Exercise Problems - Final Exam - Amazon S3s3.amazonaws.com/zanran_storage/econweb.tamu.edu/ContentPages/... · Exercise Problems - Final Exam ... and we observe Michelle eating a

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Exercise Problems - Final Exam

*Take some time to go over these questions. Again, these questions are quite comparable to those in

the real exam. Some of the questions may be quite straight forward, you only need to look at them

once; Others could take more of your time to figure them out, but they help you understand the

concepts much better and you will feel comfortable in the final exam.

Chapter 21

1) The amount of pleasure or satisfaction derived from consumption of a good is called

A) elasticity.

B) utility.

C) consumer surplus.

D) demand.

2) The utility that people experience from the consumption of a good depends on

A) their income level.

B) their tastes and preferences.

C) total sales of the good.

D) how much shopping time they spent obtaining the good.

3) Marginal utility is measured as

A) utility per unit of production.

B) extra output divided by extra utility.

C) output of a good or service divided by price.

D) extra utility from each additional good consumed.

4) The term marginal means

A) total.

B) cumulative.

C) subjective.

D) additional.

5) The total utility from consuming 8 units of a good is 155. The marginal utility of the 8th unit is 7 and

the marginal utility of the 7th unit is 11. The total utility from consuming 6 units of the good is

A) 173.

B) 144.

C) 137.

D) 130.

6) When the total utility from consuming one good is maximized, marginal utility is

A) maximized.

B) minimized.

C) zero.

D) positive.

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7) At a ball game we can observe people eating hot dogs, chips, and burgers. If all are priced the same

and we observe Michelle eating a hot dog and David eating a hamburger, we can conclude that

A) Robert will be eating chips.

B) Michelle likes hot dogs better than David does and David likes hamburgers better than Michelle does.

C) Michelle derives the same amount of utility from eating a hot dog as David derives from eating a hamburger.

D) at this time Michelle derives more utility from eating a hot dog than from eating either a hamburger or chips, while

David derives more utility from eating a hamburger than from eating either a hot dog or chips.

8) John has just eaten another potato chip and his total utility decreased. This means that John's

marginal utility for this additional potato chip is

A) positive.

B) negative.

C) zero.

D) not determinable without more information.

9) Economists assume that people make decisions regarding consumption based on comparing

A) additional units of satisfaction with additional costs.

B) average satisfaction with additional costs.

C) average satisfaction with average costs.

D) additional units of satisfaction with average costs.

10) Given the above figure, when Joey eats a third piece of pizza his marginal utility is ________ and

his total utility is ________.

A) falling; falling

B) falling; rising

C) rising; falling

D) rising; rising

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11) According to the above table, which of the four people have utility schedules characterized by the

law of diminishing marginal utility?

A) Michelle and Robert only

B) Michelle, Robert, and David only

C) Michelle only

D) All of them

12) According to the above table, what is Lauren's marginal utility of the 4th unit?

A) 90

B) 220

C) 310

D) 530

13) Given the above figure, if Joey was a rational consumer he would NOT eat more than ________

piece(s) of pizza.

A) 1

B) 3

C) 4

D) 6

14) If a consumer concludes that the marginal utility of the last dollar spent on vegetables exceeds the

marginal utility of the last dollar spent on junk food, he will respond by

A) consuming relatively more junk food and fewer vegetables.

B) consuming relatively more vegetables and less junk food.

C) consuming equal amounts of vegetables and junk food.

D) halting consumption of junk food altogether.

15) The price of a hamburger is $1, the price of a movie is $5, and the consumer has $13. A consumer

has purchased 3 hamburgers and two movies, receiving 10 units of utility for the last hamburger and 10

units of utility for the last movie. The set of goods

A) is an optimum since the entire income is spent and the marginal utility is the same for the last unit of each good.

B) is an optimum because the consumer has maximized her utility given the limited income she had.

C) is not an optimum because the marginal utility per dollar spent is greater for the hamburger than for the movie.

D) is not an optimum because the marginal utility for the second hamburger was less than the marginal utility for the

first hamburger.

16) A consumer's optimum is found when

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A) prices of goods go down.

B) the consumer is achieving the maximum level of utility given market prices and their limited income.

C) the marginal utility of the last dollar spent equals 0 for every good.

D) the consumer saves part of their income.

17) For any two goods, X and Y, if MUX divided by PX equals 2.5 and MUY divided by PY equals 4.0,

then with given income and prices the consumer should

A) buy more of good X and less of good Y.

B) buy more of good Y and less of good X.

C) buy all of good Y and no X.

D) stop because an equilibrium is achieved.

18) The price of good "a" is $5 and the price of good "b" is $15. If the marginal utility of good "a" is 20

then the marginal utility of good "b" must be ________ to have an optimum combination of goods

purchased.

A) 4

B) 20

C) 60

D) 80

19) The reason that all-you-can-eat restaurants can make a profit is due to

A) the law of demand.

B) the law of increasing relative costs.

C) the law of diminishing marginal utility.

D) the law of diminishing marginal returns.

20) A consumer has spent all of his funds on hamburgers and movies. The price of a hamburger is $1

and the price of a movie is $5. The marginal utility of the last hamburger is 5 and the marginal utility of

the last movie is 40. This consumer has

A) not maximized utility. To maximize utility, he should cut back on movies and buy more hamburgers.

