Study Guide 3 PDF

Name: __________________ Class: Date: _____________ (First Page) Name: __________________ Class: Date: _____________ (Subsequent Pages) 1. A firm has market power if it can a. maximize profits. b. minimize costs. c. i...

Name: __________________ Class: Date: _____________ (First Page) Name: __________________ Class: Date: _____________ (Subsequent Pages) 1. A firm has market power if it can a. maximize profits. b. minimize costs. c. influence the market price of the good it sells. d. hire as many workers as it needs at the prevailing wage rate. 2. For a firm in a competitive market, an increase in the quantity produced by the firm will result in a. a decrease in the product’s market price. b. an increase in the product’s market price. c. no change in the product’s market price. d. either an increase or no change in the product’s market price depending on the number of firms in the market. 3. Table 14-1 Quantity Price 0 $5 1 $5 2 $5 3 $5 4 $5 5 $5 6 $5 7 $5 8 $5 9 $5 Refer to Table 14-1. Over what range of output is marginal revenue declining? a. 1 to 6 units b. 3 to 7 units c. 7 to 9 units d. Marginal revenue is constant over the entire range of output. 4. Table 14-6 The following table presents cost and revenue information for a firm operating in a competitive industry. COSTS REVENUES Quantity Total Marginal Quantity Total Marginal Produced Cost Cost Demanded Price Revenue Revenue 0 $100 -- 0 $120 -- 1 $150 1 $120 2 $202 2 $120 3 $257 3 $120 4 $317 4 $120 5 $385 5 $120 6 $465 6 $120 7 $562 7 $120 8 $682 8 $120 Refer to Table 14-6. What is the average revenue when 4 units are sold? a. $60 b. $120 c. $125 d. $197 5. Suppose a firm in a competitive market produces and sells 8 units of output and has a marginal revenue of $8. What would be the firm's marginal revenue if it instead produced and sold 4 units of output? a. $2 b. $8 c. $32 d. $64 6. ​T able 14-16 The table represents the demand information for a firm in a competitive market. Total Revenue Quantity 8 $120 9 $135 10 $150 11 $165 12 $180 13 $195 ​ Refer to Table 14-16. For this firm, the price is a. ​ $120 b. ​ $10 c. ​ $15 d. ​ $5 7. Robin owns a horse stables and riding academy and gives riding lessons for children at “pony camp.” Her business operates in a competitive industry. Robin gives riding lessons to 20 children per month. Her monthly total revenue is $4,000. The marginal cost of pony camp is $100 per child. In order to maximize profits, Robin should a. give riding lessons to more than 20 children per month. b. give riding lessons to fewer than 20 children per month. c. continue to give riding lessons to 20 children per month. d. We do not have enough information to answer the question. 8. Table 14-9 Suppose that a firm in a competitive market faces the following revenues and costs: Quantity Total Revenue Total Cost 0 $0 $5 1 $8 $9 2 $16 $14 3 $24 $20 4 $32 $27 5 $40 $35 6 $48 $44 7 $56 $54 8 $64 $65 9 $72 $72 Refer to Table 14-9. In order to maximize profit, the firm will produce a level of output where marginal revenue is equal to a. $6. b. $7. c. $8. d. $9. 9. Table 14-10 Suppose that a firm in a competitive market faces the following revenues and costs: Quantity Total Revenue Total Cost 0 $0 $3 1 $7 $5 2 $14 $9 3 $21 $15 4 $28 $23 5 $35 $33 6 $42 $45 7 $49 $59 Refer to Table 14-10. Which level of production in the table has the lowest average variable cost? a. 1 unit b. 2 units c. 3 units d. 4 units 10. Table 14-12 Bill’s Birdhouses COSTS REVENUES Quantity Total Marginal Quantity Total Marginal Produced Cost Cost Demanded Price Revenue Revenue 0 $0 -- 0 $80 -- 1 $50 1 $80 2 $102 2 $80 3 $157 3 $80 4 $217 4 $80 5 $285 5 $80 6 $365 6 $80 7 $462 7 $80 8 $582 8 $80 Refer to Table 14-12. What is Bill's economic profit at the profit-maximizing output level? a. $25 b. $75 c. $115 d. $225 11. If marginal cost exceeds marginal revenue, the firm a. is most likely to be at a profit-maximizing level of output. b. should increase the level of production to maximize its profit. c. should reduce its average fixed cost in order to lower its marginal cost. d. may still be earning a positive accounting profit. 12. Total profit for a firm is calculated as a. marginal revenue minus average total cost. b. average revenue minus average total cost. c. marginal revenue minus marginal cost. d. (price minus average cost) times quantity of output. 