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Econ 102 PSU Altoona Exam With Complete Solutions
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Monopolists set prices
a. On the marginal revenue curve.
b. Without constraints since there is no competition.
c. At the output where marginal revenue equals marginal cost.
d. At the minimum of the long-run average total cost curve. - ANSWER At the output where marginal revenue equals marginal cost.
Local telephone and utility services are usually: - ANSWER Regulated by various government units to restrain their market power.
Suppose a monopoly concrete contractor sells 20 basements for $15,000 each. To sell 21 basements, it must cut the price of basements to $14,000. The marginal revenue of the 21st basement is: - ANSWER $-6000.
If a perfectly competitive firm can sell 200 computers at $700 each, to sell one more computer, the firm: - ANSWER Can sell the 201st computer at $700.
The entry of additional firms into a market, ceteris paribus: - ANSWER Shifts the market supply curve to the right.
Decreases the equilibrium price.
Forces the typical producer to decrease output.
**All other choices.
In the short run, a perfectly competitive profit maximizing firm that has not shut down - ANSWER is operating on the upward-sloping portion of its AVC curve.
Which of the following statements is false? - ANSWER If the MC curve is rising, the AVC curve must be rising
Which of the following is characteristic of a perfectly competitive market? - ANSWER Zero economic profit in the long run.
If MC for a competitive firm is above the market price, the firm should - ANSWER reduce the level of output.
As the level of output rises from Q1 to Q2 - ANSWER the change in ATC is less than the change in AVC.
If a factory has a short-run capacity constraint-such as an auto plant that can only produce 800 cars a day at maximum capacity-the marginal cost of production becomes ________ at the capacity constraint. - ANSWER infinite
A natural monopoly exists when - ANSWER economies of scale are so large that only one firm can survive and achieve low unit costs.
Which of the following is characteristic of the monopoly firm? - ANSWER It produces the quantity of output at which MR = MC.
The market demand curve in a perfectly competitive market is - ANSWER downward sloping.
For a perfectly competitive firm, - ANSWER -price equals marginal revenue only for the first unit of --the good produced and sold.
-only if it is cheaper could more units of that good be sold.
demand is perfectly inelastic.
*****none of the other choices
which - ANSWER price equals average total cost.
In making a production decision, an entrepreneur: - ANSWER Decides the short-run rate of output.
Which of the following is characteristic of a perfectly competitive market? - ANSWER Identical products.
Suppose your firm operates in a perfectly competitive market and doubles its output. What happens to the firm's marginal profit? - ANSWER Marginal revenue rises but marginal cost does not.
For a perfectly competitive firm, short-run profits are maximized at the rate of output where: - ANSWER Price equals marginal cost.
At the profit-maximizing level of output, what is relationship between the total revenue TR and total cost TC curves? - ANSWER They must have the same slope.
A market comes close to meeting but does not perfectly meet all the assumptions of the theory of perfect competition. It follows that - ANSWER the theory of perfect competition still may be able to predict behavior in the market.
Which of the following is true about the demand curve confronting a competitive firm? - ANSWER Horizontal, while market demand is downward-sloping.
Which of the following is true? - ANSWER At some high level of output, AFC is zero.
Correct Answer The MC curve is eventually upward-sloping.****
The marginal cost curve cuts the average variable cost curve at its midpoint.
There are no fixed costs in the short run.
If the law of diminishing returns applies to labor then - ANSWER the MPP of labor will
eventually fall.
At the profit-maximizing level of output, marginal profit - ANSWER is zero.
If a monopoly firm produces the quantity of output at which MR = MC,it necessarily - ANSWER maximizes its profit or minimizes its loss
If, for a perfectly competitive firm, price is greater than average variable cost, then it follows that - ANSWER total revenue is greater than total variable cost.
When a firm minimizes its losses in the short run,
A. It continues to produce only if price exceeds average variable cost.
B. The firm makes an investment decision.
C. The firm enters or exits from the market.
D. It continues to produce only if price exceeds marginal revenue. - ANSWER It continues to produce only if price exceeds average variable cost.
