Competency 3 OA Review PDF

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 fi...

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 fixed cost. | | -- ------------------------------------------- -- | +=======================================================================+ | -- ---------------------------------------------- -- | | b\. total revenue is equal to variable cost. | | -- ---------------------------------------------- -- | +-----------------------------------------------------------------------+ | -- ----------------------------- -- | | **c. profit is maximized**. | | -- ----------------------------- -- | +-----------------------------------------------------------------------+ | d\. total revenue is equal to total cost. | | -- ------------------------------------------- | | | +-----------------------------------------------------------------------+ If a profit-maximizing monopolist faces a downward-sloping market demand curve, its +-----------------------------------------------------------------------+ | -- ---------------------------------------------------- -- | | a\. average revenue is less than marginal revenue. | | -- ---------------------------------------------------- -- | +=======================================================================+ | -- ------------------------------------------------------------ -- | | b\. average revenue is less than the price of the product. | | -- ------------------------------------------------------------ -- | +-----------------------------------------------------------------------+ | -- ---------------------------------------------------------------- | | -- | | **c. marginal revenue is less than the price of the product**. | | | | -- ---------------------------------------------------------------- | | -- | +-----------------------------------------------------------------------+ | -- ---------------------------------------------------------------- | | d\. marginal revenue is greater than the price of the product. | | -- ---------------------------------------------------------------- | +-----------------------------------------------------------------------+ A monopoly can earn positive profits because it +-----------------------------------------------------------------------+ | -- ------------------------------------------------------------ -- | | a\. can sell unlimited quantities at any price it chooses. | | -- ------------------------------------------------------------ -- | +=======================================================================+ | -- ------------------------------------------------------------- -- | | b\. can set the price it charges for its output but faces a | | horizontal demand curve. | | -- ------------------------------------------------------------- -- | +-----------------------------------------------------------------------+ | -- ---------------------------------------------------------------- | | --------------- -- | | **c. can maintain a price such that total revenues will exceed t | | otal costs.** | | -- ---------------------------------------------------------------- | | --------------- -- | +-----------------------------------------------------------------------+ | -- ------------------------------------------------------------ | | d\. takes the market price as given and can sell unlimited | | quantities. | | -- ------------------------------------------------------------ | +-----------------------------------------------------------------------+ A key characteristic of a competitive market is that +-----------------------------------------------------------------------+ | -- --------------------------------- -- | | a\. firms minimize total costs. | | -- --------------------------------- -- | +=======================================================================+ | -- ------------------------------------- -- | | b\. firms have price setting power. | | -- ------------------------------------- -- | +-----------------------------------------------------------------------+ | -- ----------------------------------------------------- -- | | c\. government antitrust laws regulate competition. | | -- ----------------------------------------------------- -- | +-----------------------------------------------------------------------+ | -- -------------------------------------------------- -- | | **d. producers sell nearly identical products.** | | -- -------------------------------------------------- -- | +-----------------------------------------------------------------------+ +-----------------------------------------------------------------------+ | Figure 21-10 | | | |  | +-----------------------------------------------------------------------+ | | +-----------------------------------------------------------------------+ Refer to Figure 21-10 . It would be possible for the consumer to reach I 3 if +-----------------------------------------------------------------------+ | -- ---------------------------------- -- | | **a. the price of Y decreases.** | | -- ---------------------------------- -- | +=======================================================================+ | -- ----------------------- -- | | b\. income decreases. | | -- ----------------------- -- | +-----------------------------------------------------------------------+ | -- ------------------------------- -- | | c\. the price of X increases. | | -- ------------------------------- -- | +-----------------------------------------------------------------------+ | -- ------------------------------- | | d\. the price of Y increases. | | -- ------------------------------- | +-----------------------------------------------------------------------+ A difference between explicit and implicit costs is that +-----------------------------------------------------------------------+ | -- ---------------------------------------------------------------- | | --- -- | | a\. explicit costs do not require a direct monetary outlay by th | | e | | firm, whereas implicit costs do. | | | | -- ---------------------------------------------------------------- | | --- -- | +=======================================================================+ | -- --------------------------------------------------------- -- | | b\. implicit costs must be greater than explicit costs. | | -- --------------------------------------------------------- -- | +-----------------------------------------------------------------------+ | -- ---------------------------------------------------------------- | | --------------------------------------- -- | | **c. implicit costs do not require a direct monetary outlay by t | | he firm, whereas explicit costs do.