QUESTION 1

A firm operating in a perfectly competitive market is a price taker because:

	A.	no firm has a significant market share.
	B.	no firm's product is perceived as different.
	C.	setting a price higher than the going price results in zero sales.
	D.	all of these.

2 points

QUESTION 2

If a business firm isnotoperating at the point where MR = MC, then:

	A.	it should shut down.
	B.	it will incur losses.
	C.	it cannot be earning a profit.
	D.	its profit is zero.
	E.	it is not earning the maximum potential profit.

2 points

QUESTION 3

Which of the followingbestillustrates perfect competition?

	A.	Wheat farming.
	B.	Orange growers setting quotas under the Sunkist cooperative.
	C.	General Motors advertising campaign for its cars.
	D.	All of these.

2 points

QUESTION 4

If a firm increases output when MR > MC, then:

	A.	profit will equal zero.
	B.	profit will increase.
	C.	profit will decrease.
	D.	profit will remain the same.
	E.	the firm is minimizing losses.

2 points

QUESTION 5

If, at the point where MR = MC, the firm incurs losses, in the short run the firm should:

	A.	shut down.
	B.	increase output.
	C.	decrease output.
	D.	continue at its current output if P > AVC.
	E.	continue at its current output if P > ATC.

2 points

QUESTION 6

A firm is currently operating where the MC of the last unit produced = $64, and the MR of this unit = $70. What would you advise this firm to do?

	A.	Shut down.
	B.	Increase output.
	C.	Stay at current output.
	D.	Decrease output.
	E.	Decrease price.

2 points

QUESTION 7

Consider a firm with the following cost and revenue information: ATC = $8, AVC = $7, and MR = MC = $6. If the firm produces Q = 60 in the short run, it:

	A.	is minimizing losses.
	B.	makes a total loss of $60.
	C.	should produce more output.
	D.	is making a mistake and should shut down.
	E.	is maximizing total profit.

2 points

QUESTION 8

Which of the following is characteristic of a perfectly competitive market?

	A.	There is free entry into and exit from the market.
	B.	Individual firms can exert a perceptible influence on the market price.
	C.	The firms in the market produce differentiated products.
	D.	All of these are true.

2 points

QUESTION 9

If a firm is operating at a loss in the short run and finds that its price is greater than average variable cost, then in the short run:

	A.	it should produce where MR = MC.
	B.	it should produce zero output.
	C.	it should go out of business.
	D.	total revenue is less than total variable costs.
	E.	total revenue is greater than total costs.

2 points

QUESTION 10

In Exhibit 8-8, product price in this market is fixed at $35. This firm is currently operating where MR = MC. What do you advise this firm to do?

	A.	This firm should shut down.
	B.	This firm could increase profits by increasing output.
	C.	This firm could increase profits by decreasing output.
	D.	This firm should continue to operate at its current output.
	E.	This firm should decrease price.

2 points

QUESTION 11

In Exhibit 8-15, if the market price of mowing lawns is $16 per lawn, then E-Z-Care will earn the biggest profit by mowing:

	A.	5 lawns per day.
	B.	7 lawns per day.
	C.	8 lawns per day.
	D.	as many lawns per day as is physically possible.

2 points

QUESTION 12

In Exhibit 8-5, suppose a firm is currently producing 50 units of output. What would you advise this firm to do?

	A.	Shut down.
	B.	Increase output.
	C.	Stay at its current output.
	D.	Decrease output.
	E.	Decrease price.

2 points

QUESTION 13

A sandwich shop owner has the following information: P = MR = $4, ATC = $2, AVC = $1, MC = 4, and Q = 500. From this, she can determine:

	A.	her profits are not being maximized.
	B.	she has earned zero economic profits.
	C.	she has earned economic profits of $1,000.
	D.	she has earned economic profits of $1,500.
	E.	she should sell fewer sandwiches.

2 points

QUESTION 14

In Exhibit 8-7, if this firm is currently producing 20 units of output, this firm:

	A.	is at its profit-maximizing point.
	B.	could increase profits by increasing output.
	C.	could increase profits by decreasing output.
	D.	should shut down.
	E.	should decrease price.

2 points

QUESTION 15

In Exhibit 8-5, a firm is currently producing 40 units of output. What would you advise this firm to do?

	A.	Shut down.
	B.	Increase output.
	C.	Stay at its current output.
	D.	Decrease output.
	E.	Decrease price.

2 points

QUESTION 16

Perfectly competitive markets are characterized by:

	A.	a small number of very large producers.
	B.	very strong barriers to entry and exit.
	C.	firms selling a homogeneous product.
	D.	all of these.

