74 terms

# ch 8, Chapter 8 Managing in markets - Practice

#### Terms in this set (...)

You are the manager of a firm that produces output in two plants. The demand for your firm's product is P = 80-Q, where Q = Q1 + Q2. The marginal cost associated with producing in the two plants are MC1 = Q1 and MC2 = 8. How much output should be produced in plant 1 in order to maximize profits?
8
You are the manager of a firm that produces output in two plants. The demand for your firm's product is P = 80-Q, where Q = Q1 + Q2. The marginal cost associated with producing in the two plants are MC1 = Q1 and MC2 = 8. What is the profit maximizing price that the firm should charge?
44
best characterized as monopoly?
Local electricity services.
You are the manager of a firm that sells its product in a competitive market at a price of \$250. Your firm's cost function is C = 30 + 5Q2. The profit-maximizing output for your firm is
25
For a firm producing in a perfectly competitive industry the demand is
perfectly elastic.
You are the manager of a monopoly that faces an inverse demand curve described by P = 528 - 12Q. Your costs are C = 124 + 48Q. The profit-maximizing price is
288
Which of the following statements is incorrect regarding perfectly competitive markets and monopolistically competitive markets?
A) Perfectly competitive firms produce homogeneous goods, while monopolistically competitive firms have differentiated products.
B) Monopolistically competitive firms charge prices above marginal costs in the long-run, while perfectly competitive firms charge prices equal to marginal costs.
C) Competition in both types of markets leaves firms with zero economic profits in the long run.
D) The long-run equilibrium in both types of markets has firms producing the level of output that equates prices to the minimum of average costs.
D
You are the manager of a firm that sells its product in a competitive market at a price of \$150. Your firm's cost function is C = 125 + 5Q2. Your firm's maximum short-run profits are
1000
Which one of the following is a potential source of monopoly power?
A) Cost complementarities.
B) The patent system.
C) Economies of scope.
D) All are potential sources of monopoly power.
D
Let the demand function for a product be Q = 20 - 4P. The inverse demand function of this demand function is:
P = 5 - 0.25Q.
Suppose that initially the price is \$75 in a perfectly competitive market. Each firm is operating at the minimum point on its long-run average cost curve making zero economic profits. Then the market demand declines permanently and some firms exit the industry and the industry returns back to a long run equilibrium. The new equilibrium price, assuming cost conditions in the industry remain constant, will be
exactly equal to \$75.
What is the profit maximization rule for a two-plant monopolist?
MC1(Q1) = MC2(Q2) = MR(Q1 + Q2).
Which of the following is a correct representation of a profit-maximizing monopoly earning positive economic profits?
MC = MR, and P > ATC.
Which of the following is true regarding the long-run equilibrium relationship between price and costs in a perfectly competitive and monopolistically competitive industry?
P = average costs.
One of the effects of the patent system is to
B) temporarily provide monopoly power to the patent owner.
You are the manager of a firm that produces output in two plants. The demand for your firm's product is P = 78 - 15Q, where Q = Q1 + Q2. The marginal costs associated with producing in the two plants are MC1 = 3Q1 and MC2 = 2Q2. How much output should be produced in plant 1
in order to maximize profits?
1
You are the manager of a firm that produces output in two plants. The demand for your firm's product is P = 78 - 15Q, where Q = Q1 + Q2. The marginal costs associated with producing in the two plants are MC1 = 3Q1 and MC2 = 2Q2. What price should be charged to maximize
profits?
\$40.5
You are the manager of a firm that produces output in two plants. The demand for your firm's product is P = 78 - 15Q, where Q = Q1 + Q2. The marginal costs associated with producing in the two plants are MC1 = 3Q1 and MC2 = 2Q2. What price should be charged in order to
maximize revenues?
\$39
Which of the following is true under monopoly?
P > MC.
You are the manager of a firm that sells its product in a competitive market at a price of \$50. Your firm's cost function is C = 40 + 5Q2. The profit-maximizing output for your firm is:
5.
You are the manager of a firm that sells its product in a competitive market at a price of \$50.
Your firm's cost function is C = 40 + 5Q2. Your firm's maximum profits are:
85.
You are the manager of a monopoly that faces a demand curve described by P = 230 - 20Q.