** | | -- ---------------------------------------------------------------- | | --------------------------------------- -- | +-----------------------------------------------------------------------+ | -- --------------------------------------------------------- | | d\. explicit costs must be greater than implicit costs. | | -- --------------------------------------------------------- | +-----------------------------------------------------------------------+ Price discrimination adds to social welfare in the form of +-----------------------------------------------------------------------+ | -- ---------------------------------- -- | | a\. reduced costs of production. | | -- ---------------------------------- -- | +=======================================================================+ | -- ----------------------------- -- | | b\. decreased total surplus | | -- ----------------------------- -- | +-----------------------------------------------------------------------+ | -- --------------------------------- -- | | **c. increased total surplus**. | | -- --------------------------------- -- | +-----------------------------------------------------------------------+ | -- ---------------------------------------------------------------- | | d\. increased consumer surplus and decreased producer surplus. | | -- ---------------------------------------------------------------- | +-----------------------------------------------------------------------+ Which of the following is true about a monopolistically competitive firm? +-----------------------------------------------------------------------+ | -- ---------------------------------------------------------------- | | - -- | | a\. It can earn an economic profit in the long run, but not the | | | | short run. | | | | -- ---------------------------------------------------------------- | | - -- | +=======================================================================+ | -- ---------------------------------------------------------------- | | --------------- -- | | **b. It can earn an economic profit in the short run, but not th | | e long run.** | | -- ---------------------------------------------------------------- | | --------------- -- | +-----------------------------------------------------------------------+ | -- ---------------------------------------------------------------- | | -- -- | | c\. It can earn an economic profit in the short run and the long | | | | run. | | | | -- ---------------------------------------------------------------- | | -- -- | +-----------------------------------------------------------------------+ | -- ---------------------------------------------------------------- | | --- | | d\. It cannot earn an economic profit in either the short or lon | | g | | run | | -- ---------------------------------------------------------------- | | --- | +-----------------------------------------------------------------------+ Which of the following is not one of the ways that antitrust laws promote competition? +-----------------------------------------------------------------------+ | -- -------------------------------------------------------------- - | | - | | a\. Antitrust laws prevent companies from coordinating their | | activities in ways that make markets less competitive. | | -- -------------------------------------------------------------- - | | - | +=======================================================================+ | -- ------------------------------------------------------------- -- | | b\. Antitrust laws allow the government to prevent mergers. | | -- ------------------------------------------------------------- -- | +-----------------------------------------------------------------------+ | -- ---------------------------------------------------------------- | | --- -- | | c\. Antitrust laws allow the government to break up big companie | | s | | into smaller ones. | | | | -- ---------------------------------------------------------------- | | --- -- | +-----------------------------------------------------------------------+ | -- ---------------------------------------------------------------- | | -------------------------------------------------------- | | **d. Antitrust laws allow the government to shut down a firm if | | the government believes the firm has monopoly power.** | | -- ---------------------------------------------------------------- | | -------------------------------------------------------- | +-----------------------------------------------------------------------+ A firm\'s opportunity costs of production are equal to its +-----------------------------------------------------------------------+ | -- ----------------------------------------- -- | | **a. explicit costs + implicit costs.** | | -- ----------------------------------------- -- | +=======================================================================+ | -- -------------------------- -- | | b\. implicit costs only. | | -- -------------------------- -- | +-----------------------------------------------------------------------+ | -- ------------------------------------------------------ -- | | c\. explicit costs + implicit costs + total revenue. | | -- ------------------------------------------------------ -- | +-----------------------------------------------------------------------+ | -- -------------------------- | | d\. explicit costs only. | | -- -------------------------- | +-----------------------------------------------------------------------+ When an industry has many firms, the industry is +-----------------------------------------------------------------------+ | -- ---------------------------------------------------------------- | | ---- -- | | a\. an oligopoly