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  1. The overuse of a common resource can be reduced by which of the following?
    a. a Pigouvian tax
    b. government regulations
    c. tradable licenses
    d. the assignment of property rights
    e. all of the above
  2. In the short run, if a monopolistically competitive firm has an average cost curve that lies above the demand curve, then the firm is:

    A. breaking even.
    B. making a loss.
    C. making positive economic profits.
    D. making zero economic profits.
  3. Firms that engage in cooperative in an industry behavior rather than non-cooperative behavior:

    A. produce more output.
    B. earn more profit.
    C. charge lower prices.
    D. act like perfect competitors.
  4. For any given firm in a monopolistically competitive market, the long run economic profit tends to be __________ and firms operate to the ____________ of the minimum point on the average total cost curve.

    A. positive; left
    B. negative; right
    C. negative; right
    D. zero; left
  5. The slope of the total cost curve equals
    a. variable cost.
    b. average variable cost.
    c. average total cost.
    d. average fixed cost.
    e. marginal cost.
  6. Oligopolists that have restrictions on productive capacity divide the market between themselves and charge prices greater than marginal costs. In this case they engage in:

    A. Betrand behavior.
    B. price competition.
    C. Cournot behavior.
    D. quality competition.
  7. The short-run individual supply curve of the perfectly competitive firm is:

    A. the upward-sloping portion of its average variable cost curve.
    B. its average total cost curve.
    C. its marginal cost curve above average variable cost.
    D. its marginal cost curve above average total cost.
  8. Suppose a farmer in Nebraska incurs $8,700 in crop damage from sparks that are created when a local railroad company sends trains along tracks bordering the farm. This damage can be best described as:

    A. a negative externality.
    B. a positive externality.
    C. a transaction cost.
    D. a social benefit.
  9. Which of the following is an example of an artificially scarce good?

    A. a public beach to which individuals have free access
    B. a busy city street
    C. a weather forecast provided only to those who pay for the service
    D. public restrooms provided free of charge
  10. Which of the following is the best example of a public good?

    A. inoculation against a contagious disease
    B. taxi service
    C. a city bus
    D. a flood control dam
  11. Suppose a monopoly firm has a constant marginal cost equal to $10. Its demand and marginal revenue curves are given respectively by the equations P = 86-2Q and MR = 86-4Q. For this firm, the profit-maximizing price and output levels are:

    A. P = $48; Q = 19
    B. P = $43; Q = 17
    C. P = $43; Q = 10
    D. P = $21.50; Q = 5
  12. The firm is earning a
    a. profit equal to $5.
    b. profit equal to $250.
    c. loss equal to $15.
    d. loss equal to $750.
    e. loss equal to $250.
  13. When firms cooperate to raise their joint profits, they are necessarily
    a. colluding.
    b. in a cartel.
    c. a monopoly.
    d. in a duopoly.
    e. in a competitive industry.
  14. Which of the following is true of monopolistic competition but is not true of perfect competition?

    A. Each firm distinguishes its product from that of its competitors.
    B. The firm engages in marginal cost pricing.
    C. The firm produces at the point where average total cost is minimized.
    D. There are significant barriers to the entry of new firms in the industry.
  15. Property rights will help ensure efficient use of a common resource like fisheries, since:

    A. property rights can be used to make a good excludable.
    B. property rights can be used to make a good nonrival.
    C. property rights will eliminate any negative externality arising from the use of a resource.
    D. the marginal social cost will be reduced.
  16. If the regulated price for a natural monopoly is set equal to marginal cost:

    A. the firm will produce the socially efficient level of output.
    B. the firm will make either positive or zero economic profits.
    C. the firm will not cover all of its costs.
    D. other firms will seek to enter the industry and compete at this price.
  17. At prices that motivate the firm to produce at all, the short-run supply curve for a perfect competitor corresponds to which curve?
    a. the ATC curve
    b. the AVC curve
    c. the MC curve
    d. the AFC curve
    e. the MR curve
  18. The profit-maximizing rule for the monopolist is that it will choose output such that:

    A. AR = ATC.
    B. MR = MC.
    C. P = MC.
    D. MR = ATC.
  19. Monopoly describes a market structure in which there is/are ________ producer(s) and the product(s) is/are ________.

