question
1) At any level of output
A) average variable cost will exceed average fixed cost by the amount of the average total cost.
B) average total cost will exceed average variable cost by the amount of the average fixed cost.
C) marginal cost will exceed average variable cost by the amount of the average fixed cost.
D) average variable cost will exceed average total cost in the short run.
A) average variable cost will exceed average fixed cost by the amount of the average total cost.
B) average total cost will exceed average variable cost by the amount of the average fixed cost.
C) marginal cost will exceed average variable cost by the amount of the average fixed cost.
D) average variable cost will exceed average total cost in the short run.
answer
B) average total cost will exceed average variable cost by the amount of the average fixed cost.
question
2) In a perfectly competitive industry, each firm
A) produces a differentiated product.
B) engages in various forms of non price competition.
C) determines its own price.
D) can easily enter or exit the industry.
A) produces a differentiated product.
B) engages in various forms of non price competition.
C) determines its own price.
D) can easily enter or exit the industry.
answer
D) can easily enter or exit the industry.
question
3) Which of the following is most likely to be an implicit cost for Company X?
A) Payments for raw materials purchased from Company Y
B) Rental payments on IBM equipment
C) Forgone rent from the building owned and used by Company X
D) Transportation costs paid to a nearby trucking firm
A) Payments for raw materials purchased from Company Y
B) Rental payments on IBM equipment
C) Forgone rent from the building owned and used by Company X
D) Transportation costs paid to a nearby trucking firm
answer
C) Forgone rent from the building owned and used by Company X
question
4) Assume that product Alpha and product Beta are both priced at $1 per unit and that Ellie has $20 to spend on Alpha and Beta. She buys 8 units of Alpha and 12 units of Beta. The marginal utilities of the last unit of Alpha and Beta that she purchases are 40 utils and 20 utils, respectively. This indicates that
A) given another dollar, Ellie should buy an additional unit of Beta.
B) in order to maximize utility, Ellie should buy more Alpha and less Beta.
C) Ellie should make no change in consumption.
D) in order to maximize utility, Ellie should buy more Beta and less Alpha.
A) given another dollar, Ellie should buy an additional unit of Beta.
B) in order to maximize utility, Ellie should buy more Alpha and less Beta.
C) Ellie should make no change in consumption.
D) in order to maximize utility, Ellie should buy more Beta and less Alpha.
answer
B) in order to maximize utility, Ellie should buy more Alpha and less Beta.
question
5) At the profit-maximizing level of output for a pure monopoly ______________.
A) price is equal to marginal cost
B) price is greater than marginal cost
C) price is less than marginal cost
D) total revenue is greater than total cost
A) price is equal to marginal cost
B) price is greater than marginal cost
C) price is less than marginal cost
D) total revenue is greater than total cost
answer
B) price is greater than marginal cost
question
6) If average variable cost is $74 and total fixed cost is $100 at 5 units of output, then average total cost at this output level is
A) $94.
B) $100.
C) $97.
D) $91.
A) $94.
B) $100.
C) $97.
D) $91.
answer
A) $94.
question
7) For a pure monopoly to sell a quantity of 10 units, the price must be $8. Marginal revenue (MR) at this output level will be ______________.
A) > $16
B) = $8
C) > $8 and < $16
D) < $8
A) > $16
B) = $8
C) > $8 and < $16
D) < $8
answer
D) < $8
question
8) It is a "given" that an individual firm selling in a perfectly competitive market will take the market price because
A) product differentiation is reinforced by extensive advertising.
B) each producer supplies a negligible fraction of total market.
C) there are no good substitutes for the firm's product.
D) the firm's demand curve is downward-slopping.
A) product differentiation is reinforced by extensive advertising.
B) each producer supplies a negligible fraction of total market.
C) there are no good substitutes for the firm's product.
D) the firm's demand curve is downward-slopping.
answer
B) each producer supplies a negligible fraction of total market.
question
9) Marginal utility can be
A) positive or negative, but not equal to zero.
B) decreasing, but not negative.
C) positive, negative, or equal to zero.
D) positive, but not negative.
A) positive or negative, but not equal to zero.
B) decreasing, but not negative.
C) positive, negative, or equal to zero.
D) positive, but not negative.
answer
C) positive, negative, or equal to zero.
question
10) Which situation is consistent with the law of diminishing marginal utility?
A) The more pizza Joe eats, the more he enjoys an additional slice.
B) The more pizza Joe eats, the less he enjoys an additional slice.
C) Joe's marginal utility from eating pizza reaches a maximum when total utility is zero.
D) Joe's marginal utility from eating pizza becomes positive after eating three slices.
A) The more pizza Joe eats, the more he enjoys an additional slice.
B) The more pizza Joe eats, the less he enjoys an additional slice.
C) Joe's marginal utility from eating pizza reaches a maximum when total utility is zero.
D) Joe's marginal utility from eating pizza becomes positive after eating three slices.
answer
B) The more pizza Joe eats, the less he enjoys an additional slice.
question
14) Which characteristics would best be associated with perfect competition?
A) product differentiation
B) non price competition
C) price takers
D) few sellers
A) product differentiation
B) non price competition
C) price takers
D) few sellers
answer
C) price takers
question
15) The local pizza place sells 1 large pizza for $7.99 or 2 large pizza for $11.99. The pizza joint is engaging in _______________.