Your costs are C = 5 + 30Q. The profit-maximizing output for your firm is:
5.
You are the manager of a monopoly that faces a demand curve described by P = 230 - 20Q.
Your costs are C = 5 + 30Q. The profit-maximizing price is:
130.
You are the manager of a monopoly that faces a demand curve described by P = 230 - 20Q.
Your costs are C = 5 + 30Q. Your firm's maximum profits are:
495.
You are the manager of a firm that produces output in two plants. The demand for your firm's product is P = 120 - 6Q, where Q = Q1 + Q2. The marginal costs associated with producing in the two plants are MC1 = 2Q1 and MC2 = 4Q2. How much output should be produced in plant 1
in order to maximize profits?
6
You are the manager of a firm that produces output in two plants. The demand for your firm's product is P = 120 - 6Q, where Q = Q1 + Q2. The marginal costs associated with producing in the two plants are MC1 = 2Q1 and MC2 = 4Q2. What price should be charged to maximize
profits?
66
You are the manager of a firm that produces output in two plants. The demand for your firm's product is P = 120 - 6Q, where Q = Q1 + Q2. The marginal costs associated with producing in the two plants are MC1 = 2Q1 and MC2 = 4Q2. What price should be charged in order to
maximize revenues?
60
In a competitive industry with identical firms, long-run equilibrium is characterized by:
All of the statements associated with this question are correct.
Which of the following is true?
In the short run, a monopoly will shut down if P < AVC.
You are the manager of a firm that sells its product in a competitive market at a price of \$40. Your firm's cost function is C = 60 + 4Q2. The profit-maximizing output for your firm is:
5.
You are the manager of a firm that sells its product in a competitive market at a price of \$40. Your firm's cost function is C = 60 + 4Q2. Your firm's maximum profits are:
40
You are the manager of a monopoly that faces a demand curve described by P = 85 - 5Q. Your costs are C = 20 + 5Q. The profit-maximizing output for your firm is:
8
You are the manager of a monopoly that faces a demand curve described by P = 85 - 5Q. Your costs are C = 20 + 5Q. The profit-maximizing price is:
45
You are the manager of a monopoly that faces a demand curve described by P = 85 - 5Q. Your costs are C = 20 + 5Q. The revenue-maximizing output is:
None of the answers is correct.
You are the manager of a firm that sells its product in a competitive market at a price of \$60. Your firm's cost function is C = 50 + 3Q2. The profit-maximizing output for your firm is:
10
You are the manager of a firm that sells its product in a competitive market at a price of \$60.
Your firm's cost function is C = 50 + 3Q2. Your firm's maximum profits are:
250
You are the manager of a monopoly that faces a demand curve described by P = 63 - 5Q. Your
costs are C = 10 + 3Q. The profit-maximizing output for your firm is:
6
You are the manager of a monopoly that faces a demand curve described by P = 63 - 5Q. Your costs are C = 10 + 3Q. The profit-maximizing price is:
33
You are the manager of a monopoly that faces a demand curve described by P = 63 - 5Q. Your costs are C = 10 + 3Q. Your firm's maximum profits are:
170
You are the manager of a monopoly that faces a demand curve described by P = 63 - 5Q. Your costs are C = 10 + 3Q. The revenue-maximizing output is:
6.3
Which of the following is true under monopoly?
None of the answers is correct.
In the long run, monopolistically competitive firms:
have excess capacity.
If a monopolistically competitive firm's marginal cost increases, then in order to maximize
profits, the firm will:
reduce output and increase price.
Which of the following market structures would you expect to yield the greatest product
variety?
Monopolistic competition
The primary difference between monopolistic competition and perfect competition is:
Sellers can profit from slight differences in products.
Which of the following industries is best characterized as monopolistically competitive?
Toothpaste
Which of the following is an example of monopoly?
Local utility industry in a small town
Differentiated goods are a feature of a:
monopolistically competitive market.
Firms have market power in:
monopolistically competitive markets and monopolistic markets.
There is no market supply curve in:
monopolistically competitive and monopolistic markets.
Suppose that initially the price is \$50 in a perfectly competitive market. Firms are making zero economic profits. Then the market demand shrinks permanently, some firms leave the industry, and the industry returns to a long-run equilibrium. What will be the new equilibrium price,
assuming cost conditions in the industry remain constant?