    A. many; differentiated
    B. one; unique
    C. many; identical
    D. one; differentiated
  20. Suppose that Prince Pückler's Ice Cream sells 100 cones each day. It sells the cones for $3, its average variable cost is $2.50, marginal cost is $3 and the average total cost is $3.10. From this we know:

    A. the firm is not producing according to the optimal output rule.
    B. the firm is making a loss.
    C. the firm should shut down.
    D. the firm is making positive economic profits.
  21. Which cost curve is continually upward-sloping?

    A. The average total cost curve
    B. The total cost curve
    C. The marginal cost curve
    D. The average variable cost curve
  22. In long run equilibrium, a monopolistically competitive firm is producing at a point on its average total cost curve where:

    A. price equals marginal cost.
    B. price equals average total cost.
    C. price equals marginal revenue.
    D. marginal revenue equals average total cost.
  23. Which of the following is NOT consistent with long run equilibrium in a monopolistically competitive industry? A level of production where:

    A. each firm earns zero economic profit.
    B. no firm enters or exits the industry.
    C. the firm demand curve is tangent to the average total cost curve.
    D. P = minimum of the average total cost curve.
  24. Use the information in the table below on market shares in the search engine industry and measures of market power (defined in the module "Introduction to Market Structure") to determine which of the following statements are correct.
    I. The 4-firm concentration ratio is 92.
    II. The Herfindahl-Hirschman index is 3,016.
    III. The industry is likely to be an oligopoly.
  25. Which of the following statements about the marginal cost curve is incorrect?

    A. The marginal cost curve is equal to the slope of the total cost curve.
    B. The marginal cost curve slopes upward because of diminishing marginal returns.
    C. Marginal cost is equal to the change in total cost generated by producing one more unit of output.
    D. Marginal cost depends upon the level of fixed costs.
  26. The free-rider problem occurs in the case of
    a. private goods.
    b. common resources.
    c. artificially scarce goods.
    d. motorcycles.
    e. all of the above.
  27. The firm's total revenue is equal to
    a. $14.
    b. $20.
    c. $560.
    d. $750.
    e. $1,000.
  28. Suppose a drug company develops a new technology for producing its product that can potentially help other companies produce more efficiently. This is considered a:

    A. positive consumption externality.
    B. negative production externality.
    C. a positive production externality.
    D. a network externality.
  29. The existence of profit in a perfectly competitive industry means that:

    A. new producers will seek to enter the industry.
    B. consumers will switch to substitute goods.
    C. each producer is charging a different price.
    D. the current price exceeds marginal cost.
  30. D. when externalities are present, an economy can reach an efficient solution as long as transactions costs are not too high.
  31. Suppose chicken farm waste flowed into a river used by a neighbor for drinking water. The Coase Theorem applies when the legal rights to the river are given:

    A. to the chicken farm.
    B. to the neighbor.
    C. to either the chicken farm or the neighbor.
    D. to neither the chicken farm nor the neighbor.
  32. In the case of a price taking firm:

    A. marginal revenue < price.
    B. marginal revenue = price.
    C. average revenue > price.
    D. total revenue = price.
  33. The Coase theorem asserts that, under the right circumstances, inefficiencies created by externalities can be dealt with through
    a. lawsuits.
    b. private bargaining.
    c. vigilante actions.
    d. government policies.
    e. mediation.
  34. The product diversity resulting from monopolistic competition comes at the expense of having:

    A. firms that will earn positive profits.
    B. firms that are too small to maximize profit.
    C. higher profit than would prevail under perfect competition.
    D. to operate to the left of minimum cost output level.
  35. Which of the following is correct?
    a. AVC is the change in total cost generated by one additional unit of output.
    b. MC = TC/Q
    c. The average cost curve crosses at the minimum of the marginal cost curve.
    d. The AFC curve slopes upward.
    e. AVC = ATC − AFC
  36. The goal of a monopolistically competitive firm is to:

    A. maximize profit.
    B. minimize cost.
    C. maximize the quantity sold.
    D. create product diversity.
  37. Luis operates a cherry orchard in Northern Oregon and sells the cherries in a perfectly competitive market at a price of $1.70 per pound. Last month Luis sold 2,000 pounds of cherries. His fixed cost of production was $800 and his average variable cost was $1.00 per pound. What was his profit?

