Unit 4 Microeconomics Test Review

question

Firms in the model of perfect competition will:

answer

increase output up to the point that the marginal benefit of an additional unit of output is equal to the marginal cost.

question

Zoe's Bakery operates in a perfectly competitive industry. Suppose that when the market price is $5, the profit-maximizing output level of pastries is 150 units, with average total cost of $4, and average variable cost of $3. From this we know Zoe's marginal cost is _______, and her short-run profits are _______.

answer

$5; $150

question

In the figure, if market price increases to $20, marginal revenue _______ and profit-maximizing output _______.

answer

increases; increases

question

In the figure, if market price decreases to $16, marginal revenue _______ and profit-maximizing output _______.

answer

decreases; decreases

question

The slope of the total revenue curve is:

answer

constant under perfect competition

question

In the short run, a perfectly competitive firm produces output and earns an economic profit if:

answer

P > ATC.

question

The costs of production of a perfectly competitive soybean farmer are given in the table. If the market price of a bushel of soybeans is $15, how many bushels will the farmer produce to maximize short-run profit?

answer

question

The firm will produce at a profit in the short run if the price is:

answer

$4.50

question

The profit-maximizing level of output for a perfectly competitive firm in the short run occurs where:

answer

marginal cost equals price.

question

During the winter, Alexa runs a snow-clearing service, and snow-clearing is a perfectly competitive industry. Her only fixed cost is $1,000 for a tractor. Her variable costs per cleared lot, shown in the table, include fuel and hot coffee. If the current price per cleared lot is $14, how many lots should Alexa clear?

answer

question

During the summer, Alex runs a lawn-mowing service, and lawn-mowing is a perfectly competitive industry. His only fixed cost is $1,000 for the mower. His variable costs include fuel and mower parts. He calculates the variable costs per lawn as shown in the table. What is Alex's break-even price?

answer

$50

question

The short-run supply curve for a perfectly competitive firm is its:

answer

marginal cost curve above its average variable cost curve.

question

The figure shows cost curves for a firm operating in a perfectly competitive market. Curve M must cross Curves N and O:

answer

at their minimum points.

question

The figure shows a perfectly competitive firm that faces demand curve d, has the cost curves shown, and maximizes profit. The price that would cause the firm to break even is:

answer

$1.90

question

The table lists three supply points for an individual, perfectly competitive firm operating in the short run. If the industry is composed of 120 identical firms, which of the following will be a point in the short-run industry supply curve?

answer

Price=$10; Quantity=4800

question

If this firm's MR curve is MR2, then this firm will profit-maximize by producing _______ units of output and its economic profit will be _______.

answer

Q2; negative

question

The horizontal sum of individual firms' MC curves at and above the shut-down price is the:

answer

short-run industry supply curve.

question

In the figure, if the market price is $12, this firm will:

answer

minimize it's losses by continuing to produce.

question

Suppose the market for haircuts in a community is a perfectly competitive constant-cost industry and that the market is initially in long-run equilibrium. Subsequently, an increase in population increases the demand for haircuts. In the long run, we expect that:

answer

more firms will enter the market, driving the price of haircuts down and the profits of individual firms back down to zero.

question

A perfectly competitive industry is currently in a state of long-run equilibrium. Which of the following must be true?

answer

P = MR = MC = ATC

question

A perfectly competitive industry is said to be efficient because the:

answer

average total cost of production of the industry's output is minimized.

question

The demand curve for a monopoly is:

answer

above the MR curve.

question

In order to obtain maximum profits, the monopoly should produce the output determined at the point .

answer

question

The profit-maximizing price is the one indicated by:

answer

question

Compared to perfect competition:

answer

monopoly produces fewer units at a higher price.

question

At the profit-maximizing level, this monopolist will (approximately):

answer

earn a profit equal to the area (P2 - P3) Q2.

question

One successful government policy for dealing with a natural monopoly is to:

answer

impose a price ceiling to eliminate any economic profit.

question

The pricing in monopoly prevents some mutually beneficial trades from taking place. The value of the unrealized mutually beneficial trades is called:

answer

a deadweight loss.

question

Which of the following is true regarding monopolies?

answer

monopolies produce too little and charge too much from the standpoint of efficiency.

question

The deadweight loss associated with this monopoly can be measured as the area:

answer

1/2 (P2 - P4) (Q4 - Q2)

question

Which of the following statements is NOT an example of price discrimination?

answer

street vendors increase the price of umbrellas when it is raining.

question

Many hotel chains offer discounts for senior citizens. This is an example of that is in the united states.

answer

price discrimination; legal.

question

If the only two firms in an industry agree to fix the price at a given level, this is an example of:

answer

collusion

question

An action is a dominant strategy when it is a players best action:

answer

regardless of the actions by other players.

question

The figure shows the payoff matrix for two producers of bottled water, Blue Spring and Purple Rain. The Nash equilibrium in the figure is reached when:

answer

both firms charge a low price.