B) not maximized utility. To maximize utility, he should cut back on hamburgers and buy more movies.

C) not maximized utility. To maximize utility, he should cut back consumption of each.

D) maximized utility.

21) The price of a magazine is $2, the price of a paperback book is $5, and the consumer has $33.

According to the above table, the rational consumer will purchase

A) 1 magazine and 2 books.

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B) 2 magazines and 3 books.

C) 4 magazines and 5 books.

D) 5 magazines and 6 books.

22) According to utility theory, consumer purchase decisions are made such that

A) the value of the ratio of marginal utility to price for the last units purchased and consumed is equal.

B) the difference between the value of the marginal utility of the last unit purchased and the price paid is maximized.

C) the total utility of the last unit purchased is equal to the price of that unit.

D) the total utility from consuming the good is less than the marginal utility of the last unit consumed.

23) The real-income and the substitution effects reinforce each other by

A) increasing the consumption of good y when the price of x falls.

B) increasing the consumption of both goods x and y when income increases.

C) decreasing the consumption of good x when the price of good y falls.

D) decreasing the consumption of good x when the price of good x increases.

24) Suppose that a consumer is at an optimum consuming X and Y. If the price of X falls, then to get

to a new equilibrium the consumer must

A) purchase less X and more Y.

B) purchase less Y and less X.

C) purchase more X.

D) purchase more Y.

25) The real-income effect is typically small because

A) the change in price of one particular item has little effect on total purchasing power.

B) income has no relation to consumption.

C) price changes tend to balance out over time.

D) real-incomes are always rising.

26) The real-income effect of a price change is most significant when

A) the substitution effect is insignificant.

B) the substitution effect is significant too.

C) the good under consideration constitutes a major portion of the consumer's budget.

D) the marginal utility per dollar spent on the last unit is high.

27) The substitution effect shows that

A) if the price of a good increases, consumers buy more of that good and less of all others.

B) if the price of a good falls relative to all other goods, consumers buy less of that good and more of all others.

C) if the price of a good falls, consumers buy less of all goods.

D) if the price of a good rises, consumers buy less of that good and more of others.

28) Other things being equal, when the money price of a good increases, its relative price

A) stays the same.

B) increases.

C) decreases.

D) falls to zero.

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29) If a consumer is initially at an optimum, and then the price of Y falls, then

A) MUx/ PX < MUY/ PY.

B) MUx / PX > MUY / PY.

C) MUx / PX = MUY / PY.

D) MUx / MUY > PY / PX.

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Chapter 23

1) Which of the following is TRUE about the long run?

A) All resources are variable.

B) All resources are fixed.

C) At least one resource is fixed.

D) None of the above.

2) The focus of firm decisions in the short run is primarily on

A) variable inputs.

B) capital investment.

C) plant size.

D) economies of scale.

3) A basic distinction between the long run and the short run is that

A) if a firm produces no output in the long run, it still incurs a cost.

B) the opportunity costs of production are lower in the short run than in the long run.

C) in the long run, some inputs are fixed, while in the short run, all inputs are variable.

D) in the short run, complete adjustment of all inputs is impossible, while in the long run all inputs can be adjusted.

4) When a firm uses technological improvements to increase output from the same amount of inputs,

the result is

A) a new production function.

B) losses.

C) guaranteed profits.

D) diseconomies of scale.

5) If marginal product is negative, then

A) total product is rising.

B) total product is falling.

C) marginal cost is falling.

D) average profit is rising.

6) If in the short run total product is decreasing as more workers are hired, then the marginal physical

product is

A) increasing.

B) zero.

C) negative.

D) positive.

7) The marginal physical product of labor is calculated assuming other factor inputs

A) increase more than proportionately.

B) increase less than proportionately.

C) remain constant.

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D) decrease.

8) When total product is rising,

A) fixed cost must be rising.

B) marginal product must be positive.

C) variable cost must be declining.

D) marginal product must be negative.

9) In the above table, average physical product is 30 snowboards when

A) 4 workers are employed.

B) 3 workers are employed.

C) 2 workers are employed.

D) 1 worker is employed.

10) In the above table, when the firm employs 4 workers, the marginal product will be

A) 140 snowboards.

B) 30 snowboards.

C) 35 snowboards.

D) 208 snowboards.

11) In the above table, how many workers are employed when marginal product reaches its maximum?

A) 1

B) 2

C) 3

D) 4

12) In the above table, diminishing marginal product occurs after employing the

A) first worker.

B) second worker.

C) third worker.

D) fourth worker.

13) In the above table, marginal product becomes negative after employing the

A) second worker.

B) third worker.

C) fourth worker.

D) fifth worker.

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A firm has the following production relationship between labor and output, for a fixed capital stock.

14) According to the above table, at what usage of labor does diminishing marginal product begin?

A) 1

B) 2

C) 4

D) 5

15) According to the above table, what is the marginal product of the 4th unit of labor?

A) 3

B) 5

C) 6

D) 7

16) According to the above table, what is the average product of labor when three laborers are

employed?

A) 3

B) 4

C) 5

D) 6

17) The marginal productivity of labor will eventually decrease as more workers are employed because

A) average product is increasing.

B) total product is decreasing.

C) the amount of capital will also be increasing.

D) on the average each worker will have fewer inputs to work with.

