Microeconomics Test 3: practice Questions

question

Assume the market for cage-free eggs is perfectly competitive. All else equal, as farmers find it less profitable to produce and sell cage-free eggs in this market

answer

the supply curve will shift to the left and the equilibrium price will increase.

question

Which of the following is not a characteristic of a perfectly competitive market structure?

answer

There are restrictions on exit of firms

question

Which of the following is not a characteristic of a monopolistically competitive market structure?

answer

Each firm must react to actions of other firms

question

Which of the following is a characteristic of a monopoly?

answer

There is only one seller in the market.

question

Perfect competition is characterized by all of the following except

answer

heavy advertising by individual sellers.

question

A very large number of small sellers who sell identical products imply

answer

the inability of one seller to influence price.

question

Which of the following is the best example of a perfectly competitive industry?
A) airplane production B) wheat production C) electricity production D) steel production

answer

wheat production

question

The price of a seller's product in perfect competition is determined by

answer

market demand and market supply.

question

Both individual buyers and sellers in perfect competition

answer

have to take the market price as a given.

question

Suppose the equilibrium price in a perfectly competitive industry is $15 and a firm in the industry charges $21. Which of the following will happen?

answer

The firm will not sell any output.

question

The price a perfectly competitive firm receives for its output

answer

is determined by the interaction of all sellers and all buyers in the firm's market

question

Which of the following is the best example of a perfectly competitive firm?

answer

a corn farmer in Illinois

question

A wheat farmer and a firm in a perfectly competitive market are similar in that

answer

both face horizontal demand curves.

question

If the market price is $25, the average revenue of selling five units is

answer

$25

question

If the market price is $25 in a perfectly competitive market, the marginal revenue from selling the fifth unit is

answer

$25

question

Which of the following is not true for a firm in perfect competition?

answer

Average revenue is greater than marginal revenue.

question

A perfectly competitive firm produces 3,000 units of a good at a total cost of $36,000. The price of each good is $10. Calculate the firm's short-run profit or loss.

answer

loss of $6,000

question

In a graph that illustrates a perfectly competitive firm, marginal revenue is

answer

the same as the firm's demand curve.

question

For a firm in a perfectly competitive market, price is

answer

equal to both average revenue and marginal revenue.

question

For a perfectly competitive firm, at profit maximization

answer

marginal revenue equals marginal cost

question

Refer to Figure 12-3. Suppose the prevailing price is P1 and the firm is currently producing its loss-minimizing quantity. Identify the area that represents the loss.

answer

P3cbP1

question

If a perfectly competitive firm's price is less than its average total cost but greater than its average variable cost, the firm

answer

is incurring a loss

question

Refer to Figure 12-4. If the market price is $30, the firm's profit-maximizing output level is

answer

180

question

Refer to Figure 12-4. If the market price is $30, should the firm represented in the diagram continue to stay in business?

answer

Yes, because it is covering part of its fixed cost.

question

Refer to Figure 12-5. If the market price is $20, what is the firm's profit-maximizing output?

answer

1,350 units

question

Refer to Figure 12-5. If the market price is $20, what is the amount of the firm's profit?

answer

$6,750

question

If, for a given output level, a perfectly competitive firm's price is less than its average variable cost, the firm

answer

should shut down.

question

A perfectly competitive firm's supply curve is its

answer

marginal cost curve above its minimum average variable cost

question

Refer to Figure 12-9. At price P1, the firm would produce

answer

zero units.

question

Refer to Figure 12-9. At price P1, the firm would

answer

lose an amount more than fixed cost

question

Refer to Figure 12-9. At price P3, the firm would

answer

break even

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Refer to Figure 12-9. At price P4, the firm would

answer

make a profit.

question

Which of the following characteristics is common to monopolistic competition and perfect competition?

answer

Entry barriers into the industry are low.

question

A major difference between monopolistic competition and perfect competition is

answer

that products are not standardized in monopolistic competition unlike in perfect competition.

question

The key characteristics of a monopolistically competitive market structure include

answer

sellers selling similar but differentiated products

question

In monopolistic competition there is/are

answer

many sellers who each face a downward-sloping demand curve

question

Which of the following is true for a firm with a downward-sloping demand curve for its product?

answer

Price equals average revenue but is greater than marginal revenue.

question

A monopolistically competitive firm faces a downward-sloping demand curve because

answer

of product differentiation.

question

A monopolistically competitive firm will

answer

have some control over its price because its product is differentiated

question

Which of the following is true of a typical firm in a monopolistically competitive industry?

