Exam 3

Market Structures

 

Name: __________________________ Date: _____________

 

 

1.

If a perfectly competitive firm can sell 200 computers at $700 each, in order to sell one more computer, the firm:

A)

Must lower its price.

B)

Can raise its price.

C)

Can sell the 201st computer at $700.

D)

Cannot sell an additional computer at any price because the market is at equilibrium.

 

 

2.

If a perfectly competitive firm is producing a rate of output for which MC exceeds price, then the firm:

A)

Must have an economic loss.

B)

Can increase its profit by increasing output.

C)

Can increase its profit by decreasing output.

D)

Is maximizing profit.

 

 

3.

A firm that can sell all of its output at the prevailing market price:

A)

Is a competitive firm.

B)

Receives less than its marginal cost.

C)

Faces a downward-sloping demand curve.

D)

Has substantial market power.

 

 

4.

Suppose the cost of fertilizer (a variable input) decreases for peach farmers. In order to maximize profits, ceteris paribus, peach farmers should:

A)

Decrease output.

B)

Keep output the same since the market price did not change.

C)

Increase output.

D)

Increase prices.

 

 

5.

Profit is:

A)

TR - FC.

B)

Q (P - AVC).

C)

(P Q) - TC.

D)

All of the above.

 

 

6.

Short-run profits are maximized, for a perfectly competitive firm, at the rate of output where:

A)

Marginal Revenue is equal to marginal cost.

B)

Total revenue is maximized.

C)

Marginal revenue is zero.

D)

Average total costs are maximized.

 

 

7.

Which of the following is true about the demand curve confronting a competitive firm?

A)

Horizontal, as is market demand.

B)

Horizontal, while market demand is downward-sloping.

C)

Downward-sloping, while market demand is flat.

D)

Downward-sloping as in market demand.

 

 

8.

Which of the following represents the change in total revenue that results from a 1-unit increase in the quantity sold?

A)

Marginal cost.

B)

Total revenue.

C)

Marginal profit.

D)

Marginal revenue.

 

 

9.

One In the News article reports EToys will cease to operate. In the long run, a producer:

A)

Decides whether to enter or exit an industry.

B)

Makes an investment decision.

C)

Can change both fixed and variable inputs.

D)

All of the above.

 

 

10.

The difference between the total revenue and total cost curves at a given output is equal to:

A)

Total profit.

B)

Profit per unit.

C)

Average revenue.

D)

Average total cost.

 

 

11.

A firm experiencing economic losses will still continue to produce output in the short run as long as:

A)

Revenues are greater than total fixed cost.

B)

Price is above average variable cost.

C)

MR = MC.

D)

All of the above.

 

 

12.

A competitive firm is one:

A)

That has a large advertising budget.

B)

Whose output is so small relative to the market supply that it has no effect on market price.

C)

That can alter the market price of the good(s) it produces.

D)

That can raise price to increase profit.

 

 

13.

A firm that makes zero economic profits:

A)

Must eventually go bankrupt.

B)

Does not cover its variable costs and should shut down.

C)

Incurs an accounting loss.

D)

Covers all its costs, including a provision for normal profit.

 

 

 

Figure 7.4

 

 

 

14.

Refer to Figure 7.4 for a perfectly competitive firm. At the profit-maximizing output, total revenues would be equal to:

A)

OAHE.

B)

OBGE.

C)

BAHG.

D)

CAHF.

 

 

15.

For perfectly competitive firms, price:

A)

Is greater than marginal revenue.

B)

Is less than marginal revenue.

C)

Is equal to marginal revenue.

D)

And marginal revenue are not related.

 

 

16.

The market equilibrium price occurs where:

A)

Price equals the minimum of short-run average variable cost.

B)

Market supply crosses market demand.

C)

A firm's marginal revenue equals short-run marginal cost.

D)

A firm's short-run marginal cost equals average total cost.

 

 

17.

When the short-run marginal cost curve is upward-sloping:

A)

The average total cost curve is upward-sloping.

B)

The average total cost curve is above the marginal cost curve.

C)

Diminishing returns occur with greater output.

D)

There are diseconomies of scale.

 

 

 

In Figure 8.1, diagram "a" presents the cost curves that are relevant to a firm's production decision, and diagram "b" shows the market demand and supply curves for the market. Use both diagrams to answer the indicated questions.

 

Figure 8.1

 

 

 

18.

In Figure 8.1, at a price of p2 in the long run:

A)

Firms will enter the market.

B)

Firms will exit the market.

C)

Economic profits equal zero.

D)

P = AVC.

 

 

19.

Other things being equal, as more firms enter a market, the market supply curve:

A)

Becomes more inelastic.

B)

Shifts to the left.

C)

Shifts to the right.

D)

Intersects the demand curve at a higher price.

 

 

20.

Examples of barriers to entry include:

A)

Government regulation.

B)

Lack of control over resource prices.

C)

Diseconomies of scale.

D)

Rising marginal cost.

 

 

21.

If long-run economic losses are being experienced in a competitive market:

A)

More firms will enter the market.

B)

The market supply curve will shift to the right.

C)

Equilibrium price will rise as firms exit.

D)

All of the above.

 

 

22.

The entry of firms into a market:

A)

Reduces the equilibrium price.

B)

Reduces the profits of existing firms in the market.

C)

Shifts the market supply curve to the right.

D)

All of the above.

 

 

 

Figure 8.3

 

 

 

23.

