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Unit 11 ReviewMultiple ChoiceIdentify the choice that best completes the statement or answers the question.____1.The demand curve for a perfectly competitive firm is:a.perfectly inelastic.b.perfectly elastic.c.downward-sloping.d.relatively, but not perfectly elastic.e.non-existent.____2.OutputTotal Cost0$101 602 80311041705245Table: Total Cost and OutputThe table describes Bart's perfectly competitive ice cream-producing firm. If the market price is $67.50, how many units of output will the firm produce?a.oneb.twoc.threed.foure.five____3.Suppose a perfectly competitive firm can increase its profits by increasing its output. Then it must be the case that the firm's:a.marginal revenue exceeds its marginal cost.b.price exceeds its average variable cost, but is less than average total cost.c.marginal cost exceeds its marginal revenue.d.price exceeds its marginal revenue.e.price is less than marginal revenue.____4.In the short run, a perfectly competitive firm produces output and earns an economic profit if:a.P > ATC.b.P = ATC.c.P < AVC.d.AVC > P > ATC.e.AVC < P < ATC.____5.In the short run, a perfectly competitive firm produces output and earns zero economic profit if:a.P > ATC.b.AVC < P < ATC.c.P < AVC.d.AVC > P > ATC.e.P = ATC.____6.A perfectly competitive firm maximizes profit by producing the quantity at which:a.TR = TC.b.MR = MC.c.Q*(P – ATC) = 0.d.P >= AVC.e.P = ATC.Quantityof Apples(bushels)VC0$ 01 402 703 8041305190626073408430Table 58-2: Lilly's Apple Orchard____7.(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.0b.1c.2d.3e.4Quantityper PeriodTotal Cost0$101 162 203 224 245 256 277 308 349 3910 45Table 58-3: Total Cost for aPerfectly Competitive Firm____8.(Table 58-3: Total Cost for a Perfectly Competitive Firm) If the market price is $4.50, the profit-maximizing quantity of output is ________ units.a.fiveb.sevenc.eightd.ninee.ten____9.If a perfectly competitive firm is producing a quantity that generates MC < MR, then profit:a.is maximized.b.can be increased by increasing production.c.can be increased by decreasing production.d.can be increased by decreasing the price.e.is negative and the firm should exit the market.____10.If a perfectly competitive firm is producing a quantity that generates P < MC, then profit:a.is maximized.b.can be increased by decreasing the price.c.can be increased by increasing production.d.can be increased by decreasing production.e.is negative and less than total fixed cost.____11.If a perfectly competitive firm is producing a quantity that generates P > MC, then profit:a.is maximized.b.can be decreased by increasing the price.c.can be increased by decreasing the price.d.can be increased by increasing production.e.is negative and less than total fixed cost.____12.Many furniture stores run “Going out of Business” sales but never go out of business. In order for the shut-down decision to be the appropriate one, the price of furniture must be ________ the ________ average variable cost.a.higher than; maximumb.lower than; minimumc.higher than; minimumd.lower than; maximume.the same as; maximum____13.The lowest point on the perfectly competitive firm's short-run supply curve corresponds to the minimum point on the ________ curve.a.ATCb.AVCc.AFCd.MCe.MRFigure 59-3 : Profit Maximizing____14.(Figure 59-3: Profit Maximizing) The figure shows cost curves for a firm operating in a perfectly competitive market. If the market price is less than P2, the firm will ________ in the short run.a.produce q1 and break evenb.produce q1 and incur a lossc.produce q1 and make a profitd.produce q3 and make a profite.shut downFigure 59-4: A Perfectly Competitive Firm in the Short Run____15.(Figure 59-4: A Perfectly Competitive Firm in the Short Run) The firm will shut down in the short run if the price falls below:a.G.b.F.c.E.d.P.e.N.____16.(Figure 59-4: A Perfectly Competitive Firm in the Short Run) If market price is G, the firm's total cost of producing its most profitable level of output is:a.BS.b.DK.c.GHSE.d.0ESB.e.0FKD.____17.A perfectly competitive firm will earn a profit and will continue producing the profit-maximizing quantity of output in the short run if price is:a.greater than marginal cost.b.less than marginal cost.c.less than average fixed cost.d.greater than average total cost.e.greater than average variable cost.