answer

Each firm acts independently.

question

For a monopolistically competitive firm, marginal revenue

answer

is less than the price

question

Refer to Table 13-1. What is the marginal revenue of the 3rd unit?

answer

$5.50

question

Refer to Figure 13-1. The marginal revenue from the increase in price from P0 to P1 equals

answer

the area (A - D)

question

Refer to Figure 13-2. The marginal revenue from selling the additional unit Qb instead of Qa equals

answer

the area (H - E)

question

Which of the following characterizes the market that Chipotle competes in?

answer

Barriers to entry are low

question

Because the monopolistically competitive firm faces a ________ demand curve for its product, it ________ the price of its output.

answer

downward-sloping; can influence

question

What is the profit-maximizing rule for a monopolistically competitive firm?

answer

to produce a quantity such that marginal revenue equals marginal cost

question

Refer to Figure 13-4. If the firm represented in the diagram is currently producing and selling Qa units, what is the price charged?

answer

question

Refer to Figure 13-4.What is the area that represents the total revenue made by the firm?

answer

0P2cQa

question

Refer to Figure 13-4.What is the area that represents the loss made by the firm?

answer

the area P2cdP3

question

A monopolistically competitive industry that earns economic profits in the short run will

answer

experience the entry of new rival firms into the industry in the long run.

question

In the long run, if price is less than average cost

answer

there is an incentive for firms to exit the market.

question

Assuming that the total market size remains constant, a monopolistically competitive firm earning profits in the short run will find the demand for its product decreasing in the long run because

answer

some of its customers have switched to purchasing the products of new entrants in the market.

question

You are planning to open a new Italian restaurant in your hometown where there are three other Italian restaurants. You plan to distinguish your restaurant from your competitors by offering northern Italian cuisine and using locally grown organic produce. What is likely to happen in the restaurant market in your hometown after you open?

answer

The demand curve facing each restaurant owner becomes more elastic.

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A monopolistically competitive firm earning profits in the short run will find the demand for its product decreasing and becoming more elastic in the long run as new firms move into the industry until

answer

the firm's demand curve is tangent to its average total cost curve.

question

If a typical monopolistically competitive firm is making short-run losses, then

answer

as some firms leave, the remaining firms will experience an increase in the demand for their products

question

Refer to Figure 13-11. What is the monopolistic competitor's profit maximizing output?

answer

Q2 units

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Refer to Figure 13-11. What is the monopolistic competitor's profit maximizing price?

answer

question

Refer to Figure 13-11. The firm represented in the diagram

answer

makes zero economic profit.

question

Refer to Figure 13-11. What is the amount of excess capacity?

answer

Q4 - Q2 units

question

Refer to Figure 13-11. The diagram depicts a firm

answer

in long-run equilibrium

question

Why do most firms in monopolistic competition typically make zero profit in the long run?

answer

because the lack of entry barriers would compete away profits

question

The reason that the Fisherman's Friend restaurant in Stonington, Maine had a monopoly on selling seafood dinners in that town is most likely due to

answer

no competitors apparently found the profit level attractive enough to enter the market

question

A monopoly is a seller of a product

answer

without a close substitute.

question

In Walnut Creek, California, there are three very popular supermarkets: Safeway, Whole Foods, and Lunardi's. While Safeway remains open twenty-four hours a day, Whole Foods and Lunardi's close at 9 pm. Which of the following statements is true?

answer

Safeway has a monopoly at midnight but not during the day

question

A monopoly is characterized by all of the following except

answer

there are only a few sellers, each selling a unique product.

question

Peet's Coffee and Teas produces some flavorful varieties of Peet's brand coffee. Is Peet's a monopoly?

answer

No, although Peet's coffee is a unique product, there are many different brands of coffee that are very close substitutes

question

A firm that has the ability to control to some degree the price of the product it sells

answer

is a price maker

question

A monopolist faces

answer

a downward-sloping demand curve.

question

Compared to a monopolistic competitor, a monopolist faces

answer

a more inelastic demand curve.

question

A monopoly differs from monopolistic competition in that

answer

in a monopoly there are significant entry barriers but there are low barriers to entry in a monopolistically competitive market structure.

question

Which of the following is a characteristic shared by a perfectly competitive firm and a monopoly?

answer

Each maximizes profits by producing a quantity for which marginal revenue equals marginal cost.

question

A local electricity-generating company has a monopoly that is protected by an entry barrier that takes the form of

answer

economies of scale

question

A patent or copyright is a barrier to entry based on

answer

government action to protect a producer.

