QUESTION 1

1. A monopolistically competitive market has characteristics that are similar to

	a.	both a monopoly and a competitive firm.
	b.	a competitive firm only.
	c.	neither a monopoly nor a competitive firm.
	d.	a monopoly only.

2 points

QUESTION 2

1. At present, the maximum legal price for a human kidney is $0. The price of $0 maximizes

	a.	both consumer and producer surplus.
	b.	neither consumer nor producer surplus.
	c.	producer surplus but not consumer surplus.
	d.	consumer surplus but not producer surplus.

2 points

QUESTION 3

1. A simultaneous increase in both the demand for MP3 players and the supply of MP3 players would imply that

	a.	the value of MP3 players to consumers has increased, and the cost of producing MP3 players has decreased.
	b.	both the value of MP3 players to consumers and the cost of producing MP3 players has increased.
	c.	the value of MP3 players to consumers has decreased, and the cost of producing MP3 players has increased.
	d.	both the value of MP3 players to consumers and the cost of producing MP3 players has decreased.

2 points

QUESTION 4

1. As the number of firms in an oligopoly market

	a.	decreases, the price charged by firms likely decreases.
	b.	increases, the market approaches the competitive market outcome.
	c.	increases, the market approaches the monopoly outcome.
	d.	decreases, the market approaches the competitive market outcome.

2 points

QUESTION 5

1. Accounting profit is equal to

	a.	marginal revenue minus marginal cost.
	b.	total revenue minus the explicit cost of producing goods and services.
	c.	average revenue minus the average cost of producing the last unit of a good or service.
	d.	total revenue minus the opportunity cost of producing goods and services.

2 points

QUESTION 6

1. A restaurant that has market power can

	a.	ignore profit-maximizing strategies when setting the price for its meals.
	b.	influence the market price for the meals it sells.
	c.	minimize costs more efficiently than its competitors.
	d.	reduce its marketing budget more than its competitors.

2 points

QUESTION 7

1. A profit-maximizing firm in a competitive market will always make marginal adjustments to production as long as

	a.	average revenue is greater than average total cost.
	b.	marginal cost is greater than average total cost.
	c.	price is above or below marginal cost.
	d.	average revenue is equal to marginal cost.

2 points

QUESTION 8

1. A production function describes

	a.	how a firm turns inputs into output.
	b.	how a firm maximizes profits.
	c.	the minimal cost of producing a given level of output.
	d.	the relationship between cost and output.

2 points

QUESTION 9

1. Alex is willing to pay $10, and Bella is willing to pay $8, for 1 pound of ribeye steak. When the price of ribeye steak increases from $9 to $11,

	a.	neither Bella nor Alex experiences a decrease in consumer surplus.
	b.	both Bella and Alex experience a decrease in consumer surplus.
	c.	Bella experiences a decrease in consumer surplus, but Alex does not.
	d.	Alex experiences a decrease in consumer surplus, but Bella does not.

2 points

QUESTION 10

1. As firms exit a monopolistically competitive market, profits of remaining firms

	a.	rise, and product diversity in the market increases.
	b.	rise, and product diversity in the market decreases.
	c.	decline, and product diversity in the market increases.
	d.	decline, and product diversity in the market decreases.

2 points

QUESTION 11

1. A monopolistically competitive market is characterized by

	a.	free entry, but not differentiated products.
	b.	long run profits, but not many firms.
	c.	many firms, but not free entry.
	d.	differentiated products, but not long run profits.

2 points

QUESTION 12

1. A profit-maximizing firm in a monopolistically competitive market is characterized by which of the following?

	a.	average revenue exceeds marginal revenue
	b.	marginal revenue equals marginal cost
	c.	price exceeds marginal cost
	d.	All of the above are correct.

2 points

QUESTION 13

1. A simultaneous decrease in both the demand for MP3 players and the supply of MP3 players would imply that

	a.	the value of MP3 players to consumers has increased, and the cost of producing MP3 players has decreased.
	b.	both the value of MP3 players to consumers and the cost of producing MP3 players has decreased.
	c.	the value of MP3 players to consumers has decreased, and the cost of producing MP3 players has increased.
	d.	both the value of MP3 players to consumers and the cost of producing MP3 players has increased.

