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201- Chapters 7, 8, 9, 10

what two conditions must hold for a competitive market to produce efficient outcomes?
(a) demand curves must reflect all costs of production, and supply curves must reflect consumers full willingness to pay
(b) firms must minimize production costs, and consumers must minimize total expenditures
(c) supply curves must reflect all costs of production, and demand curves must reflect consumers full willingness to pay
(d) firms must maximize profits, and consumers must all pay prices equal to their maximum willingness to pay

supply curves must reflect all costs of production, and demand curves must reflect consumers full willingness to pay

Jennifer buys a piece of costume jewelry for $33 for which he was willing to pay $42. The minimum acceptable price to the seller, Nathan, was $30 Jennifer experiences;
(a) a consumer surplus of $12 and Nathan experience a producer surplus of $3
(b) a producer surplus of $9 and Nathan experiences a consumer surplus of $3
(c) a consumer surplus of $9 and Nathan experiences a producer surplus of $3
(d) a producer surplus of $9 and Nathan experiences a producer surplus of $12

(a) a consumer surplus of $9 and Nathan experiences a producer surplus of $3

the two main characteristics of a public good are;
(a) production at constant marginal cost and rising demand
(b) nonexcludability and production at rising marginal cost
(c) nonrivalry and nonexcludability
(d) nonrivalry and large negative externalities

nonrivalry and nonexcludability

according to the marginal-cost-marginal-benefit rule;
(a) the optimal project size is the one for which MB=MC
(b) only government projects (as opposed to private projects) should be assessed by comparing marginal costs and marginal benefits
(c) the optimal project size is the one for which MB exceeds MC by the greatest amount
(d) project managers should attempt to minimize both MB and MC

the optimal project size is the one for which MB=MC

accounting profits are typically;
(a) greater than economic profits because the former do not take explicit costs into account
(b) equal to economic profits because accounting costs include all opportunity costs
(c) smaller than economic profits because the former do not take implicit costs into account
(d) greater than economic profits because the former do not take implicit costs into account

greater than economic profits because the former do not take implicit costs into account

suppose that a business incurred implicit costs of $200,000 and explicit costs of $1 million in a specific year. If the firm sold 4,000 units of its output at $300 per unit, its accounting profits were;
(a) $200,000 and its economic profits were zero
(b) $100,000 and its economic profits were zero
(c) $100,000 and its economic profits were $100,000
(d) zero and its economic loss was $200,000

$200,000 and its economic profits were zero

to economists, the main difference between the short run and the long run is that;
(a) the law of diminishing returns applies in the long run, but not in the short run
(b) in the long run all resources are variable, while in the short run at least one resource is fixed
(c) fixed costs are more important to decision making in the long run than they are in the short run
(d) in the short run all resources are fixed, while in the long run all resources are variable

in the long run all resources are variable, while in the short run at least one resource is fixed

the law of diminishing returns indicates that;
(a) as extra units of a variable resource are added to a fixed resource, marginal product will decline beyond some point
(b) because of economies and diseconomies of scale a competitive firms long-run average total cost curve will be U-shaped
(c) the demand for goods produced by purely competitive industries is downsloping
(d) beyond some point the extra utility derived from additional units of a product will yield the consumer smaller and smaller extra amounts of satisfaction

as extra units of a variable resource are added to a fixed resource, marginal product will decline beyond some point

refer to the above data. the total variable cost of producing 5 units is;
(a) $61
(b) $48
(c) $37
(d) $24

$37

refer to the above data. the average total cost of producing 3 units of output is;
(a) $14
(b) $12
(c) $13.50
(d) $16

$16

refer to the above data. The marginal cost of producing the sixth unit of output is;
(a) $24
(b) $12
(c) $16)
(d) $8

$8

if a firm wanted to know how much it would save by producing one less unit of output, it would look to;
(a) MC
(b) ATC
(c) AVC
(d) AFC

MC

the short-run average total cost curve is U-shaped because;
(a) average fixed costs decline continuously as output increases
(b) of increasing and diminishing returns
(c) of economies and diseconomies of scale
(d) minimum efficient scale is encountered

of economies and diseconomies of scale

which of the following industries most closely approximates pure competition;
(a) agriculture
(b) farm implements
(c) clothing
(d) steel

agriculture

in which of the following industry structures is the entry of new firms the most difficult;
(a) pure monopoly
(b) oligopoly
(c) monopolistic competition
(d) pure competition

pure monopoly

the demand schedule or curve confronted by the individual purely competitive firm is;
(a) relatively elastic, that is the elasticity coefficient is greater than unity
(b) perfectly elastic
(c) relatively inelastic that is, the elasticity coefficient is less than unity
(d) perfectly inelastic

perfectly elastic

if a firm in a purely competitive industry is confronted with an equilibrium price of $5, its marginal revenue;
(a) may be either greater or less than $5
(b) will be less than $5
(c) will be greater than $5
(d) will also be $5

will also be $5

if a purely competitive firm shuts down in the short run;
(a) its loss will be zero
(b) it will realize a loss equal to its total variable costs
(c) it will realize a loss equal to its total fixed costs
(d) it will realize a loss equal to its explicit costs

it will realize a loss equal to its total fixed costs

refer to the above data. at the profit-maximizing output the purely competitive firms total revenue is;
(a) $48
(b) $32
(c) $80
(d) $64

