question
Suppose a profit-maximizing firm in a competitive market produces rubber bands. When the market price for rubber bands is 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. experience losses but will continue to produce rubber bands.
b. shut down.
c. earn both economic and accounting profits.
d. raise the price of its product.
a. experience losses but will continue to produce rubber bands.
b. shut down.
c. earn both economic and accounting profits.
d. raise the price of its product.
answer
a. experience losses but will continue to produce rubber bands.
question
Scenario 14-1
Assume a certain 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. The firm sells its output for $12 per unit.
3. Refer to Scenario 14-1. At Q = 1,000, the firm's profits equal
a. $1,000.
b. $3,000.
c. $4,000.
d. -$200.
Assume a certain 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. The firm sells its output for $12 per unit.
3. Refer to Scenario 14-1. At Q = 1,000, the firm's profits equal
a. $1,000.
b. $3,000.
c. $4,000.
d. -$200.
answer
a. $1,000.
question
Scenario 14-1
Assume a certain 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. The firm sells its output for $12 per unit.
4. Refer to Scenario 14-1. To maximize its profit, the firm should
a. continue to produce 1,000 units.
b. shut down.
c. decrease its output but continue to produce.
d. increase its output.
Assume a certain 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. The firm sells its output for $12 per unit.
4. Refer to Scenario 14-1. To maximize its profit, the firm should
a. continue to produce 1,000 units.
b. shut down.
c. decrease its output but continue to produce.
d. increase its output.
answer
c. decrease its output but continue to produce.
question
If a monopolist has zero marginal costs, it will produce
a. the output at which total revenue is maximized.
b. in the range in which marginal revenue is negative.
c. at the point at which marginal revenue is at a maximum.
d. in the range in which marginal revenue is still increasing.
a. the output at which total revenue is maximized.
b. in the range in which marginal revenue is negative.
c. at the point at which marginal revenue is at a maximum.
d. in the range in which marginal revenue is still increasing.
answer
a. the output at which total revenue is maximized.
question
A reduction in a monopolist's fixed costs would
a. increase the profit-maximizing price and decrease the profit-maximizing quantity produced.
b. decrease the profit-maximizing price and increase the profit-maximizing quantity produced.
c. possibly increase, decrease or not effect profit-maximizing price and quantity, depending on the elasticity of demand.
d. not effect the profit-maximizing price or quantity.
a. increase the profit-maximizing price and decrease the profit-maximizing quantity produced.
b. decrease the profit-maximizing price and increase the profit-maximizing quantity produced.
c. possibly increase, decrease or not effect profit-maximizing price and quantity, depending on the elasticity of demand.
d. not effect the profit-maximizing price or quantity.
answer
d. not effect the profit-maximizing price or quantity.
question
An agreement between two duopolists to function as a monopolist usually breaks down because
a. each duopolist wants a larger share of the market to capture more profit.
b. they cannot agree on the price that a monopolist would charge.
c. they cannot agree on the output that a monopolist would produce.
d. each duopolist wants to charge a higher price than the monopoly price.
a. each duopolist wants a larger share of the market to capture more profit.
b. they cannot agree on the price that a monopolist would charge.
c. they cannot agree on the output that a monopolist would produce.
d. each duopolist wants to charge a higher price than the monopoly price.
answer
a. each duopolist wants a larger share of the market to capture more profit.
question
A profit-maximizing firm in a monopolistically competitive market is characterized by which of the following?
a. price exceeds marginal cost
b. marginal revenue equals marginal cost
c. average revenue exceeds marginal revenue
d. All of the above are correct.
a. price exceeds marginal cost
b. marginal revenue equals marginal cost
c. average revenue exceeds marginal revenue
d. All of the above are correct.
answer
d. All of the above are correct.
question
For a monopolistically competitive firm, at the profit-maximizing quantity of output,
a. price exceeds marginal cost.
b. marginal revenue exceeds marginal cost.
c. price equals marginal revenue.
d. marginal cost exceeds average revenue.
a. price exceeds marginal cost.
b. marginal revenue exceeds marginal cost.
c. price equals marginal revenue.
d. marginal cost exceeds average revenue.
answer
a. price exceeds marginal cost.
question
In game theory, a Nash equilibrium is
a. the outcome that occurs when all players have a dominant strategy.
b. an outcome in which each player is doing his best given the strategies chosen by the other players.
c. an outcome in which no player wishes to change her chosen strategy given the strategies chosen by the other players.
d. All of the above are correct.
a. the outcome that occurs when all players have a dominant strategy.
b. an outcome in which each player is doing his best given the strategies chosen by the other players.
c. an outcome in which no player wishes to change her chosen strategy given the strategies chosen by the other players.
d. All of the above are correct.
answer
d. All of the above are correct.
question
Because many good substitutes exist for a competitive firm's product, the demand curve that it faces is
a. perfectly elastic.
b. perfectly inelastic.
c. unit-elastic.
d. inelastic only over a certain region.
a. perfectly elastic.
b. perfectly inelastic.
c. unit-elastic.
d. inelastic only over a certain region.
answer
a. perfectly elastic.