question

Gary's Gas and Franks fuel are the only two providers of gasoline in Smalltown. Gary summarizes his pricing strategy as, "I'll do to Frank what Frank did to me last time." This is an example of:

answer

a tit-for-tat strategy.

question

The two rival firms in the payoff matrix above each produce lysine. Given the payoff matrix in the figure, the Nash equilibrium combination is for:

answer

each firm to produce 40 million pounds.

question

The dominant strategy for CableSouth:

answer

is to always charge a low price.

question

The Nash equilibrium in the cable TV market is when:

answer

both firms set a low price and each earns $90,000 per month.

question

A strategy that is the same regardless of the action of the other player in a game is said to be a:

answer

dominant strategy.

question

The study of behavior in situations of interdependence is known as:

answer

game theory.

question

A(n) is the unwritten or unspoken agreement through which firms limit .

answer

tacit collusion; competition among themselves.

question

A major application of the Sherman Antitrust Act was in against .

answer

1911; Standard Oil.

question

When most cars sold in the United States were produced by the Big Three auto companies, General Motors would announce its prices for the new model year first and then the other companies would match it. This practice was an example of:

answer

price leadership.

question

Two rival firms vigorously compete by spending millions of dollars on product improvements and advertising to promote those improvements. This is an example of firms engaging in:

answer

non-price competition.

question

For the monopolistically competitive seafood market, the demand curve for any individual firm is and there producers of seafood.

answer

downward-sloping; are many.

question

The downward-sloping demand curve for a monopolistically competitive firm:

answer

reflects product differentiation.

question

The accompanying figure shows the demand, marginal revenue, marginal cost, and average total cost curves for Pat's Pizza Parlor, a monopolistic competitor in the food-to-go industry. When Pat's Pizza Parlor maximizes profit, profit will be approximately:

answer

$350

question

The accompanying figure shows the demand, marginal revenue, marginal cost, and average total cost curves for Pat's Pizza Parlor, a monopolistic competitor in the food-to-go industry. In the long run, the demand curve facing Pat's Pizza Parlor will shift as its competitors the market.

answer

leftward; enter.

question

Suppose a monopolistically competitive firm is in long-run equilibrium. Then:

answer

price equals average total cost.

question

In the figure, firms, in the long run, will:

answer

exit this market until all firms are earning a normal profit.

question

If a firm under monopolistic competition is producing a quantity that generates MC > MR, then the marginal decision rule tells us that profit:

answer

can be increased by decreasing the production.

question

In panel A, the profit-maximizing quantity of output is generated by the intersection at point .

answer

question

Zero economic profit is earned if the profit-maximizing price is price in panel .

answer

E; B

question

A monopolistically competitive firm is operating in the short run at the optimal level of output and is earning positive economic profits. Which of the following must be true?

answer

MR = MC and P > ATC

question

In long-run equilibrium, firms in a monopolistically competitive industry sell at price .

answer

greater than marginal cost.

question

Assume that a firm under monopolistic competition is producing a quantity that generates MC = MR. In this case, we can assume that profit:

answer

is maximized.

question

Firm X is a typical firm in a market characterized by the model of monopolistic competition. Suppose that the market is initially in long-run equilibrium, and then there is an increase in demand for services. We expect that:

answer

in the long run, new firms will enter the market.

question

In the figure, which of the following statements is FALSE?

answer

firms in the market structure shown in panel (a) cannot have excess profits in the long run, but those in panel (b) can have excess profits in the long run.

question

A good reason for a monopolistic competitor to engage in advertising would be:

answer

to create a greater perception of product differentiation in the minds of potential consumers.

1 of 60

question

Firms in the model of perfect competition will:

answer

increase output up to the point that the marginal benefit of an additional unit of output is equal to the marginal cost.

question

answer

$5; $150

question

In the figure, if market price increases to $20, marginal revenue _______ and profit-maximizing output _______.

answer

increases; increases

question

In the figure, if market price decreases to $16, marginal revenue _______ and profit-maximizing output _______.

answer

decreases; decreases

question

The slope of the total revenue curve is:

answer

constant under perfect competition

question

In the short run, a perfectly competitive firm produces output and earns an economic profit if:

answer

P > ATC.

question

answer

question

The firm will produce at a profit in the short run if the price is:

answer

$4.50

question

The profit-maximizing level of output for a perfectly competitive firm in the short run occurs where:

answer

marginal cost equals price.

question

answer

question

answer

$50

question

The short-run supply curve for a perfectly competitive firm is its:

answer

marginal cost curve above its average variable cost curve.

question

The figure shows cost curves for a firm operating in a perfectly competitive market. Curve M must cross Curves N and O:

answer

at their minimum points.

question

The figure shows a perfectly competitive firm that faces demand curve d, has the cost curves shown, and maximizes profit. The price that would cause the firm to break even is:

answer

$1.90

question

answer

Price=$10; Quantity=4800

question

If this firm's MR curve is MR2, then this firm will profit-maximize by producing _______ units of output and its economic profit will be _______.

answer

Q2; negative

question

The horizontal sum of individual firms' MC curves at and above the shut-down price is the:

answer

short-run industry supply curve.

