Principle of Microeconomics TEST 4

1. Which of the following is NOT a characteristic of a perfectly competitive market?
a. there are many sellers in the market
b. firms are price takers
c. firms have difficulty entering the market
d. goods offered for sale are largely the same

**2. Whenever a perfectly competitive firm chooses to change its level of output, holding the price of the product constant, its marginal revenue
a. increases if MR < ATC and decrease MR > ATC
b. increases
c. does not change
d. decreases

3. For a competitive firm,
a. average revenue = marginal revenue, but the price of the good is different
b. average revenue = price of the good, but marginal revenue is different
c. marginal revenue = price of good, but average revenue is different
d. average revenue, marginal revenue, & price of good are all equal to one another

4. Picture
Refer to table 14-2. At a production level of 4 units which of the following is true?
a. marginal cost is $6
b. total revenue is greater than variable costs
c. marginal revenue is less that marginal cost
d. all of the above are correct

5. Picture
Refer to table 14-2. At which quantity of output is marginal revenue equal to marginal cost?
a. 3
b. 6
c.8
d. all of the above are correctt

**6. Picture
Refer to table 14-2. If this firm chooses to maximize profit it will choose a level of output where marginal cost is equal to
a.7
b.8
c. 9
d. 6

7. Picture
Refer to table 14-1. When price is equal to P3, the profit maximizing firm will produce at what level of output?
a. Q4
b. Q2
c. Q3
d. Q1

8. The short run supply curve for a firm in a perfectly competitive market is
a. determined by forces external to the firm
b. likely to slope downward
c. likely to be horizontal
d. its marginal cost cure (above average variable cost)

9. Firms that shut down in the short run still have to pay their
a. variable costs
b. fixed costs
c. total cost
d. all of the above are correct

10. A firm will exit a market if, for all positive levels of output
a. its total revenue is less than its total cost
b. its profit is negative
c. the price of its product is less than its average total cost
d. all of the above costs

11. The entry of new firms into a competitive market will
a. increase market supply & increase market prices
b. increase market supply & decrease market prices
c. decrease market supply & increase market prices
d. decrease market supply & decrease market prices

**12. Assuming that Jerry's bicycle shop operates in a competitive market for bicycles, which of the following statements is(are) true?
(i) he chooses the price at which he sells his bicycles
(ii) he chooses the quantity of bicycles that he supplies
(iii)his market is characterized by one or more barriers to entry
a. (ii) and (iii) only
b. (i) only
c. (i) and (iii) only
d. (ii) only

13. The key difference between a competitive firm and a monopoly firm is the ability to select
a. the price of its output
b. inputs in the production process
c. the level of production
d. the level of competition in the market

14. In a competitive market, the actions of any single buyer or seller will
a. adversely affect the profitability of more than one firm in the market
b. cause a noticeable change in overall production & a change in final product price
c. have little effect on overall production but will ultimately change final product price
d. have a negligible impact on the market price

**15. Profit maximizing firms enter a competitive market when, for existing firms in that market,
a. average total cost exceeds average revenue
b. price exceeds average total cost
c. total revenue exceeds total variable costs
d. total revenue exceeds fixed costs

16. When new firms have an incentive to enter a competitive market, their entry will
a. increase the price of the product
b. drive down profits of existing firms in the market
c. shift the market supply curve to the left
d. all of the above are correct

**17. In a perfectly competitive market, the process of entry & exit will end when, for firms in the market,
a. price is equal to average variable cost
b. marginal revenue is equal to average variable cost
c. economic profits are zero
d. all of the above are correct

18. Which of the following is an example of a barrier to entry?
(i) a key resource is owned by a single firm
(ii) the costs of production make a single producer more efficient that a large # of producers
(iii) the govt. has given the existing monopoly the exclusive right to produce the good

a. (i) and (ii)
b. (ii) and (iii)
c. (i) only
d. all of the above are correct

**19. Marginal revenue for a monopolist is computed as
a. total revenue divided by quantity sold
b. average revenue times quantity divided by price
c. Change in total revenue per one unit increase in quantity sold
d. average revenue divided by quantity sold

20. Natural monopolies differ from other forms of monopoly because they
a. are not regulated by the govt.
b. are generally not worried about competition eroding their monopoly position in the market
c. generally dont make a profit
d. are not subject to barriers to entry

21. picture
Refer to image 15-2. The demand curve for a monopoly firm is depicted by curve
a. B
b. D
c. A
d. C

**22. Picture
Refer to image 15-2. The marginal revenue curve for a monopoly firm is depicted by curve
a. B
b. C
c. A
d. D

23. Picture
Refer to image 15-2. The marginal cost curve for a monopoly firm is depicted by curve
a.A
b. D
c. C
d. B

24. Picture
Refer to image 15-2. If the monopoly firm wants to maximize its profit, it should operate at a level of output equal to
a. Q2
b. Q1
c. Q4
d. Q3

25. Picture
Refer to image 15-2. Profit will be maximized by charging a price equal to
a. P0
b. P2
c. P3
d. P1

26. In a competitive market, firms are unable to differnetiate their product from that of other producers

27. Firms in competitive markets are said to be price takers

28. In competitive markets, firms that raise their prices are typically rewarded with larger profits

** 29. For a firm in a competitive market, marginal revenue is always equal to average revenue

**30. The marginal firm in a competitive market will earn zero economic profits in the long run

31. A firm will shutdown in the short run if revenue is not sufficient to cover its variable costs of production

**32. The supply curve of a firm in a competitive market is the average variable cost curve, above the minimum of marginal cost

33. A firm in a competitive market will maximize profit when the level of production is such that marginal cost equals price

34. By comparing the marginal revenue and marginal cost from each unit produced, a firm in a competitive market can determine the profit maximizing level of production

35. When a profit maximizing firm in a competitive market experiences rising prices, it will respond with an increase in production

36. In the long run, when price is less than average total cost for all possible levels of production, a firm in a competitive market will choose to exit (or not enter) the market

37. The long run equilibrium in a competitive market characterized by firms w/identical costs is generally characterized by firms operating at efficient scale

38. In the long run, a competitive market w/ 1,00 identical firms will experience an equilibrium price equal to the minimum of each firms average total cost

39. The short run supply curve in a competitive market must be more elastic than the long run supply curve

40. A profit maximizing firm in a competitive market will earn zero accounting profits in the long run

41. When a firm experiences zero profit equilibrium, the firms revenue must be sufficient to cover all opportunity costs

**42. A competitive market will typically experience entry and exit until all accounting profits are zero

43. At the end of the process of entry & exit, it is possible that some firms in a competitive market are making a positive economic profit

**44. When individual firms in competitive markets increase their production, it is likely that the market price will fall

45. A profit maximizing firm in a competitive market will increase production when average revenue exceeds marginal cost

**46. A firm will shutdown in the short run if revenue is not sufficient to cover all of its fixed costs of production

47. A firms incentive to compare marginal revenue and marginal cost is an application of the principle that rational people think at the margin

48. The De Beers Diamond company advertises heavily to promote the sale of all diamonds, not just its own. This is evidence that they have a monopoly position to some degree

49. The amount of power that a monopoly has is a fxn of whether there are close substitutes for its product

50. Declining average total cost w/ increased production is one of the defining characteristics of a natural monopoly