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Micro Final Practice (Exam 3 Questions)

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Practice for the final in micro. includes only questions from exam 3.
tran.melissa2015
Quiz by tran.melissa2015, updated more than 1 year ago
tran.melissa2015
Created by tran.melissa2015 over 8 years ago
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Question 1

Question
Assume a certain firm is producing Q = 1,000 units of output. At Q = 1,000, the firm's marginal cost equals $20 and its average total cost equals $25. The firm sells its output for $30 per unit. At Q = 999, the firm's profits equal...
Answer
  • $5,000.
  • $5,030.
  • $4,990.
  • $5,020

Question 2

Question
Monopolistic competition is an inefficient market structure because...
Answer
  • it has a deadweight loss, just as monopoly does.
  • long-run profits are zero due to free entry.
  • marginal revenue equals marginal cost.
  • All the answers are correct.

Question 3

Question
A monopoly can earn positive profits because it...
Answer
  • can set the price it charges for its output but faces a horizontal demand curve.
  • can sell unlimited quantities at any price it chooses.
  • can maintain a price such that total revenue will exceed total costs.
  • takes the market price as given and can sell unlimited quantities.

Question 4

Question
The fundamental source of monopoly power is...
Answer
  • decreasing average total cost.
  • profit.
  • a product without close substitutes.
  • barriers to entry.

Question 5

Question
Roger owns a small health store that sells vitamins in a perfectly competitive market. If vitamins sell for $12 per bottle and the average total cost per bottle is $11.50 at the profit-maximizing output level, then in the long run...
Answer
  • the equilibrium price per bottle will rise.
  • average total costs will rise.
  • more firms will enter the market.
  • some firms will exit from the market.

Question 6

Question
The average-fixed-cost curve...
Answer
  • is constant.
  • intersects marginal cost at the minimum of average fixed cost.
  • is always decreasing.
  • intersects marginal cost at the minimum of marginal cost.

Question 7

Question
If a firm in a competition market doubles it number of units sold, total revenue for the firm will///
Answer
  • double.
  • may increase or decrease depending on the price elasticity of demand.
  • increase but by less than double.
  • more than double.

Question 8

Question
What is the marginal cost of the 5th unit?
Image:
a06be0b9-5224-40ab-82de-f055a4f01e40 (image/jpeg)
Answer
  • $68
  • $80
  • $55
  • $60

Question 9

Question
Suppose that the organic-produce 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. ..
Answer
  • cause the remaining firms to collude so that they can produce more efficiently.
  • cause the market supply to decline and the price of organic produce to rise.
  • cause firms in the organic-produce industry to suffer long-run economic losses.
  • shift the demand curve outward so that price will rise to the level of production cost.

Question 10

Question
Suppose that a firm in a competitive market has the following cost curves (see picture) If the market price is $4.00, the firm will earn...
Image:
d56cf084-3f93-4eef-838d-4a43dd0b1971 (image/jpeg)
Answer
  • zero economic profits in the short run.
  • negative economic profits and shut down.
  • negative economic profits in the short run but remain in business.
  • positive economic profits in the short run.

Question 11

Question
What is the marginal revenue for the monopolist for the sixth unit sold?
Image:
1dbae5f4-584d-4502-ab90-b8e3bbc4bfa6 (image/jpeg)
Answer
  • $11
  • $5
  • $3
  • $17

Question 12

Question
Which of the following statements is correct?
Answer
  • Firms with some degree of monopoly power are common, but firms with substantial monopoly power are rare.
  • Firms with some degree of monopoly power are rare, as are firms with substantial monopoly power.
  • Firms with some degree of monopoly power are rare, but firms with substantial monopoly power are common.
  • Firms with some degree of monopoly power are common, as are firms with substantial monopoly power.

Question 13

Question
Which of the following is NOT a reason for the existence of a monopoly?
Answer
  • patents
  • diseconomies of scale
  • copyrights
  • sole ownership of a key resource

Question 14

Question
A monopolist maximizes profits by...
Answer
  • A) producing an output level where marginal revenue equals marginal cost.
  • B) charging a price equal to marginal revenue and marginal cost.
  • C) charging a price where marginal cost equals average total cost.
  • Both A and B are correct.

Question 15

Question
Suppose a profit-maximizing firm in a competitive market produces rubber banks. When the market price for rubber bands rises above the minimum of its average variable cost, but still lies below the minimum of average total cost, in the short run the firm will...
Answer
  • raise the price of its product.
  • earn both economic and accounting profits.
  • shut down.
  • experience losses but will continue to produce rubber bands.

Question 16

Question
Sonia opened a yoga studio where she teaches classes and sells yoga clothing. Fixed costs for Sonia's yoga studio include the cost of the... (i) Tank tops (ii) Wages paid to the other yoga instructors. (iii) Lease on the studio space. (iv) Insurance that the landlord requires Sonia to carry for the studio.
Answer
  • (i) and (ii) only
  • (i) only
  • (iii) and (iv) only
  • (i), (ii), (iii), and (iv)

Question 17

Question
One way in which monopolistic competition differs from oligopoly is that...
Answer
  • in oligopoly markets there are only a few sellers.
  • all firms in an oligopoly eventually earn zero economic profits.
  • there are no barriers to entry in oligopolies.
  • strategic interactions between firms are rate in oligopolies.

