question
In long run equilibrium, all forms in a pure competition market situation operating under a condition of certainty will have identical costs even though they are different production and operation techniques.
a. true
b. false
a. true
b. false
answer
True
question
When the cross elasticity of demand between one product and all other products is low, one is generally referring to a(n) ____ situation.
a.
pure competition
b.
oligopoly
c.
monopolistic competition
d.
substitution
e.
monopoly
a.
pure competition
b.
oligopoly
c.
monopolistic competition
d.
substitution
e.
monopoly
answer
Monopoly
question
In a kinked demand market, whenever one firm decides to lower its price,
a.
none of the other firms will follow.
b.
one half of the firms follow and one half of the firms don't follow the price cut.
c.
all of the other firms raise their prices.
d.
other firms all decide to exit the industry
e.
other firms will automatically follow.
a.
none of the other firms will follow.
b.
one half of the firms follow and one half of the firms don't follow the price cut.
c.
all of the other firms raise their prices.
d.
other firms all decide to exit the industry
e.
other firms will automatically follow.
answer
Other firms will automatically follow
question
In the purely competitive case, marginal revenue (MR) is equal to:
a.
none of the above
b.
cost
c.
profit
d.
total revenue
e.
price
a.
none of the above
b.
cost
c.
profit
d.
total revenue
e.
price
answer
Price
question
In the long-run, firms in a monopolistically competitive industry will
a.
seek to reduce the scale of operations
b.
seek to increase the scale of operations
c.
earn substantial economic profits
d.
tend to just cover costs, including normal profits
a.
seek to reduce the scale of operations
b.
seek to increase the scale of operations
c.
earn substantial economic profits
d.
tend to just cover costs, including normal profits
answer
Tend to just cover costs, including normal profit
question
All of the following are true for both competition and monopolistic competition in the long run, except one of them. Which is it?
a.
Economic profits become zero in the long-run
b.
P = MC
c.
The barriers to entry and exit are relatively easy
d.
P = AC
e.
None of the above is an exception
a.
Economic profits become zero in the long-run
b.
P = MC
c.
The barriers to entry and exit are relatively easy
d.
P = AC
e.
None of the above is an exception
answer
P=MC
question
Even ideal cartels tend to be unstable because
a.
firms can benefit by secretly selling more than they promised the other firms
b.
collusion leads to lowest possible overall profits in the industry.
c.
oligopolistic managers are extremely risk loving.
d.
all of the above
e.
firms typically prefer competition to collusion as competition, because it leads to more profits
a.
firms can benefit by secretly selling more than they promised the other firms
b.
collusion leads to lowest possible overall profits in the industry.
c.
oligopolistic managers are extremely risk loving.
d.
all of the above
e.
firms typically prefer competition to collusion as competition, because it leads to more profits
answer
Firms can benefit by secretly selling more than they promised the other firms
question
Declining cost industries
a.
have upward rising AC curves.
b.
have marginal cost curves below their average cost curve.
c.
have upward rising demand curves.
d.
have ∩-shaped total costs.
e.
have diseconomies of scale.
a.
have upward rising AC curves.
b.
have marginal cost curves below their average cost curve.
c.
have upward rising demand curves.
d.
have ∩-shaped total costs.
e.
have diseconomies of scale.
answer
Have marginal cost curves below their average cost curves
question
The price for used cars is well below the price of new cars of the same general quality. This is an example of:
a.
A Lemon's Market
b.
Cyclical Competition
c.
The Unemployment Rate
d.
The Degree of Operating Leverage
e.
Redeployment Assets
a.
A Lemon's Market
b.
Cyclical Competition
c.
The Unemployment Rate
d.
The Degree of Operating Leverage
e.