Which of the following is NOT true regarding monopoly? - ANSWER Monopoly is the sole producer in the market.
Monopoly price is determined from the demand curve.
Correct Answer Monopolist can charge as high a price as it likes.*****
Monopoly demand curve is downward sloping.
Technological advances tend to: - ANSWER ATC to shift down.
MC to shift down.
Output to increase.
Correct! All of the above choices.****
A farmer is using M units of machinery and L hours of labor to produce C tons of corn.
An industry is a natural monopoly when - ANSWER a single firm can supply a good or service to an entire market at a lower cost than could two or more firms
Suppose that a monopoly firm manufactures tables and is able to sell 10 tables per month at a price of $400 per table. To sell one more table per month, the monopolist must cut the price of its tables by $30 to $370 per table. The marginal revenue of the eleventh table is: - ANSWER $70.
A price-taker firm will not sell any of its product at less than equilibrium price because - ANSWER it can sell all it wants at equilibrium price.
Which of the following is a barrier to entry in a monopoly market? - ANSWER Difficulty in obtaining resources.
A monopolist can sell 3,000 units at a price of $48. Lowering price by $3 raises the quantity demanded by 400 units. What is the change in total revenue that results from this price change? - ANSWER $9,
Which of the following is a barrier to entry into a monopoly market? - ANSWER Economies of scale.
If a perfectly competitive firm wished to maximize its total revenues, it would produce: - ANSWER As much as it is capable of producing.
Which of the following does NOT represent a legal barrier to entry? - ANSWER exclusive ownership of raw materials
If a perfectly competitive firm is earning negative economic profit in the short run - ANSWER it is on the upward-sloping portion of its AVC.
Suppose your firm has a U-shaped average variable cost curve and operates in a
perfectly competitive market. If you produce where the product price (marginal revenue) equals average variable cost (on the upward sloping portion of the AVC curve), then your output will: - ANSWER exceed the profit-maximizing level of output.
Ultimately, market supply curves are upward sloping because of - ANSWER the law of diminishing marginal returns.
In the model of perfect competition, the firm's marginal revenue curve is - ANSWER the same as the firm's demand curve.
Joe owns a coffee shop and produces coffee drinks with the production function q = 5KL where q is the units of output per hour, K is the number of coffee machines (capital), and L is the number of workers hired per hour (labour). What is the average product of labour? - ANSWER AP = 5K
In a perfectly competitive market economy, business failures can benefit society by causing: - ANSWER A reallocation of resources to better uses.
In monopoly and perfect competition, a firm should expand production when: - ANSWER Marginal revenue is above marginal cost.
Which of the following is the same for monopoly and competition under the same cost and demand conditions? - ANSWER The goal of maximizing profits.
A firm never operates - ANSWER on the downward-sloping portion of its AVC curve.
The perfectly competitive firm will produce in the - ANSWER short run if P>AVC
Since price __________ for a monopoly firm, the profit-maximizing monopoly firm does not produce the quantity of output for which price equals marginal cost. - ANSWER does not equal marginal revenue
costs of the firm.
What happens in a perfectly competitive industry when economic profit is greater than zero? - ANSWER Existing firms may get larger.
New firms may enter the industry.
Firms may move along their LRAC curves to new outputs.
There could be downward pressure on prices.
Correct! Everything else might happen.*******
Ronny's Pizza House sells pizzas in the perfectly competitive local pizza market. If the price of pizza cheese rises (and other things held constant), what should happen to Ronny's profitmaximizing output decision? - ANSWER Output decreases because the marginal cost curve shifts upward
Under which of the following circumstances would a firm leave a market? - ANSWER P < long-run ATC.
Consider the following statements when answering this question; I. A firm's marginal cost curve does not depend on the level of fixed costs. II. As output increases the difference between a firm's average total cost and average variable cost curves cannot rise. - ANSWER I and II are both true.
Which of the following statement is true? - ANSWER Economies of scale cause increasing returns to scale.
Correct Answer Increasing returns to scale cause economies of scale.*******
There are no causal relation between economies of scale and increasing returns to scale
Increasing returns to scale is due to the sharing of fixed costs by more units of output.