13. When a restaurant stays open for lunch service even though few customers patronize the restaurant for lunch, which of the following principles is (are) best demonstrated? Fixed costs are sunk in the short run. (i) In the short run, only fixed costs are important to the decision to stay open for (ii) lunch. If revenue exceeds variable cost, the restaurant owner is making a smart decision to (iii) remain open for lunch. a. (i) and (ii) only b. (ii) and (iii) only c. (i) and (iii) only d. (i), (ii), and (iii) 14. Figure 14-1 Suppose that a firm in a competitive market has the following cost curves: ​ Refer to Figure 14-1. The firm’s short-run supply curve is its marginal cost curve above a. $1. b. $3. c. $4.50. d. $6.30. 15. Figure 14-1 Suppose that a firm in a competitive market has the following cost curves: ​ Refer to Figure 14-1. If the market price is $5.00, the firm will earn a. positive economic profits in the short run. b. negative economic profits in the short run but remain in business. c. negative economic profits and shut down. d. zero economic profits in the short run. 16. Figure 14-2 Suppose a firm operating in a competitive market has the following cost curves: ​ Refer to Figure 14-2. If the market price is Pc, in the short run the firm will earn a. positive economic profits. b. negative economic profits but will try to remain open. c. negative economic profits and will shut down. d. zero economic profits. 17. Figure 14-6 Suppose a firm operating in a competitive market has the following cost curves: ​ Refer to Figure 14-6. Firms will be encouraged to enter this market for all prices that exceed a. P1. b. P2. c. P3. d. None of the above is correct. 18. Figure 14-6 Suppose a firm operating in a competitive market has the following cost curves: ​ Refer to Figure 14-6. When market price is P3, a profit-maximizing firm's profit a. can be represented by the area P3 × Q3. b. can be represented by the area P3 × Q2. c. can be represented by the area (P3-P2) × Q3. d. is zero. 19. The term shutdown a. and the term exit both refer to short-run decisions that a firm might make. b. and the term exit both refer to long-run decisions that a firm might make. c. refers to a short-run decision that a firm might make, whereas the term exit refers to a long-run decision that a firm might make. d. refers to a long-run decision that a firm might make, whereas the term exit refers to a short-run decision that a firm might make. 20. For a particular competitive firm, the minimum value of average variable cost (AVC) is $12 and is reached when 200 units of output are produced. For the same firm, the minimum value of average total cost (ATC) is $15 and is reached when 230 units of output are produced. Which of the following statements is correct? a. In the short run, the firm will shut down if the price of its product is $14. b. In the long run, the firm will shut down if the price of its product is $11. c. For this firm, the minimum value of variable cost (VC) is $2,400. d. If the firm’s fixed cost (FC) amounts to $500, then the firm cannot earn a positive profit unless the price of its product exceeds $16. 21. Figure 14-9 In the figure below, panel (a) depicts the linear marginal cost of a firm in a competitive market, and panel (b) depicts the linear market supply curve for a market with a fixed number of identical firms. ​ Refer to Figure 14-9. If there are 100 identical firms in this market, what is the value of Q2? a. 10,000 b. 20,000 c. 40,000 d. 80,000 22. In the short run, there are 500 identical firms in a competitive market. The firms do not use any resources that are available in limited quantities, and each of them has the following cost structure: Output Total Cost 0 $0 1 $10 2 $12 3 $15 4 $24 5 $35 Which of the following is a point on the long-run supply curve? a. P=$10, Q=500. b. P=$6, Q=1,000. c. P=$5, Q=500. d. P=$5, Q=1,500. 23. When new firms enter a perfectly competitive market, a. demand increases. b. the short-run market supply curve shifts right. c. the short-run market supply curve shifts left. d. existing firms will increase prices to keep the new firms from entering. 