question

A United States government patent lasts

answer

20 years.

question

The demand curve for a monopoly's product is

answer

the market demand for the product

question

A monopolist's profit-maximizing price and output correspond to the point on a graph

answer

where marginal revenue equals marginal cost and charging the price on the market demand curve for that output.

question

Because a monopoly's demand curve is the same as the market demand curve for its product

answer

the monopoly must lower its price to sell more of its product.

question

Refer to Figure 15-2. To maximize profit, the firm will produce at output level

answer

Q2.

question

Refer to Figure 15-2. The firm's profit-maximizing price is

answer

P3.

question

Refer to Figure 15-2. If the firm's average total cost curve is ATC1, the firm will

answer

make a profit

question

Refer to Figure 15-2. If the firm's average total cost curve is ATC2, the firm will

answer

break even

question

Refer to Figure 15-2. If the firm's average total cost curve is ATC3, the firm will

answer

suffer a loss

question

Which of the following statements applies to a monopolist but not to a perfectly competitive firm at their profit-maximizing outputs?

answer

Marginal revenue is less than price

question

Long-run economic profits would most likely exist in which market structure?

answer

monopoly and oligopoly

question

Refer to Figure 15-3. Suppose the monopolist represented in the diagram above produces positive output. What is the profit-maximizing/loss-minimizing output level?

answer

630 units

question

Refer to Figure 15-3. Suppose the monopolist represented in the diagram above produces positive output. What is the price charged at the profit-maximizing/loss-minimizing output level?

answer

$68

question

Refer to Figure 15-4. What is the profit-maximizing/loss-minimizing output level?

answer

600 units

question

Refer to Figure 15-4. What is the price charged for the profit-maximizing output level?

answer

$34

question

Refer to Figure 15-4. What is the amount of the monopoly's total revenue?

answer

$20,400

question

Refer to Figure 15-4. What is the amount of the monopoly's total cost of production?

answer

$17,700

question

Refer to Figure 15-4. What is likely to happen to this monopoly in the long run?

answer

As long as there are entry barriers, this firm will continue to enjoy economic profits

question

Economic efficiency in a free market occurs when

answer

the sum of consumer surplus and producer surplus is maximized.

question

Refer to Figure 15-9. What is the economically efficient output level?

answer

940 units

question

Refer to Figure 15-9. What is the difference between the monopoly output and the perfectly competitive output?

answer

340 units

question

Refer to Figure 15-9. What is the difference between the monopoly's price and perfectly competitive industry's price?

answer

The monopoly's price is higher by $13.

1 of 96

question

Assume the market for cage-free eggs is perfectly competitive. All else equal, as farmers find it less profitable to produce and sell cage-free eggs in this market

answer

the supply curve will shift to the left and the equilibrium price will increase.

question

Which of the following is not a characteristic of a perfectly competitive market structure?

answer

There are restrictions on exit of firms

question

Which of the following is not a characteristic of a monopolistically competitive market structure?

answer

Each firm must react to actions of other firms

question

Which of the following is a characteristic of a monopoly?

answer

There is only one seller in the market.

question

Perfect competition is characterized by all of the following except

answer

heavy advertising by individual sellers.

question

A very large number of small sellers who sell identical products imply

answer

the inability of one seller to influence price.

question

Which of the following is the best example of a perfectly competitive industry?
A) airplane production B) wheat production C) electricity production D) steel production

answer

wheat production

question

The price of a seller's product in perfect competition is determined by

answer

market demand and market supply.

question

Both individual buyers and sellers in perfect competition

answer

have to take the market price as a given.

question

Suppose the equilibrium price in a perfectly competitive industry is $15 and a firm in the industry charges $21. Which of the following will happen?

answer

The firm will not sell any output.

question

The price a perfectly competitive firm receives for its output

answer

is determined by the interaction of all sellers and all buyers in the firm's market

question

Which of the following is the best example of a perfectly competitive firm?

answer

a corn farmer in Illinois

question

A wheat farmer and a firm in a perfectly competitive market are similar in that

answer

both face horizontal demand curves.

question

If the market price is $25, the average revenue of selling five units is

answer

$25

question

If the market price is $25 in a perfectly competitive market, the marginal revenue from selling the fifth unit is

answer

$25

question

Which of the following is not true for a firm in perfect competition?

answer

Average revenue is greater than marginal revenue.

question

A perfectly competitive firm produces 3,000 units of a good at a total cost of $36,000. The price of each good is $10. Calculate the firm's short-run profit or loss.