18) The point of saturation occurs when a firm

A) has total returns equal to zero.

B) first encounters negative marginal product.

C) first experiences positive marginal product.

D) maximizes its total returns.

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19) Using the above table, the total product and average physical product when 3 workers are

employed are

A) 36 and 12, respectively.

B) 39 and 13, respectively.

C) 37 and 27, respectively.

D) 40 and 10, respectively.

20) Using the above table, the total product and average physical product when 5 workers are

employed are

A) 61 and 21, respectively.

B) 62 and 13, respectively.

C) 62 and 15, respectively.

D) 61 and 12.2, respectively.

21) What happens at a firm's point of saturation?

A) For the first time, hiring an additional worker decreases total product.

B) Workers cannot take on any additional tasks without working overtime hours.

C) The market for a firm's output has been saturated and sales fall to zero.

D) The firm's total costs exceed its revenues.

22) The firm's short-run costs contain

A) only variable costs.

B) only fixed costs.

C) both variable and fixed costs.

D) only opportunity costs.

23) Which of the following is correct?

A) TC = TFC + TVC

B) TC = TFC - TVC

C) TC = TFC * TVC

D) TC = TFC / TVC

24) Suppose that a firm is currently producing 1,000 units of output. At this level of output, AVC is $1

per unit, and TFC is $500. What is the firm's TC?

A) $1,500

B) $1,000

C) $501

D) $499

25) If, in the short run, the level of output is zero, which of the following statement is true?

A) total variable cost is zero but total cost equals total fixed cost, and both of the latter exceed zero

B) total cost and total fixed cost graphs will begin at the origin

C) total fixed cost will also be zero at first but will rise once output rises

D) none of the above

26) Suppose that a firm is currently producing 500 units of output. At this level of output, TVC =

$1,000 and TFC = $2,500. What is the firms ATC?

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A) $2

B) $5

C) $7

D) $10

27) Refer to the above table. At an output of 4 units, average total costs are

A) $16.

B) $22.

C) $38.50.

D) $44.

28) Refer to the above table. When output rises from 2 units to 3 units, marginal costs are

A) $7.

B) $10.

C) $22.

D) $41.

29) The total cost of the firm

A) includes explicit costs but excludes implicit costs.

B) includes implicit costs but excludes explicit costs.

C) includes implicit and explicit costs.

D) includes implicit and explicit costs but excludes a normal rate of return on investment.

30) Using the above table, the AFC, the AVC, and the ATC when output is 1 unit are

A) $5, $5, and $5, respectively.

B) $5, $10, and $15, respectively.

C) $0, $5, and $10, respectively.

D) $10, $15, and $15, respectively.

31) Using above table, the TC, the AFC, and the AVC when output is 2 units are

A) $20, $2.50, and $10, respectively.

B) $25, $2.50, and $20, respectively.

C) $30, $2.50, and $12.50, respectively.

D) $15, $2.50, and $12.50, respectively.

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32) Using the above table, the TVC, the TC, and MC when output is 3 units are

A) $45, $50, and $20, respectively.

B) $15, $20, and $20, respectively.

C) $15, $18, and $20, respectively.

D) $15, $16.70, and $20, respectively.

33) Using the above table, the TVC, the TC, and the MC when output is 4 units are

A) $67, $72, and $22, respectively.

B) $20, $25, and $22, respectively.

C) $20, $25, and $30, respectively.

D) $67, $62, and $22, respectively.

34) Use the above figure. At an output equal to "Q" the total cost for the firm will be the area

A) OQDC.

B) OQAF.

C) OQBC.

D) OQBE.

35) Use the above figure. At an output equal to "Q" the average fixed cost for the firm will be the line

segment

A) DE.

B) AB.

C) BE.

D) CD.

36) Use the above figure. At an output equal to "Q" the total variable cost for the firm will be the area

A) OQAB.

B) OQBE.

C) OQAF.

D) OQDE.

37) In economics, the planning horizon is defined as

A) 10 years for every firm.

B) the longest time period over which the firm can make decisions.

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C) the period of time for which technology is fixed.

D) the long run, during which all inputs are variable.

38) The minimum possible short-run average costs are equal to long-run average costs when

A) the plant is producing at its short-run minimum point.

B) short-run and long-run costs are declining.

C) the long-run curve is at a minimum point.

D) production is at any point on the LAC curve.

39) Every point on the long-run average cost curve is

A) also a minimum point on a short-run average cost curve.

B) on a short-run average total cost curve.

C) on a short-run average variable cost curve.

D) on a short-run marginal cost curve.

40) The long-run average cost curve

A) is always a downward sloping straight line.

B) is a curve which is tangent to each member of a set of short-run average cost curves.

C) is identical to the marginal cost curve.

D) should always be horizontal.

41) A firm's long-run average cost curve is

A) the locus of points representing the minimum unit cost of producing any given rate of output when all inputs may be

adjusted.

B) the locus of points made up of the minimum point on each short-run average total cost curve when only one input

may be adjusted.

C) the envelope of the firm's variable cost curves.

D) identical to the lowest short-run average cost curve the firm has.

42) Economies of scale occur when there are

A) decreases in long-run average costs resulting from increases in output.

B) no changes in long-run average costs when output increases.

C) increases in long-run average costs when output increases.

D) decreases in output resulting from decreases in input.