24. Willie’s Wading Adventures sells hip waders for fishing and duck hunting in a perfectly competitive market. If hip waders sell for $100 each and average total cost per unit is $95 at the profit-maximizing output level, then in the long run a. more firms will enter the market. b. some firms will exit from the market. c. the equilibrium price per unit will rise. d. average total costs will fall. 25. If occupational safety laws were changed so that firms no longer had to take expensive steps to meet regulatory requirements, we would expect that a. the demand for products in this industry would increase. b. the market price of products in this industry would decrease in the short run but not in the long run. c. the firms in the industry would make a long-run economic profit. d. competition would force producers to pass the lower production costs on to consumers in the long run. 26. The textile industry is composed of a large number of small firms. In recent years, these firms have suffered economic losses, and many sellers have left the industry. Economic theory suggests that these conditions will a. shift the demand curve outward so that price will rise to the level of production cost. b. cause the remaining firms to collude so that they can produce more efficiently. c. cause the market supply to decline and the price of textiles to rise. d. cause firms in the textile industry to suffer long-run economic losses. 27. When firms in a perfectly competitive market face the same costs, in the long run they must be operating a. under diseconomies of scale. b. with small, but positive, levels of profit. c. at their efficient scale. d. where price is equal to average fixed cost. 28. In a long-run equilibrium, the marginal firm has a. price equal to minimum marginal cost. b. total revenue equal to total cost. c. accounting profit equal to zero. d. All of the above are correct. 29. Figure 14-13 Suppose a firm in a competitive industry has the following cost curves: ​ ​ Refer to Figure 14-13. If the price is $3.50 in the short run, what will happen in the long run? a. Nothing. The price is consistent with zero economic profits, so there is no incentive for firms to enter or exit the industry. b. Individual firms will earn positive economic profits in the short run, which will entice other firms to enter the industry. c. Individual firms will earn negative economic profits in the short run, which will cause some firms to exit the industry. d. Because the price is below the firm’s average variable costs, the firms will shut down. 30. In the transition from the short run to the long run, the number of firms in a competitive industry is a. fixed. b. increasing at a constant rate. c. decreasing. d. able to adjust to market conditions. 31. The long-run supply curve for a competitive industry may be upward sloping if a. there are barriers to entry. b. firms that enter the industry are able to do so at lower average total costs than the existing firms in the industry. c. some resources are available only in limited quantities. d. accounting profits are positive. 32. Suppose a competitive market has a horizontal long-run supply curve and is in long-run equilibrium. If demand decreases, we can be certain that in the short-run, a. at least some firms will shut down. b. price will fall below marginal cost for some firms. c. price will fall below average total cost for some firms. d. at least some firms will enter the industry. 33. If firms are competitive and profit maximizing, the price of a good equals the a. marginal cost of production. b. fixed cost of production. c. total cost of production. d. average total cost of production. 34. Profit maximizing firms in competitive industries with free entry and exit face a price equal to the lowest possible a. marginal cost of production. b. fixed cost of production. c. total cost of production. d. average total cost of production. 35. Which of the following is a characteristic of a monopoly? a. rising average total costs b. one buyer c. rising fixed costs d. a product without close substitutes 36. A monopoly market is characterized by a. many buyers and sellers. b. “natural” products. c. barriers to entry. d. a Nash equilibrium. 37. Which of the following are necessary characteristics of a monopoly? The firm is the sole seller of its product. (i) The firm's product does not have close substitutes. (ii) The firm generates a large economic profit. (iii) The firm is located in a small geographic market. (iv) a. (i) and (ii) only b. (i) and (iii) only c. (i), (ii), and (iii) only d. (i), (ii), (iii), and (iv) 38. A benefit to society of the patent and copyright laws is that those laws a. help to keep prices down. b. help to prevent a single firm from acquiring ownership of a key resource. c. encourage creative activity. d. discourage the production of inefficient products. 