Practice Problem Set - Test II PDF

Practice Problem Set - Test II 1\. The amount of money that a firm pays to buy all inputs is called ---- ---------------- a. total cost. b. variable cost. c. marginal cost. d. fixed cost. ---- ---------------- 2\. XYZ corporation produced 300 units of output but sold only 275...

Practice Problem Set - Test II 1\. The amount of money that a firm pays to buy all inputs is called ---- ---------------- a. total cost. b. variable cost. c. marginal cost. d. fixed cost. ---- ---------------- 2\. XYZ corporation produced 300 units of output but sold only 275 of the units it produced. The average cost of production for each unit of output produced was \$100. Each of the 275 units sold was sold for a price of \$95. Total profit for the XYZ corporation would be ---- ----------- a. -\$3,875. b. \$26,125. c. \$28,500. d. \$30,000. ---- ----------- 3\. Implicit costs ---- --------------------------------------------------------------------- a. do not require an outlay of money by the firm. b. do not enter into the economist\'s measurement of a firm\'s profit. c. are also known as variable costs. d. are not part of an economist's measurement of opportunity cost. ---- --------------------------------------------------------------------- 4\. Marginal cost tells us the ---- ------------------------------------------------------------------------ a. value of all resources used in a production process. b. marginal increment to profitability when price is constant. c. amount by which total cost rises when output is increased by one unit. d. amount by which output rises when labor is increased by one unit. ---- ------------------------------------------------------------------------ 5\. A firm has a fixed cost of \$200 in its first year of operation. When the firm produces 99 units of output, its total costs are \$4,000. The marginal cost of producing the 100th unit of output is \$700. What is the total cost of producing 100 units? ---- --------- a. \$900 b. \$4,200 c. \$4,700 d. \$4,900 ---- --------- Chapter 14 6\. Who is a price taker in a competitive market? ---- ---------------------------- a. buyers only b. sellers only c. both buyers and sellers d. neither buyers nor sellers ---- ---------------------------- 7\. When firms are said to be price takers, it implies that if a firm raises its price, ---- ---------------------------------------------------- a. buyers will go elsewhere. b. buyers will pay the higher price in the short run. c. competitors will also raise their prices. d. firms in the industry will exercise market power. ---- ---------------------------------------------------- 8\. The intersection of a firm\'s marginal revenue and marginal cost curves determines the level of output at which ---- ------------------------------------------ a. total revenue is equal to variable cost. b. total revenue is equal to fixed cost. c. total revenue is equal to total cost. d. profit is maximized. ---- ------------------------------------------ 9\. Raiman\'s Shoe Repair produces custom-made shoes. When Mr. Raiman produces 12 pairs per week, the marginal cost of the twelfth pair is \$84, and the marginal revenue of the twelfth pair is \$70. What would you advise Mr. Raiman to do? ---- --------------------------------- a. shut down the business b. produce more custom-made shoes c. decrease the price d. produce fewer custom-made shoes ---- --------------------------------- 10\. If there is an increase in market demand in a perfectly competitive market, then in the short run prices will ---- -------------------------------------------------------- a. rise. b. remain unchanged at the minimum of average total cost. c. fall. d. remain unchanged at the minimum of marginal cost. ---- -------------------------------------------------------- Chapter 15 11\. What is the shape of the monopolist's marginal revenue curve? ---- --------------------------------------------------------------- a. a downward-sloping line that is identical to the demand curve b. a downward-sloping line that lies below the demand curve c. a horizontal line that is identical to the demand curve d. a horizontal line that lies below the demand curve ---- --------------------------------------------------------------- 12\. For a profit-maximizing monopolist, ---- ---------------- a. P \> MR = MC. b. P = MR = MC. c. P \> MR \> MC. d. MR \< MC \< P. ---- ---------------- 13\. A monopolist ---- ------------------------------------------------------------------------------------------------------------------------ a. has a supply curve that is upward-sloping, just like a competitive firm. b. does not have a supply curve because the monopolist sets its price at the same time it chooses the quantity to supply. c. has a horizontal supply curve, just like a competitive firm. d. does not have a supply curve because marginal revenue exceeds the price it charges for its products. ---- ------------------------------------------------------------------------------------------------------------------------ 14\. The