2 points

QUESTION 14

1. A profit-maximizing firm in a competitive market is currently producing 200 units of output. It has average revenue of $9 and average total cost of $7. It follows that the firm's

	a.	average total cost curve intersects the marginal cost curve at an output level of less than 200 units.
	b.	average variable cost curve intersects the marginal cost curve at an output level of less than 200 units.
	c.	profit is $400.
	d.	All of the above are correct.

2 points

QUESTION 15

1. A profit-maximizing firm in a competitive market is able to sell its product for $7. At its current level of output, the firm's average total cost is $10. The firm's marginal cost curve crosses its marginal revenue curve at an output level of 9 units. The firm experiences a

	a.	loss of more than $27.
	b.	loss of exactly $27.
	c.	profit of exactly $27.
	d.	profit of more than $27.

2 points

QUESTION 16

1. A profit-maximizing firm in a competitive market is able to sell its product for $7. At its current level of output, the firm's average total cost is $10. The firm's marginal cost curve crosses its marginal revenue curve at an output level of 9 units. The firm experiences a

	a.	loss of more than $27.
	b.	profit of exactly $27.
	c.	loss of exactly $27.
	d.	profit of more than $27.

2 points

QUESTION 17

1. As the number of firms in an oligopoly increases, the price approaches

	a.	infinity.
	b.	marginal cost.
	c.	the monopoly price.
	d.	zero.

2 points

QUESTION 18

1. Assume that Bart's Batteries has entered into a resale price maintenance agreement with Radio Shanty but not with Prime Purchase. In this case,

	a.	Radio Shanty will sell Bart's Batteries at a lower price than Prime Purchase.
	b.	the wholesale price of Bart's Batteries will be different for Radio Shanty than it is for Prime Purchase.
	c.	Bart's Batteries will never increase profits by having a resale price maintenance agreement with all retail outlets that sell its products.
	d.	Prime Purchase might benefit from customers who go to Radio Shanty for information about different batteries.

2 points

QUESTION 19

1. An oligopoly

	a.	is a type of imperfectly competitive market.
	b.	has many firms rather than just one firm or a few firms.
	c.	is a price taker.
	d.	has a concentration ratio of less than 50 percent.

2 points

QUESTION 20

1. A supply curve can be used to measure producer surplus because it reflects

	a.	quantity supplied.
	b.	sellers' costs.
	c.	the amount that will be purchased by consumers in the market.
	d.	the actions of sellers.

2 points

QUESTION 21

1. A seller in a competitive market

	a.	can sell all he wants at the going price, so he has little reason to charge less.
	b.	will lose all his customers to other sellers if he raises his price.
	c.	considers the market price to be a "take it or leave it" price.
	d.	All of the above are correct.

2 points

QUESTION 22

1. A seller in a competitive market can

	a.	sell all he wants at the going price, so he has little reason to charge less.
	b.	influence the market price by adjusting his output.
	c.	influence the profits earned by competing firms by adjusting his output.
	d.	All of the above are correct.

2 points

QUESTION 23

1. Assume oligopoly firms are profit maximizers, they do not form a cartel, and they take other firms' production levels as given. Then in equilibrium the output effect

	a.	must be smaller than the price effect.
	b.	must balance with the price effect.
	c.	must dominate the price effect.
	d.	can be larger or smaller than the price effect.

2 points

QUESTION 24

1. As the number of sellers in an oligopoly becomes very large,

	a.	the quantity of output approaches the socially efficient quantity.
	b.	the price approaches marginal cost.
	c.	the price effect is diminished.
	d.	All of the above are correct.

2 points

QUESTION 25

1. Consider the following: The relative price of hamburgers this year has

		increased.
		decreased.
		stayed the same.
		Not enough information has been given to calculate an answer.

