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AP Microeconomics Section 11 Online Practice Test

Multiple Choice

Identify the choice that best completes the statement or answers the question.

1.

|Output |Total Cost |

|0 |$10 |

|1 | 60 |

|2 | 80 |

|3 |110 |

|4 |170 |

|5 |245 |

|Table: Total Cost and Output |

The table describes Bart's perfectly competitive ice cream-producing firm. If the market price is $67.50, how many units of output will the firm produce?

|a. |one |

|b. |two |

|c. |three |

|d. |four |

|e. |five |

Figure 58-1: Marginal Revenue, Costs, and Profits

[pic]

2. (Figure 58-1: Marginal Revenue, Costs, and Profits) In the figure, if market price increases to $20, marginal revenue ________ and profit-maximizing output ________.

|a. |increases; increases |

|b. |increases; decreases |

|c. |decreases; increases |

|d. |decreases; decreases |

|e. |remains constant; remains constant |

|Quantity |VC |

|of Apples | |

|(bushels) | |

|0 |$ 0 |

|1 | 40 |

|2 | 70 |

|3 | 80 |

|4 |130 |

|5 |190 |

|6 |260 |

|7 |340 |

|8 |430 |

|Table 58-2: Lilly's Apple Orchard |

3. (Table 58-2: Lilly's Apple OrcharD. Lilly is the price-taking owner of an apple orchard; its variable costs are given in the table. Her orchard has fixed costs of $30. If the price of a bushel of apples is $25, how many bushels will Lilly produce to maximize profit?

|a. |0 |

|b. |1 |

|c. |2 |

|d. |3 |

|e. |4 |

| | |

| | |

|Quantity |Variable Costs |

|of Lots | |

|0 |$0 |

|10 |200 |

|20 |300 |

|30 |500 |

|40 |750 |

|50 |1,100 |

|Table 59-1: Variable Costs for Lots |

4. (Table 59-1: Variable Costs for Lots) 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. What is Alexa's shut-down price in the short run?

|a. |$0 |

|b. |$15 |

|c. |$50 |

|d. |$42 |

|e. |$20 |

Figure 59-2: Prices, Cost Curves, and Profits

[pic]

5. (Figure 59-2: Cost Curves and Profits) In the figure, if the market price is $18 @P2, this firm will:

|a. |minimize its losses by shutting down. |

|b. |minimize its losses by continuing to produce. |

|c. |break even. |

|d. |earn an economic profit. |

|e. |exit the market in the long run. |

6.

[pic]

In the figure, total cost at the profit-maximizing quantity of bushels is $________.

|a. |3.50 |

|b. |14 |

|c. |56 |

|d. |72 |

|e. |4 |

7. [pic]

The figure shows cost curves for a firm operating in a perfectly competitive market. If the market price is P4:

|a. |firms will leave the industry and the price will fall in the long run. |

|b. |there will be economic profits and firms will enter the industry in the long run. |

|c. |the market supply curve will shift to the left and price will fall in the long run. |

|d. |the firm will produce q4. |

|e. |the price will rise in the long run as economic profits fall to zero. |

8. Economic profits in a perfectly competitive industry induce ________, and losses induce ________.

|a. |exit; entry |

|b. |entry; entry |

|c. |entry; exit |

|d. |exit; exit |

|e. |entry; shutdown |

9. Suppose that 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:

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

| |zero. |

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

| |zero. |

|c. |firms will leave the market, driving the price of haircuts up and the profits of individual firms up. |

|d. |firms will leave the market, driving the price of haircuts up and the profits of individual firms back down to zero. |

|e. |more firms will enter the market, driving the price of haircuts down and the profits of individual firms up. |

10.

|Quantity |VC |

|of Appels | |

|(bushels) | |

|0 |$ 0 |

|1 | 40 |

|2 | 70 |

|3 | 80 |

|4 |130 |

|5 |190 |

|6 |260 |

|7 |340 |

|8 |430 |

|Table: Lilly's Apple Orchard |

Lilly is the price-taking owner of an apple orchard; its variable costs are given in the table. Her orchard has fixed costs of $30. If the price of a bushel of apples is $85, we would expect total industry output to:

|a. |rise, and Lilly's output will rise in the long run. |

|b. |fall, and Lilly's output will fall in the long run. |

|c. |fall, while Lilly's output will rise in the long run. |

|d. |rise, while Lilly's output will fall in the long run. |

|e. |rise, while Lilly's output will remain unchanged in the long run. |

11. Compared to perfect competition:

|a. |monopoly produces more at a lower price. |

|b. |monopoly produces where MR > MC, and a perfectly competitively firm produces where P = MC. |

|c. |monopoly may have economic profits in the long run, but in perfect competition economic profits are zero in the long |

| |run. |

|d. |perfect competition may have economic profits in the long run, but in monopoly economic profits are zero in the long |

| |run. |

|e. |monopoly produces where MR = MC, and a perfectly competitively firm produces where P = MR > MC. |

