Micro/Midterm III Name
Spring 2.1k Choose the best answer.

GOOD LUCK!





1. ______________ as a state does not exist but is a useful reference point.
A.Perfect competition
B.Monopolistic Competition
C.Oligopoly
D.Monopoly


2. For perfect competition to exist, the firms' goal must be:
A.to maximize profit.
B.to maximize the income the firm's managers can make.
C.to keep price low.
D.to hire as many workers as possible.


3. If any firm in a perfectly competitive market discovered a more cost-effective production method:
A.some other firms would find out about it, but would not be able to adopt it.
B.all other firms would be able to adopt it.
C.no other firm would find out about it ever.
D.other firms would have to reduce costs, but would have to find another way to do it.


4. A perfectly competitive seller:
A.sells a differentiated product, so its price is different from the price charged by it competitors.
B.sells at the government-regulated price.
C.sells at the going market price.
D.chooses its profit-maximizing price.


5. If the marginal revenue of the last widget the firm produces is $25 and its marginal cost is $35, a firm should:
A.reconsider past production decisions.
B.decrease production.
C.increase production.
D.hold production constant.


6. A competitive firm facing a price of $10 decides to produce 100 widgets. Its marginal cost of producing the last one is $8. What would you advise the firm to do?
A.produce more widgets.
B.produce fewer widgets.
C.get more information.
D.shut down.


7. Suppose a firm's marginal revenue is $20 while its marginal cost is $20. Under these circumstances:
A.the firm is profit maximizing and should not change output.
B.the firm is not profit maximizing and should increase output.
C.the firm is not profit maximizing and should reduce output.
D.the firm needs to know the market price before it can determine whether it is profit maximizing.


8. The supply curve of a perfectly competitive firm is:
A.the segment of the marginal cost curve that lies above the average variable cost curve.
B.the segment of the marginal cost curve that lies above the average total cost curve.
C.the segment of the average total cost curve that lies above the average variable cost curve.
D.nonexistent.


9. In computing profits, economists consider:
A.explicit costs only.
B.all opportunity costs.
C.normal costs only.
D.marginal costs only.


10. When economic profits are zero:
A.firms exactly cover their accounting costs.
B.firms cover their implicit costs but not their explicit costs.
C.firms cover all costs, including opportunity costs.
D.firms cover their accounting costs but not necessarily their opportunity costs.


11. To maximize profits, a perfectly competitive firm should do all of the following except:
A.produce until economic profits are maximized.
B.produce until marginal cost equals price.
C.produce until marginal revenue equals marginal cost.
D.produce until per unit profits are maximized.


12.
R-1 Figure 25-1

Refer to the graph above. Marginal cost equals marginal revenue when output equals:
A.7.
B.8.
C.6.
D.4.



13.
R-1 Figure 25-1

Refer to the graph above. Assuming the firm produces where marginal revenue equals marginal cost, total profit will be:
A.$100.
B.$400.
C.$800.
D.$1200.



14.
R-2 Figure 25-2

Refer to the graph above. The marginal revenue curve is labeled:
A.I.
B.II.
C.III.
D.IV.



15.
R-2 Figure 25-2

Refer to the graph above. The average total cost curve is labeled:
A.I.
B.II.
C.III.
D.IV.



16.
R-2 Figure 25-2

Refer to the graph above. The marginal cost curve is labeled:
A.I.
B.II.
C.III.
D.IV.



17. When firms enter an industry:
A.market supply shifts left and equilibrium price rises.
B.market supply shifts left and equilibrium price falls.
C.market supply shifts right and equilibrium price rises.
D.market supply shifts right and equilibrium price falls.


18. When firms exit an industry:
A.market supply shifts left and equilibrium price rises.
B.market supply shifts left and equilibrium price falls.
C.market supply shifts right and equilibrium price rises.
D.market supply shifts right and equilibrium price falls.


19. Monopoly is a market structure where:
A.there is a single seller producing a unique product.
B.a few firms dominate the market.
C.many firms produce differentiated products.
D.many firms produce identical products.


20. The demand curve for a monopolist is:
A.perfectly elastic.
B.not relevant since the monopolist has control over price.
C.the same as the market demand curve.
D.perfectly inelastic.


21. A pure monopoly firm:
A.can raise price by restricting output.
B.will always be able to earn more profit when it raises price.
C.will always earn economic profit no matter what the level of demand for its product.
D.faces a perfectly elastic demand curve for its product.