if the firms sell differentiated products, but | | it | | is perfectly competitive if the firms sell identical products. | | | | -- ---------------------------------------------------------------- | | ---- -- | +=======================================================================+ | -- ---------------------------------------------------------------- | | ------ -- | | b\. perfectly competitive if the firms sell differentiated produ | | cts, | | but it is monopolistically competitive if the firms sell identic | | al | | products. | | | | -- ---------------------------------------------------------------- | | ------ -- | +-----------------------------------------------------------------------+ | -- ---------------------------------------------------------------- | | ---- -- | | c\. an oligopoly if the firms sell differentiated products, but | | it | | is monopolistically competitive if the firms sell identical | | | | products. | | | | -- ---------------------------------------------------------------- | | ---- -- | +-----------------------------------------------------------------------+ | +---------------------+---------------------+---------------------+ | | | | **d. | | | | | | monopolistically | | | | | | competitive if the | | | | | | firms sell | | | | | | differentiated | | | | | | products, but it is | | | | | | perfectly | | | | | | competitive if the | | | | | | firms sell | | | | | | identical | | | | | | products.** | | | | | | | | | | | | In the long run, | | | | | | | | | | | | +----------------+ | | | | | | | -- --------- | | | | | | | | ---- -- | | | | | | | | a\. input | | | | | | | | s | | | | | | | | that were | | | | | | | | | | | | | | | | variable | | | | | | | | in | | | | | | | | the short | | | | | | | | | | | | | | | | run becom | | | | | | | | e | | | | | | | | fixed. | | | | | | | | | | | | | | | | -- --------- | | | | | | | | ---- -- | | | | | | | | | | | | | +================+ | | | | | | | -- --------- | | | | | | | | -------------- | | | | | | | | -------------- | | | | | | | | -------------- | | | | | | | | -------------- | | | | | | | | -- | | | | | | | | **b. inpu | | | | | | | | ts that were f | | | | | | | | ixed in the sh | | | | | | | | ort run become | | | | | | | | variable.** | | | | | | | | | | | | | | | | -- --------- | | | | | | | | -------------- | | | | | | | | -------------- | | | | | | | | -------------- | | | | | | | | -------------- | | | | | | | | -- | | | | | | | +----------------+ | | | | | | | -- --------- | | | | | | | | ----- -- | | | | | | | | c\. varia | | | | | | | | ble | | | | | | | | inputs ar | | | | | | | | e | | | | | | | | rarely us | | | | | | | | ed. | | | | | | | | -- --------- | | | | | | | | ----- -- | | | | | | | +----------------+ | | | | | | | -- --------- | | | | | | | | ----- | | | | | | | | d\. input | | | | | | | | s | | | | | | | | that were | | | | | | | | fixed in | | | | | | | | the | | | | | | | | short run | | | | | | | | remain | | | | | | | | fixed. | | | | | | | | -- --------- | | | | | | | | ----- | | | | | | | +----------------+ | | | | +---------------------+---------------------+---------------------+ | +-----------------------------------------------------------------------+ The theory of consumer choice provides the foundation for understanding the +-----------------------------------------------------------------------+ | -- ------------------------------ -- | | a\. profitability of a firm. | | -- ------------------------------ -- | +=======================================================================+ | -- ---------------------------------- -- | | b\. supply of a firm\'s product. | | -- ---------------------------------- -- | +-----------------------------------------------------------------------+ | -- -------------------------------------- -- | | **c. demand for a firm\'s product.** | | -- -------------------------------------- -- | +-----------------------------------------------------------------------+ | d\. structure of a firm | | -- ------------------------- | | | +-----------------------------------------------------------------------+ +-----------------------------------------------------------------------+ | Figure 21-1 | | | |  | +=======================================================================+ | | +-----------------------------------------------------------------------+ Refer to Figure 21-1. If the consumer\'s income is \$140, then what is the price of a CD? +-----------------------------------------------------------------------+ | -- --------- -- -- | | a\. \$9 | | -- --------- -- -- | +=======================================================================+ | -- --------- -- | | b\. \$3 | | -- --------- -- | +-----------------------------------------------------------------------+ | -- --------- -- | | c\. \$5 | | -- --------- -- | +-----------------------------------------------------------------------+ | **d. \$7** | | -- ------------ -- | | | +-----------------------------------------------------------------------+ Which of the following statements is correct? +-----------------------------------------------------------------------+ | -- ---------------------------------------------------------------- | | --- -- | | a\. Assuming that implicit costs are positive, economic profit i | | s | | positive. | | | | -- ---------------------------------------------------------------- | | --- -- | +=======================================================================+ | -- ---------------------------------------------------------------- | | ----- -- | | b\. Assuming that explicit costs are positive, accounting profit | | is | | equal to economic profit. | | | | -- ---------------------------------------------------------------- | | ----- -- | +-----------------------------------------------------------------------+ | -- ---------------------------------------------------------------- | | --- -- | | c\. Assuming that explicit costs are positive, economic profit i | | s | | greater than accounting profit. | | | | -- ---------------------------------------------------------------- | | --- -- | +-----------------------------------------------------------------------+ | -- ---------------------------------------------------------------- | | -------------------------------------- | | **d. Assuming that implicit costs are positive, accounting profi | | t is greater than economic profit.