    A. $600
    B. $800
    C. $2,600
    D. $3,400
  38. Marginal cost is the slope of the:

    A. marginal product curve.
    B. total cost curve.
    C. total product curve.
    D. long-run average total cost curve.
  39. In what way does the spreading effect change average total cost as output rises?

    A. The spreading effect increases ATC, because it reflects the fact that workers are spread out across more tasks when output rises.
    B. The spreading effect increases ATC, because it reflects the fact that firms are less efficient when they operate on a larger scale.
    C. The spreading effect reduces ATC, because a given fixed cost can be spread across more units of output.
    D. The spreading effect reduces ATC, because a firm's total fixed cost will decline as more is produced.
  40. A firm will choose to shut down in the short run when:

    A. price is above the minimum point of AVC but below the minimum point of ATC.
    B. price is below the minimum point of AVC.
    C. marginal cost begins to increase.
    D. total revenue is not sufficient to cover total cost.
  41. If firms in a monopolistically competitive industry have demand curves that lie above the average total marginal cost curve, then in the long run:

    A. firms will enter the industry.
    B. firms will exit the industry.
    C. firms are making zero economic profits.
    D. the industry is in long run equilibrium.
  42. Inefficiencies created by externalities can be dealt with through
    a. government actions only.
    b. private actions only.
    c. market outcomes only.
    d. either private or government actions.
    e. neither private nor government actions.
  43. What accounts for the fact that profit is zero in the long-run equilibrium in monopolistic competition?

    A. Firms have excess capacity.
    B. Firms spend too much on product development.
    C. Firms are too small relative to the market.
    D. There are no barriers to the entry of new firms.
  44. Why does economic theory predict that the perfectly competitive firm will produce at the point where price equals marginal cost?

    A. Because this point provides an efficient allocation of society's resources.
    B. Because this point results in zero economic profit.
    C. Because this point maximizes profit for the firm.
    D. Because this point will minimize ATC for the firm.
  45. Which of the following best describes a monopolistic competitor's demand curve?
    a. upward sloping
    b. downward sloping
    c. U-shaped
    d. horizontal
    e. vertical
  46. A firm is profitable if
    a. TR < TC.
    b. AR < ATC.
    c. MC < ATC.
    d. ATC < P.
    e. ATC > MC.
  47. Can a monopoly earn a normal profit in the long run? Explain.
  48. Which of the following is true of public goods?

    A. They are nonexcludable and nonrival in consumption.
    B. A free market will produce more than the efficient amount.
    C. They must be provided by the government.
    D. A free market will produce more than the efficient amount of a good and that good is nonrival in consumption.
  49. The _______ is the additional cost imposed on society as a whole by an additional unit of pollution.

    A. the marginal social benefit of pollution.
    B. the marginal social cost of pollution.
    C. the optimal Pigouvian tax.
    D. a technology spillover.
  50. A perfectly competitive firm is currently selling its product at the market price of $6. Its average total cost is $5.50. In this case:

    A. since average total cost is less than the price, the firm will shut down.
    B. the firm has positive economic profits.
    C. the firm is losing money but will continue to operate.
    D. the firm has zero economic profits.
  51. A firm is producing 100 units of output at a total cost of $84,000. The firm's fixed cost is $24,000. What is the average variable cost?

    A. $840
    B. $640
    C. $600
    D. $240
  52. As firms enter into a monopolistically competitive industry, the firm demand curve will:

    A. shift to the right.
    B. shift to the left.
    C. become steeper.
    D. become flatter.
  53. Acid rain is harmful to all of the following except:

    A. trees.
    B. fish.
    C. limestone buildings.
    D. asphalt pavement.
  54. The perfectly competitive firm's short run supply curve is:

    A. the average total cost curve above the minimum of average total cost.
    B. the average variable cost curve above the minimum of average total cost.
    C. the marginal cost curve above the minimum of average total cost.
    D. the marginal cost curve above the minimum of average variable cost.
  55. Which of the following statements is true?

