Exam 2 – Practice Quiz 1

question

Suppose that the elasticity of demand for a product is 4.0 and quantity demanded increases by 20%. What must the percentage decrease in price have been?
a) 5%
b) 20%
c) 80%
d) 200%

answer

a) 5%

question

Suppose we observe that a firm's total revenue doesn't change when price and quantity change by the same percentage. Which of the following is a possible value of its price elasticity of demand?
a) 0
b) 0.5
c) 1
d) 2

answer

c) 1

question

A firm experiences diminishing marginal returns because:
a) all factors of production are variable.
b) people "learn by doing."
c) all factors of production are fixed.
d) at least one factor of production is fixed.

answer

d) at least one factor of production is fixed.

question

Refer to Figure 5.2, which shows a family of average cost curves. The average variable cost curve is represented by:
a) Curve 1.
b) Curve 2.
c) Curve 3.
d) the vertical sum of curve 2 and curve 3.

answer

b) Curve 2.

question

Refer to Figure 5.2, which shows a family of average cost curves. The average fixed cost curve is represented by:
a) Curve 1.
b) Curve 2.
c) Curve 3.
d) the vertical sum of curve 2 and curve 3.

answer

c) Curve 3.

question

Refer to Figure 5.2, which shows a family of average cost curves. The average total cost at a given level of output is represented by:
a) the vertical distance between Curve 1 and Curve 2 at a given level of output.
b) the vertical sum of Curve 1 and Curve 2 at a given level of output.
c) the vertical sum of Curve 2 and Curve 3 at a given level of output.
d) the vertical distance between Curve 2 and Curve 3 at a given level of output.

answer

c) the vertical sum of Curve 2 and Curve 3 at a given level of output.

question

Figure 5.3 presents a firm's marginal cost, average total cost, and average variable cost curves. The firm minimizes average total costs by producing ________ units.
a) 50
b) 100
c) 150
d) 200

answer

c) 150

question

Figure 5.4 shows a firm's marginal cost, average total cost, and average variable cost curves. At Q = 50, the total cost is:
a) $2,100.
b) $2,800.
c) $4,500.
d) $6,300.

answer

c) $4,500.

question

One can tell that Figure 5.1 shows short run costs because:
a) the slope of total costs and variable costs are the same.
b) costs are rising.
c) total costs are positive when output is zero implying fixed costs.
d) All of these.

answer

c) total costs are positive when output is zero implying fixed costs.
(This is because there is always some fixed cost in the short run)

question

Figure 6.1 shows the cost structure of a firm in a perfectly competitive market. If the market price is $40, the firm's profit-maximizing output level is:
a) 500.
b) 650.
c) 900.
d) 1,200.

answer

c) 900.

question

If the market demand increases for a good sold in a perfectly competitive market, individual firms in the market:
a) will be able to charge a higher price for their product.
b) will need to lower price in order to remain competitive.
c) will not be able to change their price.
d) will begin earning economic losses.

answer

a) will be able to charge a higher price for their product.

question

If average total cost > average variable cost > price, a profit-maximizing firm in a perfectly competitive market should:
a) continue to produce its current output level.
b) shut down in the short run.
c) increase its output level to minimize its loss.
d) None of these

answer

b) shut down in the short run. (below the break-even point)

question

Figure 6.4 represents a perfectly competitive firm's costs. Illustrate the firm's shut-down price on the graph. Explain.

answer

The shutdown price is at the break-even point ($10 at the intersection between the SAVC and the SMC curves). Any price below this price will most likely shut down the firm.

question

Refer to Table 7.1, which shows the relationship between the price that Gladys charges for a product and the quantity of that product that Gladys sells. The marginal revenue that Gladys receives from selling the fifth unit of output is:
a) $5, because that is the price per unit of output that Gladys receives.
b) $5, because that is the quantity that Gladys sells.
c) $25, because Gladys sells five unit of output at a price of $5.
d) $1, because Gladys earns $1 more in revenue by increasing her output to five units from four units.