43) If a firm gets so large that management of employees and other resources becomes a costly

problem, it will be experiencing

A) diseconomies of scale.

B) diminishing marginal product.

C) constant returns to scale.

D) economies of scale.

44) The planning curve is the

A) long-run average cost curve.

B) production function.

C) short-run marginal cost curve.

D) short-run average cost curve.

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45) In the above figure, for any output level less than Q2, this firm experiences

A) economies of scale.

B) diseconomies of scale.

C) constant economies of scale.

D) decreasing long run average costs.

46) Which of the following is NOT a reason a firm might experience economies of scale?

A) Specialization

B) Dimensional factors

C) Increasing long-run average costs

D) More productive equipment

47) In the above figure, the firm experiences constant returns to scale between output levels of

A) zero and Q1.

B) Q2 and Q3.

C) Q3 and Q4.

D) any level greater than Q4.

48) In the above figure, point B is called

A) the maximum efficient scale.

B) the minimum efficient scale.

C) the planning horizon.

D) the point of diminishing marginal product.

49) When a firm is at its minimum efficient scale of operation, it produces the

A) maximum rate of output at which long-run average cost is minimized.

B) minimum rate of output at which long-run average cost is minimized.

C) maximum rate of output consistent with lowest long-run marginal cost.

D) minimum rate of output consistent with lowest long-run marginal cost.

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Chapter 24

1) Which of the following is NOT a characteristic of a perfectly competitive market?

A) The products sold by the firms in the market are homogeneous.

B) There are many buyers and sellers in the market.

C) It is difficult for a firm to enter or leave the market.

D) Each firm is a price taker.

2) The perfectly competitive firm cannot influence the market price because

A) it has market power.

B) its production is too small to affect the market.

C) it is a price maker.

D) its costs are too high.

3) In a perfectly competitive market structure any firm can enter or leave the industry without serious

impediments. This implies

A) the products sold will be alike.

B) firms will move labor and capital in pursuit of profit-making opportunities to whatever business venture gives them

the highest return on their investment.

C) no one buyer or seller has any influence on price.

D) consumers are able to find out about lower prices charged by other firms.

4) If a firm is a perfect competitor, then

A) the demand curve for its product is perfectly elastic.

B) it can independently set the price of the product it sells without regard to what other firms in the market are doing.

C) it is impossible for the firm to earn short-run economic profits.

D) its marginal cost will exceed marginal revenue at the optimal level of output.

5) In a perfectly competitive industry, the industry demand curve

A) must be horizontal.

B) must be vertical.

C) is upward sloping.

D) is downward sloping.

6) The demand curve for a perfectly competitive firm is horizontal because

A) consumers are willing to pay any price to obtain its product.

B) its production decisions cannot influence the market price.

C) the firm profits from setting its price higher than the market price.

D) its product is easy for consumers to differentiate from those of other firms.

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7) Refer to the above figure. The figure represents the market demand and supply curves for widgets.

What statement can be made about the demand curve for an individual firm in this market?

A) An individual firm's demand curve will be a smaller version of the market demand curve.

B) An individual firm's demand curve will be horizontal at $5.

C) An individual firm's demand curve will be horizontal at a price below $5.

D) An individual firm's demand curve cannot be determined from the graph above.

8) For a firm in a perfectly competitive market, average revenue equals

A) average cost.

B) the change in total revenue.

C) the market price.

D) price divided by quantity.

9) Economists generally assume that firms attempt to maximize

A) total revenue.

B) sales.

C) marginal revenue.

D) total economic profits

10) Which is always true at a firm's profit-maximizing rate of production?

A) Total Revenue = Total Costs

B) The total revenue curve lies below the total cost curve.

C) Marginal Revenue > Marginal Cost

D) Marginal Revenue = Marginal Cost

11) When a firm is operating at an output rate at which total revenue equal total costs, this is called

A) its shutdown point.

B) its breakeven point.

C) a short-run profit.

D) a loss.

12) If a firm is producing an output rate at which marginal cost is greater than price, the firm

A) is sustaining economic loss.

B) should increase its output level.

C) should reduce its output level.

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D) will not be covering its fixed cost.

13) For a perfectly competitive firm, the short-run break-even point occurs at the level of output

where

A) P > MR = MC.

B) MR = P > MC.

C) MR < P = MC.

D) P = MC = ATC.

14) At the short-run break-even point, the perfectly competitive firm is

A) earning positive economic profits.

B) earning zero economic profits.

C) earning negative economic profits.

D) just covering its total variable costs.

15) According to the above figure, if the firm is earning zero economic profits, what quantity is the

firm selling and at what price?

A) Q = 200; P = $4

B) Q = 1,000; P = $5

C) Q = 800; P = $4

D) Q = 1,200; P = $7

16) In the short run, a firm should shut down when

A) P < AVC.

B) P > MC.

C) MR > MC.

D) MR = ATC.

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17) The short-run break-even price is the point at which

A) price is less than marginal cost.

B) marginal cost, average total cost and marginal revenue are all equal.

C) average variable cost is at a minimum.

D) marginal cost, price and average variable cost are all equal.

18) When demand is perfectly elastic, marginal revenue is

A) zero.

B) equal to price.

C) declining.

D) increasing.

19) For a firm in a perfectly competitive industry

A) the demand curve is unitary elastic throughout.

B) marginal revenue and product price are equal at every level of output.