    A. In the long-run, the level of fixed costs is an important component of the entry/exit decision.
    B. In the short-run, the level of fixed costs is an important component of the entry/exit decision.
    C. The firm shuts down if it cannot cover its fixed costs in the short run.
    D. When price exceeds average variable cost, but is below average total costs, the firm shuts down.
  56. The swoosh-shape of the marginal cost curve is caused by the ___________ having a powerful effect at lower levels of output and the ___________ having a powerful effect at high levels of output.

    A. diminishing returns effect; specialization effect
    B. diminishing returns effect; spreading effect
    C. spreading effect; fixed cost effect
    D. specialization effect; diminishing returns effect
  57. The demand curve for the monopolist:

    A. is the same as the demand curve for the perfectly competitive firm.
    B. is perfectly elastic.
    C. is the industry demand curve.
    D. is the same as the marginal revenue curve.
  58. Which of the following is not a characteristic of the long-run equilibrium in perfect competition?

    A. Each firm is producing an efficient quantity.
    B. Price equals ATC for each firm.
    C. Each firm is earning zero economic profit.
    D. Each firm is producing at the minimum point on the MC curve.
  59. When the supplier of an artificially scarce good charges a price greater than zero:

    A. then the good becomes nonexcludable.
    B. then the supplier reduces producer surplus from what it would be if the price were zero.
    C. then the supplier reduces consumer surplus from what it would be if the price were zero.
    D. then the supplier gives rise to the free-rider problem.
  60. Which of the following is true of monopoly but is not true of monopolistic competition?

    A. The firm faces a downward-sloping demand curve.
    B. The firm faces a downward-sloping marginal revenue curve.
    C. The firm will earn positive economic profits in the long run.
    D. The firm will produce at a point where price equals marginal cost.
  61. If several companies agree to produce an amount that maximizes the joint profits of the group we would say the companies are:

    A. in a cartel.
    B. engaging in non-cooperative behavior.
    C. monopolistically competitive.
    D. competitive.
  62. In today's U.S. economy, which of the following industries has firms that typically act as a monopoly for an extended period of time?

    A. Pharmaceuticals
    B. Fast food restaurants
    C. Accounting services
    D. Hair salons
  63. For the perfectly competitive firm, economic profit equals:

    A. (Price - marginal cost) x quantity.
    B. (Price - average total cost) x quantity.
    C. (Price - average variable cost) x quantity.
    D. Total revenue - total fixed cost.
  64. Suppose that firms in the perfectly competitive potato-growing industry are earning economic profits. According to economic theory, what is likely to happen?

    A. The costs of the firms will increase, eventually eliminating the profit.
    B. The existence of profits will lead to a drop in the demand for potatoes.
    C. More firms will enter the market, thereby increasing the industry supply and lowering the market price.
    D. More firms will enter the market, thereby decreasing the industry supply and raising the market price.
  65. The optimal output rule says that firms maximize profits by choosing output such that:

    A. marginal revenue = marginal cost.
    B. total revenue = total cost.
    C. price = minimum of the average cost.
    D. marginal revenue = average cost.
  66. Traffic congestion is an example of:

    A. overuse of a common resource.
    B. an artificially scarce good.
    C. a good that is nonrival in consumption.
    D. a good for which the marginal social cost is zero.
  67. Your neighbor has a small dog that barks loudly and incessantly and this barking keeps you up at night. This is an example of you experiencing:

    A. a transaction cost.
    B. a positive externality.
    C. a private benefit.
    D. a negative externality.
  68. What is the effect in the market as more firms enter a monopolistically competitive industry?

    A. The market supply curve shifts to the right.
    B. The market supply curve shifts to the left.
    C. The demand curve faced by each firm shifts out and to the right.
    D. The demand curve faced by each firm shifts in and to the left.
  69. Graph:
  70. A firm should continue to produce in the short run as long as price is at least equal to
    a. MR.
    b. MC.
    c. minimum ATC.
    d. minimum AVC.
    e. AFC.
  71. Market provision of a public good will lead to
    a. the efficient quantity.
    b. the efficient price.
    c. inefficiently high production of the good.
    d. inefficiently low production of the good.
    e. none of the good being provided.
  72. Which of the following types of goods are always nonrival in consumption?
    a. public goods
    b. private goods
    c. common resources
    d. inferior goods
    e. goods provided by the government
  73. All of the following curves are U-shaped except the:

    A. long-run average total cost.
    B. average total cost.
    C. average variable cost.
    D. average fixed cost.
  74. Which of the following characteristics is essential if a good is to be efficiently provided by a market economy?