** | | -- ---------------------------------------------------------------- | | -------------------------------------- | +-----------------------------------------------------------------------+ Which of the following statements is correct? +-----------------------------------------------------------------------+ | -- ---------------------------------------------------------------- | | --- -- | | a\. Assuming that implicit costs are positive, economic profit i | | s | | positive. | | | | -- ---------------------------------------------------------------- | | --- -- | +=======================================================================+ | -- ---------------------------------------------------------------- | | ----- -- | | b\. Assuming that explicit costs are positive, accounting profit | | is | | equal to economic profit. | | | | -- ---------------------------------------------------------------- | | ----- -- | +-----------------------------------------------------------------------+ | -- ---------------------------------------------------------------- | | --- -- | | c\. Assuming that explicit costs are positive, economic profit i | | s | | greater than accounting profit. | | | | -- ---------------------------------------------------------------- | | --- -- | +-----------------------------------------------------------------------+ | -- ---------------------------------------------------------------- | | -------------------------------------- | | **d. Assuming that implicit costs are positive, accounting profi | | t is greater than economic profit.** | | -- ---------------------------------------------------------------- | | -------------------------------------- | +-----------------------------------------------------------------------+ +-----------------------------------------------------------------------+ |  | +=======================================================================+ | Figure 21-7 | | | | The following graph shows three possible indifference curves (I) for | | a consumer. | | | | A graph of donuts versus cake shows 3 curved lines, falling from left | | to right, as follows, from left to right. Indifference Curve 1, | | Indifference Curve 2, and Indifference Curve 3. Point D lies on | | Indifference Curve 1, below all other points but to the right of | | Point C. Points A, B, and C lie on Indifference Curve 2, from top to | | bottom. Point E lies on Indifference Curve 3, above all other points | | but to the right of Point A. | +-----------------------------------------------------------------------+ |  | +-----------------------------------------------------------------------+ Refer to Figure 21-7. When comparing bundle A to bundle E, the consumer +-----------------------------------------------------------------------+ | -- --------------------------------------------- -- | | a\. is indifferent between the two bundles. | | -- --------------------------------------------- -- | +=======================================================================+ | -- ------------------------------------------------------- -- | | b\. prefers bundle A because it contains more donuts. | | -- ------------------------------------------------------- -- | +-----------------------------------------------------------------------+ | -- ---------------------------------------------------------------- | | --------- -- | | **c. prefers bundle E because it lies on a higher indifference c | | urve.** | | -- ---------------------------------------------------------------- | | --------- -- | +-----------------------------------------------------------------------+ | -- ------------------------------------------------------- | | d\. prefers bundle E because it contains more donuts. | | -- ------------------------------------------------------- | +-----------------------------------------------------------------------+ In both perfect competition and monopolistic competition, each firm +-----------------------------------------------------------------------+ | -- ------------------------------ -- | | a\. has some monopoly power. | | -- ------------------------------ -- | +=======================================================================+ | -- ------------------------------ -- | | **b. has many competitors.** | | -- ------------------------------ -- | +-----------------------------------------------------------------------+ | -- ------------------------------------------------------------ -- | | c\. faces a downward-sloping demand curve for its product. | | -- ------------------------------------------------------------ -- | +-----------------------------------------------------------------------+ | -- ---------------------------------------------------------------- | | ---- | | d\. sells a product that is at least slightly different from tho | | se | | of other firms. | | -- ---------------------------------------------------------------- | | ---- | +-----------------------------------------------------------------------+ Antitrust laws have economic benefits that outweigh the costs if they +-----------------------------------------------------------------------+ | -- ---------------------------------------------------------------- | | --------------------------- -- | | **a. prevent mergers that would decrease competition and raise t | | he costs of production.