____18.A perfectly competitive firm will incur an economic loss but will continue producing the profit-maximizing quantity of output in the short run if price is:a.less than marginal cost.b.less than average variable cost.c.greater than average total cost.d.greater than average variable cost and less than average total cost.e.greater than average fixed cost.____19.If price is greater than average variable cost and less than average total cost at the profit-maximizing quantity of output in the short run, a perfectly competitive firm will:a.incur economic losses that exceed total fixed cost.b.produce at an economic profit.c.shut down production.d.produce more than the profit-maximizing quantity.e.produce at an economic loss.____20.The short-run supply curve for a perfectly competitive firm is:a.the average total cost curve above the break-even price.b.the average variable cost curve above the shut-down price.c.the marginal cost curve above the break-even price.d.the marginal cost curve above the shut-down price.e.the average total cost curve above the shut-down price.____21.A perfectly competitive firm will incur an economic loss but will continue producing output in the short run if price is:a.less than marginal cost.b.greater than average fixed cost and less than average variable cost.c.greater than average total cost.d.greater than average variable cost but less than average total cost.e.less than average variable cost.____22.A perfectly competitive firm will not produce any output in the short run and will shut down if price is:a.greater than marginal cost.b.less than marginal cost.c.less than average variable cost.d.greater than average variable cost and less than average total cost.e.less than marginal revenue.____23.A perfectly competitive firm's short-run supply curve is its:a.average variable cost curve above the marginal cost curve.b.marginal cost curve above the average fixed cost curve.c.marginal cost curve above the average total cost curve.d.marginal cost curve above the average variable cost curve.e.marginal cost curve above the average variable cost curve and below the average total cost curve.Figure 59-7: Perfectly Competitive Firm II____24.(Figure 59-7: Perfectly Competitive Firm II) 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 ________.a.Q1; positiveb.Q2; negativec.Q3; positived.Q4; negativee.zero; negative____25.The horizontal sum of individual firms' MC curves at and above the shut-down price is the:a.short-run industry demand curve.b.long-run industry supply curve.c.long-run fixed cost curve.d.long-run average variable cost curve.e.short-run industry supply curve.Figure 59-2: Cost Curve and Profits____26.(Figure 59-2: Cost Curves and Profits) In the figure, if market price is $12, this firm will:a.minimize its losses by shutting down.b.exit the market in the long run.c.break even.d.earn an economic profit.e.minimize its losses by continuing to produce.____27.(Figure 59-2: Cost Curves and Profits) In the figure, the firm's short-run supply curve is the ________ curve above a price of $________.a.average total cost; 14b.average variable cost; 10c.marginal cost; 5d.marginal cost; 14e.marginal cost; 10____28.If firms are making positive economic profits in the short run, then in the long run:a.the short-run industry supply curve will shift leftward.b.firms will enter the industry.c.industry output will rise and price will rise.d.firms will leave the industry.e.the price will decrease to where price equals average variable cost.____29.If firms are experiencing economic losses in the short run, firms will _____ the industry and industry output will ________ and price will ________ in the long run.a.exit; fall; riseb.exit; rise; fallc.enter; rise; rised.enter; fall; risee.exit; rise; rise____30.Lilly is the price-taking owner of an apple orchard. Currently the price of apples is high enough that Lilly is earning positive economic profits. In the long run, Lilly should expect:a.lower apple prices due to entry of new firms.b.higher apple prices due to exit of existing firms.c.lower apple prices due to exit of existing firms.d.higher apple prices due to entry of new firms.e.no change in apple prices.