Question 18

Question
The Wacky Widget company has total fixed costs of $100,000 per year. The firm's average variable cost is $10 for 10,000 widgets. At that level of output, the firm's average total costs equal...
Answer
  • $25
  • $10
  • $20
  • $15

Question 19

Question
A typical firm in the US economy would be classified as...
Answer
  • a duopolist.
  • imperfectly competitive.
  • an oligopolist.
  • perfectly competitive.

Question 20

Question
Suppose that a firm's long-run average total costs of producing small commuter jet airplanes increases as it produces between 2,000 and 4,000 airplanes. For this range of output, the firm is experiencing...
Answer
  • constant returns to scale.
  • diseconomies of scale.
  • specialization.
  • economies of scale.

Question 21

Question
McDonald's restaurants has recently announced intentions to open a new restaurant in Smalltown, Indiana. Assume that the fast-food restaurant market in Smalltown is characterized by monopolistic competition. As a result of the new McDonald's, residents of Smalltown are likely to benefit from...
Answer
  • A) a product-variety externality.
  • B) a business stealing externality.
  • C) the fact that McDonald's will increase its production to achieve the efficient scale.
  • Both B and C are correct.

Question 22

Question
Which of the following statements is NOT correct?
Answer
  • Monopolistic competition is similar to perfect competition because both market structures are characterized by free entry.
  • Monopolistic competition is similar to perfect competition because both market structures are characterized by many sellers.
  • Monopolistic competition is similar to oligopoly because both market structures are characterized by barriers to entry.
  • Monopolistic competition is similar to monopoly because in each market structure the firm can charge a price above marginal costs.

Question 23

Question
The story of the prisoners' dilemma shows why...
Answer
  • oligopolies can fail to cooperate, even when cooperation is in their best interest.
  • predatory pricing is clearly not in society's best interest.
  • oligopolies can fail to act independently, even when independent decision-making is in their best interest.
  • economists are unanimous in condemning resale price maintenance, since it inevitably reduces competition.

Question 24

Question
The prisoner's dilemma game...
Answer
  • is a game in which neither player has a dominant strategy.
  • provides insight into why cooperation is individually rational.
  • is a game in which exactly one of the two players has a dominant strategy.
  • provides insight into why cooperation is difficult.

Question 25

Question
Tom's Tent Company has total fixed costs of $300,000 per year. The firm's average variable cost is $80 for 10,000 tents. At that level of output, the firm's average total costs equal. ..
Answer
  • $90
  • $110
  • $100
  • $80

Question 26

Question
Teacher's Helper is a small company that has a subcontract to produce instructional materials for disabled children in public school districts. The owner rents several small rooms in an office building in the suburbs for $600 a month and has a leased computer equipment that costs $480 a month. What is the marginal cost of creating the tenth instructional module in a given month?
Image:
c9013478-2efc-4575-8594-af5ffbcfbf9c (image/jpeg)
Answer
  • $1,250
  • $2,500
  • $3,060
  • $900

Question 27

Question
As the number of firms in a oligopoly market...
Answer
  • decreases, the price charged by firms likely decreases.
  • decreases, the market approaches the competitive market outcome.
  • increases, the market approaches the competitive market outcome.
  • increases, the market approaches the monopoly outcome.

Question 28

Question
If the monopoly firm is not allowed to price discriminate, then consumer surplus amounts to...
Image:
a10187c7-e028-4058-9269-2203f94beca6 (image/jpeg)
Answer
  • $0
  • $1,562.50
  • $6,250
  • $3,125

Question 29

Question
In the transition from the short run to the long run, the number of firms in a competitive industry is...
Answer
  • able to adjust to market conditions.
  • decreasing.
  • fixed.
  • increasing at a constant rate.

Question 30

Question
The intersection of a firm's marginal revenue and marginal cost curves determines the level of output at which...
Answer
  • total revenue is equal to variable cost.
  • total revenue is equal to total cost.
  • profit is maximized.
  • total revenue is equal to fixed cost.

Question 31

Question
A monopoly firm maximizes its profit by producing Q = 500 units of output. At that level of output, its marginal revenue is $30, its average revenue is $60, and its average revenue is $60, and its average total costs is $34. At Q = 500, the firm's marginal cost is...
Answer
  • $34
  • greater than $34
  • less than $30
  • $30

Question 32

Question
What is the average total cost of producing 2 units of output?
Image:
d2bcfa19-5a37-4e53-80ff-c5a72fd2f878 (image/jpeg)
Answer
  • $24
  • $48
  • $15
  • $19

Question 33

Question
Which of the figures represents the marginal cost curve for a typical firm?
Image:
3b9a2d8c-1d72-488f-9f34-9f8d6cdc0007 (image/jpeg)
Answer
  • Figure 1
  • Figure 2
  • Figure 3
  • Figure 4

Question 34

Question
The amount of money that a wheat farmer could have earned if he had planted barely instead of wheat is...
Answer
  • An accounting cost.
  • an explicit cost.
  • forgone accounting profit.
  • an implicit cost.

Question 35

Question
To maximize total surplus, a benevolent social planner would choose which of the following outcomes?
Image:
4a0c9423-78f4-4902-9c59-e4a94f46ec0c (image/jpeg)
Answer
  • Q = 30 and P = 30
  • Q = 30 and P = 60
  • Q = 60 and P = 30
  • Q = 45 and P = 45
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