C) the price elasticity of demand is zero.

D) more output can be sold only if the firm unilaterally lowers its product price.

20) In the above figure, assume d1 is the demand curve faced by this firm. Which is true?

A) This firm is earning an economic profit.

B) This firm is experiencing an economic loss.

C) This firm is breaking even.

D) This firm's total costs equal EJA0.

21) In the above figure, assume this firm is operating on d3. Which is true?

A) This firm is earning an economic profit.

B) This firm is experiencing an economic loss.

C) This firm is breaking even.

D) This firm's total revenues equal HRD0.

22) In the above figure, assume d3 is the relevant demand curve for this firm. Then which level of

output will maximize this firm's profits or minimize its losses?

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A) A

B) B

C) C

D) D

23) In the above figure, when price is below E, this firm should

A) lower prices.

B) continue to operate as-is.

C) attempt to lower ATC and to raise AVC.

D) shut down.

24) If the firm in the above figure produces output level D, it incurs an average fixed cost of

production equal to the distance

A) DK.

B) RN.

C) JL.

D) KR.

25) In the above figure, the firm will shut down if price falls below

A) F.

B) I.

C) H.

D) E.

26) The firm in the above figure breaks even when market price is

A) H.

B) E.

C) I.

D) G.

27) A perfectly competitive firm is maximizing profits in the short run. This implies that the firm is

earning the most economic profits possible, which

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A) must be positive.

B) must be either zero or positive.

C) can be positive, negative, or zero.

D) exist at the point at which price equals total cost.

28) Refer to the above figure. If the market price is equal to A, which statement can be made about

economic profits?

A) Economic profits are positive and equal to ABCG.

B) Economic profits are positive and equal to ABEF.

C) Economic profits are negative and equal to GCEF.

D) Economic profits are negative and equal to ABQ0.

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29) Refer to the above figure. If the market price is equal to A, which statement can be made about

profits?

A) Profits are positive and equal to BCEA.

B) Profits are positive and equal to BCFG.

C) Profits are negative and equal to BCEA.

D) Profits are negative and equal

30) Refer to the above figure. In order to stay open in the short run, this firm must

A) earn a positive profit.

B) receive a price equal to or greater than the minimum of its average variable cost.

C) receive a price exactly equal to its average total cost.

D) recover its fixed cost.

31) In the above figure, what is the profit-maximizing output and price?

A) 8, $7

B) 10, $8

C) 12, $10

D) 10, $10

32) In the above figure, what is the profit at the profit-maximizing output level?

A) $70

B) $2

C) $20

D) $10

33) In the above figure, what is the price the firm receives if the output is 8?

A) $10

B) $2

C) $7

D) $8

34) The rising portion of a perfectly competitive firm's marginal cost curve, above the intersection

with AVC, is its

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A) demand curve.

B) economic profit.

C) supply curve.

D) accounting profit.

35) A perfectly competitive firm is producing zero units of output in the short run. We know that

price is

A) below the minimum point of its average fixed cost curve.

B) below the minimum point of its average variable cost curve.

C) below the minimum point of its average total cost curve.

D) between the minimum points of its average total cost curve.

36) The short-run industry supply curve slopes up because

A) the firms eventually experience diseconomies of scale.

B) the law of diminishing marginal product applies in the short run.

C) wages increase as the industry increases output.

D) the higher price is needed to get more firms to enter the industry.

37) In the long run, the price for a perfectly competitive firm

A) will be determined by the firm's supply and demand curves.

B) will allow for positive economic profits.

C) will equal marginal cost where marginal cost is at a minimum.

D) will equal the minimum average total cost.

38) A perfectly competitive firm will not earn an economic profit in the long run, because

A) it is a "price-maker."

B) it faces a perfectly inelastic demand curve.

C) there are no barriers to entry into the industry.

D) it produces differentiated products.

39) Refer to the above figure. A perfectly competitive firm that is in long-run equilibrium will be

operating

A) with positive economic profits.

B) at a quantity greater than point E.

C) at a quantity less than point E.

D) at point E.

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40) In a long-run perfectly competitive equilibrium,

A) P = MR = MC > ATC.

B) P = MR > MC = ATC.

C) P = MR = MC = ATC.

D) P > MR > MC = ATC.

41) When marginal cost pricing occurs,

A) price equals the additional cost society incurs in producing the next unit of an item.

B) the firm can only break even if it does not set price to marginal cost.

C) price equals average variable cost but exceeds average total cost.

D) the firm is at the shutdown point.

42) If markets are perfectly competitive, then the production of goods

A) will use the least costly combination of resources.

B) will occur at an average total cost value that is above the minimum.

C) will require government intervention.

D) will always lead to business failures.

43) Perfectly competitive markets are efficient because

A) they always reach equilibrium.

B) firms in the market are price takers.

C) the cost to society for producing the goods is exactly equal to the value that society places on the good.

D) the long run equilibrium assures that the prices of resources will not increase.

44) In a perfectly competitive market, if P > MC, then

A) too little output is being produced.

B) too much output is being produced.

C) production is efficient, as the firm is earning profits.

D) the firm is paying a price for resources that is too high.

45) In a perfectly competitive market, if P < MC, then

A) too little output is being produced.

B) too much output is being produced.

C) production is efficient, as the firm is earning profits.