A) second-degree price discrimination
B) first-degree price discrimination
C) third-degree price discrimination
D) regular price discrimination
A) second-degree price discrimination
B) first-degree price discrimination
C) third-degree price discrimination
D) regular price discrimination
answer
A) second-degree price discrimination
question
16) A monopolistically competitive firm is operating at a short-run level of output where price is $21, average total cost is $15, marginal cost is $13, and marginal revenue is $13. In the short run this firm should
A) increase the level of output.
B) reduce product price.
C) make no change in the level of output.
D) decrease the level of output.
A) increase the level of output.
B) reduce product price.
C) make no change in the level of output.
D) decrease the level of output.
answer
C) make no change in the level of output.
question
17) The characteristic most closely associated with oligopoly is
A) product standardization.
B) easy entry into the industry.
C) no control over price.
D) a few large producers.
A) product standardization.
B) easy entry into the industry.
C) no control over price.
D) a few large producers.
answer
D) a few large producers.
question
18) A firm in an oligopoly is similar to a monopoly in that both firms
A) do not face competition from others.
B) face very inelastic demand for their products.
C) do not need to advertise.
D) could have significant market power and control over price.
A) do not face competition from others.
B) face very inelastic demand for their products.
C) do not need to advertise.
D) could have significant market power and control over price.
answer
D) could have significant market power and control over price.
question
19) Under monopolistic competition, entry to the industry is
A) blocked.
B) more difficult than under pure competition but nearly as difficult as under pure monopoly.
C) completely free of barriers.
D) more difficult than under pure monopoly.
A) blocked.
B) more difficult than under pure competition but nearly as difficult as under pure monopoly.
C) completely free of barriers.
D) more difficult than under pure monopoly.
answer
B) more difficult than under pure competition but nearly as difficult as under pure monopoly.
question
20) In which set of market models are there the most significant barriers to entry?
A) monopolistic competition and pure competition
B) oligopoly and monopolistic competition
C) oligopoly and pure monopoly
D) monopolistic competition and pure monopoly
A) monopolistic competition and pure competition
B) oligopoly and monopolistic competition
C) oligopoly and pure monopoly
D) monopolistic competition and pure monopoly
answer
C) oligopoly and pure monopoly
question
21) One defining characteristic of pure monopoly is that the _____________.
A) entry into the industry is relatively easy, but exit is difficult
B) monopoly uses advertising
C) monopoly is a price taker
D) monopoly produces a product with no close substitutes
A) entry into the industry is relatively easy, but exit is difficult
B) monopoly uses advertising
C) monopoly is a price taker
D) monopoly produces a product with no close substitutes
answer
D) monopoly produces a product with no close substitutes
question
22) Which case below best represents a case of third-degree price discrimination?
A) A professional baseball team pays two players with identical batting averages different salaries.
B) An insurance company offers discounts to safe drivers.
C) A major airline sells tickets to senior citizens at lower prices than to other passengers.
D) A utility company charges less for electricity used during "off-peak" hours, when it does not have to operate its less-efficient generating plants.
A) A professional baseball team pays two players with identical batting averages different salaries.
B) An insurance company offers discounts to safe drivers.
C) A major airline sells tickets to senior citizens at lower prices than to other passengers.
D) A utility company charges less for electricity used during "off-peak" hours, when it does not have to operate its less-efficient generating plants.
answer
C) A major airline sells tickets to senior citizens at lower prices than to other passengers.
question
24) Which of the following best approximates a pure monopoly?
A) The only bank in a small town
B) The foreign exchange market
C) The Kansas City wheat market
D) The soft drink market
A) The only bank in a small town
B) The foreign exchange market
C) The Kansas City wheat market
D) The soft drink market
answer
A) The only bank in a small town
question
25) A monopolistically competitive firm is producing at an output level in the short run where average total cost is $4.50, price is $2.95, marginal revenue is $2.50, marginal cost is $2.50 and its average variable cost is $3.20. This firm is:
A) operating at a loss and should shut down
B) operating at a loss and should continue producing
C) operating at the break-even point
D) operating at a positive profit
A) operating at a loss and should shut down
B) operating at a loss and should continue producing
C) operating at the break-even point
D) operating at a positive profit
answer
A) operating at a loss and should shut down
question
26) Demand and marginal revenue curves are downward-sloping for monopolistically competitive firms because
A) each firm must take the market price as given.
B) product differentiation allows each firm some degree of monopoly power.
C) mutual interdependence among all firms in the industry leads to collusion.
D) there are a few large firms in the industry and they each act as a monopolist.
A) each firm must take the market price as given.
B) product differentiation allows each firm some degree of monopoly power.
C) mutual interdependence among all firms in the industry leads to collusion.
D) there are a few large firms in the industry and they each act as a monopolist.
answer
B) product differentiation allows each firm some degree of monopoly power.
question
27) Monopolistic competition is characterized by firms
A) producing at optimal productive efficiency.
B) producing differentiated products.
C) producing where price equals marginal cost.
D) making economic profits in the long run.
A) producing at optimal productive efficiency.
B) producing differentiated products.
C) producing where price equals marginal cost.
D) making economic profits in the long run.
answer
B) producing differentiated products.
question
28) A unique feature of an oligopolistic industry is
A) mutual interdependence.
B) large number of producers.
C) low barriers to entry.
D) standardized products.
A) mutual interdependence.
B) large number of producers.
C) low barriers to entry.
D) standardized products.
answer
A) mutual interdependence.
question
29) Which of the following is a characteristic of monopolistic competition?
A) standardized product.
B) absence of non price competition
C) a relatively small number of firms
D) relatively easy entry
A) standardized product.
B) absence of non price competition
C) a relatively small number of firms
D) relatively easy entry
answer
D) relatively easy entry
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