Downward-sloping straight-line demand curve

            Question 1

 

1. If  a firm’s marginal revenue from its 100th unit of output is $50 and the  marginal cost from its 100th unit of output is $45, then in the short  run this firm should:                 a.  shut down.                  b.  produce more than 99 units of output.                  c.  change its technology.                  d.  produce less than 100 units of output.                  e.  increase its plant size.

3 points

            Question 2

 

1. Which  of the following is a key characteristic of the long-run competitive  equilibrium that distinguishes it from the short-run competitive  equilibrium?                 a.  Free entry to reduce short-run profits, or free exit to reduce short-run losses.                  b.  Average revenue is less than average cost.                  c.  Marginal revenue is greater than marginal cost.                  d.  Economic profits are positive, but cannot be negative.

3 points

            Question 3

 

1. The marginal approach to profit maximization means that a firm should produce until:                 a.  marginal revenue equals price.                  b.  price equals average total cost.                  c.  marginal cost becomes negatively sloped.                  d.  marginal revenue equals marginal cost.                  e.  marginal revenue equals zero.

3 points

            Question 4

 

1. If the demand for a product increases in an increasing cost industry, as the market adjusts in the long run:                 a.  the firm’s per-unit cost will fall.                  b.  the market price will return to its initial position.                  c.  price will rise.                  d.  the firm’s per-unit cost will increase.

3 points

            Question 5

 

1. In  the perfectly competitive market, individual firms exert no effect on  the market price. Therefore, the firm’s marginal revenue curve is:                 a.  indeterminate.                  b.  an upward-sloping curve.                  c.  a downward-sloping curve.                  d.  the same as the firm’s demand curve.

3 points

            Question 6

 

1. Exhibit 8-12 Marginal revenue and cost per unit curves

   

   As shown in Exhibit 8-12, the firm will shut down in the short-run at a price below:                 a.  OB.                  b.  OA.                  c.  OD.                  d.  OC.

3 points

            Question 7

 

1. Exhibit 8-3 Cost per unit curves

   

   As shown in Exhibit 8-3, the price at which the firm earns zero economic profit in the short-run is:                 a.  more than $2.00 per unit.                  b.  $1.00 per unit.                  c.  $2.00 per unit.                  d.  $1.50 per unit.                  e.  $4.00 per unit.

3 points

            Question 8

 

1. In the short run, if a perfectly competitive firm is producing at a price above average total cost, its economic profit must be:                 a.  normal.                  b.  negative.                  c.  zero.                  d.  positive.

3 points

            Question 9

 

1. Which of the following correctly explains why sellers in a perfectly competitive market are price takers?                 a.  There  are many sellers, and so the market process generates an equilibrium  price that cannot be influenced by any one seller. Thus they have no  choice but to take the price generated by the market process.                  b.  Individual  buyers in a competitive market have the power to influence price, and  thus can impose prices and other conditions on powerless sellers.                  c.  There are few sellers, and so they have the power to take whatever price they want.                  d.  Sellers  in a competitive market have the power to influence price by colluding  with one another and using quotas to limit overall market output and  thus raise price.

3 points

            Question 10

 

1. Exhibit 8-3 Cost per unit curves

   

   As shown in Exhibit 8-3, the firm will produce in the short run if the price is at least equal to:                 a.  $1.00 per unit (point A).                  b.  $1.50 per unit (point B).                  c.  $2.00 per unit (point C).                  d.  $4.00 per unit (point D).

3 points

            Question 11

 

1. Under both perfect competition and monopoly, a firm:                 a.  always earns a pure economic profit.                  b.  is a price maker.                  c.  sets marginal cost equal to marginal revenue.                  d.  will shut down in the short-run if price falls short of average total cost.                  e.  is a price taker.

4 points

            Question 12

 

1. Compared to a perfectly competitive industry, a monopolist with the same marginal cost and demand curve will charge:                 a.  a higher price and produce a higher volume of output.                  b.  a higher price and produce a lower volume of output.                  c.  the same price and produce the same volume of output.                  d.  a lower price and produce a lower volume of output.                  e.  a lower price and produce a higher volume of output.

4 points

            Question 13

 

1. Exhibit 9-8 Profit maximizing for a monopolist
   ​
   

   As shown in Exhibit 9-8, the monopolist’s total cost is which of the following areas?                 a.  P1AEP5.                  b.  P2BDP4.                  c.  P3CDP5.                  d.  P4DEP5.                  e.  None of these.

4 points

            Question 14

 

1. A  monopoly sets a market price that is higher than the marginal cost of  production. This fact implies that a monopoly’s allocation of resources  is:                 a.  unfair.                  b.  inefficient.                  c.  excessive.                  d.  discriminatory.

4 points

            Question 15

 

1. The goal of any monopolist is to maximize:                 a.  normal profits.                  b.  output.                  c.  price.                  d.  economic profits.                  e.  consumer welfare.

4 points

            Question 16

 

1. Under monopoly, a firm:                 a.  is a price taker.                  b.  will shut down in the short-run if price falls short of average total cost.                  c.  maximizes profit by setting marginal cost equal to marginal revenue.                  d.  always earns a pure economic profit.

4 points

            Question 17

 

1. Which of the following is true for the monopolist?                 a.  Marginal revenue is less than the price charged.                  b.  Economic profit is possible in the long-run.                  c.  Profit maximizing or loss minimizing occurs when marginal revenue equals marginal cost.                  d.  All of the above.                  e.  None of the above.

4 points

            Question 18

 

1. Exhibit 9-2 Demand and cost information for a monopoly

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   Refer  to Exhibit 9-2. Using the rule that focuses on the marginal approach to  maximizing profits, the monopolist maximizes profit by choosing price  equal to:                 a.  $10.                  b.  $30.                  c.  $40.                  d.  $20.                  e.  $0.

4 points

            Question 19

 

1. If pizza used to be produced in a perfectly competitive market, and now the pizza market has become a monopoly, we can expect:                 a.  less pizza to be sold at a lower price.                  b.  the same amount of pizza to be sold at the same price.                  c.  more pizza to be sold at a higher price.                  d.  less pizza to be sold at a higher price.                  e.  more pizza to be sold at a lower price.

4 points

            Question 20

 

1. When  marginal revenue is zero for a monopolist facing a downward-sloping  straight-line demand curve, the price elasticity of demand is:                 a.  equal to 0.                  b.  less than 2.                  c.  greater than 1.                  d.  equal to 1.

4 points

            Question 21

 

1. Game theory is an especially useful model for analysis in the following types of markets:                 a.  monopolistic competition.                  b.  perfect competition.                  c.  oligopoly.                  d.  monopoly.

4 points

            Question 22

 

1. Suppose an oligopoly has a dominant firm that sets the price for the entire industry. In this situation, the oligopoly has:                 a.  a cartel.                  b.  a kinked demand curve.                  c.  nonprice competition.                  d.  price leadership.

4 points

            Question 23

 

1. Exhibit 10-5 Two-Firm Payoff Matrix

   

   Suppose  costs are identical for the two firms in Exhibit 10-5. Each firm  assumes without formal agreement that if it sets the high price its  rival will not charge a lower price. Under these “tit-for-tat” conditions, equilibrium will be established by:                 a.  Beta Co. charging $1,000 and Alpha Co. charging $500.                  b.  Beta Co. charging $500 and Alpha Co. charging $1,000.                  c.  Beta Co. charging $1,000 and Alpha Co. charging $1,000.                  d.  Beta Co. charging $500 and Alpha Co. charging $500.

4 points