Redeployment Assets
answer
A Lemon's Market
question
In the electric power industry, residential customers have relatively ____ demand for electricity compared with large industrial users. But contrary to price discrimination, large industrial users generally are charged ____ rates.
a.
elastic, lower
b.
elastic, higher
c.
inelastic, lower
d.
similar, similar
e.
inelastic, higher
a.
elastic, lower
b.
elastic, higher
c.
inelastic, lower
d.
similar, similar
e.
inelastic, higher
answer
Inelectic, higher
question
In natural monopoly, AC continuously declines due to economies in distribution or in production, which tends to found in industries which face increasing returns to scale. If price were set equal to marginal cost, then:
a.
price would exceed average cost.
b.
price would be at the profit maximizing level for natural monopoly
c.
all of the above
d.
price would be below average cost.
e.
price would equal average cost.
a.
price would exceed average cost.
b.
price would be at the profit maximizing level for natural monopoly
c.
all of the above
d.
price would be below average cost.
e.
price would equal average cost.
answer
price would be below average cost.
question
The marginal product is the incremental change in total output that can be obtained from the use of one more unit of an input in the production process, while varying all other inputs.
a.
True
b.
False
a.
True
b.
False
answer
False
question
Unique Creations has a monopoly position in magnometers. If the marginal cost for a magnometer is $50 and the price elasticity for magnometers is -4, what is the optimal monopoly price?
Hint: P (1 +1/E) = MC.
a.
$75.00
b.
$37.50
c.
$82.50
d.
$41.25
e.
$66.67
Hint: P (1 +1/E) = MC.
a.
$75.00
b.
$37.50
c.
$82.50
d.
$41.25
e.
$66.67
answer
$66.67
question
Possible sources of economies of scale (size) within a production plant include:
a.
transportation costs
b.
a and c
c.
a and b
d.
imperfections in the labor market
e.
specialization in the use of capital and labor
a.
transportation costs
b.
a and c
c.
a and b
d.
imperfections in the labor market
e.
specialization in the use of capital and labor
answer
specialization in the use of capital and labor
question
Globo Public Supply has $1,000,000 in assets. Its demand curve is: P = 206 - .20•Q and its total cost function is: TC = 20,000 + 6•Q where TC excludes the cost of capital. If Globo Public Supply is UNREGULATED, find Globo's optimal price.
a.
$206
b.
$106
c.
$56
d.
$6
e.
$3
a.
$206
b.
$106
c.
$56
d.
$6
e.
$3
answer
$106
question
Which of the following is an example of an oligopolistic market structure?
a.
liquor retailers
b.
public utilities
c.
none of the above
d.
air transport industry
e.
wheat farmers
a.
liquor retailers
b.
public utilities
c.
none of the above
d.
air transport industry
e.
wheat farmers
answer
air transport industry
question
Effective collusion generally is more difficult as the number of oligopolistic firms involved increases.
a.
true
b.
false
a.
true
b.
false
answer
True
question
The distinctive characteristic of an oligopolistic market structure is that there are recognizable interdependencies among the decisions of the firms.
a.
false
b.
true
a.
false
b.
true
answer
True
question
The marginal product is the incremental change in total output that can be obtained from the use of one more unit of an input in the production process, while holding constant all other inputs.
a.
True
b.
False
a.
True
b.
False
answer
True
question
____ are defined as costs which are incurred regardless of the alternative action chosen in a decision-making problem.
a.
None of the above
b.
Relevant costs
c.
Opportunity costs
d.
Marginal costs
e.
Sunk costs
a.
None of the above
b.
Relevant costs
c.
Opportunity costs
d.
Marginal costs
e.
Sunk costs
answer
Sunk Costs
question
The kinked demand curve model helps to explain:
a.
stabilities observed in prices in oligopolistic industries
b.
none of the above
c.
fluctuations observed in prices in oligopolistic industries
d.
all of the above
e.
fluctuations of prices in pure competition
a.
stabilities observed in prices in oligopolistic industries
b.
none of the above
c.
fluctuations observed in prices in oligopolistic industries
d.
all of the above
e.
fluctuations of prices in pure competition
answer
stabilities observed in prices in oligopolistic industries
question
A monopolist faces the following demand curve: P = 12 - .3Q with marginal costs of $3. What is the monopolistic PRICE?
a.
P = $7.50
b.
P = $8.50
c.
P = $6.50
d.
P = $9.50
e.
P = $5.50
a.
P = $7.50
b.
P = $8.50
c.
P = $6.50
d.
P = $9.50
e.
P = $5.50
answer
P = $7.50
question
Which of the following is true with regards to a long-run cost function?
a.
All of the above
b.
The curve consists of the lower boundary of all the short-run cost curves
c.
The long-run average cost curve is U-shaped
d.
The shape of the firm's long-run cost function is important in decisions to expand the scale of operations
e.