____31.A perfectly competitive industry is said to be efficient because the:a.marginal cost of production of the last unit of output is minimized.b.product is standardized across firms in the industry.c.average total cost of production of the industry's output is minimized.d.market price of the good is equal to economic profit for all firms in the industry.e.firms in the industry have price-setting ability.____32.Hank operates a perfectly competitive firm in the long run. For several time periods, the market price has been $20 and he knows his break-even price is $22. Hank should:a.stay in the industry since he can cover his fixed costs.b.exit the industry since he is making losses.c.stay in the industry since he is a perfect competitor and must take the price as given.d.wait for the short-run time period.e.increase his price from $20 to $22.____33.In the long run, firms in a perfectly competitive industry will:a.minimize average total cost.b.earn a positive economic profit.c.exit the industry if price is greater than average total cost.d.produce an output level at which price is greater than average total cost.e.produce a differentiated product.____34.A perfectly competitive industry with constant costs is initially operating in long-run equilibrium. When demand increases, one will observe that in the long and short runs:a.positive economic profits will result for all firms.b.higher prices will result.c.output will remain constant.d.negative economic profits will result for some firms.e.output will increase.____35.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.____36.Which of the following statements about monopoly equilibrium and perfectly competitive equilibrium is incorrect?a.Price is greater than marginal cost in monopoly, and price equals marginal cost in perfect competition.b.When a monopoly exists, the consumer surplus is less than if the market were perfectly competitive.c.Monopoly output will be less than the output of a comparable perfectly competitive industry.d.In the long run, economic profits are driven to zero in both a monopoly and a perfect competitive market.e.In the long run, entry of new firms is prevented in a monopoly.____37.Marginal revenue for a monopolist is:a.equal to price.b.greater than price.c.less than price.d.equal to average revenue.e.greater than zero at all levels of output.____38.A demand curve that is downward-sloping will ensure that:a.P = MR.b.P > MR.c.P < MR.d.P = MC.e.economic profit is zero.____39.If a monopolist is producing a quantity that generates MC > MR, then profit:a.is maximized.b.is maximized only if MC = P.c.can be increased by increasing production to the point where MR = MC.d.can be increased by decreasing production to the point where MR = MC.e.can be increased by finding the output where MR = P = MC.Figure 61-2: Computing Monopoly Profit____40.(Figure 61-2: Computing Monopoly Profit) At the profit-maximizing output, total cost is:a.P10Q1Gb.P30Q1Ec.P20Q1Fd.FQ2e.P2P3EFFigure 61-4: Monopoly Model____41.(Figure 61-4: Monopoly Model) When the firm is in equilibrium (that is, maximizing its economic profit), its total cost is the area of rectangle:a.0PDJ.b.0IHJ.c.IPDH.d.0SBJ.e.ISBH.____42.(Figure 61-4: Monopoly Model) When the firm is in equilibrium (that is, maximizing its economic profit), its total revenue is the area of rectangle:a.SPDB.b.IPDH.c.0SBJ.d.0PDJ.e.ISBH.____43.(Figure 61-4: Monopoly Model) When the firm is in equilibrium (that is, maximizing its economic profit), its profit is the area of rectangle:a.SPDB.b.IPDH.c.ISBH.d.0PDJ.e.0SBJ.____44.In perfect competition, the firm produces the output such that ________, and in monopoly, the firm produces the output such that ________.a.P > MR = MC; P = MR = MCb.P = MR = MC; P < MR = MCc.P = MR = MC; P > MR = MCd.P = MR = MC; P = MR = MCe.P = MR > MC; P = MR > MC____45.The demand curve facing a monopolist is:a.vertical, the same as that facing a perfectly competitive firm.b.perfectly inelastic, the same as that facing a perfectly competitive firm.c.upward-sloping, the same as that facing a perfectly competitive firm.d.downward-sloping, like the industry demand curve in perfect competition.e.horizontal, the same as that facing a perfectly competitive firm.____46.If a monopolist is producing a quantity that generates MC = MR, then profit:a.is maximized.b.is maximized only if MC = P.c.can be increased by increasing production.d.can be increased by decreasing production.e.can be increased by increasing price.