22. A significant long-run difference between monopoly and competition is that:
A.there are free entry and exit in a monopolized industry, whereas barriers to entry exist in a competitive market.
B.competitive firms control market supply, whereas a monopolist's influence on market supply is imperceptible.
C.profits are driven to zero in a perfectly competitive industry, whereas positive profits may persist in a monopolized industry.
D.profits are driven to zero in a monopolized industry, whereas positive profits may persist in a competitive industry.


23. The supply curve of a monopolist is:
A.upward sloping.
B.nonexistent, a monopolist simply chooses the profit-maximizing point on the market demand curve.
C.nonexistent, a monopolist always produces a fixed output regardless of the going market price.
D.horizontal.


24. A monopolist should decrease production if :
A.MR < MC.
B.MR > MC.
C.MR = MC.
D.it can no longer affect the price of the good it is selling.


25. If the monopolist produces at a level of production where MR < MC then:
A.the additional revenue it gets is above the additional costs.
B.the total revenue it gets is above the total cost.
C.the additional revenue it gets is below the additional costs.
D.the total revenue it gets is below the total costs.


26. A monopoly firm selling lemonade to tourists on an island is currently maximizing profits by charging a price of $5 per glass. It follows that the marginal cost of lemonade:
A.is equal to $5.
B.is less than $5.
C.is greater than $5.
D.is greater than the average cost.


27.
R-3 Figure 26-6

Refer to the graph above. If the firm sets the price to maximize profit it will:
A.charge $8 for its product.
B.charge $6 for its product.
C.charge $5 for its product.
D.charge $4 for its product.



28.
R-3 Figure 26-6

Refer to the graph above. Assuming that the firm maximizes profit, it will produce:
A.150 units of output per day.
B.300 units of output per day.
C.350 units of output per day.
D.400 units of output per day.



29.
R-3 Figure 26-6

Refer to the graph above. Assuming that the firm maximizes profit, the marginal cost of its last unit of output will be:
A.$8.
B.$6.
C.$5.
D.$4.



30.
R-3 Figure 26-6

Refer to the graph above. If the firm produces 350 units of output per day, it:
A.can increase profit by producing more per day.
B.can increase profit by producing less per day.
C.will be maximizing profit.
D.will incur economic losses.



31.
R-3 Figure 26-6

Refer to the graph above. If the firm sets the price to maximize profit it will:
A.earn economic profit of $4800 per day.
B.earn economic profit of $2400 per day.
C.earn economic profit of $1200 per day.
D.earn economic profit of $600 per day.



32.
R-4 Figure 26-9

Refer to the graph above. The area labeled A in the above graph is called:
A.producer surplus.
B.consumer surplus.
C.inventory surplus.
D.monopolist surplus.



33. Perfect price discrimination means that:
A.consumers are divided into two groups with one group paying a high price and the other paying a low price.
B.buyers receive maximum consumer surplus.
C.each consumer is charged the maximum price he or she will pay.
D.profits are driven to zero.


34. A monopolist engages in price discrimination to:
A.increase output beyond the profit-maximizing level.
B.further restrict output to increase its profits.
C.allow some persons to purchase the good who could not normally afford to do so.
D.earn more profit than would be possible if every buyer paid the same price.


35.
R-5 Figure 26-10

Refer to the graph above. The areas which represent the net welfare loss of monopoly are:
A.A and B.
B.A and C.
C.B and C.
D.C and D.



36. The welfare loss triangle shows:
A.the welfare costs of monopoly in terms of consumer and producer surplus.
B.the welfare costs of monopoly in terms of money spent on political influence.
C.the welfare costs of monopoly in terms of income redistribution.
D.the welfare loss of monopoly in terms of social fairness.


37. Monopolistic competition is a market structure in which:
A.there are many firms selling differentiated products.
B.there a few firms that engage in strategic pricing.
C.there is one firm that sets price and output.
D.there are many firms who sell homogeneous products..


38. A four-firm concentration ratio of 60 would mean that:
A.the four largest firms in the industry account for 40 percent of industry output.
B.the four largest firms in the industry account for 60 percent of industry output.
C.the industry is monopolized.
D.there are only 60 firms in the industry.


39. The Herfindahl index is the sum of the:
A.squared market shares of all the firms in the industry.
B.square root of the market shares of all the firms in the industry.
C.market shares of the four largest firms in the industry.
D.market shares of the eight largest firms in the industry.


40. The advantage of the Herfindahl index over the concentration ratio is that:
A.the Herfindahl index ignores the smallest firms.
B.the Herfindahl index is much easier to compute.
C.the Herfindahl index gives a more accurate measure of the market shares of all the firms in the industry.
D.the concentration ratio can only be calculated in those industries that happen to have only four firms.


