Economics Practice Problems Test #4

25 July 2022
4.7 (114 reviews)
56 test answers

Unlock all answers in this set

Unlock answers (52)
question
A monopolist may have very close substitutes for the product produced by the firm.
answer
FALSE. True: -An unregulated, profit-maximizing monopolist will not operate in the inelastic portion of the demand curve. -The MR earned by a monopolist will always be less than the product's price. -For a profit-maximizing monopolist, MR=MC
question
If a monopolist wishes to increase its output and quantity sold,
answer
it must reduce its price, so its marginal revenue is less than its price.
question
A firm can be the sole supplier of a good and still not be a monopoly if
answer
there are very close substitutes for the good
question
In order for a firm to receive monopoly profits, there must be
answer
barriers to market entry.
question
Which of the following are barriers to entry?
answer
Economies of Scale Control of Resources Patents and Copyrights
question
Which of the following is NOT a barrier to entry that would allow the monopolist to keep potential competitors out of its market?
answer
The market price of the product is too high.
question
If there are no barriers to entry into an industry,
answer
long-run economic profits must be zero.
question
A monopolist can earn economic profits in the long run because
answer
barriers to entry prevent new firms from entering the industry.
question
A natural monopoly usually arises when
answer
there are large economies of scale relative to the industry's demand
question
Compared to perfectly competitive firms, the demand curve for a monopolist will be
answer
less elastic.
question
Which of the following is true for a monopolist? A) MR = AFC B) MR = P C) MR < P D) MR < AVC
answer
C) MR < P
question
To sell one more unit of a good, a monopolist must
answer
Lower the price on all units
question
The demand curve faced by the pure monopolist
answer
is the market demand curve
question
To sell more units, a monopolist
answer
moves down its demand curve to a lower price that will increase quantity demand.
question
A firm that is the only seller of a good with no close substitutes is a
answer
Monopolist
question
In order for a firm to receive monopoly profits, there must be:
answer
Barriers to market entry
question
Which of the following are barriers to entry? A) Economies of scale B) Patents and Copyrights C) Control of all Resources D) All of the above
answer
D) all of the above
question
Which of the following is not a barrier to entry that would allow a monopolist to keep potential competitors out of its market? A) Significant economies of scale exist B) The market price of the product is too high C) The firm has a patent on the good or control over some resources required for the production of the good D) The firm has government authorization to be a monopoly
answer
B) The market price of the product is too high
question
Barriers to entry enable many monopolists to: A) Charge as high a price as they want B) Make people buy more of a good than they really want C) Earn economic profits in the long run D) Manipulate the government into providing special favors for themselves
answer
C) Earn economic profits in the long run
question
A Natural Monopoly: A) Requires government licensing initially B) Is derived from deposits of natural resources C) Usually arises when there are large economies of scale D) Involves multiple firms selling differentiated products
answer
C) Usually arises when there are large economies of scale
question
For a monopolist that is maximizing profits: A) Price exceeds marginal cost B) Price equals marginal revenue C) Price equals average total cost D) Marginal revenue exceeds price
answer
A) Price exceeds marginal cost
question
A monopoly will maximize profits at the level of output at which: A) MR=MC B) MR= AFC C) MC = ATC D) MC =P
answer
A) MR=MC
question
The monopolist will choose the price and output combination at which: A) MC =AR B) MC =MR C) MC = P D) MR =AR
answer
B) MC =MR
question
Suppose a monopolist's costs and revenues are as follows: ATC = $45, MC = $35, MR = $35, P= $45. The firm should: A) increase output and decrease price B) Decrease output and increase price C) Not change output or price D) Shut down
answer
C) Not change output or price
question
A monopolist: A) Is a price searcher B) Is a price taker C) faces an upward sloping demand curve D) faces a vertical demand curve
answer
A) Is a price searcher
question
A firm that can determine the price-output combination in order to maximize profit is known as a: A) price searcher B) price taker C) Demand searcher D) cost taker
answer
A)Price searcher
question
Which of the following is NOT a characteristic of monopolistic competition? A) product differentiation B) Barriers to entry into the market C) advertising is common D) A significant number of sellers
answer
B) Barriers to entry into the market
question
What are the characteristics of monopolistic competition?
answer
Many sellers Product differentiation Free entry and exit Advertising is common
question
Which of the following is a characteristic of monopolistic competition? A) few firms B) homogeneous products C) easy entry and exit D) strategic dependence
answer
C) Easy entry and exit
question
Which of the following describes monopolistic competition? A) Homogenous products B) P=MR=MC C) Advertising plays a key role D) There is only one seller in the industry