____47.Suppose that the Yankee Company is a profit-maximizing firm that has a monopoly in the production of baseball caps. The firm sells its baseball caps for $25 each. For this information, we can assume that the Yankee Company is producing a level of output at which:a.marginal revenue equals $25.b.marginal cost equals marginal revenue.c.average total cost equals $25.d.average total cost is greater than $25.e.marginal cost is greater than $25.Figure 61-6: Short-Run Monopoly____48.(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.____49.If a monopolist knows its price elasticity of demand is greater than one, then a(n):a.increase in price will increase total revenue.b.decrease in production will increase total revenue.c.decrease in price will decrease total revenue.d.increase in price will have no impact on total revenue.e.decrease in price will increase total revenue.____50.A natural monopoly is one that:a.monopolizes a natural resource such as a mineral spring.b.is based on control of something occurring in nature (such as diamonds).c.has increasing returns to scale over the entire relevant range of output.d.typically has low fixed costs, making it easy and “natural” for it to shut out competitors.e.is created by a patent or copyright.Figure 62-1: Demand, Revenue, and Cost Curves____51.(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. If the government wanted to regulate Figglenuts-R-Us such that the entire deadweight loss would be eliminated, it would impose a price ceiling of ________ in the market.a.$40b.$46c.$50d.$65e.$30____52.(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. If the government wanted to regulate Figglenuts-R-Us such that it would minimize the deadweight loss while allowing the firm to break even, it would impose a price ceiling of ________ in the market.a.$40b.$30c.$50d.$65e.$0____53.The pricing in monopoly prevents some mutually beneficial trades from taking place. The value of these unrealized mutually beneficial trades is called:a.sunk costs.b.opportunity costs.c.producer surplus.d.inequities.e.a deadweight loss.____54.A natural monopoly exists when:a.a few firms collude to make one large firm.b.economies of scale provide large cost advantages to having one firm produce the industry's output.c.firms naturally maximize profit regardless of market structure.d.firms enter the industry as a result of profit incentives.ernment creates a natural barrier to entry for other firms.____55.Price discrimination leads to a ________ price in the market with a ________ demand.a.higher; less elasticb.higher; more elasticc.higher; perfectly elasticd.lower; less elastice.lower; perfectly inelastic____56.In order to maximize profits, an airline will offer ________ prices to customers with ________ demand.a.higher; inelasticb.higher; elasticc.lower; inelasticd.the lowest; the leaste.higher; perfectly elastic____57.Suppose a monopoly can separate its customers into two groups. If the monopoly practices price discrimination, it will charge the lower price to the group with:a.the higher price elasticity of demand.b.the lower price elasticity of demand.c.the fewer close substitutes.d.the stronger demand.e.the highest level of income.____58.A Japanese steel firm sells steel in the United States and in Japan. Since the United States buys steel from a number of different sources, the U.S. demand for Japanese steel is more price-elastic than the Japanese demand for Japanese steel. If the Japanese steel firm wishes to maximize its profits it should:a.charge the same price in both countries (after adjusting for transportation costs).b.charge a higher price in the United States and a lower price in Japan.c.the American market is more profitable, so sell only in that market.d.the Japanese market is more profitable, so sell only in that market.e.charge a lower price in the United States and a higher price in Japan.____59.When firms price-discriminate, people with ________ price elasticity of demand will pay ________ prices relative to those individuals purchasing the same product who have relatively ________ price elasticity of demand.a.higher; higher; lowerb.lower; lower; higherc.lower; higher; the samed.higher; the same; lowere.lower; higher; higher ................
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