D) the firm is paying a price for resources that is too high.

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Chapter 25

1) In a monopoly,

A) the firm is large in an absolute sense.

B) the market is small in an absolute sense.

C) the firm and the industry are the same thing.

D) the monopolist determines how much each firm will produce.

2) Which of the following is NOT a barrier to entry that would allow a monopolist to keep potential

competitors out of its market?

A) Significant economies of scale exist.

B) The market price of the product is too high.

C) The firm has a patent on the good or control over some resource required for the production of the good.

D) The firm has government authorization to be a monopoly.

3) For a firm to become a monopoly in an industry,

A) barriers to entry must exist.

B) the firm must charge higher prices than its competitors.

C) the firm must produce a faulty product.

D) the firm will engage in unfair practices to drive all competitors out of the market.

4) Compared to perfectly competitive firms, the demand curve for a monopolist will be

A) as elastic.

B) more elastic.

C) less elastic.

D) perfectly elastic.

5) The demand curve a monopoly faces is

A) horizontal.

B) vertical.

C) upward sloping.

D) downward sloping.

6) The demand curve faced by a pure monopolist

A) is the same as its marginal revenue curve.

B) is perfectly inelastic.

C) lies below the marginal revenue curve.

D) is the market demand curve.

7) An important difference between perfect competition and monopoly is

A) a monopoly is profitable and a perfect competitor is not.

B) the monopoly faces a downward sloping demand curve and the perfect competitor faces a horizontal demand curve.

C) the monopoly faces an inelastic demand curve and the perfect competitor faces an elastic demand curve.

D) a monopoly is not regulated by the market, while a perfect competitor is regulated by the market.

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8) Given the data in the above table, what is the marginal revenue when the 15th unit is sold?

A) $7.00

B) $5.00

C) $3.00

D) $1.00

9) Given the data in the above table, what is the marginal revenue when the 12th unit is sold?

A) $7.00

B) $5.00

C) $3.00

D) $1.00

10) Given the data in the above table, the marginal revenue curve

A) lies below the demand curve.

B) lies above the demand curve.

C) intersects the demand curve.

D) is equal to the demand curve.

11) A monopolist

A) can charge whatever price it wants because it is the only firm producing the good.

B) can usually keep price equal to marginal revenue by lowering the price on the last unit sold only.

C) faces a demand curve that is more elastic than the demand curve for the industry.

D) is constrained in its pricing decisions by the demand curve it faces.

12) For a monopolist that is maximizing profits,

A) price exceeds marginal cost.

B) price equals marginal revenue.

C) price equals average total cost.

D) marginal revenue exceeds price.

13) A monopoly will maximize profits at the level of output at which

A) MR = MC.

B) MR = AFC.

C) MC = ATC.

D) MC = P.

14) Suppose a monopolist's costs and revenues are as follows: ATC = $50.00; MC = $35.00; MR = $45.00;

P = $55.00. The firm should

A) increase output and decrease price.

B) decrease output and increase price.

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C) not change output or price.

D) shut down.

15) The profit maximizing behavior of a monopoly is different from that of a perfectly competitive

firm in that a monopoly can

A) only choose the desired output, while a competitive firm can control only price.

B) only choose the desired price, while a competitive firm can control only output.

C) control the position of its demand schedule, but a competitive firm cannot.

D) control the desired price and output to maximize profits, but a perfectly competitive firm can only choose the

desired output.

16) The profit-maximizing price and quantity established by the unregulated monopolist in the above

figure are

A) Q1 units of output and a price of P5.

B) Q3 units of output and a price of P3.

C) Q1 units of output and a price of P1.

D) Q4 units of output and a price of P4.

17) In the above figure, at the firm's profit maximizing output, total revenue is rectangle

A) 0P1AQ1.

B) 0P3FQ3.

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C) 0P5EQ5.

D) 0P2BQ1.

18) A firm that must determine the price-output combination that maximizes profit because it faces a

downward-sloped demand curve

A) has a perfectly elastic demand curve.

B) has a perfectly inelastic demand curve.

C) is a price-taker.

D) is a price searcher.

19) Refer to the above table. Given the demand and cost schedules, what is the profit maximizing

quantity for this monopolist?

A) 3

B) 7

C) 20

D) 24

20) Refer to the above table. Given the demand and cost schedules, what is the profit-maximizing price

for this monopolist?

A) $3

B) $7

C) $20

D) $24

21) Refer to the above figure. The profit-maximizing price and output for this monopolist are

28

A) a price of P1 and output of Q1.

B) a price of P4 and output of Q1.

C) a price of P2 and output of Q2.

D) a price of P3 and output of Q3.

22) Refer to the above figure. Profits for this firm are

A) negative.

B) zero.

C) positive.

D) undetermined without more information.

23) Refer to the above figure. The firm is currently producing at Q2. The firm should

A) reduce production.

B) leave production as it is.

C) increase production.

D) shut down.

24) Refer to the above figure. The firm is currently producing at Q1. The firm should

A) reduce production.

B) leave production as it is.

C) increase production.

D) shut down.

25) In the above figure, what is the profit-maximizing price and output?

A) $9, 14

B) $13, 14

C) $11, 16

D) $10, 17

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26) In the above figure, what is total revenue at the profit-maximizing point?

A) $182

B) $126

C) $170

D) $176

27) In the above figure, what is total cost at the profit-maximizing point?

