- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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).
- 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.
- 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.
- 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.
- 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.
- The goal of any monopolist is to maximize: a. normal profits. b. output. c. price. d. economic profits. e. consumer welfare.
- 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.
- 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.
- Exhibit 9-2 Demand and cost information for a monopoly
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.
- 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.
- 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.
- 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.
- 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.
- 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.
- Which of the following is a game theory strategy for oligopolists to avoid a low-price outcome? a. Win-win b. Second best c. Last in-first out d. Tit-for-tat
- Product differentiation makes the demand for a monopolistically competitive firm’s product: a. more elastic than for a monopoly. b. perfectly inelastic. c. perfectly elastic. d. more inelastic than for a monopoly.
- Which of the following is evidence of an ineffective cartel? a. Output changes are dictated by changes in demand. b. Price changes are dictated by changes in demand. c. Members do not agree on output quotas. d. All of these.
- Exhibit 10-6 Two-Firm Payoff Matrix
Assume costs are identical for the two firms in Exhibit 10-6. If both firms were allowed to form a cartel and agree on their prices, equilibrium would be established by: a. Widget Co. charging the low price and Ajax Co. charging the low price. b. Widget Co. charging the low price and Ajax Co. charging the high price. c. Widget Co. charging the high price and Ajax Co. charging the high price. d. Widget Co. charging the high price and Ajax Co. charging the low price.
- Suppose that R. J. Reynolds raises the price of cigarettes by 10 percent. Although they have no requirement or agreement to do so, the other cigarette firms decide to raise their prices accordingly. This situation is best described as: a. monopolistic competition. b. a cartel. c. a market with kinked demand. d. price leadership.
- Excluding foreign competition, which of the following is an oligopoly in the United States? a. The computer industry. b. The automobile industry. c. The steel industry. d. All of these are oligopolies.
- Which of the following is true about advertising? a. If monopolistically competitive firms compete through advertising, that creates brand loyalty, then advertising can be an effective entry cost. b. Both a. and b. above are correct. c. Advertising has no impact on entry costs or market structure. d. Advertising may be the only way that a new entrant can penetrate a market dominated by long-established firms.
- Which of the following most closely approximates the conditions of a monopolistically competitive market? a. The market for jumbo aircraft, where one major domestic firm competes with one major foreign firm. b. The restaurant industry, which is characterized by firms producing a differentiated product in a market with low entry barriers. c. The market for Grade A eggs, which is characterized by a large number of firms producing a homogeneous product. d. Local cable television service, where a licensed supplier competes with firms offering satellite service.
- The purpose of a cartel is to: a. act like a monopoly. b. promote product innovation. c. increase market competition. d. decrease market concentration. e. diversify operations.
- Which of the following statements concerning the supply of labor is true? a. The supply of labor is determined by the prevailing wage rate. b. The labor supply curve is downward sloping. c. The wage rate has no effect on the supply of labor. d. None of these.
- The demand for a factor of production depends on the: a. supply of other factors of production. b. demand for the products that it helps to produce. c. supply of the factor. d. demand for other factors of production.
- Exhibit 11-12 A monopsonist
In Exhibit 11-12, suppose this labor market is unionized by a powerful union which forces a wage of $35 upon the industry. The firm would respond by hiring ____ workers and paying a wage of ____. a. 70; $27 b. 60; $35 c. 40; $35 d. 60; $30 e. 40; $30
- Firms should hire additional units of a resource as long as the: a. marginal revenue product of the resource exceeds the cost of an additional unit of the resource. b. marginal product of the resource exceeds the price of the resource multiplied by the quantity of output produced. c. price of the output produced is positive. d. marginal product of the resource is less than the price of the resource.
- If the wage rate is fixed at a certain level, the: a. total wage cost curve will increase at a decreasing rate. b. total wage cost curve is horizontal. c. total wage cost curve will increase at an increasing rate. d. MP must be constant. e. total wage cost curve is a straight upward sloping line.
- The profit-maximizing employment level for a monopsonist occurs where: a. price = wage. b. wage = TWC. c. MRP = MFC d. wage = MFC. e. wage = MRP.
- Exhibit 11-11 Labor wage and cost data
LaborWageTWCMFC10$ $ 50.00$ 11 5.80 12 17.8013 102.70 14 126.00 15 46.50
In Exhibit 11-11, the wage required to hire 14 employees is equal to: a. $8.80. b. $8.10. c. $9.00. d. $5.50. e. $9.50.
- Which of the following would cause the demand for labor to change? a. A change in the cost of living. b. Movements along the labor demand curve. c. c and e. d. A change in the price of the good produced. e. Changes in the wage rate.