39. Patent and copyright laws a. encourage creative activity. b. promote competition among firms. c. discourage creative activity. d. Both a and b are correct. 40. Patent and copyright laws encourage a. creative activity. b. lower prices due to decreasing average total costs. c. competition among firms. d. All of the above are correct. 41. When a firm's average total cost curve continually declines, the firm is a a. government-created monopoly. b. natural monopoly. c. revenue monopoly. d. All of the above are correct. 42. When there are economies of scale over the relevant range of output for a monopoly, the monopoly a. is a natural monopoly. b. is a government-granted monopoly. c. has monopoly power due to the ownership of a patent or copyright. d. has monopoly power due to the ownership of a key production resource. 43. A monopolist can sell 300 units of output for $45 per unit. Alternatively, it can sell 301 units of output for $44.60 per unit. The marginal revenue of the 301st unit of output is a. -$120.00. b. -$75.40. c. -$0.40. d. $75.40. 44. When a certain monopoly sets its price at $8 it sells 64 units. When the monopoly sets its price at $10 it sells 60 units. The marginal revenue for the firm over this range is a. $11. b. $22. c. $33. d. $44. 45. Figure 15-7 ​ Refer to Figure 15-7. A profit-maximizing monopolist would earn profits of a. $96. b. $117. c. $120. d. $126. 46. Table 15-6 A monopolist faces the following demand curve: Quantity Price 1 $15 2 $12 3 $9 4 $6 5 $3 Refer to Table 15-6. What is the marginal revenue from the sale of the 3rd unit? a. -$3 b. $3 c. $9 d. $24 47. Table 15-7 Sally owns the only shoe store in town. She has the following cost and revenue information. COSTS REVENUES Quantity Total Cost Marginal Quantity Price Total Marginal Produced ($) Cost Demanded ($/unit) Revenue Revenue (pairs) 0 100 -- 0 170 -- 1 140 1 160 2 184 2 150 3 230 3 140 4 280 4 130 5 335 5 120 6 395 6 110 7 475 7 100 8 565 8 90 Refer to Table 15-7. What is the marginal revenue from selling the 8th pair of shoes? a. $10 b. $20 c. $40 d. $90 48. Table 15-7 Sally owns the only shoe store in town. She has the following cost and revenue information. COSTS REVENUES Quantity Total Cost Marginal Quantity Price Total Marginal Produced ($) Cost Demanded ($/unit) Revenue Revenue (pairs) 0 100 -- 0 170 -- 1 140 1 160 2 184 2 150 3 230 3 140 4 280 4 130 5 335 5 120 6 395 6 110 7 475 7 100 8 565 8 90 Refer to Table 15-7. What is total profit at the profit-maximizing quantity? a. $100 b. $245 c. $265 d. $395 49. Table 15-7 Sally owns the only shoe store in town. She has the following cost and revenue information. COSTS REVENUES Quantity Total Cost Marginal Quantity Price Total Marginal Produced ($) Cost Demanded ($/unit) Revenue Revenue (pairs) 0 100 -- 0 170 -- 1 140 1 160 2 184 2 150 3 230 3 140 4 280 4 130 5 335 5 120 6 395 6 110 7 475 7 100 8 565 8 90 Refer to Table 15-7. What are Sally's fixed costs? a. $0 b. $100 c. $600 d. $745 50. Table 15-17 A monopolist faces the following demand curve: Quantity Price 10 $46 20 $42 30 $38 40 $34 50 $30 60 $26 70 $22 80 $18 90 $14 100 $10 Refer to Table 15-17. Which of the following statements best describes the relationship between the price and the marginal revenue associated with values in the table? a. The price and marginal revenue are the same. b. The price is greater than or equal to the marginal revenue. c. The price is less than or equal to the marginal revenue. d. The relationship cannot be determined from the information given. 51. Table 15-18 A monopolist faces the following demand curve: Quantity Price 0 $20 1 $18 2 $16 3 $14 4 $12 5 $10 6 $8 Suppose marginal cost is constant at $8 per unit. Refer to Table 15-18 The monopolist’s profit-maximizing level of output is a. 3 units. b. 4 units. c. 5 units. d. 6 units. 52. Table 15-20 A monopolist faces the following demand curve: Quantity Price 0 $30 1 $27 2 $24 3 $21 4 $18 5 $15 6 $12 7 $9 8 $6 9 $3 10 $0 Refer to Table 15-20. If a monopolist faces a constant marginal cost of $20, how much output should the firm produce in order to maximize profit? a. 2 units b. 3 units c. 4 units d. 5 units 53. Table 15-20 A monopolist faces the following demand curve: Quantity Price 0 $30 1 $27 2 $24 3 $21 4 $18 5 $15 6 $12 7 $9 8 $6 9 $3 10 $0 Refer to Table 15-20. If a monopolist faces a constant marginal cost of $5, how much output should the firm produce in order to maximize profit? a. 2 units b. 3 units c. 4 units d. 5 units 54. When a monopolist maximizes profit, its marginal cost will a. be less than its average fixed cost. b. be less than the price per unit of its product. c. exceed its marginal revenue. d. equal its average total cost. 55. Generic drugs enter the pharmaceutical drug market once a. the ingredients to the name brand drug have been discovered. b. 10 years have passed. c. they are patented. d. the patent on the name brand drug expires. 