question
Which of the following is a key assumption of a perfectly competitive market?
answer
A)* Individual firms are so small that the each firm's actions will have no effect on the industry.
B)Individual firms can influence the market price.
C)It is difficult for new sellers to enter the market.
D) Industry has only a few sellers.
B)Individual firms can influence the market price.
C)It is difficult for new sellers to enter the market.
D) Industry has only a few sellers.
question
The demand curve facing a perfectly competitive firm is
answer
A)perfectly vertical.
B) the same as the market demand curve.
C)is downward sloping and less flat than the market demand curve.
D)* the same as its marginal revenue curve.
B) the same as the market demand curve.
C)is downward sloping and less flat than the market demand curve.
D)* the same as its marginal revenue curve.
question
Which of the following statements is (are) TRUE of a perfectly competitive firm.
I. \frac{\Delta TR}{\Delta Q}=P=MRΔTRΔQ=P=MR
II. Individual firms must lower their price to sell an additional unit of output because they face a downward sloping demand curve.
III. If an individual firm decides to increase output, marginal revenue will fall.
IV. An example of a perfectly competitive industry are taco trucks in Merced.
I. \frac{\Delta TR}{\Delta Q}=P=MRΔTRΔQ=P=MR
II. Individual firms must lower their price to sell an additional unit of output because they face a downward sloping demand curve.
III. If an individual firm decides to increase output, marginal revenue will fall.
IV. An example of a perfectly competitive industry are taco trucks in Merced.
answer
A)* I and IV only
B) II and III only
C) I, II, III, and IV
D) II and IV only
E) I only
B) II and III only
C) I, II, III, and IV
D) II and IV only
E) I only
question
The above figure shows the cost curves for a perfectly competitive firm. If the market price is $15 per unit, the firm will earn a total profit of
answer
A) $0
B) $4
C) $40
D) -$160
E)* $160
F) -$40
B) $4
C) $40
D) -$160
E)* $160
F) -$40
question
The above figure shows the cost curves for a competitive firm. The firm will incur economic losses if the price is less than
answer
A) $0
B) $15
C) $10
D)* $11
E) $5
B) $15
C) $10
D)* $11
E) $5
question
If a competitive firm finds that it will maximize short-run profits by shutting down immediately, which of the following must be true?
answer
A) FC = ATC
B) P > ATC
C) P > AVC
D)* P < AVC
B) P > ATC
C) P > AVC
D)* P < AVC
question
Which of the following statements is TRUE about perfectly competitive firms in the long-run competitive equilibrium?
answer
A) P = AVC
B) AVC = MC
C) Profit = MC
D) MR = AVC
E)* MR = ATC
B) AVC = MC
C) Profit = MC
D) MR = AVC
E)* MR = ATC
question
In the long run, economic profits will equal zero in a perfectly competitive market because of
answer
A) idential products being produced by all firms.
B) pefect information.
C)* free entry and exit.
D) economies of scale.
E) constant returns to scale
B) pefect information.
C)* free entry and exit.
D) economies of scale.
E) constant returns to scale
question
Suppose that the market for broccoli is in long-run competitive equilibrium. What would happen in the short-run, if an E. coli outbreak reduces the demand for broccoli?
answer
A) the marginal cost (MC) curve will shift upward, causing prices to rise and profits to fall.
B) The marginal cost (MC) curve will shift down. leaving prices unchanged.
C) Existing firms will increase production to make up for the decrease in demand.
D)* the market price for broccoli will fall, causing the marginal revenue (MR) curve for each firm to shift downward.
B) The marginal cost (MC) curve will shift down. leaving prices unchanged.
C) Existing firms will increase production to make up for the decrease in demand.
D)* the market price for broccoli will fall, causing the marginal revenue (MR) curve for each firm to shift downward.
question
Suppose that in a perfectly competitive industry, each firm has a long-run total cost function given by TC = 100Q - 10Q2 + 1/3Q3. What will be the price of the product at the long-run competitive equilibrium?
answer
A) $33
B) $100
C)* $25
D) $8.50
E) $70
B) $100
C)* $25
D) $8.50
E) $70
question
Which of the following is NOT an example of a barrier to entry?
answer
A) network effects
B)* competitive balance
C) switching costs
D) natural monopoly
B)* competitive balance
C) switching costs
D) natural monopoly
question
For a monopoly, marginal revenue is less than price because
answer
A)* the firm must lower the price if it wishes to sell more output.
