exam 3 review questions

question

Monopolies use their market power to

answer

charge a price that is higher than marginal cost.

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A monopoly chooses to supply the market with a quantity of goods that is determined by the intersection of the

answer

marginal revenue and marginal cost curves.

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A monopolist produces

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less than the socially efficient quantity of output, but at a higher price than in a competitive market.

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A purely competitive firm is producing at the point where its marginal cost equals the price of its product. If the firm increases its output, then total revenue will:

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increase and profits will decrease.

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A firm should always continue to operate at a loss in the short run if:

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it can cover its variable costs and some of its fixed costs.

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Which is true of price discrimination?

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Successful price discrimination will provide the firm with more profit than if it did not discriminate.

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Suppose that a business incurred implicit costs of $800,000 and explicit costs of $2.7 million in a specific year. If the firm sold 10,000 units of its output at $300 per unit, its accounting profits were:

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$300,000 and its economic loss was $500,000

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The basic difference between the short run and the long run is that:

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

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Which of the following best expresses the law of diminishing returns?

answer

As successive amounts of one resource (such as labor) are added to fixed amounts of other resources (such as property), beyond some point the resulting extra output will decline.

question

For a large firm that produces and sells automobiles, which of the following costs would be a variable cost?

answer

The cost of the steel that is used in producing automobiles

question

Technological advance improves productivity in all firms in a purely competitive industry. This change will result in a(n):

answer

increase in the short-run supply curve for a firm in the industry.

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When product price is below average variable cost, a firm in a competitive market will

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shut down and incur fixed costs.

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Suppose the firm is a pure monopolist in the production of good X. Suppose further that the price of the variable input labor rises. As a result the profit maximizing monopolist will have an incentive to

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increase the price of X and decrease the quantity of X produced.

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Explicit costs

answer

require an outlay of money by the firm.

question

For a profit-maximizing monopolist, the firm selects the output where

answer

P > MR = MC.

question

In long-run equilibrium under conditions of pure competition and productive (technical) efficiency, all firms produce at minimum:

answer

average total cost.

question

In order to sell more of its product, a monopolist must

answer

lower its price.

question

A natural monopoly occurs when

answer

there are economies of scale over the relevant range of output.

question

If a firm decides to produce no output in the short run, its costs will be:

answer

its fixed costs.

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Average total cost is increasing whenever

answer

marginal cost is greater than average total cost.

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Which of the following statements is correct?

answer

The demand curve for a purely competitive firm is perfectly elastic, but the demand curve for a purely competitive industry is downsloping.

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Average total cost is equal to

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total cost/output.

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Marginal cost tells us the

answer

amount by which total cost rises when the output is increased by one unit.

question

In pure competition, price is determined where the industry (market):

answer

demand and supply curves intersect.

question

Successful price discrimination requires that:

answer

buyers with inelastic demand be charged higher prices than buyers with elastic demand.

question

Profit-maximizing firms enter a competitive market when, for existing firms in that market,

answer

price exceeds average total cost

question

The intersection of a firm's marginal revenue and marginal cost curves determines the level of output at which

answer

total profit is maximized.

question

In a competitive market, the actions of any single buyer or seller will

answer

have no impact on the market price

question

A competitive firm's marginal cost curve is regarded as its supply curve because

answer

the marginal cost curve determines the quantity of output the firm is willing to supply at any price

question

When buyers in a competitive market take the selling price as given, they are said to be

answer

price takers

1 of 30

question

Monopolies use their market power to

answer

charge a price that is higher than marginal cost.

question

A monopoly chooses to supply the market with a quantity of goods that is determined by the intersection of the

answer

marginal revenue and marginal cost curves.

question

A monopolist produces

answer

less than the socially efficient quantity of output, but at a higher price than in a competitive market.

question

A purely competitive firm is producing at the point where its marginal cost equals the price of its product. If the firm increases its output, then total revenue will:

answer

increase and profits will decrease.

question

A firm should always continue to operate at a loss in the short run if:

answer

it can cover its variable costs and some of its fixed costs.

question

Which is true of price discrimination?

answer

Successful price discrimination will provide the firm with more profit than if it did not discriminate.

question

answer

$300,000 and its economic loss was $500,000

question

The basic difference between the short run and the long run is that:

answer

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

question

Which of the following best expresses the law of diminishing returns?

answer

As successive amounts of one resource (such as labor) are added to fixed amounts of other resources (such as property), beyond some point the resulting extra output will decline.

question

For a large firm that produces and sells automobiles, which of the following costs would be a variable cost?

answer

The cost of the steel that is used in producing automobiles

question

Technological advance improves productivity in all firms in a purely competitive industry. This change will result in a(n):

answer

increase in the short-run supply curve for a firm in the industry.

question

When product price is below average variable cost, a firm in a competitive market will

answer

shut down and incur fixed costs.

question

answer

increase the price of X and decrease the quantity of X produced.

question

Explicit costs

answer

require an outlay of money by the firm.

question

For a profit-maximizing monopolist, the firm selects the output where

answer

P > MR = MC.

question

In long-run equilibrium under conditions of pure competition and productive (technical) efficiency, all firms produce at minimum:

answer

average total cost.

question

In order to sell more of its product, a monopolist must

answer

lower its price.

question

A natural monopoly occurs when

answer

there are economies of scale over the relevant range of output.

question

If a firm decides to produce no output in the short run, its costs will be:

answer

its fixed costs.

question

Average total cost is increasing whenever

answer

marginal cost is greater than average total cost.

question

Which of the following statements is correct?

answer

The demand curve for a purely competitive firm is perfectly elastic, but the demand curve for a purely competitive industry is downsloping.

question

Average total cost is equal to

answer

total cost/output.

question

Marginal cost tells us the

answer

amount by which total cost rises when the output is increased by one unit.

question

In pure competition, price is determined where the industry (market):

answer

demand and supply curves intersect.

question

Successful price discrimination requires that:

answer

buyers with inelastic demand be charged higher prices than buyers with elastic demand.

question

Profit-maximizing firms enter a competitive market when, for existing firms in that market,

answer

price exceeds average total cost

question

The intersection of a firm's marginal revenue and marginal cost curves determines the level of output at which

answer

total profit is maximized.

question

In a competitive market, the actions of any single buyer or seller will

answer

have no impact on the market price

question

A competitive firm's marginal cost curve is regarded as its supply curve because

answer

the marginal cost curve determines the quantity of output the firm is willing to supply at any price

question

When buyers in a competitive market take the selling price as given, they are said to be

answer

price takers

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exam 3 review questions

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