2 points

QUESTION 17

Marginal revenue is the change in:

	A.	total profit brought about by selling one more unit of output.
	B.	price brought about by selling one more unit of output.
	C.	total revenue brought about by selling one more unit of output.
	D.	output brought about by a $1 change in product price.
	E.	average revenue brought about by selling one more unit of output.

2 points

QUESTION 18

Suppose that in a perfectly competitive market, firms are making economic profits. In the long run, we can expect to see:

	A.	some firms leave.
	B.	the market price rise.
	C.	market supply shift to the left.
	D.	economic profits become zero.
	E.	production levels remaining the same as in the short-run.

2 points

QUESTION 19

The marginal approach to profit maximization means that a firm should produce until:

	A.	marginal revenue equals zero.
	B.	marginal revenue equals marginal cost.
	C.	marginal cost becomes negatively sloped.
	D.	marginal revenue equals price.
	E.	price equals average total cost.

2 points

QUESTION 20

Which of the followingbestillustrates a perfectly competitive market?

	A.	Soft drinks.
	B.	Automobiles.
	C.	Electric power.
	D.	Soybean farmers.

2 points

QUESTION 21

Marginal revenue is the change in:

	A.	total revenue resulting from a one unit change in output.
	B.	total revenue resulting from a change in marginal cost.
	C.	price resulting from a one unit change in output.
	D.	none of these.

2 points

QUESTION 22

When the marginal cost of a price-taker firm is more than the market price of its product, the firm should:

	A.	expand output.
	B.	reduce output.
	C.	maintain output.
	D.	charge more than the market price.

2 points

QUESTION 23

In the perfectly competitive market, all firms in the market are assumed to be producing:

	A.	identical products.
	B.	differentiated products.
	C.	products that are heavily advertised.
	D.	complementary products.

2 points

QUESTION 24

If a perfectly competitive firm sells 10 units of output at a market price of $5 per unit, its marginal revenue per unit is:

	A.	$5.
	B.	$50.
	C.	more than $5 but less than $50.
	D.	less than $5.

2 points

QUESTION 25

If marginal revenue exceeds marginal cost, profit maximizers should:

	A.	reduce output until they are equal.
	B.	increase output until they are equal.
	C.	increase output until profits are zero.
	D.	decrease output unless profits are zero.
	E.	maintain current output.

2 points

QUESTION 26

A firm is currently operating where the MC of the last unit produced = $84, and the MR of this unit = $70. What would you advise this firm to do?

	A.	Shut down.
	B.	Increase output.
	C.	Stay at its current output.
	D.	Decrease output.
	E.	Decrease price.

2 points

QUESTION 27

A monopoly is:

	A.	a seller of a highly advertised and differentiated product in a market with low barriers to entry in the long run.
	B.	the only seller of a good for which there are no good substitutes in a market with high barriers to entry.
	C.	the only buyer of a unique raw material.
	D.	the producer of a product subsidized by the government.

2 points

QUESTION 28

Which of the following correctly describes price discrimination?

	A.	Selling different products to different people for the same price.
	B.	Selling different products to identical people for different prices.
	C.	Selling the same product to different people for different prices.
	D.	Selling the same product to the same person for the same price.

2 points

QUESTION 29

A monopoly:

	A.	faces the market demand curve which is downward sloping.
	B.	has a marginal revenue curve which slopes downward and lies below its demand curve.
	C.	will maximize profits by producing an output level where MR = MC.
	D.	all of these.

2 points

QUESTION 30

Which of the following istruefor 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.

2 points

QUESTION 31

Alcoa had a monopoly in the U.S. aluminum market from the late nineteenth century until the end of World War II. Which barrier to entry was the source of Alcoa's monopoly power?

	A.	Ownership of a vital resource.
	B.	Government franchises and licenses.
	C.	Patents and copyrights.
	D.	Economies of scale.

2 points

QUESTION 32

In Exhibit 9-3, how much vaccine should GeneTech produce to maximize its profit?

	A.	300 doses per hour.
	B.	400 doses per hour.
	C.	Between 400 and 500 doses per hour.
	D.	500 doses per hour.

2 points

QUESTION 33

Price discrimination occurs when:

	A.	firms maximize their profit by setting price equal to marginal cost.
	B.	a seller charges different prices to different consumers of the same product or service.
	C.	a seller charges the same price to consumers of a different product or service.
	D.	a seller charges different prices to consumers, discriminating by race or gender of the consumer.