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 marginal revenue is less than $8.
b. its average revenue is greater than $8.
c. its total cost is less than $4,000.
d. All of the above are correct.
a. its marginal revenue is less than $8.
b. its average revenue is greater than $8.
c. its total cost is less than $4,000.
d. All of the above are correct.
answer
c. its total cost is less than $4,000.
question
On a 100-acre farm, a farmer is able to produce 3,000 bushels of wheat when he hires 2 workers. He is able to produce 4,400 bushels of wheat when he hires 3 workers. Which of the following possibilities is consistent with the property of diminishing marginal product?
a. The farmer is able to produce 5,600 bushels of wheat when he hires 4 workers.
b. The farmer is able to produce 6,000 bushels of wheat when he hires 4 workers.
c. The farmer is able to produce 5,850 bushels of wheat when he hires 4 workers.
d. Any of the above could be correct.
a. The farmer is able to produce 5,600 bushels of wheat when he hires 4 workers.
b. The farmer is able to produce 6,000 bushels of wheat when he hires 4 workers.
c. The farmer is able to produce 5,850 bushels of wheat when he hires 4 workers.
d. Any of the above could be correct.
answer
a. The farmer is able to produce 5,600 bushels of wheat when he hires 4 workers.
question
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 50 units
b. $5 and 100 units
c. $10 and 50 units
d. $10 and 100 units
a. $5 and 50 units
b. $5 and 100 units
c. $10 and 50 units
d. $10 and 100 units
answer
d. $10 and 100 units
question
The deadweight loss associated with a monopoly occurs because the monopolist
a. produces an output level greater than the socially optimal level.
b. equates marginal revenue with marginal cost.
c. maximizes profits.
d. produces an output level less than the socially optimal level.
a. produces an output level greater than the socially optimal level.
b. equates marginal revenue with marginal cost.
c. maximizes profits.
d. produces an output level less than the socially optimal level.
answer
d. produces an output level less than the socially optimal level.
question
For a monopolist, marginal revenue is
a. equal to price, whereas marginal revenue is less than price for a perfectly competitive firm.
b. equal to price, as it is for a perfectly competitive firm.
c. less than price, whereas marginal revenue is equal to price for a perfectly competitive firm.
d. less than price, as it is for a perfectly competitive firm.
a. equal to price, whereas marginal revenue is less than price for a perfectly competitive firm.
b. equal to price, as it is for a perfectly competitive firm.
c. less than price, whereas marginal revenue is equal to price for a perfectly competitive firm.
d. less than price, as it is for a perfectly competitive firm.
answer
c. less than price, whereas marginal revenue is equal to price for a perfectly competitive firm.
question
Kate is a florist. Kate can arrange 20 bouquets per day. She is considering hiring her husband William to work for her. Together Kate and William can arrange 35 bouquets per day. What is William's marginal product?
a. 15 bouquets
b. 55 bouquets
c. 35 bouquets
d. 22.5 bouquets
a. 15 bouquets
b. 55 bouquets
c. 35 bouquets
d. 22.5 bouquets
answer
a. 15 bouquets
question
Jacqui decides to open her own business and earns $50,000 in accounting profit the first year. When deciding to open her own business, she turned down three separate job offers with annual salaries of $30,000, $40,000, and $45,000. What is Jacqui's economic profit from running her own business?
a. $5,000
b. $-5,000
c. $20,000
d. $-55,000
a. $5,000
b. $-5,000
c. $20,000
d. $-55,000
answer
a. $5,000
question
Which of the following statements best expresses a firm's profit-maximizing decision rule?
a. If marginal revenue is less than marginal cost, the firm should decrease its output.
b. If marginal revenue is greater than marginal cost, the firm should increase 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 less than marginal cost, the firm should decrease its output.
b. If marginal revenue is greater than marginal cost, the firm should increase 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. All of the above are correct.
question
Mrs. Smith operates a business in a competitive market. The current market price is $7.50. At her profit-maximizing level of production, the average variable cost is $8.00, and the average total cost is $8.25. Mrs. Smith should
a. continue to operate in both the short run and long run.
b. continue to operate in the short run but shut down in the long run.
c. shut down her business in the short run but continue to operate in the long run.
d. shut down in both the short run and long run.
a. continue to operate in both the short run and long run.
b. continue to operate in the short run but shut down in the long run.
c. shut down her business in the short run but continue to operate in the long run.
d. shut down in both the short run and long run.
answer
d. shut down in both the short run and long run.
question
The prisoners' dilemma game
a. is a game in which neither player has a dominant strategy.
b. provides insight into why cooperation is individually rational.
c. provides insight into why cooperation is difficult.
d. is a game in which exactly one of the two players has a dominant strategy.
a. is a game in which neither player has a dominant strategy.
b. provides insight into why cooperation is individually rational.
c. provides insight into why cooperation is difficult.
d. is a game in which exactly one of the two players has a dominant strategy.
answer
c. provides insight into why cooperation is difficult.
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