2 points

QUESTION 26

1. As new firms enter a monopolistically competitive market, profits of existing firms

	a.	rise, and product diversity in the market decreases.
	b.	decline, and product diversity in the market decreases.
	c.	rise, and product diversity in the market increases.
	d.	decline, and product diversity in the market increases.

2 points

QUESTION 27

1. As the number of firms in the oligopoly grows very large, the

	a.	output effect equals the price effect.
	b.	price effect disappears.
	c.	output effect disappears.
	d.	price of the product greatly exceeds marginal cost.

2 points

QUESTION 28

1. Assuming that oligopolists do not have the opportunity to collude, once they have reached the Nash equilibrium, it

	a.	is always in their best interest to leave their quantities supplied unchanged.
	b.	may be in their best interest to do -- any of the above, depending on market conditions.
	c.	is always in their best interest to supply less to the market.
	d.	is always in their best interest to supply more to the market.

2 points

QUESTION 29

1. A production function is a relationship between inputs and

	a.	quantity of output.
	b.	revenue.
	c.	costs.
	d.	profit.

2 points

QUESTION 30

1. Allen tutors in his spare time for extra income. Buyers of his service are willing to pay $40 per hour for as many hours Allen is willing to tutor. On a particular day, he is willing to tutor the first hour for $10, the second hour for $18, the third hour for $28, and the fourth hour for $40. Assume Allen is rational in deciding how many hours to tutor. His producer surplus is

	a.	$64.
	b.	$40.
	c.	$12.
	d.	$56.

2 points

QUESTION 31

1. As a group, oligopolists would always earn the highest profit if they would

	a.	operate according to their own individual self-interests.
	b.	produce the perfectly competitive quantity of output.
	c.	charge the same price that a monopolist would charge if the market were a monopoly.
	d.	produce more than the perfectly competitive quantity of output.

2 points

QUESTION 32

1. All else equal, what happens to consumer surplus if the price of a good increases?

	a.	Consumer surplus is unchanged.
	b.	Consumer surplus may increase, decrease, or remain unchanged.
	c.	Consumer surplus increases.
	d.	Consumer surplus decreases.

2 points

QUESTION 33

1. A profit-maximizing firm will shut down in the short run when

	a.	average revenue is greater than marginal cost.
	b.	average revenue is greater than average fixed cost.
	c.	price is less than average variable cost.
	d.	price is less than average total cost.

2 points

QUESTION 34

1. A student might describe information about the costs of production as

	a.	dry and technical.
	b.	boring.
	c.	crucial to understanding firms and market structures.
	d.	All of the above could be correct.

2 points

QUESTION 35

1. Abraham drinks Mountain Dew. He can buy as many cans of Mountain Dew as he wishes at a price of $0.55 per can. On a particular day, he is willing to pay $0.95 for the first can, $0.80 for the second can, $0.60 for the third can, and $0.40 for the fourth can. Assume Abraham is rational in deciding how many cans to buy. His consumer surplus is

	a.	$0.50.
	b.	$0.60.
	c.	$1.00.
	d.	$0.70.

2 points

QUESTION 36

1. ABC Company incurs a cost of 50 cents to produce a dozen eggs, while XYZ Company incurs a cost of 70 cents to produce a dozen eggs. Which of the following price increases would causebothcompanies to experience an increase in producer surplus?

	a.	The price of a dozen eggs increases from 40 cents to 55 cents.
	b.	The price of a dozen eggs increases from 55 cents to 70 cents.
	c.	The price of a dozen eggs increases from 55 cents to 75 cents.
	d.	All of these price increases would cause both companies to experience a loss in producer surplus.

2 points

QUESTION 37

1. A sunk cost is one that

	a.	was paid in the past and will not change regardless of the present decision.
	b.	should determine the rational course of action in the future.
	c.	changes as the level of output changes in the short run.
	d.	has the most impact on profit-making decisions.