A) $182

B) $120

C) $112

D) $96

28) In the above figure, what is total profit at the profit-maximizing point?

A) $85

B) $50

C) $100

D) $70

29) In the above figure, the break-even output and price is

A) $9 and 14.

B) $13 and 14.

C) $11 and 16.

D) $10 and 17.

30) According to the above figure, the maximum profit the monopolist can receive is

A) 0.

B) $1,500 per day.

C) $9,000 per day.

D) $7,500 per day.

31) According to the above figure, what are the profits of the firm if it produces 50,000 units?

A) -$5,000 per day

B) -$10,000 per day

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C) -$7,500 per day

D) -$17,500 per day

32) If the above figure accurately portrays the market conditions for a given monopolist, we can be

assured that the monopolist

A) is making a normal profit.

B) is producing at the level that will maximize benefit to society.

C) is making excessive profits.

D) will be forced to go out of business in the long run.

33) Price discrimination refers to

A) selling a product at different prices according to the differences in marginal cost of providing it to different

consumers.

B) selling a product at different prices, with the price difference being unrelated to differences in marginal cost.

C) charging the same prices to all consumers but selling them different quantities.

D) a deliberate effort on the part of a monopoly producer to confuse consumers.

34) A monopoly will look for opportunities to price discriminate because the practice

A) leads to selling more units.

B) leads to greater profits.

C) allows it to charge higher prices.

D) is desired by customers.

35) If a firm is price differentiating, then it is

A) producing a homogenous product.

B) charging different prices to different consumers based on differences in marginal costs.

C) charging different prices based on quality.

D) charging different prices based on advertising costs.

36) Monopolies are discouraged in the United States because

A) they are more efficient than other industries.

B) they can produce at lower cost in the short run.

C) they restrict output and boost prices.

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D) they hire too many workers.

37) Which of the following statements is TRUE?

A) At the monopolist's equilibrium, resources are being efficiently allocated.

B) With a monopoly, the value to society of the last unit produced is less than it's production cost.

C) Monopolists raise the price and restrict production, compared to a competitive situation.

D) A monopolist always produces a higher level of output than would be produced if the market were competitive.

38) Conclusions about the misallocation of resources under conditions of monopoly depend, in part,

on the crucial assumption that

A) monopolies are interested in economic profits and competitive firms are not.

B) the monopolization of a perfectly competitive industry does not change the cost structure of the industry.

C) the economies of scale exist only in perfectly competitive industries.

D) the marginal cost curve of a monopolist is different from that of a perfectly competitive firm.

39) The social cost attached to monopolies is reflected by the fact that

A) monopolies produce more output than consumers desire to buy.

B) consumers pay prices that exceed the marginal cost of production.

C) the demand for a monopolist's product is always lower than the demand for the products of perfectly competitive

firms.

D) consumers are always willing to pay lower prices for a monopolist's product than for the products of perfectly

competitive firms.

40) Refer to the above figure. What price-output combination would apply under perfect

competition?

A) P4 and Q1

B) P3 and Q2

C) P2 and Q3

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D) P1 and Q1

41) Refer to the above figure. Suppose this industry was perfectly competitive and then merged into

one monopolistic firm. The monopoly would

A) raise price from P1 to P2.

B) reduce output from Q3 to Q1.

C) reduce output from Q2 to Q1 and raise price from P3 to P4.

D) raise price from P1 to P4.

42) Refer to the above figure. What is the socially optimal point of production?

A) P1 and Q1.

B) P4 and Q1.

C) P1 and Q4.

D) P3 and Q2.

43) Refer to the above figure. Which of the following statements is true?

A) Under perfect competition, the efficient price is charged, which is the lowest price possible (P1) while under

monopoly output is too large (Q4) and price is too high (P4).

B) Under perfect competition price equals marginal cost (P3) while under monopoly price (P4) is greater than marginal

cost (P1).

C) The rate of output is the same under both monopoly and perfect competition (Q1), but price is higher under

monopoly (P4 rather than P1).

D) Price equals marginal cost under both monopoly and perfect competition, but output is too low under monopoly

(Q1 instead of Q2).

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Chapter 26

1) Which of the following is NOT a characteristic of monopolistic competition?

A) Product differentiation

B) Barriers to entry into the market

C) Advertising

D) A significant number of sellers

2) Monopolistic competition is characterized by

A) relative ease of entry into the market.

B) a standard, undifferentiated product.

C) persistent long-run economic profits.

D) production at minimum average cost in the long run.

3) In a monopolistically competitive market, the consumer receives the benefit of

A) production at minimum average cost.

B) production where price equals marginal cost.

C) product diversity.

D) allocative efficiency.

4) The demand curve for the product of a monopolistic competitor is

A) downward sloping.

B) horizontal.

C) vertical.

D) unitary elastic.

5) Which of the following products is most likely to be sold in a monopolistically competitive market?

A) fast food

B) coal

C) wheat

D) electricity

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6) In the above figure, the profit-maximizing output and price for this monopolistically competitive

firm are

A) 10,000 units at a price of $10 per unit.

B) 10,000 units at a price of $5 per unit.

C) 13,000 units at a price of $7 per unit.

D) 12,000 units at a price of $8 per unit.

7) In the above figure, the profit maximizing monopolistically competitive firm will

A) produce 13,000 units.

