correct.
A. its average revenue is greater than $8.
B. its marginal revenue is less than $8.
C. its total cost is less than $4,000.
D. All of the above are correct.
answer
C
question
Which of these curves is the competitive firm's short-run supply curve?
A. the average variable cost curve above marginal cost.
B. the average total cost curve above marginal cost.
C. the marginal cost curve above average variable cost
D. the marginal cost curve above average fixed cost curve.
A. the average variable cost curve above marginal cost.
B. the average total cost curve above marginal cost.
C. the marginal cost curve above average variable cost
D. the marginal cost curve above average fixed cost curve.
answer
C
question
Assume a firm in a competitive market is producing Q = 1,000 units of output. At Q = 1,000, the firm's marginal cost equals $15 and its average total cost equals $11, and the firm sells its output for $12 per unit. To maximize its profit, the firm should
A. increase its output.
B. continue to produce 1,000 units.
C. shut down
D. decrease its output, but continue to produce.
A. increase its output.
B. continue to produce 1,000 units.
C. shut down
D. decrease its output, but continue to produce.
answer
D
question
For a monopolist, when profit is maximized,
A. marginal revenue is equal to marginal cost.
B. marginal cost is less than price.
C. output is less than under perfect competition.
D. all of the above are true.
A. marginal revenue is equal to marginal cost.
B. marginal cost is less than price.
C. output is less than under perfect competition.
D. all of the above are true.
answer
D
question
Both a competitive and a monopolistic competitive firm in long run equilibrium
A. produce the efficient quantity.
B. set price equal to marginal cost.
C. earn zero profit.
D. all of the above.
A. produce the efficient quantity.
B. set price equal to marginal cost.
C. earn zero profit.
D. all of the above.
answer
C
question
Perfect price discrimination
A. increases profits to the firm.
B. increases total surplus.
C. decreases consumer surplus.
D. All of the above are correct.
A. increases profits to the firm.
B. increases total surplus.
C. decreases consumer surplus.
D. All of the above are correct.
answer
D
question
If you maximize profit and can be the only seller of a product in the United States, which product from the list below would you choose?
A. Tesla automobiles
B. Allegra allergy medicine
C. all insulin products
D. all garage door openers
A. Tesla automobiles
B. Allegra allergy medicine
C. all insulin products
D. all garage door openers
answer
C
question
You find a package deal and buy 10 meals at restaurant A for $100. This $100 is not refundable or transferable. You find that getting to restaurant A is expensive and costs an additional $5 per meal. You discover a different restaurant B that simply charges $X per meal and is conveniently located so that there is no cost to get there.
At what value for X do you use and renew you package deal with restaurant A, and at what value for X do you use your current contract with restaurant A, but not renew it after the 10 meals are consumed, and at what value for X do you not use the meals already purchased and not renew the contract with
At what value for X do you use and renew you package deal with restaurant A, and at what value for X do you use your current contract with restaurant A, but not renew it after the 10 meals are consumed, and at what value for X do you not use the meals already purchased and not renew the contract with
answer
A. Use and renew if X > 10, but use and not renew if 10 > X > 5, and not use and not renew if X < 5.
B. Use and renew if X > 15, but use and not renew if 15 > X > 10, and not use and not renew if X < 10.
C. Use and renew if X > 15, but use and not renew if 15 > X > 5, and not use and not renew if X < 5.
B. Use and renew if X > 15, but use and not renew if 15 > X > 10, and not use and not renew if X < 10.
C. Use and renew if X > 15, but use and not renew if 15 > X > 5, and not use and not renew if X < 5.
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