56. Figure 15-22 The diagram depicts the market situation for a monopoly pastry shop called Bearclaws. Refer to Figure 15-22. Based upon the information shown, what are total costs for Bearclaws, given that it maximizes profits? a. ​ $700. b. ​ $980. c. ​ $490. d. ​ $784. 57. Monopolies are socially inefficient because the price they charge is a. equal to marginal revenue. b. above marginal cost. c. equal to demand. d. above demand. 58. The socially efficient level of production occurs where the marginal cost curve intersects a. average variable cost. b. average total cost. c. demand. d. marginal revenue. 59. Figure 15-8 Refer to Figure 15-8. What is the socially efficient price and quantity? a. price = A; quantity = X b. price = B; quantity = Y c. price = B; quantity = X d. price = C; quantity = X 60. Figure 15-9 Refer to Figure 15-9. To maximize total surplus, a benevolent social planner would choose which of the following outcomes? a. 100 units of output and a price of $20 per unit b. 150 units of output and a price of $20 per unit c. 150 units of output and a price of $30 per unit d. 200 units of output and a price of $20 per unit 61. Figure 15-9 Refer to Figure 15-9. The deadweight loss caused by a profit-maximizing monopoly amounts to a. $250. b. $500. c. $750. d. $1,000. 62. Figure 15-14 ​ Refer to Figure 15-14. A benevolent social planner would have the monopoly operate at an output level a. less than Q0. b. greater than Q0. c. equal to Q0. d. equal to zero. 63. Figure 15-15 Refer to Figure 15-15. To maximize its profit, a monopolist would choose which of the following outcomes? a. Q = 30 and P = 30 b. Q = 30 and P = 60 c. Q = 45 and P = 45 d. Q = 60 and P = 30 64. Scenario 15-4 Suppose a monopolist has a demand curve that can be expressed as P=90-Q. The monopolist’s marginal revenue curve can be expressed as MR=90-2Q. The monopolist has constant marginal costs and average total costs of $10. Refer to Scenario 15-4. The profit-maximizing monopolist will produce an output level of a. 80 units. b. 40 units. c. 20 units. d. 10 units. 65. Which of the following is not an example of price discrimination by a firm? a. children's meals at a restaurant b. a natural gas company charging customers a higher rate in the winter than in the summer c. a senior citizens' discount d. coupons in the Sunday newspaper 66. Scenario 15-5 An airline knows that there are two types of travelers: business travelers and vacationers. For a particular flight, there are 100 business travelers who will pay $600 for a ticket while there are 50 vacationers who will pay $300 for a ticket. There are 150 seats available on the plane. Suppose the cost to the airline of providing the flight is $20,000, which includes the cost of the pilots, flight attendants, fuel, etc. Refer to Scenario 15-5. How much profit will the airline earn if it sets the price of each ticket at $300? a. -$15,000 b. -$5,000 c. $25,000 d. $45,000 67. Scenario 15-6 The concert promoters of a heavy-metal band, WeR2Loud, know that there are two types of concert-goers: die-hard fans and casual fans. For a particular WeR2Loud concert, there are 1,000 die-hard fans who will pay $150 for a ticket and 500 casual fans who will pay $50 for a ticket. There are 1,500 seats available at the concert venue. Suppose the cost of putting on the concert is $50,000, which includes the cost of the band, lighting, security, etc. Refer to Scenario 15-6. How much additional profit can the concert promoters earn by charging each customer their willingness to pay relative to charging a flat price of $150 per ticket? a. $25,000 b. $50,000 c. $75,000 d. $100,000 68. Figure 15-18 Refer to Figure 15-18. If the monopoly firm is not allowed to price discriminate, then consumer surplus amounts to a. $1,000. b. $2,000. c. $3,000. d. $4,000. 69. Figure 15-18 Refer to Figure 15-18. If the monopoly firm perfectly price discriminates, then consumer surplus amounts to a. $0. b. $1,000. c. $2,000. d. $4,000. 