41. In monopolistic competition:
A.there are only a few sellers because of barriers to entry.
B.there is only one seller because of barriers to entry.
C.there are many sellers because entry is easy.
D.there are many sellers in spite of barriers to entry.


42. Monopolistic competition means that:
A.sellers are able to earn economic profits in the long run.
B.new entrepreneurs are barred from entering the industry.
C.sellers have some influence over prices.
D.sellers are not maximizing profits.


43. A monopolistically competitive firm's demand curve is:
A.perfectly elastic.
B.perfectly inelastic.
C.downward-sloping.
D.horizontal.


44. In a monopolistically competitive industry, profit-maximizing firms:
A.set price equal to average variable cost.
B.maximize the difference between marginal revenue and marginal cost.
C.adjust output until marginal revenue equals marginal cost.
D.adjust output until price equals marginal cost.


45. Under monopolistic competition, in long-run equilibrium:
A.P = MC since economic profit equals zero.
B.P = AC since economic profit equals zero.
C.the firm produces at the minimum possible average cost of production.
D.the firm produces at the minimum possible marginal cost of production.


46. An oligopolistic industry has:
A.many sellers in the industry.
B.only a few sellers in the industry.
C.no competition on the basis of price.
D.no barriers to entry.


47. If an industry is characterized as an oligopoly:
A.entry of new sellers is easy and not very costly.
B.firms can have no influence on price.
C.firms may have a strong incentive to collude.
D.firms will never have any incentive to collude.


48. Cartels are organizations that seek to:
A.ensure ease of entry by new firms.
B.encourage price wars.
C.limit output by assigning production quotas to members.
D.encourage takeover of specific industries by a single seller to establish monopolies.


49. A situation in which the dominant firm in an industry sets a price that is used by the other firms in the industry is called:
A.competitive market.
B.monopolistic competition.
C.price leadership.
D.the kinked demand curve model.


50. The contestable market model of oligopoly assumes that whether or not price and output approximate the competitive model depends on:
A.entry and exit conditions.
B.the number of firms established in the industry.
C.the degree of product differentiation.
D.the market share of the largest four firms in the industry.



This is the end of the test. When you have completed all the questions and reviewed your answers, press the button below to grade the test.

mic3f89
Micro/Midterm III Name
Spring 2.1k Choose the best answer.

GOOD LUCK!





1. ______________ as a state does not exist but is a useful reference point.
A.Perfect competition
B.Monopolistic Competition
C.Oligopoly
D.Monopoly


2. For perfect competition to exist, the firms' goal must be:
A.to maximize profit.
B.to maximize the income the firm's managers can make.
C.to keep price low.
D.to hire as many workers as possible.


3. If any firm in a perfectly competitive market discovered a more cost-effective production method:
A.some other firms would find out about it, but would not be able to adopt it.
B.all other firms would be able to adopt it.
C.no other firm would find out about it ever.
D.other firms would have to reduce costs, but would have to find another way to do it.


4. A perfectly competitive seller:
A.sells a differentiated product, so its price is different from the price charged by it competitors.
B.sells at the government-regulated price.
C.sells at the going market price.
D.chooses its profit-maximizing price.


5. If the marginal revenue of the last widget the firm produces is $25 and its marginal cost is $35, a firm should:
A.reconsider past production decisions.
B.decrease production.
C.increase production.
D.hold production constant.


6. A competitive firm facing a price of $10 decides to produce 100 widgets. Its marginal cost of producing the last one is $8. What would you advise the firm to do?
A.produce more widgets.
B.produce fewer widgets.
C.get more information.
D.shut down.


7. Suppose a firm's marginal revenue is $20 while its marginal cost is $20. Under these circumstances:
A.the firm is profit maximizing and should not change output.
B.the firm is not profit maximizing and should increase output.
C.the firm is not profit maximizing and should reduce output.
D.the firm needs to know the market price before it can determine whether it is profit maximizing.


8. The supply curve of a perfectly competitive firm is:
A.the segment of the marginal cost curve that lies above the average variable cost curve.
B.the segment of the marginal cost curve that lies above the average total cost curve.
C.the segment of the average total cost curve that lies above the average variable cost curve.
D.nonexistent.


9. In computing profits, economists consider:
A.explicit costs only.
B.all opportunity costs.
C.normal costs only.
D.marginal costs only.


10. When economic profits are zero:
A.firms exactly cover their accounting costs.
B.firms cover their implicit costs but not their explicit costs.
C.firms cover all costs, including opportunity costs.
D.firms cover their accounting costs but not necessarily their opportunity costs.