B) the firm can sell all of its output at any price.
C) the demand for the firm's output is perfectly elastic.
D) the firm is a price taker.
B) the firm can sell all of its output at any price.
C) the demand for the firm's output is perfectly elastic.
D) the firm is a price taker.
question
Assume that a profit maximizing monopolist is producing a quantity such that marginal revenue (MR) exceeds marginal cost (MC). We can conclude that the
answer
A)* firm's output is smaller than the profit-maximizing quantity.
B) firm's output is larger than the profit-maximizing quantity.
C) firm is maximzing profit.
D) the firm's output does not maximize profit, but it is unclear whether output is too large or too small.
B) firm's output is larger than the profit-maximizing quantity.
C) firm is maximzing profit.
D) the firm's output does not maximize profit, but it is unclear whether output is too large or too small.
question
Mr. Shapiro is the only producer of harmonicas in a small town. His demand curve, total revenue curve, marginal revenue curve and total cost curve are given as follows:
Q = 160 - 4P; TR = 40Q - 0.25Q2; MR = 40 - 0.5Q; TC = 4Q
How many harmonicas will Mr. Shapiro produce?
Q = 160 - 4P; TR = 40Q - 0.25Q2; MR = 40 - 0.5Q; TC = 4Q
How many harmonicas will Mr. Shapiro produce?
answer
A) 0
B) 56
C) 22
D)* 72
B) 56
C) 22
D)* 72
question
Mr. Shapiro is the only producer of harmonicas in a small town. His demand curve, total revenue curve, marginal revenue curve and total cost curve are given as follows:
Q = 160 - 4P; TR = 40Q - 0.25Q2; MR = 40 - 0.5Q; TC = 4Q
The price of harmonicas will be
Q = 160 - 4P; TR = 40Q - 0.25Q2; MR = 40 - 0.5Q; TC = 4Q
The price of harmonicas will be
answer
A) $42
B) $4
C) $72
D)* $22
E) $32
B) $4
C) $72
D)* $22
E) $32
question
Mr. Shapiro is the only producer of harmonicas in a small town. His demand curve, total revenue curve, marginal revenue curve and total cost curve are given as follows:
Q = 160 - 4P; TR = 40Q - 0.25Q2; MR = 40 - 0.5Q; TC = 4Q
How much profit will Mr. Shapiro make?
Q = 160 - 4P; TR = 40Q - 0.25Q2; MR = 40 - 0.5Q; TC = 4Q
How much profit will Mr. Shapiro make?
answer
A) $0
B) -$996
C)* $1296
D) $1568
B) -$996
C)* $1296
D) $1568
question
Suppose a firm's marginal cost is MC = 80 + 2Q and its marginal revenue is MR = 200 - Q. Which of the following statements is (are) TRUE?
I. The profit-maximizing price is $180.
II. If Q = 20, MR > MC, so the firm should expand output to increase profits.
III. If Q = 50, MR < MC, so the firm should reduce output to increase profits.
I. The profit-maximizing price is $180.
II. If Q = 20, MR > MC, so the firm should expand output to increase profits.
III. If Q = 50, MR < MC, so the firm should reduce output to increase profits.
answer
A)* I, II and III
B) I only
C) III only
D) II and III only
B) I only
C) III only
D) II and III only
question
Suppose a profit-maximizing monopolist is selling 20,000 units of output at $14 per unit. The marginal cost of production is constant at $6. What happens if marginal cost rises to $6.80?
answer
A) Since the monopolist is already maximizing profits, the increase in marginal cost will have no effect on the price or quantity produced.
B) The monopolist will keep price unchanged but will sell more than 20,000 units of output.
C)* The monopolist will increase the price and sell less than 20,000 units of output.
D) The monopolist will increase the price and sell more than 20,000 units of output.
B) The monopolist will keep price unchanged but will sell more than 20,000 units of output.
C)* The monopolist will increase the price and sell less than 20,000 units of output.
D) The monopolist will increase the price and sell more than 20,000 units of output.
question
A firm with market power has a marginal cost function of MC = 40Q, where Q is measured in thousands. The firm has an inverse demand curve of P = 450 - 5Q. What is the deadweight loss (DWL) from this monopoly at the firm's profit-maximizing output level? (Hint: You will first need to find the MR curve and then you will need to graph the inverse demand function, MC and MR).
answer
A) $9,400
B)* $22,500
C)* $15,000
D) $280,000
B)* $22,500
C)* $15,000
D) $280,000
question
Antitrust laws
answer
A) encourage firms to collude on prices and output.