70. Perfect price discrimination describes a situation in which the monopolist a. knows the exact willingness to pay of each of its customers. b. charges exactly two different prices to exactly two different groups of customers. c. maximizes consumer surplus. d. experiences a zero economic profit. 71. Table 15-21 Tommy’s Tie Company, a monopolist, has the following cost and revenue information. Assume that Tommy’s is able to engage in perfect price discrimination. COSTS REVENUES Quantity Total Cost Marginal Quantity Price Total Marginal Produced Cost Demanded Revenue Revenue 0 $100 -- 0 $170 -- 1 $140 1 $160 2 $184 2 $150 3 $230 3 $140 4 $280 4 $130 5 $335 5 $120 6 $395 6 $110 7 $475 7 $100 8 $575 8 $95 Refer to Table 15-21. If the monopolist can engage in perfect price discrimination, what is the total revenue when 3 ties are sold? a. $140 b. $420 c. $450 d. $620 72. One problem with government operation of monopolies is that a. a benevolent government is likely to be interested in generating profits for political gain. b. monopolies typically have rising average costs. c. the government typically has little incentive to reduce costs. d. a government-regulated outcome will increase the profitability of the monopoly. 73. If the government regulates the price that a natural monopolist can charge to be equal to the firm’s marginal cost, the firm will a. earn zero profits. b. earn positive profits, causing other firms to enter the industry. c. earn negative profits, causing the firm to exit the industry. d. minimize costs in order to lower the price that it charges. 74. In the majority of cases where there is a natural monopoly in the United States, the government usually deals with the problem a. by splitting the natural monopoly into smaller companies. b. through regulation. c. by turning the natural monopoly into a public enterprise. d. by doing nothing. 75. Which of the following statements is not correct? a. Monopolistic competition is different from monopoly because monopolistic competition is characterized by free entry, whereas monopoly is characterized by barriers to entry. b. Both monopolistic competition and oligopoly fall in between the more extreme market structures of competition and monopoly. c. Monopolistic competition is different from oligopoly because each seller in monopolistic competition is small relative to the market, whereas each seller can affect the actions of other sellers in an oligopoly. d. Both monopolistic competition and perfect competition are characterized by product differentiation. 76. A market structure with only a few sellers, each offering similar or identical products, is known as a. oligopoly. b. monopoly. c. monopolistic competition. d. perfect competition. 77. Scenario 16-1 Suppose the following are the sales for all of the firms in two different industries. Industry A Industry B $225,000 $400,000 $200,000 $325,000 $180,000 $300,000 $100,000 $200,000 $100,000 $95,000 $90,000 $80,000 $75,000 $78,000 $60,000 $75,000 Refer to Scenario 16-1. What are the concentration ratios for these industries? a. Industry A: 22%, Industry B: 26% b. Industry A: 41%, Industry B: 47%. c. Industry A: 68%, Industry B: 79% d. Industry A: 100%, Industry B: 100%. 78. Scenario 16-1 Suppose the following are the sales for all of the firms in two different industries. Industry A Industry B $225,000 $400,000 $200,000 $325,000 $180,000 $300,000 $100,000 $200,000 $100,000 $95,000 $90,000 $80,000 $75,000 $78,000 $60,000 $75,000 Refer to Scenario 16-1. Which of the following statements is correct regarding the competitiveness of these two industries? a. Industry A and Industry B are equally competitive. b. Industry A is more competitive than Industry B. c. Industry A is less competitive than Industry B. d. The competitiveness of these two industries cannot be determined from the information given. 79. Which of the following statements is correct? a. Cigarettes are likely to be produced in a monopolistically competitive industry. b. Novels are likely to be produced in a monopoly industry. c. Movies are likely to be produced in a monopolistically competitive industry. d. Milk is likely to be produced in an oligopoly industry. 