2 points

QUESTION 34

A monopolist will earn economic profits as long as his price exceeds:

	A.	marginal revenue.
	B.	average fixed cost.
	C.	average variable cost.
	D.	average total cost.

2 points

QUESTION 35

The act of buying a commodity in one market at a lower price and selling it in another market at a higher price is known as:

	A.	buying long.
	B.	selling short.
	C.	a tariff.
	D.	arbitrage.

2 points

QUESTION 36

An example of price discrimination is the price charged for:

	A.	an economics textbook at a campus bookstore.
	B.	gasoline.
	C.	theater tickets that offer lower prices for children.
	D.	a postage stamp.

2 points

QUESTION 37

A natural monopoly is a market where:

	A.	a single firm has control over a vital natural resource.
	B.	many smaller firms can produce the entire market output at the same per-unit cost as could one large firm.
	C.	a single large firm can produce the entire market output at a lower per-unit cost than a group of smaller firms.
	D.	many smaller firms can produce the entire market output at a lower per-unit cost than could one large firm.

2 points

QUESTION 38

The profit-maximizing output level for a monopolist is where the:

	A.	price is maximized.
	B.	output sold is maximized.
	C.	ATC curve is minimized.
	D.	maximum efficiency is achieved.
	E.	MR = MC.

2 points

QUESTION 39

As shown in Exhibit 9-4, in order to maximize its profit (or minimize its loss), how much output should the monopoly produce?

	A.	2 units per hour.
	B.	4 units per hour.
	C.	6 units per hour.
	D.	8 units per hour.

2 points

QUESTION 40

A monopolist will maximize profits by:

	A.	setting his price as high as possible.
	B.	setting his price at the level that will maximize per-unit profit.
	C.	producing the output where marginal revenue equals marginal cost.
	D.	producing the output where price equals marginal cost.

2 points

QUESTION 41

According to the information provided in Exhibit 9-7, if the Rudd Ice Company was a monopoly and is currently charging a price of $6, what would you advise Rudd to do?

	A.	Stay where he is currently operating because he is charging the profit maximizing price.
	B.	Increase price and decrease output.
	C.	Decrease price and increase output.
	D.	Increase output and hold price constant.
	E.	Increase price and hold output constant.

2 points

QUESTION 42

As presented in Exhibit 10-2, the long-run profit-maximizing output for the monopolistic competitive firm is:

	A.	zero units per week.
	B.	100 units per week.
	C.	200 units per week.
	D.	300 units per week.
	E.	400 units per week.

2 points

QUESTION 43

Which of the following is a characteristic of the monopolistic competition market structure?

	A.	Many firms and a homogeneous product.
	B.	Few firms and differentiated products.
	C.	Few firms and similar products.
	D.	Few firms and a homogeneous product.
	E.	Many firms and differentiated products.

2 points

QUESTION 44

The industry thatmostclosely approximates the conditions of the oligopoly model is:

	A.	Restaurant.
	B.	Retail clothing.
	C.	Home construction.
	D.	Airlines.

2 points

QUESTION 45

The monopolistic competition market structure is characterized by:

	A.	few firms and similar products.
	B.	many firms and differentiated products.
	C.	many firms and a homogeneous product.
	D.	few firms and a homogeneous product.

2 points

QUESTION 46

A profit-maximizing monopolistically competitive firm will expand output to the point where:

	A.	total revenue equals total cost.
	B.	marginal revenue equals marginal cost.
	C.	price equals average total cost.
	D.	price equals marginal cost.

2 points

QUESTION 47

Firms in a monopolistically competitive market structure maximize their profit by producing an output where:

	A.	price equals average total cost.
	B.	marginal cost equals average total cost.
	C.	marginal cost equals price.
	D.	marginal revenue equals marginal cost.

2 points

QUESTION 48

If a monopolistically competitive firm can earn a profit, it will increase production until:

	A.	MR > AVC.
	B.	MR = ATC.
	C.	MC > MR.
	D.	MR = AR.
	E.	MR = MC.

2 points

QUESTION 49

A characteristic of an oligopoly is:

	A.	mutual interdependence in pricing decisions.
	B.	independent pricing decisions.
	C.	lack of control over prices.
	D.	none of these.

2 points

QUESTION 50

A cartel is:

	A.	a joint venture of two companies.
	B.	a joining of firms for the purpose of fixing prices and controlling output.
	C.	a breaking up of a company into two or more parts.
	D.	the joining of industry with government to solve a specified problem.
	E.	the joining of two firms with unrelated products.