deadweight loss associated with a monopoly occurs because the monopolist ---- ------------------------------------------------------------------- a. maximizes profits. b. produces an output level less than the socially optimal level. c. produces an output level greater than the socially optimal level. d. equates marginal revenue with marginal cost. ---- ------------------------------------------------------------------- 15\. A firm cannot price discriminate if ---- ----------------------------------------------------------------------- a. its has declining marginal revenue. b. it operates in a competitive market. c. buyers only reveal the price they are willing to pay for the product. d. it has a constant marginal cost. ---- ----------------------------------------------------------------------- Chapter 16 16\. The lower the concentration ratio, the ---- ---------------------------------------------------- a. more control an individual firm has to set prices. b. more competitive the industry. c. less competitive the industry. d. Both a and c are correct. ---- ---------------------------------------------------- 17\. Product differentiation causes the seller of a good to face what type of demand curve? ---- ---------------------------------------------------------------------------------------------------------------- a. downward sloping b. vertical c. horizontal d. Any of the above could be correct since product differentiation does not affect the shape of the demand curve. ---- ---------------------------------------------------------------------------------------------------------------- 18\. 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. ---- ------------------------------------------ 19\. When a monopolistically competitive firm is in long-run equilibrium, ---- ------------------------------------------- a. price is equal to average total cost. b. price is equal to marginal cost. c. price is equal to marginal revenue. d. the firm operates at its efficient scale. ---- ------------------------------------------- 20\. The deadweight loss that is associated with a monopolistically competitive market is a result of ---- ------------------------------------------------------------------------- a. price falling short of marginal cost in order to increase market share. b. price exceeding marginal cost. c. the firm operating in a regulated industry. d. excessive advertising costs. ---- ------------------------------------------------------------------------- Chapter 17 21\. The simplest type of oligopoly is ---- ---------------------------- a. monopoly. b. duopoly. c. monopolistic competition. d. oligopolistic competition. ---- ---------------------------- 22\. As a group, oligopolists earn the highest profit when they ---- --------------------------------------------------------------------------------------------- a. achieve a Nash equilibrium. b. produce a total quantity of output that falls short of the Nash-equilibrium total quantity. c. produce a total quantity of output that exceeds the Nash-equilibrium total quantity. d. charge a price that falls short of the Nash-equilibrium price. ---- --------------------------------------------------------------------------------------------- 23\. To move the allocation of resources closer to the social optimum, policymakers should typically try to induce firms in an oligopoly to ---- ------------------------------------------------ a. collude with each other. b. form various degrees of cartels. c. compete rather than cooperate with each other. d. cooperate rather than compete with each other. ---- ------------------------------------------------ 24\. After initial success, the OPEC cartel saw the price of oil and the revenues of its members decline due, in part, to ---- ---------------------------------------------------------------------- a. the low elasticity of demand for oil in the short run. b. the large number of buyers from each member nation. c. surging demand for oil in the early 1980s. d. OPEC members failing to produce their agreed-upon production levels. ---- ---------------------------------------------------------------------- 25\. The prisoners\' dilemma game ---- ------------------------------------------------------------------------------------------------------------------------------------------------- a. is a situation in which two players both have dominant strategies which lead to the highest total payoff for the two players. b. has no Nash equilibrium since players, after agreeing to play their dominant strategy, will have an incentive to switch to another strategy. c. has a Nash equilibrium, but the Nash equilibrium outcome is not the outcome the players would agree to if they could cooperate with each other. d. Both a and c are correct. ---- ------------------------------------------------------------------------------------------------------------------------------------------------- Answer Key 1.a 2.a 3.a 4.c 5.c 6.c 7.a 8.d 9.d 10.a 11.b 12.a 13.b 14.b 15.b 16.b 17.a 18.d 19.a 20.b 21.b 22.b 23.c 24.d 25.c