question

In the figure, if the market price is $12, this firm will:

answer

minimize it's losses by continuing to produce.

question

answer

more firms will enter the market, driving the price of haircuts down and the profits of individual firms back down to zero.

question

A perfectly competitive industry is currently in a state of long-run equilibrium. Which of the following must be true?

answer

P = MR = MC = ATC

question

A perfectly competitive industry is said to be efficient because the:

answer

average total cost of production of the industry's output is minimized.

question

The demand curve for a monopoly is:

answer

above the MR curve.

question

In order to obtain maximum profits, the monopoly should produce the output determined at the point .

answer

question

The profit-maximizing price is the one indicated by:

answer

question

Compared to perfect competition:

answer

monopoly produces fewer units at a higher price.

question

At the profit-maximizing level, this monopolist will (approximately):

answer

earn a profit equal to the area (P2 - P3) Q2.

question

One successful government policy for dealing with a natural monopoly is to:

answer

impose a price ceiling to eliminate any economic profit.

question

The pricing in monopoly prevents some mutually beneficial trades from taking place. The value of the unrealized mutually beneficial trades is called:

answer

a deadweight loss.

question

Which of the following is true regarding monopolies?

answer

monopolies produce too little and charge too much from the standpoint of efficiency.

question

The deadweight loss associated with this monopoly can be measured as the area:

answer

1/2 (P2 - P4) (Q4 - Q2)

question

Which of the following statements is NOT an example of price discrimination?

answer

street vendors increase the price of umbrellas when it is raining.

question

Many hotel chains offer discounts for senior citizens. This is an example of that is in the united states.

answer

price discrimination; legal.

question

If the only two firms in an industry agree to fix the price at a given level, this is an example of:

answer

collusion

question

An action is a dominant strategy when it is a players best action:

answer

regardless of the actions by other players.

question

The figure shows the payoff matrix for two producers of bottled water, Blue Spring and Purple Rain. The Nash equilibrium in the figure is reached when:

answer

both firms charge a low price.

question

Gary's Gas and Franks fuel are the only two providers of gasoline in Smalltown. Gary summarizes his pricing strategy as, "I'll do to Frank what Frank did to me last time." This is an example of:

answer

a tit-for-tat strategy.

question

The two rival firms in the payoff matrix above each produce lysine. Given the payoff matrix in the figure, the Nash equilibrium combination is for:

answer

each firm to produce 40 million pounds.

question

The dominant strategy for CableSouth:

answer

is to always charge a low price.

question

The Nash equilibrium in the cable TV market is when:

answer

both firms set a low price and each earns $90,000 per month.

question

A strategy that is the same regardless of the action of the other player in a game is said to be a:

answer

dominant strategy.

question

The study of behavior in situations of interdependence is known as:

answer

game theory.

question

A(n) is the unwritten or unspoken agreement through which firms limit .

answer

tacit collusion; competition among themselves.

question

A major application of the Sherman Antitrust Act was in against .

answer

1911; Standard Oil.

question

answer

price leadership.

question

Two rival firms vigorously compete by spending millions of dollars on product improvements and advertising to promote those improvements. This is an example of firms engaging in:

answer

non-price competition.

question

For the monopolistically competitive seafood market, the demand curve for any individual firm is and there producers of seafood.

answer

downward-sloping; are many.

question

The downward-sloping demand curve for a monopolistically competitive firm:

answer

reflects product differentiation.

question

answer

$350

question

The accompanying figure shows the demand, marginal revenue, marginal cost, and average total cost curves for Pat's Pizza Parlor, a monopolistic competitor in the food-to-go industry. In the long run, the demand curve facing Pat's Pizza Parlor will shift as its competitors the market.

answer

leftward; enter.

question

Suppose a monopolistically competitive firm is in long-run equilibrium. Then:

answer

price equals average total cost.

question

In the figure, firms, in the long run, will:

answer

exit this market until all firms are earning a normal profit.

question

If a firm under monopolistic competition is producing a quantity that generates MC > MR, then the marginal decision rule tells us that profit:

answer

can be increased by decreasing the production.

question

In panel A, the profit-maximizing quantity of output is generated by the intersection at point .

answer

question

Zero economic profit is earned if the profit-maximizing price is price in panel .

answer

E; B

question

A monopolistically competitive firm is operating in the short run at the optimal level of output and is earning positive economic profits. Which of the following must be true?

answer

MR = MC and P > ATC

question

In long-run equilibrium, firms in a monopolistically competitive industry sell at price .

answer

greater than marginal cost.

question

Assume that a firm under monopolistic competition is producing a quantity that generates MC = MR. In this case, we can assume that profit:

answer

is maximized.

question

answer

in the long run, new firms will enter the market.

question

In the figure, which of the following statements is FALSE?

answer

firms in the market structure shown in panel (a) cannot have excess profits in the long run, but those in panel (b) can have excess profits in the long run.

question

A good reason for a monopolistic competitor to engage in advertising would be:

answer

to create a greater perception of product differentiation in the minds of potential consumers.

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