** | | -- ---------------------------------------------------------------- | | --------------------------- -- | +=======================================================================+ | -- ---------------------------------------------------------------- | | --- -- | | b\. prevent mergers that would decrease competition and lower th | | e | | costs of production. | | | | -- ---------------------------------------------------------------- | | --- -- | +-----------------------------------------------------------------------+ | -- ---------------------------------------------------------------- | | - -- | | c\. allow mergers that would decrease competition and raise the | | | | costs of production. | | | | -- ---------------------------------------------------------------- | | - -- | +-----------------------------------------------------------------------+ | +--------------------------------+--------------------------------+ | | | | d\. allow mergers that would | | | | | decrease competition | | | | | regardless of what happens | | | | | to the costs of production. | | | | | | | | | | When a factory is operating in | | | | | the short run, | | | | | | | | | | +---------------------------+ | | | | | | -- -------------------- | | | | | | | ------------------------- | | | | | | | ---------- -- | | | | | | | **a. it cannot adjus | | | | | | | t the quantity of fixed i | | | | | | | nputs**. | | | | | | | -- -------------------- | | | | | | | ------------------------- | | | | | | | ---------- -- | | | | | | | | | | | +===========================+ | | | | | | -- -------------------- | | | | | | | -- | | | | | | | b\. total cost and | | | | | | | | | | | | | | variable cost are | | | | | | | | | | | | | | usually the same. | | | | | | | | | | | | | | -- -------------------- | | | | | | | -- | | | | | | +---------------------------+ | | | | | | -- -------------------- | | | | | | | ---- -- | | | | | | | c\. average fixed co | | | | | | | st | | | | | | | rises as output | | | | | | | | | | | | | | increases. | | | | | | | | | | | | | | -- -------------------- | | | | | | | ---- -- | | | | | | +---------------------------+ | | | | | | d\. it cannot alter | | | | | | | variable costs. | | | | | | | -- -------------------- | | | | | | | - | | | | | | | | | | | | | +---------------------------+ | | | +--------------------------------+--------------------------------+ | +-----------------------------------------------------------------------+ To maximize total surplus with a monopoly firm, a benevolent social planner would choose the level of output where +-----------------------------------------------------------------------+ | -- ------------------------------------- -- | | a\. MR intersects the demand curve. | | -- ------------------------------------- -- | +=======================================================================+ | -- -------------- -- | | b\. MR = MC. | | -- -------------- -- | +-----------------------------------------------------------------------+ | -- ---------------------------------------- -- | | **c. MC intersects the demand curve**. | | -- ---------------------------------------- -- | +-----------------------------------------------------------------------+ | +--------------------------------+--------------------------------+ | | | | d\. MR exceeds MC by the | | | | | greatest amount. | | | +================================+================================+ | | | | Which of the following | | | | | statements is true? | | | | | | | | | | +---------------------------+ | | | | | | -- -------------------- | | | | | | | ---- -- | | | | | | | a\. Average revenue | | | | | | | is | | | | | | | the same as price fo | | | | | | | r | | | | | | | competitive firms bu | | | | | | | t | | | | | | | not monopoly firms. | | | | | | | | | | | | | | -- -------------------- | | | | | | | ---- -- | | | | | | | | | | | +===========================+ | | | | | | -- -------------------- | | | | | | | ------------------------- | | | | | | | ------------------------- | | | | | | | ------------------------- | | | | | | | ------------------------- | | | | | | | - -- | | | | | | | **b. When a monopoly | | | | | | | firm sells an additional | | | | | | | unit of output, its reve | | | | | | | nue increases by an amoun | | | | | | | t less than the price.** | | | | | | | | | | | | | | -- -------------------- | | | | | | | ------------------------- | | | | | | | ------------------------- | | | | | | | ------------------------- | | | | | | | ------------------------- | | | | | | | - -- | | | | | | +---------------------------+ | | | | | | -- -------------------- | | | | | | | ---- -- | | | | | | | c\. Average revenue | | | | | | | is | | | | | | | the same as price fo | | | | | | | r | | | | | | | monopoly firms but n | | | | | | | ot | | | | | | | competitive firms. | | | | | | | | | | | | | | -- -------------------- | | | | | | | ---- -- | | | | | | +---------------------------+ | | | | | | +----------+----------+ | | | | | | | | | d. When | | | | | | | | | | a | | | | | | | | | | competit | | | | | | | | | | ive | | | | | | | | | | firm | | | | | | | | | | sells an | | | | | | | | | | addition | | | | | | | | | | al | | | | | | | | | | unit of | | | | | | | | | | output, | | | | | | | | | | its | | | | | | | | | | revenue | | | | | | | | | | increase | | | | | | | | | | s | | | | | | | | | | by an | | | | | | | | | | amount | | | | | | | | | | less | | | | | | | | | | than the | | | | | | | | | | price. | | | | | | | | | | | | | | | | | | | | Which of | | | | | | | | | | the | | | | | | | | | | followin | | | | | | | | | | g | | | | | | | | | | statemen | | | | | | | | | | ts | | | | | | | | | | regardin | | | | | | | | | | g | | | | | | | | | | a | | | | | | | | | | competit | | | | | | | | | | ive | | | | | | | | | | firm is | | | | | | | | | | correct? | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | a. 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B | | | | | | | | | | ecause e | | | | | | | | | | ach firm | | | | | | | | | | faces a | | | | | | | | | |   downwa | | | | | | | | | | rd slopi | | | | | | | | | | ng deman | | | | | | | | | | d, if a | | | | | | | | | | firm inc | | | | | | | | | | reases i | | | | | | | | | | ts level | | | | | | | | | | of outp | | | | | | | | | | ut, the | | | | | | | | | | firm wil | | | | | | | | | | l have t | | | | | | | | | | o charge | | | | | | | | | | a lower | | | | | | | | | | price t | | | | | | | | | | o sell t | | | | | | | | | | he addit | | | | | | | | | | ional ou | | | | | | | | | | tput. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | c. I | | | | | | | | | | f a firm | | | | | | | | | | raises | | | | | | | | | | its pric | | | | | | | | | | e, the f | | | | | | | | | | irm may | | | | | | | | | | be able | | | | | | | | | | to incre | | | | | | | | | | ase its | | | | | | | | | | total re | | | | | | | | | | venue ev | | | | | | | | | | en thoug | | | | | | | | | | h it wil | | | | | | | | | | l sell f | | | | | | | | | | ewer uni | | | | | | | | | | ts. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | d. F | | | | | | | | | | or all f | | | | | | | | | | irms, av | | | | | | | | | | erage re | | | | | | | | | | venue eq | | | | | | | | | | uals the | | | | | | | | | | price o | | | | | | | | | | f the go | | | | | | | | | | od. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | +----------+----------+ | | | | | | +---------------------------+ | | | +--------------------------------+--------------------------------+ | +-----------------------------------------------------------------------+ A consumer consumes two normal goods, popcorn and Pepsi. The price of Pepsi rises. The substitution effect, by itself, suggests that the consumer will consume +-----------------------------------------------------------------------+ | -- ---------------------------------- -- | | a\. less popcorn and less Pepsi. | | -- ---------------------------------- -- | +=======================================================================+ | -- ---------------------------------- -- | | b\. less popcorn and more Pepsi. | | -- ---------------------------------- -- | +-----------------------------------------------------------------------+ | -- ---------------------------------- -- | | c\. more popcorn and more Pepsi. | | -- ---------------------------------- -- | +-----------------------------------------------------------------------+ | **d. more popcorn and less Pepsi**. | | -- ------------------------------------- | | | +-----------------------------------------------------------------------+ The deadweight loss associated with a monopoly occurs because the monopolist +-----------------------------------------------------------------------+ | -- ---------------------------------------------------------------- | | -- | | a\. produces an output level greater than the socially optimal | | | | level. | | | | -- ---------------------------------------------------------------- | | -- | +=======================================================================+ | -- -------------------------------------------------- -- | | b\. equates marginal revenue with marginal cost. | | -- -------------------------------------------------- -- | +-----------------------------------------------------------------------+ | -- ------------------------ -- | | c\. maximizes profits. | | -- ------------------------ -- | +-----------------------------------------------------------------------+ | -- ---------------------------------------------------------------- | | ------- | | **d. produces an output level less than the socially optimal lev | | el.** | | -- ---------------------------------------------------------------- | | ------- | +-----------------------------------------------------------------------+ +-----------------------------------------------------------------------+ | Table 14-1 | | | | +--------------------------------+--------------------------------+ | | | Price | Quantity Demanded | | | | | | | | | (Dollars per unit) | (Units) | | | +================================+================================+ | | | 5 | 0  | | | +--------------------------------+--------------------------------+ | | | 5 | 1 | | | +--------------------------------+--------------------------------+ | | | 5 | 2 | | | +--------------------------------+--------------------------------+ | | | 5 | 3 | | | +--------------------------------+--------------------------------+ | | | 5 | 4 | | | +--------------------------------+--------------------------------+ | | | 5 | 5 | | | +--------------------------------+--------------------------------+ | | | 5 | 6 | | | +--------------------------------+--------------------------------+ | | | 5 | 7 | | | +--------------------------------+--------------------------------+ | | | 5 | 8 | | | +--------------------------------+--------------------------------+ | | | 5 | 9 | | | +--------------------------------+--------------------------------+ | +-----------------------------------------------------------------------+ |  | +-----------------------------------------------------------------------+ Refer to Table 14-1. If the firm doubles its output from 3 to 6 units, total revenue will +-----------------------------------------------------------------------+ | -- --------------------------------- -- | | a\. increase by more than \$15. | | -- --------------------------------- -- | +=======================================================================+ | -- ---------------------------------- -- | | **b. increase by exactly \$15.** | | -- ---------------------------------- -- | +-----------------------------------------------------------------------+ | -- ------------------------------------------------------------- -- | | c\. Total revenue cannot be determined from the information | | provided. | | -- ------------------------------------------------------------- -- | +-----------------------------------------------------------------------+ | -- --------------------------------- | | d\. increase by less than \$15. | | -- --------------------------------- | +-----------------------------------------------------------------------+ Indifference curves illustrate +-----------------------------------------------------------------------+ | -- ------------------------ -- | | a\. a firm\'s profits. | | -- ------------------------ -- | +=======================================================================+ | -- --------------------------- -- | | b\. a consumer\'s budget. | | -- --------------------------- -- | +-----------------------------------------------------------------------+ | -- ----------------------------------- -- | | **c. a consumer\'s preferences**. | | -- ----------------------------------- -- | +-----------------------------------------------------------------------+ | -- ------------------------------ | | d\. the prices of two goods. | | -- ------------------------------ | +-----------------------------------------------------------------------+ Which of the following statements is not correct? +-----------------------------------------------------------------------+ | -- ---------------------------------------------------------------- | | -------------------------------------------- -- | | **a. Both monopolistic competition and perfect competition are c | | haracterized by product differentiation**. | | -- ---------------------------------------------------------------- | | -------------------------------------------- -- | +=======================================================================+ | -- ---------------------------------------------------------------- | | ----- -- | | b\. 