12. The ability of a monopolist to raise the price of a product above the competitive level by reducing the output is known as:

|a. |product differentiation. |

|b. |barrier to entry. |

|c. |economies of scale. |

|d. |patents and copyrights. |

|e. |market power. |

Figure 61-1: Profit-Maximizing Output and Price

[pic]

13. (Figure 61-1: Profit-Maximizing Output and Price) Assume there are no fixed costs and AC = MC. In the figure, at the profit-maximizing quantity of production for the monopolist, total revenue is ________, total cost is ________, and profit is ________.

|a. |$600; $200; $400 |

|b. |$1,600; $3,200; $1,600 |

|c. |$4,800; $3,200; $1,600 |

|d. |$4,800; $1,600; $3,200 |

|e. |$1,600; $800; $800 |

Figure 61-6: Short-Run Monopoly

[pic]

14. (Figure 61-6: Short-Run Monopoly) The profit-maximizing output rule is satisfied by the intersection at point:

|a. |G. |

|b. |H. |

|c. |J. |

|d. |L. |

|e. |I. |

15.

[pic]

The graph shows a monopoly firm that sells gadgets. If the firm is regulated such that the firm earns zero economic profit, the firm will sell ________ units at a price of ________ per unit.

|a. |Q1; P1 |

|b. |Q2; P1 |

|c. |Q4; P3 |

|d. |Q3; P2 |

|e. |Q3; P3 |

Figure 62-1: Demand, Revenue, and Cost Curves

[pic]

16. (Figure 62-1: Demand, Revenue, and Cost Curves) The figure shows the demand, marginal revenue, marginal cost, and average total cost curves for Figglenuts-R-Us, a monopolist in the figglenut market. Figglenuts-R-Us will sell ________ figglenuts and set a price of ________ to maximize profits.

|a. |70; $65 |

|b. |100; $50 |

|c. |120; $40 |

|d. |150; $46 |

|e. |70; $30 |

17. Suppose a perfectly competitive market is suddenly transformed into one that operates as a monopoly market. We would expect:

|a. |price to rise, output to fall, consumer surplus to rise, producer surplus to rise, and deadweight loss to fall. |

|b. |price to rise, output to fall, consumer surplus to fall, producer surplus to fall, and deadweight loss to rise. |

|c. |price to rise, output to fall, consumer surplus to fall, producer surplus to fall, and deadweight loss to fall. |

|d. |price to fall, output to rise, consumer surplus to rise, producer surplus to fall, and deadweight loss to fall. |

|e. |price to rise, output to fall, consumer surplus to fall, producer surplus to rise, and deadweight loss to rise. |

18. Price discrimination leads to a ________ price in the market with a ________ demand.

|a. |higher; less elastic |

|b. |higher; more elastic |

|c. |higher; perfectly elastic |

|d. |lower; less elastic |

|e. |lower; perfectly inelastic |

19. The main reason a monopoly engages in price discrimination is that:

|a. |it wants to discriminate against a particular ethnic group. |

|b. |doing so creates a favorable public opinion toward the firm. |

|c. |it wants to discourage potential competitors. |

|d. |by charging a lower price to some people, it may succeed in discouraging efforts to regulate it. |

|e. |doing so increases its profits. |

20.

|Quantity |Price |

|of Hats |per Hat |

|Demanded | |

|0 |$30 |

|1 |28 |

|2 |26 |

|3 |24 |

|4 |22 |

|5 |20 |

|6 |18 |

|7 |16 |

|8 |14 |

|Table: Prices and Demands |

Prof. Dumbler has a monopoly on magic hats. He sells at most one hat to each customer, and the table shows each customer's willingness to pay. The marginal cost of producing a hat is $18. Suppose Dumbler can perfectly price discriminate. How many hats will he produce?

|a. |three |

|b. |four |

|c. |five |

|d. |six |

|e. |Seven |

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