11. To maximize profits, a perfectly competitive firm should do all of the following except:
A.produce until economic profits are maximized.
B.produce until marginal cost equals price.
C.produce until marginal revenue equals marginal cost.
D.produce until per unit profits are maximized.


12.
R-1 Figure 25-1

Refer to the graph above. Marginal cost equals marginal revenue when output equals:
A.7.
B.8.
C.6.
D.4.



13.
R-1 Figure 25-1

Refer to the graph above. Assuming the firm produces where marginal revenue equals marginal cost, total profit will be:
A.$100.
B.$400.
C.$800.
D.$1200.



14.
R-2 Figure 25-2

Refer to the graph above. The marginal revenue curve is labeled:
A.I.
B.II.
C.III.
D.IV.



15.
R-2 Figure 25-2

Refer to the graph above. The average total cost curve is labeled:
A.I.
B.II.
C.III.
D.IV.



16.
R-2 Figure 25-2

Refer to the graph above. The marginal cost curve is labeled:
A.I.
B.II.
C.III.
D.IV.



17. When firms enter an industry:
A.market supply shifts left and equilibrium price rises.
B.market supply shifts left and equilibrium price falls.
C.market supply shifts right and equilibrium price rises.
D.market supply shifts right and equilibrium price falls.


18. When firms exit an industry:
A.market supply shifts left and equilibrium price rises.
B.market supply shifts left and equilibrium price falls.
C.market supply shifts right and equilibrium price rises.
D.market supply shifts right and equilibrium price falls.


19. Monopoly is a market structure where:
A.there is a single seller producing a unique product.
B.a few firms dominate the market.
C.many firms produce differentiated products.
D.many firms produce identical products.


20. The demand curve for a monopolist is:
A.perfectly elastic.
B.not relevant since the monopolist has control over price.
C.the same as the market demand curve.
D.perfectly inelastic.


21. A pure monopoly firm:
A.can raise price by restricting output.
B.will always be able to earn more profit when it raises price.
C.will always earn economic profit no matter what the level of demand for its product.
D.faces a perfectly elastic demand curve for its product.


22. A significant long-run difference between monopoly and competition is that:
A.there are free entry and exit in a monopolized industry, whereas barriers to entry exist in a competitive market.
B.competitive firms control market supply, whereas a monopolist's influence on market supply is imperceptible.
C.profits are driven to zero in a perfectly competitive industry, whereas positive profits may persist in a monopolized industry.
D.profits are driven to zero in a monopolized industry, whereas positive profits may persist in a competitive industry.


23. The supply curve of a monopolist is:
A.upward sloping.
B.nonexistent, a monopolist simply chooses the profit-maximizing point on the market demand curve.
C.nonexistent, a monopolist always produces a fixed output regardless of the going market price.
D.horizontal.


24. A monopolist should decrease production if :
A.MR < MC.
B.MR > MC.
C.MR = MC.
D.it can no longer affect the price of the good it is selling.


25. If the monopolist produces at a level of production where MR < MC then:
A.the additional revenue it gets is above the additional costs.
B.the total revenue it gets is above the total cost.
C.the additional revenue it gets is below the additional costs.
D.the total revenue it gets is below the total costs.


26. A monopoly firm selling lemonade to tourists on an island is currently maximizing profits by charging a price of $5 per glass. It follows that the marginal cost of lemonade:
A.is equal to $5.
B.is less than $5.
C.is greater than $5.
D.is greater than the average cost.


27.
R-3 Figure 26-6

Refer to the graph above. If the firm sets the price to maximize profit it will:
A.charge $8 for its product.
B.charge $6 for its product.
C.charge $5 for its product.
D.charge $4 for its product.



28.
R-3 Figure 26-6

Refer to the graph above. Assuming that the firm maximizes profit, it will produce:
A.150 units of output per day.
B.300 units of output per day.
C.350 units of output per day.
D.400 units of output per day.



29.
R-3 Figure 26-6

Refer to the graph above. Assuming that the firm maximizes profit, the marginal cost of its last unit of output will be:
A.$8.
B.$6.
C.$5.
D.$4.



30.
R-3 Figure 26-6

Refer to the graph above. If the firm produces 350 units of output per day, it:
A.can increase profit by producing more per day.
B.can increase profit by producing less per day.
C.will be maximizing profit.
D.will incur economic losses.



31.
R-3 Figure 26-6

Refer to the graph above. If the firm sets the price to maximize profit it will:
A.earn economic profit of $4800 per day.
B.earn economic profit of $2400 per day.
C.earn economic profit of $1200 per day.
D.earn economic profit of $600 per day.