B) encourages smaller firms to merge to achieve economies of scale.
C)* restricts firms from engaging in anti-competitive behavior.
D) are a set of laws that promote monopolies through patents, license and copyrights.
B) encourages smaller firms to merge to achieve economies of scale.
C)* restricts firms from engaging in anti-competitive behavior.
D) are a set of laws that promote monopolies through patents, license and copyrights.
question
When a monopolist engages in perfect price discrimination
answer
A) the marginal revenue curve becomes horizontal.
B) marginal cost equals zero.
C) the marginal revenue curve is below the demand curve.
D) the demand curve and the marginal revenue curve are identical.
B) marginal cost equals zero.
C) the marginal revenue curve is below the demand curve.
D) the demand curve and the marginal revenue curve are identical.
question
Under perfect price discrimination, consumer surplus
answer
A) is equal to producer surplus.
B) is greater than zero.
C) is greater than zero, but less than producer surplus.
D)is equal to zero.
B) is greater than zero.
C) is greater than zero, but less than producer surplus.
D)is equal to zero.
question
A tennis instructor charges $15 per hour for tennis lessons for children and $30 per hour for tennis lessons for adults. The tennis instructor is practicing
answer
A) first-degree price discrimination.
B) a two-part tariff.
C)* third-degree price discrimination.
D) versioning.
E)second-degree price discrimination.
B) a two-part tariff.
C)* third-degree price discrimination.
D) versioning.
E)second-degree price discrimination.
question
If there are two groups of customers that differ with respect to their price elasticity of demand and resale is impossible, a firm with market power will
answer
A) set a price equal to marginal cost in both markets.
B)* set a lower price in the market that is more price elastic.
C) set a higher price in the market that is more price elastic.
D) set a price so that the elasticity of demand will be equal in both markets.
B)* set a lower price in the market that is more price elastic.
C) set a higher price in the market that is more price elastic.
D) set a price so that the elasticity of demand will be equal in both markets.
question
Airlines tend to offer lower prices to leisure travelers than to business travelers because
answer
A) business travelers do not care at all about costs.
B) there are more leisure travelers than there are business travelers.
C)* business travelers are less flexible in their travel plans that leisure travelers.
D) government regulations requires them to do so.
B) there are more leisure travelers than there are business travelers.
C)* business travelers are less flexible in their travel plans that leisure travelers.
D) government regulations requires them to do so.
question
Black Bear Diner is currently running a promotion where diners can purchase an entree and a slice of strawberry pie for $12. Customers could also purchase a slice of strawberry pie separately for $3. This is an example of
answer
A) block pricing.
B) versioning.
C) two-part tariff.
D)* bundling.
B) versioning.
C) two-part tariff.
D)* bundling.
question
Bundling is most likely to occur when
answer
A) there are constant returns to scale.
B) the demands for two goods are positively correlated.
C)* the demands for two goods are negatively correlated.
D) the demands for the two goods are unrelated.
B) the demands for two goods are positively correlated.
C)* the demands for two goods are negatively correlated.
D) the demands for the two goods are unrelated.
question
When bundling, the firm should set the price of the bundle equal to the
answer
A) highest amount that a customer is willing to pay for the bundle.
B)* lowest amount that a customer is willing to pay for the bundle.
C) the highest marginal cost faced by a customer of the bundle.
D) the lowest marginal cost faced by a customer of the bundle.
B)* lowest amount that a customer is willing to pay for the bundle.
C) the highest marginal cost faced by a customer of the bundle.
D) the lowest marginal cost faced by a customer of the bundle.
question
Suppose that Six Flags Magic Mountain charges an entrance fee of $15 per person plus $3 per ride. This is an example of
answer
A) third-degree price discrimination.
B)* two-part tariff
C) second-degree price discrimination.
D) first-degree price discrimination.
E) bundling.
B)* two-part tariff
C) second-degree price discrimination.
D) first-degree price discrimination.
E) bundling.
question
Suppose that the monthly demand for Internet access from Comcast is equal to P = 5 - 0.5Q. Where P is price per hour and Q is hours per month. The firm faces a constant marginal cost of $1. If Comcast decides to charge a monthly access fee plus a per hour rate, the monthly access fee will equal
answer
A)* $16
B) $1
C) $8
D) $5
B) $1
C) $8
D) $5
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