The long-run average cost curve is flatter than the short-run average cost curve.
a.
All of the above
b.
The curve consists of the lower boundary of all the short-run cost curves
c.
The long-run average cost curve is U-shaped
d.
The shape of the firm's long-run cost function is important in decisions to expand the scale of operations
e.
The long-run average cost curve is flatter than the short-run average cost curve.
answer
All of the above
question
The relevant cost in economic decision-making is the opportunity cost of the resources rather than the outlay of funds required to obtain the resources.
a.
true
b.
false
a.
true
b.
false
answer
True
question
If TC = 321 + 55Q - 5Q2, then average total cost at Q = 10 is:
a.
37.1
b.
371
c.
102
d.
10.2
e.
321
a.
37.1
b.
371
c.
102
d.
10.2
e.
321
answer
37.1
question
The largest problem faced in cartel pricing agreements such as OPEC is:
a.
arriving at a profit maximizing price
b.
attracting participants in the cartel
c.
none of the above
d.
detecting violations of quota barriers by cartel participants
a.
arriving at a profit maximizing price
b.
attracting participants in the cartel
c.
none of the above
d.
detecting violations of quota barriers by cartel participants
answer
detecting violations of quota barriers by cartel participants
question
The isoquants for inputs that are perfect substitutes for one another consist of a series of:
a.
concentric circles
b.
parallel lines
c.
none of the above
d.
right angles
e.
right triangles
a.
concentric circles
b.
parallel lines
c.
none of the above
d.
right angles
e.
right triangles
answer
Parallel lines
question
Given a Cobb-Douglas production function estimate of Q = 1.19L.72K.18 for a given industry, this industry would have:
a.
negative returns to scale
b.
constant returns to scale
c.
decreasing returns to scale
d.
increasing returns to scale
e.
none of the above
a.
negative returns to scale
b.
constant returns to scale
c.
decreasing returns to scale
d.
increasing returns to scale
e.
none of the above
answer
decreasing returns to scale
question
Marginal revenue product is defined as the amount that an additional unit of the variable input adds to ____.
a.
marginal product
b.
total revenue
c.
marginal revenue
d.
total output
e.
none of the above
a.
marginal product
b.
total revenue
c.
marginal revenue
d.
total output
e.
none of the above
answer
Total revenue
question
The existence of diseconomies of scale (size) for the firm is hypothesized to result from:
a.
imperfections in the labor market
b.
imperfections in the capital markets
c.
All of the above
d.
transportation costs
e.
problems of coordination and control encountered by management
a.
imperfections in the labor market
b.
imperfections in the capital markets
c.
All of the above
d.
transportation costs
e.
problems of coordination and control encountered by management
answer
problems of coordination and control encountered by management
question
Economies of scale exist whenever long-run average costs:
a.
Increase as output is increased
b.
Remain constant as output is increased
c.
Decrease as output is increased
d.
None of the above
e.
Decline and then rise as output is increased
a.
Increase as output is increased
b.
Remain constant as output is increased
c.
Decrease as output is increased
d.
None of the above
e.
Decline and then rise as output is increased
answer
Decrease as output is increased
question
The following is a Cobb-Douglas production function: Q = 1.75K0.5·L0.5. What is correct here?
a.
A one-percent change in L will cause Q to change by one percent
b.
This production function displays increasing returns to scale
c.
This production function displays constant returns to scale
d.
This production function displays decreasing returns to scale
e.
A one-percent change in K will cause Q to change by two percent
a.
A one-percent change in L will cause Q to change by one percent
b.
This production function displays increasing returns to scale
c.
This production function displays constant returns to scale
d.
This production function displays decreasing returns to scale
e.
A one-percent change in K will cause Q to change by two percent
answer
This production function displays constant returns to scale
question
Which of the following is never negative?
a.
average product
b.
marginal product
c.
slope of the isocost lines
d.
marginal rate of technical substitution
e.
production elasticity
a.
average product
b.
marginal product
c.
slope of the isocost lines
d.
marginal rate of technical substitution
e.
production elasticity
answer
average product
question
What is the profit maximization point for a firm in a purely competitive environment?
a.
The output where AVC < P
b.
The output where P = MC
c.
The output where P < MC
d.
The output where MR = MC
e.