Refer to Figure 8.3. At an output of G and a price of B, which of the following is equal to variable costs?

A)

ABED.

B)

ACFD.

C)

COGF.

D)

AOGD.

 

 

 

Figure 8.4

 

 

 

24.

Refer to Figure 8.4 for a perfectly competitive market and firm. Which of the following is most likely to occur, ceteris paribus?

A)

The firm will exit in the long run.

B)

The firm will shutdown in the short run.

C)

The firm will increase output.

D)

The firm will raise its price.

 

 

25.

For a competitive market in the long run:

A)

Economic losses induce firms to shut down.

B)

Economic profits induce firms to enter until profits are normal.

C)

Accounting profit is zero.

D)

All of the above.

 

 

26.

A barrier to entry is:

A)

A law established by the government to protect new industries.

B)

A commitment on the part of big business to allow smaller companies to compete.

C)

An obstacle that prevents additional workers from entering an industry, such as a union.

D)

An obstacle that makes it difficult for new firms to enter a market.

 

 

27.

Suppose a monopoly firm produces tables and can sell 10 tables per month at a price of $500 per table. In order to increase sales by one table per month, the monopolist must lower the price of its tables by $30 to $470 per table. The marginal revenue of the eleventh table is:

A)

$170.

B)

$-30.

C)

$70.

D)

$5170.

 

 

28.

Which of the following is true for a monopolist?

A)

It faces a downward-sloping demand curve.

B)

It must lower its price on all of its units in order to sell any additional units.

C)

Its marginal revenue curve is below its demand curve.

D)

All of the above.

 

 

 

Figure 9.6

 

 

 

29.

Refer to Figure 9.6 for a monopolist in the short run. The profit-maximizing monopolist will produce:

A)

58 units and charge a price of $15.

B)

58 units and charge a price of $40.

C)

68 units and charge a price of $36.

D)

68 units and charge a price of $30.

 

 

30.

At the long-run profit-maximizing equilibrium in a monopoly:

A)

Economic profits are zero.

B)

Price equals the minimum average total cost.

C)

Both a and b are correct.

D)

Marginal revenue equals marginal cost.

 

 

31.

The demand curve faced by a monopoly firm is:

A)

Perfectly inelastic reflecting the firm's dominance of the market.

B)

Perfectly elastic reflecting the fact that the monopolist can sell as much as it wants as the price it sets.

C)

The same as the market demand for the product.

D)

Below its marginal revenue curve.

 

 

 

Figure 9.2

 

 

 

32.

In Figure 9.2, the profit-maximizing level of output is:

A)

12 units.

B)

20 units.

C)

22 units.

D)

28 units.

 

 

33.

Which of the following contributes to a firm maintaining a monopoly?

A)

Exclusive control of an important input.

B)

A large number of firms in the industry.

C)

The existence of substitute goods.

D)

All of the above.

 

 

34.

Which of the following rules will always be satisfied when any firm (i.e. perfectly competitive or monopoly) has maximized profits?

A)

Price = lowest level of ATC.

B)

Price = MC.

C)

MR = MC.

D)

Total revenues are also maximized.

 

 

 

Figure 9.2

 

 

 

35.

In Figure 9.2, total profit for the monopolist is represented by the area:

A)

CDLK.

B)

CDHG.

C)

ABDLK.

D)

GHLK.

 

 

 

In Figure 8.1, diagram "a" presents the cost curves that are relevant to a firm's production decision, and diagram "b" shows the market demand and supply curves for the market. Use both diagrams to answer the indicated questions.

 

Figure 8.1

 

 

 

36.

In Figure 8.1, if market demand is at D1, the firm should:

A)

Leave the market.

B)

Produce q1.

C)

Shutdown.

D)

Do any of the above depending on the position of the AVC and the length of the time period.

 

 

37.

In Figure 8.1, the price at which a firm makes zero economic profits is:

A)

p1.

B)

p2.

C)

p3.

D)

p4.

 

 

38.

If a competitive industry in long-run equilibrium experiences an increase in fixed costs, the short-run response of individuals firms will be:

A)

To raise their price to offset the higher costs.

B)

To increase price, decrease output, and earn lower profits.

C)

To keep output and price constant but earn lower profits.

D)

To lower price, raise output, and earn higher profits.

 

 

39.

Assume there exists a monopoly firm earning economic profits. If the demand for this firm's product increases, the firm will.

A)

Raise price, raise output, and earn higher profits.

B)

Lower price, lower output, and earn higher profits.

C)

Lower price, raise output, amd earn higher profits.

D)

Keep price and output constant while earning higher profits.

 

 

40.

If a monopoly industry is characterized by having positive economics profits, in the long-run economists expect

A)

Price to decrease as new firms enter the industry.

B)

Profits to eventually fall to zero due to higher competition.

C)

Profits to continue if significant barriers to entry exist.

D)

The firm will decrease it's price to treat customers 'fairly'

 

 


Answer Key

 

1.

C

2.

C

3.

A

4.

C

5.

C

6.

A

7.

B

8.

D

9.

D

10.

A

11.

B

12.

B

13.

D

14.

A

15.

C

16.

B

17.

C

18.

C

19.

C

20.

A

21.

C

22.

D

23.

C

24.

A

25.

B

26.

D

27.

A

28.

D

29.

B

30.

D

31.

C

32.

B

33.

A

34.

C

35.

B

36.

D

37.

B

38.

C

39.

A

40.

C