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 sell | | ers | | in an oligopoly. | | | | -- ---------------------------------------------------------------- | | ----- -- | +-----------------------------------------------------------------------+ | -- ---------------------------------------------------------------- | | -- -- | | c\. Monopolistic competition is different from monopoly because | | | | monopolistic competition is characterized by free entry, whereas | | | | monopoly is characterized by barriers to entry. | | | | -- ---------------------------------------------------------------- | | -- -- | +-----------------------------------------------------------------------+ | -- ---------------------------------------------------------------- | | ----- | | d\. Both monopolistic competition and oligopoly fall in between | | the | | more extreme market structures of competition and monopoly. | | -- ---------------------------------------------------------------- | | ----- | +-----------------------------------------------------------------------+ Price discrimination is the business practice of +-----------------------------------------------------------------------+ | -- ---------------------------------------------------------------- | | ----- -- | | a\. hiring marketing experts to increase consumers\' brand loyal | | ty. | | -- ---------------------------------------------------------------- | | ----- -- | +=======================================================================+ | -- ---------------------------------- -- | | b\. pricing above marginal cost. | | -- ---------------------------------- -- | +-----------------------------------------------------------------------+ | -- ---------------------------------------------------------------- | | ---------- -- | | **c. selling the same good at different prices to different cust | | omers**. | | -- ---------------------------------------------------------------- | | ---------- -- | +-----------------------------------------------------------------------+ | -- -------------------------------------------------------- | | d\. bundling related products to increase total sales. | | -- -------------------------------------------------------- | +-----------------------------------------------------------------------+ Economies of scale occur when +-----------------------------------------------------------------------+ | -- --------------------------------------------------------------- | | -- | | **a. long-run average total costs fall as output increases.** | | -- --------------------------------------------------------------- | | -- | +=======================================================================+ | -- --------------------------------------- -- | | b\. average fixed costs are constant. | | -- --------------------------------------- -- | +-----------------------------------------------------------------------+ | -- -------------------------------------- -- | | c\. average fixed costs are falling. | | -- -------------------------------------- -- | +-----------------------------------------------------------------------+ | -- ------------------------------------------------------------ | | d\. long-run average total costs rise as output increases. | | -- ------------------------------------------------------------ | +-----------------------------------------------------------------------+ Suppose that Bieber and Rihanna are duopolists in the music industry. In May, they agree to work together as a monopolist, charging the monopoly price for their music and producing the monopoly quantity of songs. By June, each singer is considering breaking the agreement. What would you expect to happen next? +-----------------------------------------------------------------------+ | -- ---------------------------------------------------------------- | | ---- -- | | a\. Bieber and Rihanna will determine that it is in each singer\ | | 's | | self-interest to maintain the agreement. | | | | -- ---------------------------------------------------------------- | | ---- -- | +=======================================================================+ | -- --------------------------------------------------------------- | | -- | | b\. Bieber and Rihanna will each break the agreement. The new | | equilibrium quantity of songs will increase, and the new | | equilibrium price also will increase. | | -- --------------------------------------------------------------- | | -- | +-----------------------------------------------------------------------+ | -- ---------------------------------------------------------------- | | ------ -- | | c\. Bieber and Rihanna will each break the agreement. Both singe | | rs\' | | profits will increase. | | | | -- ---------------------------------------------------------------- | | ------ -- | +-----------------------------------------------------------------------+ | -- ---------------------------------------------------------------- | | -------------------------------- -- | | **d. Bieber and Rihanna will each break the agreement. Both sing | | ers\' profits will decrease.