The output where P > MC
a.
The output where AVC < P
b.
The output where P = MC
c.
The output where P < MC
d.
The output where MR = MC
e.
The output where P > MC
answer
The output where P = MC
question
The problems of asymmetric information exchange arise ultimately because
a.
one party to the exchange possesses different information than another
b.
one party knows nothing
c.
information is scarce
d.
one party has more information than another
e.
one party cannot independently verify the information of another
a.
one party to the exchange possesses different information than another
b.
one party knows nothing
c.
information is scarce
d.
one party has more information than another
e.
one party cannot independently verify the information of another
answer
one party cannot independently verify the information of another
question
The Cobb-Douglas production function is: Q = 1.4L0.6K0.5. What would be the percentage change in output (%?Q) if labor grows by 3.0% and capital is cut by 5.0%?[HINT: %?Q = (EL %?L) + (EK %?K)]
a.
%?Q = + 5.0%
b.
%?Q = - 2.50%
c.
%?Q = + 3.0%
d.
%?Q = - 0.70%
e.
%?Q = - 5.0%
a.
%?Q = + 5.0%
b.
%?Q = - 2.50%
c.
%?Q = + 3.0%
d.
%?Q = - 0.70%
e.
%?Q = - 5.0%
answer
%?Q = - 0.70%
question
The marginal product is defined as:
a.
The amount of fixed cost involved.
b.
The incremental change in total output that can be produced by the use of one more unit of the variable input in the production process
c.
The ratio of total output to the amount of the variable input used in producing the output
d.
None of the above
e.
The percentage change in output resulting from a given percentage change in the amount
a.
The amount of fixed cost involved.
b.
The incremental change in total output that can be produced by the use of one more unit of the variable input in the production process
c.
The ratio of total output to the amount of the variable input used in producing the output
d.
None of the above
e.
The percentage change in output resulting from a given percentage change in the amount
answer
The incremental change in total output that can be produced by the use of one more unit of the variable input in the production process
question
In the Cournot duopoly model, each of the two firms, in determining its profit-maximizing price-output level, assumes that the other firm's ____ will not change.
a.
marketing strategy
b.
none of the above
c.
output
d.
price
e.
inventory
a.
marketing strategy
b.
none of the above
c.
output
d.
price
e.
inventory
answer
Output
question
Which of the following statements concerning the short-run average cost curve of economic theory is true?
a.
It is ∧-shaped
b.
It is L-shaped
c.
It is ∪-shaped
d.
It is ∩-shaped
e.
It is M-shaped
a.
It is ∧-shaped
b.
It is L-shaped
c.
It is ∪-shaped
d.
It is ∩-shaped
e.
It is M-shaped
answer
It is ∪-shaped
question
Barometric price leadership exists when
a.
all firms agree to change prices simultaneously.
b.
one company forms a price umbrella for all others.
c.
the firms are all colluding.
d.
one firm in the industry initiates a price change and the others follow it as a signal of changes in cost or demand in the industry.
e.
one firm imposes its best price on the rest of the industry.
a.
all firms agree to change prices simultaneously.
b.
one company forms a price umbrella for all others.
c.
the firms are all colluding.
d.
one firm in the industry initiates a price change and the others follow it as a signal of changes in cost or demand in the industry.
e.
one firm imposes its best price on the rest of the industry.
answer
one firm in the industry initiates a price change and the others follow it as a signal of changes in cost or demand in the industry.
question
Effective oligopolistic collusion is more likely to occur when customer orders are small, frequent, and received on a regular basis as compared with large orders that are received infrequently at irregular intervals.
a.
true
b.
false
a.
true
b.
false
answer
True
question
A monopoly will always produce less than a purely competitive industry, ceteris paribus.
a.
false
b.
true
a.
false
b.
true
answer
False
question
Long distance telephone service has become a competitive market. The average cost per call is $0.05 a minute, and it's declining. The likely reason for the declining price for long distance service is:
a.
Entry into this industry pushes prices down
b.
Governmental pressure to lower the price
c.
Reduced demand for long distance service
d.
Lower price for a barrel of crude oil
e.
Increased cost of providing long distance service
a.
Entry into this industry pushes prices down
b.
Governmental pressure to lower the price
c.
Reduced demand for long distance service
d.