answer

loss of $6,000

question

In a graph that illustrates a perfectly competitive firm, marginal revenue is

answer

the same as the firm's demand curve.

question

For a firm in a perfectly competitive market, price is

answer

equal to both average revenue and marginal revenue.

question

For a perfectly competitive firm, at profit maximization

answer

marginal revenue equals marginal cost

question

Refer to Figure 12-3. Suppose the prevailing price is P1 and the firm is currently producing its loss-minimizing quantity. Identify the area that represents the loss.

answer

P3cbP1

question

If a perfectly competitive firm's price is less than its average total cost but greater than its average variable cost, the firm

answer

is incurring a loss

question

Refer to Figure 12-4. If the market price is $30, the firm's profit-maximizing output level is

answer

180

question

Refer to Figure 12-4. If the market price is $30, should the firm represented in the diagram continue to stay in business?

answer

Yes, because it is covering part of its fixed cost.

question

Refer to Figure 12-5. If the market price is $20, what is the firm's profit-maximizing output?

answer

1,350 units

question

Refer to Figure 12-5. If the market price is $20, what is the amount of the firm's profit?

answer

$6,750

question

If, for a given output level, a perfectly competitive firm's price is less than its average variable cost, the firm

answer

should shut down.

question

A perfectly competitive firm's supply curve is its

answer

marginal cost curve above its minimum average variable cost

question

Refer to Figure 12-9. At price P1, the firm would produce

answer

zero units.

question

Refer to Figure 12-9. At price P1, the firm would

answer

lose an amount more than fixed cost

question

Refer to Figure 12-9. At price P3, the firm would

answer

break even

question

Refer to Figure 12-9. At price P4, the firm would

answer

make a profit.

question

Which of the following characteristics is common to monopolistic competition and perfect competition?

answer

Entry barriers into the industry are low.

question

A major difference between monopolistic competition and perfect competition is

answer

that products are not standardized in monopolistic competition unlike in perfect competition.

question

The key characteristics of a monopolistically competitive market structure include

answer

sellers selling similar but differentiated products

question

In monopolistic competition there is/are

answer

many sellers who each face a downward-sloping demand curve

question

Which of the following is true for a firm with a downward-sloping demand curve for its product?

answer

Price equals average revenue but is greater than marginal revenue.

question

A monopolistically competitive firm faces a downward-sloping demand curve because

answer

of product differentiation.

question

A monopolistically competitive firm will

answer

have some control over its price because its product is differentiated

question

Which of the following is true of a typical firm in a monopolistically competitive industry?

answer

Each firm acts independently.

question

For a monopolistically competitive firm, marginal revenue

answer

is less than the price

question

Refer to Table 13-1. What is the marginal revenue of the 3rd unit?

answer

$5.50

question

Refer to Figure 13-1. The marginal revenue from the increase in price from P0 to P1 equals

answer

the area (A - D)

question

Refer to Figure 13-2. The marginal revenue from selling the additional unit Qb instead of Qa equals

answer

the area (H - E)

question

Which of the following characterizes the market that Chipotle competes in?

answer

Barriers to entry are low

question

Because the monopolistically competitive firm faces a ________ demand curve for its product, it ________ the price of its output.

answer

downward-sloping; can influence

question

What is the profit-maximizing rule for a monopolistically competitive firm?

answer

to produce a quantity such that marginal revenue equals marginal cost

question

Refer to Figure 13-4. If the firm represented in the diagram is currently producing and selling Qa units, what is the price charged?

answer

question

Refer to Figure 13-4.What is the area that represents the total revenue made by the firm?

answer

0P2cQa

question

Refer to Figure 13-4.What is the area that represents the loss made by the firm?

answer

the area P2cdP3

question

A monopolistically competitive industry that earns economic profits in the short run will

answer

experience the entry of new rival firms into the industry in the long run.

question

In the long run, if price is less than average cost

answer

there is an incentive for firms to exit the market.

question

Assuming that the total market size remains constant, a monopolistically competitive firm earning profits in the short run will find the demand for its product decreasing in the long run because

answer

some of its customers have switched to purchasing the products of new entrants in the market.

question

answer

The demand curve facing each restaurant owner becomes more elastic.

question

answer

the firm's demand curve is tangent to its average total cost curve.

question

If a typical monopolistically competitive firm is making short-run losses, then

answer

as some firms leave, the remaining firms will experience an increase in the demand for their products

question

Refer to Figure 13-11. What is the monopolistic competitor's profit maximizing output?