answer
C) Advertising plays a key role
question
All the following are characteristics of a monopolistically competitive industry EXCEPT: A) homogeneous products B) many firms C) low barriers to entry and exit D) sales promotion and advertising
answer
A) Homogeneous products
question
Monopolistic competition is characterized by: A) relative ease of entry into the market B) a standard, undifferentiated product C) persistent long-run economic profits D) production at minimum average cost in the long run
answer
A) relative ease of entry into the market
question
Entry into a monopolistically competitive industry: A) is relatively easy B) is very difficult C) can be easy or difficult D) is about the same as entering a monopoly industry
answer
A) is relatively easy
question
The number of firms in a monopolistically competitive industry means that A) firms will collude B) existing firms in the industry will make sure new firms do not enter C) firms will not cooperate to set a pure monopoly price D) firms will try to set a common price
answer
C) firms will not cooperate to set a pure monopoly price
question
Because the products of firms in a monopolistically competitive market are not homogeneous, the: A) demand curve for the industry is the same for the firm B) demand curve for the firm's product is horizontal C) demand curve for the firm's product is downward slopping D) demand curve for the firm's product is upward slopping
answer
C) demand curve for the firm's product is downward slopping
question
When the telemarketer calls you about a product, this is an example of A) direct marketing B) indirect marketing
answer
A) direct marketing
question
Advertisement in which firms aim messages to as many customers as possible via media is known as A) direct marketing B) mass marketing
answer
B) mass marketing
question
A good that has qualities that are easy for a consumer to assess in advance of a purchase is called: A) a credence good B) a search good
answer
B) a search good
question
Which of the following does NOT help explain why oligopolies exist? A) Economies of scale B) Mergers C) product homogenity
answer
C) product homogenity
question
A merger between firms that are in the same industry is called a: A) vertical merger B) horizontal merger
answer
B) horizontal merger
question
Which of the following is most likely to be sold in an oligopoly market? A) Pizza B) cell phone service C) electricity D) computer software
answer
B) cellphone service
question
If a firm is an oligopolist, which is NOT true? A) it must pay attention to other firms' prices B) it is one of a relatively small number of firms dominating industry C) it can sell all the units it wants at the going market price D) it is engaged in a strategic game
answer
C) it can sell all the units it wants at the going market price
question
An oligopoly is a market situation in which: A) all the sellers act independently of the others B) there are very few sellers and they recognize their strategic dependence on one another
answer
B) there are very few sellers and they recognize their strategic dependence on one another
question
In general, horizontal mergers will: A) incase the number of firms in an industry B) decrease the number of firms in an industry
answer
B) decrease the number of firms in an industry
question
The prisoner's dilemma shows that: A) players are better off if they act independently B) players would be better off if they cooperated
answer
B) players would be better off if they cooperated
question
A perfectly competitive firm will hire workers up to the quantity at which the wage rate equals the: A) marginal revenue product of labor (MRP) B) marginal factor cost of labor
answer
A) marginal revenue product of labor (MRP)
question
Suppose at the current level of labor used, MRP = $100 and MFC = $50. To maximize profits, the firm should: A) hire more labor B) reduce the level of labor MRP= MPP * MR MFC = MPP * P MPP * MR < MPP * P => fewer workers are hired by the monopoly
answer
A) hire more labor
question
The additional production resulting from hiring one more worker is: A) marginal physical product (MPP) B) Marginal cost
answer
A) marginal physical product (MPP)
question
The contribution to total revenues coming from the next worker hired is: A) Marginal product B) marginal revenue product (MRP)
answer
B) marginal revenue product
question
The marginal revenue product gives: A)the change in total product for an additional unit of a variable input B) the additional revenue obtained when an additional unit of a variable input is hired
answer
B) the additional revenue obtained when an additional unit of a variable input is hired
question
The demand curve for labor will shift whenever: A) the wage rate changes B) demand for the final product changes
answer
B) demand for the final product changes
question
An increase in product price implies that: A) the firm's marginal factor cost will increase B) the firm's demand for labor increases
answer
B) the firm's demand for labor increases
question
Since the demand for labor depends upon the demand for the final product, we say that labor is: A) a derived demand B) an "Inverse" demand
answer
A) a derived demand
question
MRP = MPP *
answer
MRP = MPP * MR
question
MPP = TC/
answer
MPP = TC/L
question
MFC = MPP *
answer
MFC = MPP * P