50
Which of the following statements concerning monopoly is NOT true?
a) A market may be monopolistic because there are some legal barriers.
b) A monopoly has market power.
c) A monopoly is always undesirable.
d) There is some deadweight loss in a monopolistic market.
A monopoly is always undesirable.
Which of the following features is common to both perfectly competitive markets and
monopolistically competitive markets?
There is free entry and long-run profits are zero.
The source(s) of monopoly power for a monopoly may be:
All of the statements associated with this question are correct.
Economies of scale exist whenever:
average total costs decline as output increases.
The number of efficient plants compatible with domestic consumption of the refrigerator industry in Sweden is 0.7. Which of the following implications is(are) correct?
In the absence of imports, the refrigerator industry in Sweden is monopolistic.
A monopoly has two production plants with cost functions C1 = 50 + 0.1Q12 and C2 = 30 + 0.05Q22. The demand it faces is Q = 500 - 10P. What is the condition for profit maximization?
MC1(Q1) = MC2(Q2) = MR(Q1 + Q2).
A monopoly has two production plants with cost functions C1 = 50 + 0.1Q12 and C2 = 30 + 0.05Q22. The demand it faces is Q = 500 - 10P. What is the profit-maximizing level of output?
Q1 = 62.5; Q2 = 125.
A monopoly has two production plants with cost functions C1 = 50 + 0.1Q12 and C2 = 30 + 0.05Q22. The demand it faces is Q = 500 - 10P. What is the profit-maximizing price?
\$31.25 per unit
Which of the following is a correct representation of the profit maximization condition for a monopoly?
MC = MR
Let the demand function for a product be Q = 100 - 2P. The inverse demand function of this demand function is:
P = 50 - 0.5Q
A linear demand function exhibits:
less elastic demand as output increases.
Which of the following is NOT a basic feature of a monopolistically competitive industry?
Each firm owns a patent on its product.
In the long run, monopolistically competitive firms produce a level of output such that:
profits are always zero.
Chris raises cows and produces cheese and milk because he enjoys:
economies of scope.
Which of the following features is common to both perfectly competitive markets and monopolistically
competitive markets?
A. Firms produce homogeneous goods.
B. There is free entry.
C. Long run profits are zero.
D. There is free entry and long run profits are zero.
D. There is free entry and long run profits are zero.
6. In the long-run, monopolistically competitive firms produce a level of output such that
A. P > MC.
B. P = ATC.
C. ATC > minimum of average costs.
D. all of the statements associated with this question are correct
D. all of the statements associated with this question are correct
You are a manager for a monopolistically competitive firm. From experience, the profit-maximizing level of
output of your firm is 100 units. However, it is expected that prices of other close substitutes will fall in the near
future. How should you adjust your level of production in response to this change?
A. Produce more than 100 units.
B. Produce less than 100 units.
C. Produce 100 units.
D. Insufficient information to decide.
B. Produce less than 100 units.
8. In a competitive industry with identical firms, long run equilibrium is characterized by
A. P = AC.
B. P = MC.
C. MR = MC.
D. All of the statements associated with this question are correct.
D. All of the statements associated with this question are correct.
9. Which of the following market structures would you expect to yield the greatest product variety?
A. Monopoly.
B. Monopolistic Competition.
C. Bertrand Oligopoly.
D. Perfect Competition.
B. Monopoly
10. Which of the following is true under monopolistic competition in the long run?
A. profits are always zero.
B. P > MC.
C. P = MR.
D. all of the choices are true in monopolistic competition.
D. all of the choices are true in monopolistic competition.
Which of the following features is common to both perfectly competitive markets and monopolistically competitive markets?
a) Firms produce homogeneous goods.
b) There is free entry.
c) Long run profits are zero.
d) both b and c.
d) both b and c.
The source(s) of monopoly power for a monopoly may be:
a) economies of scale.
b) economies of scope.
c) patents.
d) all of the above.
d) all of the above.
Economies of scale exist whenever:
a) average total costs decline as output increases.
b) average total costs increase as output increases.
c) average total costs are stationary as output increases.
d) both b and c.
a. average total costs decline as output increases.