$80

refer to the above diagram for a purely competitive producer. the lowest price at which the firm should produce (as opposed to shutting down) is;
(a) P1
(b) P2
(c) P3
(d) P4

P3

refer to the above diagram for a purely competitive producer. If product price it P3;
(a) the firm will maximize profit at point d
(b) the firm will earn an economic profit
(c) economic profits will be zero
(d) new firms will enter this industry

economic profits will be zero

which of the following is true concerning purely competitive industries;
(a) there will be economic losses in the long run because of cut-throat competition
(b) economic profits will persist in the long run if consumer demand is strong and stable
(c) in the short run, firms may incur economic losses or earn economic profits, but in the long run they earn normal profits
(d) there are economic profits in the long run, but not in the short run

in the short run, firms may incur economic losses or earn economic profits, but in the long run they earn normal profits

which of the following is correct;
(a) both purely competitive and monopolistic firms are "price takers"
(b) a purely competitive firm is a "price taker" while a monopolist is a "price maker"
(c) both purely competitive and monopolistic firms are "price makers"
(d) a purely competitive firm is a "price maker" while a monopolist is a "price taker"

a purely competitive firm is a "price taker" while a purely monopolistic firm is a "price maker"

refer to the above diagrams which pertain to a purely competitive firm producing output q and the industry in which it operates. Which of the following is correct;
(a) the diagrams portray neither long run nor short run equilibrium
(b) the diagrams portray both long run and short run equilibrium
(c) the diagrams portray long run equilibrium but not short run equilibrium
(d) the diagrams portray short-run equilibrium, but not long run equilibrium

the diagrams portray long run equilibrium but not short run

refer to the above diagrams which pertain to a purely competitive firm producing output q and the industry in which it operates. in the long run we should expect;
(a) firms to enter the industry, market supply to rise, and product price to fall
(b) firms to leave the industry, market supply to rise, and product price to fall
(c) firms to leave the industry, market supply to fall, and product price to rise
(d) no change in the number of firms in this industry

no change in the number of firms in this industry

which of the following is not a barrier to entry;
(a) patents
(b) X-inefficiency
(c) economies of scale
(d) ownership of essential resources

x-inefficiency

the supply curve for a monopolist is;
(a) perfectly elastic
(b) upsloping
(c) that portion of the marginal cost curve lying above minimum average variable cost
(d) nonexistent

nonexisitent

at its profit-maximizing output, a pure nondiscriminating monopolist achieves;
(a) neither productive efficiency nor allocative efficiency
(b) both productive efficiency and allocative efficiency
(c) productive efficiency but not allocative efficiency
(d) allocative efficiency but not productive efficiency

neither productive efficiency nor allocative efficiency

a nondiscriminating profit-maximizing monopolist;
(a) will never produce is the output range where demand is inelastic
(b) may produce where demand is either elastic or inelastic, depending on the level of production costs
(c) will never produce in the output range where marginal revenue is positive
(d) will never produce in the output range where demand is elastic

will never produce in the output range where demand is elastic

refer to the above diagram. to maximize profits or minimize losses this firm should produce;
(a) E units and charge price A
(b) E units and charge price C
(c) M units and charge price N
(d) I units and charge price K

E units and charge price A

other things equal, in which of following cases would economic profit be the greatest;
(a) an unregulated monopolist which is able to engage in price discrimination
(b) an unregulated, nondiscriminating monopolist
(c) a regulated monopolist charging a price equal to average total cost
(d) a regulated monopolist charging a price equal to marginal cost

an unregulated monopolist which is able to engage in price discrimination

if a monopoly is selling its 100th unit of output for $35, its marginal revenue;
(a) may be either greater or less than $35
(b) will also be $35
(c) will be less than $35
(d) will e great than $35

will be less than $35

in the long run equilibrium, profit maximizing competitive firms and monopolistic firm both;
(a) earn zero economic profit
(b) set price equal to marginal revenue
(c) produce at minimum average total cost
(d) produce the output at which marginal revenue equals marginal cost

produce the output at which marginal revenue equals marginal costs

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