32.
R-4 Figure 26-9

Refer to the graph above. The area labeled A in the above graph is called:
A.producer surplus.
B.consumer surplus.
C.inventory surplus.
D.monopolist surplus.



33. Perfect price discrimination means that:
A.consumers are divided into two groups with one group paying a high price and the other paying a low price.
B.buyers receive maximum consumer surplus.
C.each consumer is charged the maximum price he or she will pay.
D.profits are driven to zero.


34. A monopolist engages in price discrimination to:
A.increase output beyond the profit-maximizing level.
B.further restrict output to increase its profits.
C.allow some persons to purchase the good who could not normally afford to do so.
D.earn more profit than would be possible if every buyer paid the same price.


35.
R-5 Figure 26-10

Refer to the graph above. The areas which represent the net welfare loss of monopoly are:
A.A and B.
B.A and C.
C.B and C.
D.C and D.



36. The welfare loss triangle shows:
A.the welfare costs of monopoly in terms of consumer and producer surplus.
B.the welfare costs of monopoly in terms of money spent on political influence.
C.the welfare costs of monopoly in terms of income redistribution.
D.the welfare loss of monopoly in terms of social fairness.


37. Monopolistic competition is a market structure in which:
A.there are many firms selling differentiated products.
B.there a few firms that engage in strategic pricing.
C.there is one firm that sets price and output.
D.there are many firms who sell homogeneous products..


38. A four-firm concentration ratio of 60 would mean that:
A.the four largest firms in the industry account for 40 percent of industry output.
B.the four largest firms in the industry account for 60 percent of industry output.
C.the industry is monopolized.
D.there are only 60 firms in the industry.


39. The Herfindahl index is the sum of the:
A.squared market shares of all the firms in the industry.
B.square root of the market shares of all the firms in the industry.
C.market shares of the four largest firms in the industry.
D.market shares of the eight largest firms in the industry.


40. The advantage of the Herfindahl index over the concentration ratio is that:
A.the Herfindahl index ignores the smallest firms.
B.the Herfindahl index is much easier to compute.
C.the Herfindahl index gives a more accurate measure of the market shares of all the firms in the industry.
D.the concentration ratio can only be calculated in those industries that happen to have only four firms.


41. In monopolistic competition:
A.there are only a few sellers because of barriers to entry.
B.there is only one seller because of barriers to entry.
C.there are many sellers because entry is easy.
D.there are many sellers in spite of barriers to entry.


42. Monopolistic competition means that:
A.sellers are able to earn economic profits in the long run.
B.new entrepreneurs are barred from entering the industry.
C.sellers have some influence over prices.
D.sellers are not maximizing profits.


43. A monopolistically competitive firm's demand curve is:
A.perfectly elastic.
B.perfectly inelastic.
C.downward-sloping.
D.horizontal.


44. In a monopolistically competitive industry, profit-maximizing firms:
A.set price equal to average variable cost.
B.maximize the difference between marginal revenue and marginal cost.
C.adjust output until marginal revenue equals marginal cost.
D.adjust output until price equals marginal cost.


45. Under monopolistic competition, in long-run equilibrium:
A.P = MC since economic profit equals zero.
B.P = AC since economic profit equals zero.
C.the firm produces at the minimum possible average cost of production.
D.the firm produces at the minimum possible marginal cost of production.


46. An oligopolistic industry has:
A.many sellers in the industry.
B.only a few sellers in the industry.
C.no competition on the basis of price.
D.no barriers to entry.


47. If an industry is characterized as an oligopoly:
A.entry of new sellers is easy and not very costly.
B.firms can have no influence on price.
C.firms may have a strong incentive to collude.
D.firms will never have any incentive to collude.


48. Cartels are organizations that seek to:
A.ensure ease of entry by new firms.
B.encourage price wars.
C.limit output by assigning production quotas to members.
D.encourage takeover of specific industries by a single seller to establish monopolies.


49. A situation in which the dominant firm in an industry sets a price that is used by the other firms in the industry is called:
A.competitive market.
B.monopolistic competition.
C.price leadership.
D.the kinked demand curve model.


50. The contestable market model of oligopoly assumes that whether or not price and output approximate the competitive model depends on:
A.entry and exit conditions.
B.the number of firms established in the industry.
C.the degree of product differentiation.
D.the market share of the largest four firms in the industry.



This is the end of the test. When you have completed all the questions and reviewed your answers, press the button below to grade the test.