** | | -- ---------------------------------------------------------------- | | -------------------------------- -- | +-----------------------------------------------------------------------+ A monopolistically competitive firm chooses +-----------------------------------------------------------------------+ | -- ---------------------------------------------------------------- | | ---- -- | | a\. the quantity of output to produce, but all firms in the mark | | et | | agree upon a single price. | | | | -- ---------------------------------------------------------------- | | ---- -- | +=======================================================================+ | -- ---------------------------------------------------------------- | | -- | | b\. the price, but output is determined by a cartel production | | | | quota. | | | | -- ---------------------------------------------------------------- | | -- | +-----------------------------------------------------------------------+ | -- ---------------------------------------------------------------- | | -------------------------------- -- | | **c. the quantity of output to produce, but the price of its out | | put is determined by demand.** | | -- ---------------------------------------------------------------- | | -------------------------------- -- | +-----------------------------------------------------------------------+ | d\. the price, but competition in the market determines the | | quantity. | | -- ------------------------------------------------------------- | | | +-----------------------------------------------------------------------+ Which of the following is unique to a monopolistically competitive firm when compared to an oligopoly? +-----------------------------------------------------------------------+ | -- ---------------------------------------------------- -- | | a\. Monopolistic competition features many buyers. | | -- ---------------------------------------------------- -- | +=======================================================================+ | -- ---------------------------------------------------------------- | | -- -- | | b\. The monopolistically competitive firm produces a quantity of | | | | output that falls short of the socially optimal level. | | | | -- ---------------------------------------------------------------- | | -- -- | +-----------------------------------------------------------------------+ | -- ------------------------------------------------------- -- | | c\. The monopolistically competitive firm advertises. | | -- ------------------------------------------------------- -- | +-----------------------------------------------------------------------+ | +---------------------+---------------------+---------------------+ | | | | **d. Monopolistic | | | | | | competition | | | | | | features many | | | | | | sellers.** | | | | +=====================+=====================+=====================+ | | | | | | | | +---------------------+---------------------+---------------------+ | | | | Which of the | | | | | | following | | | | | | statements about | | | | | | oligopolies | | | | | | is not correct? | | | | | | | | | | | | +----------------+ | | | | | | | -- --------- | | | | | | | | -------------- | | | | | | | | -------------- | | | | | | | | -------------- | | | | | | | | -------------- | | | | | | | | -------------- | | | | | | | | ----- -- | | | | | | | | a. Oligop | | | | | | | | olistic firms | | | | | | | | are interdepen | | | | | | | | dent in a way | | | | | | | | that competiti | | | | | | | | ve firms are n | | | | | | | | ot. | | | | | | | | -- --------- | | | | | | | | -------------- | | | | | | | | -------------- | | | | | | | | -------------- | | | | | | | | -------------- | | | | | | | | -------------- | | | | | | | | ----- -- | | | | | | | | | | | | | +================+ | | | | | | | -- --------- | | | | | | | | ------ -- | | | | | | | | b\. An | | | | | | | | | | | | | | | | oligopoli | | | | | | | | stic | | | | | | | | market ha | | | | | | | | s | | | | | | | | only a fe | | | | | | | | w | | | | | | | | sellers. | | | | | | | | | | | | | | | | -- --------- | | | | | | | | ------ -- | | | | | | | +----------------+ | | | | | | | -- --------- | | | | | | | | ----- -- | | | | | | | | c\. The | | | | | | | | | | | | | | | | actions o | | | | | | | | f | | | | | | | | any one | | | | | | | | | | | | | | | | seller ca | | | | | | | | n | | | | | | | | have a la | | | | | | | | rge | | | | | | | | impact on | | | | | | | | | | | | | | | | the profi | | | | | | | | ts | | | | | | | | of all ot | | | | | | | | her | | | | | | | | sellers. | | | | | | | | | | | | | | | | -- --------- | | | | | | | | ----- -- | | | | | | | +----------------+ | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | d. Unlike mon | | | | | | | | opolies and mo | | | | | | | | nopolistically | | | | | | | | competitive m | | | | | | | | arkets, oligop | | | | | | | | olies prices d | | | | | | | | o not exceed t | | | | | | | | heir marginal | | | | | | | | costs. | | | | | | | | Suppose Jam | | | | | | | | ie can choose | | | | | | | | between consum | | | | | | | | ing two goods. | | | | | | | | If we observe | | | | | | | | that Jamie's | | | | | | | | budget constra | | | | | | | | int has moved | | | | | | | | outward, then | | | | | | | | we know for ce | | | | | | | | rtain that | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | a. | | | | | | | | she can reach | | | | | | | | a higher indi | | | | | | | | fference curve | | | | | | | |. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | b. her inc | | | | | | | | ome must have | | | | | | | | increased. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | c. she wil | | | | | | | | l be indiffere | | | | | | | | nt between the | | | | | | | | two goods. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | d. the pri | | | | | | | | ce of one or b | | | | | | | | oth of the goo | | | | | | | | ds must have d | | | | | | | | ecreased. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | +----------------+ | | | | +---------------------+---------------------+---------------------+ | | | | +----------------+ | | | | | | | Table 14-1 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Price | | | | | | | | (Dollars pe | | | | | | | | r unit) | | | | | | | | Quantit | | | | | | | | y Demanded | | | | | | | | (Units) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 5 | | | | | | | | 0  | | | | | | | | | | | | | | | | | | | | | | | | 5 | | | | | | | | 1 | | | | | | | | | | | | | | | | | | | | | | | | 5 | | | | | | | | 2 | | | | | | | | | | | | | | | | | | | | | | | | 5 | | | | | | | | 3 | |