B) make a profit of $30,000.

C) make a profit of $100,000.

D) incur a loss of $20,000.

8) In the short run, the profit-maximizing monopolistically competitive firm will produce the rate of

output at which

A) P = MC.

B) MR = MC.

C) P = ATC.

D) MR = ATC.

9) In the above figure, the monopolistically competitive firm's profit-maximizing output is

A) 1,000 units.

B) 300 units.

C) 900 units.

D) 700 units.

10) In the above figure, when this monopolistically competitive firm produces its profit-maximizing

output, it sets a per-unit price of

A) $13.

B) $11.

C) $10.

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D) $9.

11) At its profit-maximizing output, the firm in the above figure incurs a total cost of production of

A) $7,000.

B) $9,000.

C) $6,300.

D) $3,900.

12) In the above figure, this monopolistic competitive firm will realize an economic profit of

A) $7,700.

B) $6,300.

C) $1,400.

D) $700.

13) Since the firm in the above figure is operating in a monopolistically competitive industry, in the

long run we can expect to see

A) the typical firm's economic profits expand as production becomes more efficient.

B) more firms entering the industry until economic profits are zero.

C) the typical firm producing at the minimum point on its ATC curve.

D) each firm expand its share of the total market.

14) In the long run in a monopolistically competitive market, a firm will, in theory,

A) earn economic profits.

B) suffer losses.

C) break even.

D) earn zero accounting profits.

15) In the long run, monopolistic competitive firms are considered to be operating inefficiently

because their

A) economic profits are positive.

B) economic profits are zero.

C) average total costs are not at a minimum.

D) marginal costs are rising.

16) The long-run equilibrium of monopolistic competition is characterized by

A) P = MC = ATC.

B) P = MC > ATC.

C) P = MR = MC.

D) P = ATC > MC.

17) In long-run equilibrium in a monopolistically competitive industry, a firm will

A) always earn an economic profit.

B) produce an output rate at which P = MC.

C) produce at a point to the left of the minimum point on its average total cost curve.

D) have a perfectly elastic demand curve.

18) A monopolistically competitive firm maximizes profits when it

36

A) produces the quantity at which marginal cost equals the market price.

B) produces the quantity at which marginal cost equals marginal revenue and uses the demand curve to determine the

market price.

C) produces the quantity at which marginal cost equals marginal revenue and sets the price equal to the marginal cost.

D) produces the quantity at which marginal cost equals marginal revenue and sets the price equal to the marginal

revenue.

19) Refer to the above figure. Which panel does not represent a possible short-run situation for a

monopolistically competitive firm?

A) Panel A.

B) Panel B.

C) Panel C.

D) Panel D.

20) Refer to the above figure. Which panel represents the long-run situation for a monopolistically

competitive firm?

A) Panel A.

B) Panel B.

C) Panel C.

D) Panel D.

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21) In the above figure for a monopolistically competitive firm, the profit-maximizing output and

price are respectively

A) 80 units and $11.

B) 50 units and $8.

C) 60 units and $9.

D) 60 units and $14.

22) In the above figure for a monopolistically competitive firm, the total revenue at the

profit-maximizing point is

A) $540

B) $840

C) $360

D) $880

23) In the above figure for a monopolistically competitive firm, the total cost at the profit-maximizing

point is

A) $480

B) $240

C) $360

D) $600

24) In the above figure for a monopolistically competitive firm, the total economic profit at the

profit-maximizing point is

A) $0

B) $240

C) $360

D) $60

25) In the above figure, what would happen to the monopolistically competitive industry in the long

run?

38

A) More producers would enter the market, and the share of the market to this firm would fall, which would cause the

demand curve to shift leftward until there is zero economic profit.

B) More producers would exit the market, and the share of the market to this firm would fall, which would cause the

demand curve to shift leftward until there is zero economic profit.

C) More producers would enter the market, and the share of the market to this firm would rise, which would cause the

demand curve to shift rightward until there is zero economic profit.

D) More producers would enter the market, and the share of the market to this firm would fall, which would cause the

demand curve to shift leftward until there is negative economic profit.

26) The above table depicts prices, quantities, and marginal costs faced by the campus bookstore. At

the profit-maximizing level of output, what is the total revenue earned by the store?

A) $8

B) $5

C) $15

D) $1

27) The above table depicts prices, quantities, and marginal costs the campus bookstore faces. Based

on marginal analysis, what is the profit-maximizing level of output for the bookstore?

A) 1 book

B) 2 books

C) 3 books

D) 4 books

28) Long-run equilibrium for a monopolistic competitor is characterized by

A) a price exceeding marginal cost.

B) marginal cost pricing.

C) economic profits.

D) too few firms in the industry.

29) It has been argued that a monopolistically competitive industry involves "waste" because

A) there is too much product differentiation making shelves too crowded.

B) they end up producing to the right of the minimum of the average total cost curve and the price is below the marginal

cost.

C) the firms do not equate marginal cost to marginal revenue to find the profit maximizing price and output.

D) the firms do not produce at the minimum of the average total cost curve and price is above marginal cost.

30) In the long run, a monopolistic competitor will produce to the point at which

A) average total costs are at the minimum of possible ATC.

B) average total costs are higher than the minimum of possible ATC.

C) resources are used at the lowest possible cost.

D) at the lowest possible price.