answer

Q2 units

question

Refer to Figure 13-11. What is the monopolistic competitor's profit maximizing price?

answer

question

Refer to Figure 13-11. The firm represented in the diagram

answer

makes zero economic profit.

question

Refer to Figure 13-11. What is the amount of excess capacity?

answer

Q4 - Q2 units

question

Refer to Figure 13-11. The diagram depicts a firm

answer

in long-run equilibrium

question

Why do most firms in monopolistic competition typically make zero profit in the long run?

answer

because the lack of entry barriers would compete away profits

question

The reason that the Fisherman's Friend restaurant in Stonington, Maine had a monopoly on selling seafood dinners in that town is most likely due to

answer

no competitors apparently found the profit level attractive enough to enter the market

question

A monopoly is a seller of a product

answer

without a close substitute.

question

answer

Safeway has a monopoly at midnight but not during the day

question

A monopoly is characterized by all of the following except

answer

there are only a few sellers, each selling a unique product.

question

Peet's Coffee and Teas produces some flavorful varieties of Peet's brand coffee. Is Peet's a monopoly?

answer

No, although Peet's coffee is a unique product, there are many different brands of coffee that are very close substitutes

question

A firm that has the ability to control to some degree the price of the product it sells

answer

is a price maker

question

A monopolist faces

answer

a downward-sloping demand curve.

question

Compared to a monopolistic competitor, a monopolist faces

answer

a more inelastic demand curve.

question

A monopoly differs from monopolistic competition in that

answer

in a monopoly there are significant entry barriers but there are low barriers to entry in a monopolistically competitive market structure.

question

Which of the following is a characteristic shared by a perfectly competitive firm and a monopoly?

answer

Each maximizes profits by producing a quantity for which marginal revenue equals marginal cost.

question

A local electricity-generating company has a monopoly that is protected by an entry barrier that takes the form of

answer

economies of scale

question

A patent or copyright is a barrier to entry based on

answer

government action to protect a producer.

question

A United States government patent lasts

answer

20 years.

question

The demand curve for a monopoly's product is

answer

the market demand for the product

question

A monopolist's profit-maximizing price and output correspond to the point on a graph

answer

where marginal revenue equals marginal cost and charging the price on the market demand curve for that output.

question

Because a monopoly's demand curve is the same as the market demand curve for its product

answer

the monopoly must lower its price to sell more of its product.

question

Refer to Figure 15-2. To maximize profit, the firm will produce at output level

answer

Q2.

question

Refer to Figure 15-2. The firm's profit-maximizing price is

answer

P3.

question

Refer to Figure 15-2. If the firm's average total cost curve is ATC1, the firm will

answer

make a profit

question

Refer to Figure 15-2. If the firm's average total cost curve is ATC2, the firm will

answer

break even

question

Refer to Figure 15-2. If the firm's average total cost curve is ATC3, the firm will

answer

suffer a loss

question

Which of the following statements applies to a monopolist but not to a perfectly competitive firm at their profit-maximizing outputs?

answer

Marginal revenue is less than price

question

Long-run economic profits would most likely exist in which market structure?

answer

monopoly and oligopoly

question

Refer to Figure 15-3. Suppose the monopolist represented in the diagram above produces positive output. What is the profit-maximizing/loss-minimizing output level?

answer

630 units

question

Refer to Figure 15-3. Suppose the monopolist represented in the diagram above produces positive output. What is the price charged at the profit-maximizing/loss-minimizing output level?

answer

$68

question

Refer to Figure 15-4. What is the profit-maximizing/loss-minimizing output level?

answer

600 units

question

Refer to Figure 15-4. What is the price charged for the profit-maximizing output level?

answer

$34

question

Refer to Figure 15-4. What is the amount of the monopoly's total revenue?

answer

$20,400

question

Refer to Figure 15-4. What is the amount of the monopoly's total cost of production?

answer

$17,700

question

Refer to Figure 15-4. What is likely to happen to this monopoly in the long run?

answer

As long as there are entry barriers, this firm will continue to enjoy economic profits

question

Economic efficiency in a free market occurs when

answer

the sum of consumer surplus and producer surplus is maximized.

question

Refer to Figure 15-9. What is the economically efficient output level?

answer

940 units

question

Refer to Figure 15-9. What is the difference between the monopoly output and the perfectly competitive output?

answer

340 units

question

Refer to Figure 15-9. What is the difference between the monopoly's price and perfectly competitive industry's price?

answer

The monopoly's price is higher by $13.

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Microeconomics Test 3: practice Questions

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