80. A firm in a monopolistically competitive market is similar to a monopoly in the sense that they both face downward-sloping demand curves. (i) they both charge a price that exceeds marginal cost. (ii) free entry and exit determines the long-run equilibrium. (iii) a. (i) only b. (ii) only c. (i) and (ii) only d. (i), (ii), and (iii) only 81. In the short run, a firm operating in a monopolistically competitive market can earn a. positive economic profits. b. economic losses. c. zero economic profits. d. All of the above are possible. 82. Figure 16-4 ​ Refer to Figure 16-4. The firm in this figure is monopolistically competitive. This firm a. is operating in the long run. b. is earning a short-run economic profit. c. is incurring a short-run loss. d. The answer cannot be determined from the information given. 83. Figure 16-7 ​ Refer to Figure 16-7. Suppose a firm is operating in the situation depicted in panel a. Which of the following statements is correct? a. The firm is earning a positive short-run profit. b. The firm is earning a negative short-run profit. c. The firm is earning zero short-run profit. d. We cannot determine profit because we do not know the firm’s average total cost. 84. Table 16-5 This table shows the demand schedule, marginal cost, and average total cost for a monopolistically competitive firm. Quantity Price Marginal Average Cost Total Cost 0 $30 -- -- 1 $24 $2 $32 2 $18 $4 $18 3 $12 $6 $14 4 $6 $8 $10 5 $0 $10 $10 Refer to Table 16-5. How much profit will this firm earn at the monopolistically competitive price? a. $0 b. $5 c. $12 d. $16 85. Figure 16-13 ​ Refer to Figure 16-13. Which of the following areas represents the profit for this profit maximizing monopolistically competitive firm? a. BCHG b. BCIJ c. GHIJ d. 0BCL 86. Figure 16-14 ​ Refer to Figure 16-14. Which of the following represents the excess capacity of this firm? a. BJ b. GH c. LM d. There is no excess capacity. 87. Figure 16-14 ​ Refer to Figure 16-14. The deadweight loss from production for this firm is represented by which of the following areas? a. ABC b. IJK c. BHJ d. BCIJ 88. Suppose for some firm that average total cost is minimized at Q1 units of output. For a monopolistically competitive firm in long-run equilibrium, Q1 a. is also the level of output at which marginal cost equals average total cost. b. exceeds the level of output at which there is a point of tangency between the demand curve and the average total cost curve. c. exceeds the level of output at which marginal revenue equals marginal cost. d. All of the above are correct. 89. When a firm operates with excess capacity, a. additional production would lower the average total cost. b. additional production would increase the average total cost. c. it must be a perfectly competitive firm. d. it must be a monopolistically competitive firm. 90. Which of the following best describes the idea of excess capacity in monopolistic competition? a. Firms produce more output than is socially desirable. b. The output produced by a typical firm is less than what would occur at the minimum point on its ATC curve. c. Due to product differentiation, firms choose output levels where price equals average total cost. d. Firms keep some surplus output on hand in case there is a shift in the demand for their product. 91. The entry of new firms into a monopolistically competitive market is accompanied by a. both positive and negative externalities. b. only positive externalities. c. only negative externalities. d. only private profit opportunities (no externalities). 92. A new Mexican restaurant opened in the town of Manchester. The residents of the town are a. happy because of the product-variety externality, while other restaurant owners are unhappy because of the business-stealing externality. b. happy because of the business-stealing externality, while other restaurant owners are unhappy because of the product-variety externality. c. unhappy because of the product-variety externality, while other restaurant owners are happy because of the business-stealing externality. d. unhappy because of the business-stealing externality, while other restaurant owners are happy because of the product-variety externality. 93. Scenario 16-4 Delish, a moderately priced restaurant, has recently announced intentions to open a restaurant in Boston, MA. Assume that the restaurant market in Boston is characterized by monopolistic competition. Refer to Scenario 16-4. As a result of the new restaurant, diners in Boston are likely to experience a a. product-variety externality, which is a negative externality. b. product-variety externality, which is a positive externality. c. business-stealing externality, which is a negative externality. d. business-stealing externality, which is a positive externality. 