answer

d) $1, because Gladys earns $1 more in revenue by increasing her output to five units from four units.

question

Suppose that Figure 7.4 shows a monopolist's demand curve, marginal revenue, and its costs. At the profit-maximizing output level, the monopolist's profit would be:
a) $730.
b) $570.
c) $320.
d) $150.

answer

b) (30$35) - (30$16) = $570

question

Which of the following is a characteristic of a monopolistically competitive market?
I.Firms sell differentiated products.
II.Each firm is earning a zero economic profit in the long run.
III.Potential entrants face artificial barriers to entry.

a) I only
b) I and II only
c) II and III only
d) I, II, and III

answer

b) I and II only --> monopolistically competitive market has free entry and exit so III is wrong.

question

If short-run economic profits are greater than zero for firms in a monopolistically competitive market, in the long run we expect:
a) entry barriers to prevent competing firms from entering this market.
b) the demand curve for firms in the market to shift to the right.
c) competing firms to enter the market and sell similar products.
d) profits to increase.

answer

c) competing firms to enter the market and sell similar products. --> monopolistically competitive market has free entry and exit.

question

In general, the quantity of output in an oligopoly market is:
a) lower than in perfect competition.
b) higher than in perfect competition.
c) the same as in perfect competition.
d) The answer depends on the shape of the average cost curve.

answer

a) lower than in perfect competition. --> everything is less than in perfect competition

1 of 18

question

Suppose that the elasticity of demand for a product is 4.0 and quantity demanded increases by 20%. What must the percentage decrease in price have been?
a) 5%
b) 20%
c) 80%
d) 200%

answer

a) 5%

question

answer

c) 1

question

answer

d) at least one factor of production is fixed.

question

Refer to Figure 5.2, which shows a family of average cost curves. The average variable cost curve is represented by:
a) Curve 1.
b) Curve 2.
c) Curve 3.
d) the vertical sum of curve 2 and curve 3.

answer

b) Curve 2.

question

Refer to Figure 5.2, which shows a family of average cost curves. The average fixed cost curve is represented by:
a) Curve 1.
b) Curve 2.
c) Curve 3.
d) the vertical sum of curve 2 and curve 3.

answer

c) Curve 3.

question

answer

c) the vertical sum of Curve 2 and Curve 3 at a given level of output.

question

Figure 5.3 presents a firm's marginal cost, average total cost, and average variable cost curves. The firm minimizes average total costs by producing ________ units.
a) 50
b) 100
c) 150
d) 200

answer

c) 150

question

Figure 5.4 shows a firm's marginal cost, average total cost, and average variable cost curves. At Q = 50, the total cost is:
a) $2,100.
b) $2,800.
c) $4,500.
d) $6,300.

answer

c) $4,500.

question

answer

c) total costs are positive when output is zero implying fixed costs.
(This is because there is always some fixed cost in the short run)

question

Figure 6.1 shows the cost structure of a firm in a perfectly competitive market. If the market price is $40, the firm's profit-maximizing output level is:
a) 500.
b) 650.
c) 900.
d) 1,200.

answer

c) 900.

question

answer

a) will be able to charge a higher price for their product.

question

answer

b) shut down in the short run. (below the break-even point)

question

Figure 6.4 represents a perfectly competitive firm's costs. Illustrate the firm's shut-down price on the graph. Explain.

answer

The shutdown price is at the break-even point ($10 at the intersection between the SAVC and the SMC curves). Any price below this price will most likely shut down the firm.

question

answer

d) $1, because Gladys earns $1 more in revenue by increasing her output to five units from four units.

question

answer

b) (30$35) - (30$16) = $570

question

answer

b) I and II only --> monopolistically competitive market has free entry and exit so III is wrong.

question

answer

c) competing firms to enter the market and sell similar products. --> monopolistically competitive market has free entry and exit.

question

answer

a) lower than in perfect competition. --> everything is less than in perfect competition

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Exam 2 – Practice Quiz 1

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