Lower price for a barrel of crude oil
e.
Increased cost of providing long distance service
answer
Entry into this industry pushes prices down
question
A monopolist seller of Irish ceramics faces the following demand function for its product: P = 62 - 3Q. The fixed cost is $10 and the variable cost per unit is $2. What is the maximizing QUANTITY for this monopoly? Hint: MR is twice as steep as the inverse demand curve: MR = 62 - 6 Q. (Pick closest answer)
a.
Q = 15
b.
Q = 22
c.
Q = 37
d.
Q = 10
e.
Q = 41
a.
Q = 15
b.
Q = 22
c.
Q = 37
d.
Q = 10
e.
Q = 41
answer
Q = 10
question
A firm in pure competition would shut down when:
a.
price is less than average fixed cost
b.
price is less than average variable cost
c.
price is less than average total cost
d.
price is less than marginal cost
a.
price is less than average fixed cost
b.
price is less than average variable cost
c.
price is less than average total cost
d.
price is less than marginal cost
answer
price is less than average variable cost
question
Fill in the missing data to solve this problem.
Variable Total Average Marginal
Input Product Product Product
4 ? 70 ----
5 ? ? 40
6 350 ? ?
What is the total product for 5 units of input, and what is the marginal product for 6 units of input?
a.
350 and 20
b.
320 and 30
c.
360 and 15
d.
430 and 8
e.
400 and 10
Variable Total Average Marginal
Input Product Product Product
4 ? 70 ----
5 ? ? 40
6 350 ? ?
What is the total product for 5 units of input, and what is the marginal product for 6 units of input?
a.
350 and 20
b.
320 and 30
c.
360 and 15
d.
430 and 8
e.
400 and 10
answer
320 and 30
question
A cartel is a situation where firms in the industry
a.
experience the pain of a kinked demand curve.
b.
obey the rules of dominant firm price leadership.
c.
have a barometric price leader
d.
agree to produce identical products.
e.
have an agreement to restrict output.
a.
experience the pain of a kinked demand curve.
b.
obey the rules of dominant firm price leadership.
c.
have a barometric price leader
d.
agree to produce identical products.
e.
have an agreement to restrict output.
answer
have an agreement to restrict output.
question
Microsoft's success over Apple although Apple had a technologically superior product is the result of:
a.
Increasing returns in a network-based business
b.
Microsoft's economies of scale over a wide range of output
c.
The revenue sources derived from Microsoft's intellectual property
d.
Superior marketing and promotions
e.
All of the above
a.
Increasing returns in a network-based business
b.
Microsoft's economies of scale over a wide range of output
c.
The revenue sources derived from Microsoft's intellectual property
d.
Superior marketing and promotions
e.
All of the above
answer
increasing returns in a network-based business
question
The demand curve facing the firm in ____ is the same as the industry demand curve.
a.
pure competition
b.
monopolistic competition
c.
oligopoly
d.
pure monopoly
e.
none of the above
a.
pure competition
b.
monopolistic competition
c.
oligopoly
d.
pure monopoly
e.
none of the above
answer
Pure monopoly
question
The combinations of inputs costing a constant C dollars is called:
a.
an isocost line
b.
the MRTS
c.
none of the above
d.
an isoquant curve
e.
an isorevenue line
a.
an isocost line
b.
the MRTS
c.
none of the above
d.
an isoquant curve
e.
an isorevenue line
answer
An isocost line
question
If price exceeds average costs under pure competition, ____ firms will enter the industry, supply will ____, and price will be driven ____.
a.
more; decrease; down
b.
more; decrease; up
c.
more; increase; down
d.
more; increase; up
e.
none of the above
a.
more; decrease; down
b.
more; decrease; up
c.
more; increase; down
d.
more; increase; up
e.
none of the above
answer
more; increase; down
question
If a cartel seeks to maximize profits, the market share (or quota) for each firm should be set at a level such that the ( ) of all firms is identical.
a.
average total cost
b.
average profit
c.
marginal profit
d.
marginal cost
e.
marginal revenue
a.
average total cost
b.
average profit
c.
marginal profit
d.
marginal cost
e.
marginal revenue
answer
marginal cost
question
The main difference between perfect competition and monopolistic competition is:
answer
The degree of product differentiation
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