94. Although monopolistically competitive markets offer consumers a wide variety of differentiated products, there may still be insufficient variety if a. there are large fixed costs in the market. b. there are no barriers to entry in the market. c. the business-stealing externality is present in the market. d. the government does not impose regulations on the market. 95. If we observe a great deal of advertising of men's shaving products, we can infer that a. the market for those products is perfectly competitive. b. it costs firms very little to produce those products. c. those products are highly differentiated. d. firms are irrational in their decisions to advertise. 96. Critics of advertising argue that in some markets advertising may a. attract products of lower quality into the market. b. attract less informed buyers into the market. c. decrease elasticity of demand allowing firms to charge a larger markup over marginal cost. d. enhance competition in markets to an unnecessary degree. 97. Defenders of advertising a. concede that advertising increases firms’ market power. b. concede that advertising makes entry by new firms more difficult. c. contend that firms use advertising to provide useful information to consumers. d. All of the above are correct. 98. Roberto consumes Coke exclusively. He claims that there is a clear taste difference and that competing brands of cola leave an unsavory taste in his mouth. In a blind taste test, Roberto is found to prefer Coke to store-brand cola eight out of ten times. The results of Roberto’s taste test would refute claims by critics of brand names that a. consumers are always willing to pay more for brand names. b. brand names cause consumers to perceive differences that do not really exist. c. consumers with the lowest levels of income are the most likely to be influenced by brand name advertising. d. brand names are a form of socially efficient advertising. 99. It has been said that many of the patrons in McDonald’s restaurants in foreign locations are American tourists. A likely reason why many Americans dine at McDonald’s while vacationing abroad is a. they can’t get enough McDonald’s food when they are at home. b. they know and trust the quality associated with the McDonald’s brand name. c. the food at local restaurants is of inferior quality. d. that Americans, by their nature, are not very adventurous. 100. Scenario 16-7 Consider the problem facing two firms, YumYum and Bertollini, in the frozen food market. Each firm has just come up with an idea for a new “frozen meal for two” which it would sell for $9. Assume that the marginal cost for each new product is a constant $2, and the only fixed cost is for advertising. Each company knows that if it spends $12 million on advertising it will get 1.5 million consumers to try its new product. YumYum has done market research which suggests that its product does not have any "staying" power in the market. Even though it could get 1.5 million consumers to buy the product once, it is unlikely that they will continue to buy the product in the future. Bertollini's market research suggests that its product is very good, and consumers who try the product will continue to be consumers over the ensuing year. On the basis of its market research, Bertollini estimates that its initial 1.5 million customers will buy one unit of the product each month in the coming year, for a total of 18 million units. Refer to Scenario 16-7. On the basis of a theory that people buy a product because it is advertised, the content of advertisements for Bertollini’s product a. must show a consumer taste-test to be successful. b. must include celebrity endorsements to be successful. c. is irrelevant to the success of the advertisement. d. Both a and b would be equally successful. PAGE 1 (First Page) PAGE 1 (Subsequent Pages) ANSWER KEY Study Guide 3 1 c 2 c 3 d 4 b 5 b 6 c 7 a 8 c 9 b 10 c 11 d 12 d 13 c 14 c 15 b 16 b 17 c 18 d 19 c 20 b 21 b 22 d 23 b 24 a 25 d 26 c 27 c 28 b 29 c 30 d 31 c 32 c 33 a 34 d 35 d 36 c 37 a 38 c 39 a 40 a 41 b 42 a 43 b 44 b 45 c 46 b 47 b 48 c 49 b 50 b 51 a 52 a 53 c 54 b 55 d 56 a 57 b 58 c 59 b 60 c 61 b 62 c 63 b 64 b 65 b 66 c 67 a 68 a 69 a 70 a 71 c 72 c 73 c 74 b 75 d 76 a 77 c 78 b 79 c 80 c 81 d 82 b 83 d 84 a 85 b 86 c 87 c 88 d 89 a 90 b 91 a 92 a 93 b 94 a 95 c 96 c 97 c 98 b 99 b 100 c ANSWER KEY - Page 1