2 points

QUESTION 38

1. As the number of firms in an oligopoly increases, the

	a.	price and quantity approach the monopoly levels.
	b.	individual firms' profits increase.
	c.	price approaches marginal cost, and the quantity approaches the socially efficient level.
	d.	price effect exceeds the output effect.

2 points

QUESTION 39

1. A total-cost curve shows the relationship between the

	a.	quantity of an input used and the total cost of production.
	b.	total cost of production and profit.
	c.	quantity of output produced and the total cost of production.
	d.	total cost of production and total revenue.

2 points

QUESTION 40

1. According to many economists, government restrictions on ticket scalping do --- all of the followingexcept

	a.	reduce the audience for cultural and sports events.
	b.	waste police officers' time.
	c.	keep the cost of tickets to all consumers low.
	d.	inconvenience the public.

2 points

QUESTION 41

1. As the number of firms in an oligopoly increases, the magnitude of the

	a.	output effect increases.
	b.	price effect increases.
	c.	output effect decreases.
	d.	price effect decreases.

2 points

QUESTION 42

1. A profit-maximizing firm in a competitive market is currently producing 200 units of output. It has average revenue of $9 and average total cost of $7. It follows that the firm's

	a.	average total cost curve intersects the marginal cost curve at an output level of less than 200 units.
	b.	average variable cost curve intersects the marginal cost curve at an output level of less than 200 units.
	c.	profit is $400.
	d.	All of the above are correct.

2 points

QUESTION 43

1. A monopolistically competitive market could be considered inefficient because

	a.	the efficient scale of production is only achieved in the long run, not in the short run.
	b.	markup pricing does not occur in any other market structure.
	c.	marginal revenue exceeds average revenue.
	d.	price exceeds marginal cost.

2 points

QUESTION 44

1. A monopolistically competitive market

	a.	may have too many or too few firms, and the government can intervene to achieve the optimal number of firms.
	b.	may have too many or too few firms, but the government can do little to rectify the situation.
	c.	usually has too many firms, reducing the economic profit of each firm to zero.
	d.	usually has too few firms, reducing the product variety for consumers.

2 points

QUESTION 45

1. Assume that two firms in an oligopoly market are unable to collude. Once the Nash Equilibrium is reached

	a.	the two firms are jointly earning monopoly profit.
	b.	the outcome is equivalent to a competitive equilibrium.
	c.	neither firm is able to improve its outcome on its own.
	d.	it is always possible for one firm to increase its profits by producing more output.

2 points

QUESTION 46

1. As the number of firms in an oligopoly increases,

	a.	each seller becomes more concerned about its impact on the market price.
	b.	the oligopoly has more market power and firms earn a greater profit.
	c.	the output effect decreases.
	d.	the total quantity of output produced by firms in the market gets closer to the socially efficient quantity.

2 points

QUESTION 47

1. A situation in which firms choose their best strategy given the strategies chosen by the other firms in the market is called

	a.	a Nash equilibrium.
	b.	a competitive equilibrium.
	c.	a socially-optimal solution.
	d.	an open-market solution.

2 points

QUESTION 48

1. Assume a firm in a competitive industry is producing 800 units of output, and it sells each unit for $6. Its average total cost is $4. Its profit is

	a.	$1,600.
	b.	$3,200.
	c.	$8,000.
	d.	-$1,600.

2 points

QUESTION 49

1. A sunk cost is one that

	a.	should determine the rational course of action in the future.
	b.	changes as the level of output changes in the short run.
	c.	was paid in the past and will not change regardless of the present decision.
	d.	has the most impact on profit-making decisions.

2 points

QUESTION 50

1. Assume that Samorola has entered into an enforceable resale price maintenance agreement with Trint and U-Mobile. Which of the following will always be true?

	a.	U-Mobile and Trint will always sell Samorolas for exactly the same price.
	b.	Trint will sell Samorolas at a lower price than U-Mobile.
	c.	The wholesale price of Samorolas will be different for Trint than it is for U-Mobile.
	d.	U-Mobile will benefit from customers who go to Trint for information about different mobile phones.