    A. The good should be subject to overuse.
    B. The good should be subject to the free rider problem.
    C. The good should be a common resource.
    D. The good should be excludable and rival in consumption.
  75. A perfectly competitive firm will shut down when:

    A. price < marginal revenue.
    B. price < average variable cost.
    C. price < average total cost.
    D. price < demand.
  76. A good is rival in consumption if:

    A. the supplier of that good can prevent people who do not pay from consuming it.
    B. the supplier of that good cannot prevent people who do not pay from consuming it.
    C. the same unit of the good cannot be consumed by more than one person at the same time.
    D. there is no free-rider problem.
  77. A firm experiencing constant returns to scale has a horizontal:

    A. long-run average total cost curve.
    B. marginal cost curve.
    C. marginal product curve.
    D. total product curve.
  78. One difference between monopoly and perfect competition is that:

    A. A monopolist seeks to maximize profit; a perfect competitor does not.
    B. A perfect competitor seeks to maximize profit; a monopolist does not.
    C. The marginal revenue curve for a perfect competitor is downward-sloping, and for a monopolist it is horizontal.
    D. The marginal revenue curve for a monopolist is downward-sloping, and for a perfect competitor it is horizontal.
  79. Suppose that Prince Pückler's Ice Cream sells 100 cones each day. It sells the cones for $3, its average variable cost is $2.50, marginal cost is $3 and the average total cost is $3.20. From this we know:

    A. the firm is not producing according to the optimal output rule.
    B. firms will exit the industry.
    C. firms will enter the industry.
    D. the firm is making zero economic profits.
  80. A good is excludable if:

    A. the supplier of that good can prevent people who do not pay from consuming it.
    B. it is a common resource and nonrival in consumption.
    C. the same unit of the good cannot be consumed by more than one person at the same time.
    D. there is no free-rider problem and the good is nonrival in consumption.
  81. Which of the following is true of the long run in perfect competition but not true of the long run in monopolistic competition?

    A. The firm produces where ATC is minimized.
    B. Economic profit is zero.
    C. Marginal revenue equals marginal cost.
    D. The firm will fail to produce enough to minimize ATC.
  82. The monopolist is earning a profit equal to
    a. $0.
    b. $40.
    c. $80.
    d. $160.
    e. $240.
  83. MODULE 40:
  84. A firm breaks even when:

    A. price = marginal cost.
    B. price = marginal revenue.
    C. marginal cost = average total cost.
    D. price = average total cost.
  85. The monopolistically competitive firm maximizes profit by producing where:

    A. MR = MC.
    B. P = MC.
    C. MR = AR.
    D. ATC = MR.
  86. The monopolist's profit-maximizing output is
    a. 0.
    b. 4.
    c. 5.
    d. 8.
    e. 10.
  87. The clean-up of the Thames River in London in the mid-nineteenth century:

    A. was undertaken by private firms who benefited from the cleaner environment.
    B. was undertaken by private firms who benefited by receiving compensation for their efforts.
    C. is an example of a good subject to the free-rider problem.
    D. is an example of an artificially scarce good.
  88. Which of the following is a characteristic of monopolistic competition?
    a. a standardized product
    b. many sellers
    c. barriers to entry
    d. positive long-run profits
    e. a perfectly elastic demand curve
  89. Which of the following statements about monopoly is NOT correct?

    A. In order for a monopoly to persist, there must be barriers to the entry of other firms.
    B. When a monopolist increases production, the quantity effect will tend to increase total revenue and the price effect will tend to decrease total revenue.
    C. A monopolist can sell as much as she wants at whatever price she chooses.
    D. Because a monopoly has market power, it will charge a price higher than what would prevail under conditions of perfect competition.
  90. Without government intervention:

    A. the socially optimal amount of pollution will be produced.
    B. an inefficiently high amount of pollution will be produced.
    C. an inefficiently low amount of pollution will be produced.
    D. the marginal social cost of pollution will be less than the marginal social benefit.
  91. The monopolist's total cost equals
  92. If monopolistically competitive firms are earning positive economic profits in the short run, then in the long run:

    A. the level of profits will be unchanged.
    B. they will make zero economic profits.
    C. firms will be unable to enter the industry because of the existence of barriers to entry.
    D. a limited number of firms will enter the industry, and profits will be reduced but will remain positive.
  93. Which of the following statements is true?
    I. Marginal cost is the change in total cost generated by one additional unit of output.
    II. Marginal cost is the change in variable cost generated by one additional unit of output.
    III. The marginal cost curve must cross the minimum of the average total cost curve.
    a. I only
    b. II only
    c. III only
    d. I and II only
    e. I, II, and III
  94. The U.S. baseball glove industry is an oligopoly. This means that glove suppliers face a ________________ than a monopoly glove supplier would:

    A. smaller price effect
    B. larger price effect
    C. lower cost structure
    D. higher cost structure
  95. If professional boxing matches are on pay-per-view television, the price for viewing is ___________ than if it were provided on regular cable television and the equilibrium quantity is ___________.

    A. lower, lower
    B. lower, higher
    C. higher, higher
    D. higher, lower
  96. Which of the following is a source of negative externalities?
    a. loud conversations in a library
    b. smokestack scrubbers
    c. a beautiful view
    d. national defense
    e. a decision to purchase dressy but uncomfortable shoes.
  97. Suppose a monopoly firm has a constant marginal cost equal to $8. Its demand and marginal revenue curves are given respectively by the equations P = 40-2Q and MR = 40-4Q. For this firm, the profit-maximizing price and output levels are:

    A. P = $12; Q = 12
    B. P = $20; Q = 20
    C. P = $24; Q = 16
    D. P = $24; Q = 8
  98. The firm incurs a loss when the firm produces a quantity at which:

    A. marginal revenue > marginal cost.
    B. total revenue = total cost.
    C. price = minimum of the average cost.
    D. total revenue < total cost.
  99. Since a monopolistic competitor produces a product with many close substitutes, it:

    A. has no market power.
    B. faces a highly inelastic demand curve.
    C. has unlimited market power.
    D. has some degree of market power.
  100. If average cost is falling:

    A. average cost is less than marginal cost.
    B. average cost is greater than marginal cost.
    C. output is above the minimum cost level.
    D. the marginal cost curve lies above the average cost curve.
  101. In the absence of action by the government, polluters will pollute up to the point at which the marginal social benefit of pollution is:

    A. equal to the marginal social cost of pollution.
    B. zero.
    C. maximized.
    D. greater than the marginal social cost of pollution.
  102. For a monopolist, the marginal revenue curve:

    A. is the same as the demand curve.
    B. lies above the demand curve.
    C. has no relationship to the demand curve.
    D. lies below the demand curve.
  103. Apartment dwellers near Wrigley Field in Chicago are often able to watch the Chicago Cubs baseball team play from the roof of their apartment building, without having to pay the cost of buying a ticket. This is an example of:

    A. a marginal social cost.
    B. a negative externality.
    C. a positive externality.
    D. a deadweight loss.
  104. What is the firm's profit if the price of its product is $5 and it produces 500 units of output at a total cost of $1,000?
    a. $5,000
    b. $2,500
    c. $1,500
    d. −$1,500
    e. −$2,500
  105. Why is it that the free market fails to provide the efficient quantity of a public good?

    A. because it is impossible to force those who benefit from the good to pay for it
    B. because public goods are always large scale projects that require government financing
    C. because there are external costs associated with the provision of a public good
    D. because there are uninsurable risks associated with a public good
  106. Tara sells her organic carrots in a perfectly competitive market for a price that is just higher than her minimum average variable cost of production, but lower than her minimum average total cost of production. Which of the following statements is then true?

    A. Although she is currently incurring a loss, she could restore profitability by advertising her carrots.
    B. She can minimize her losses by shutting down her operations now.
    C. She is incurring a loss, because price is less than ATC.
    D. She is earning a profit, because price is above AVC.
  107. The average fixed cost curve:

    A. is flat with zero slope.
    B. is downward sloping.
    C. is upward sloping.
    D. is U-shaped.
  108. How does the long run differ from the short run in perfect competition?

    A. In the long run, some firms will charge higher prices than others.
    B. In the short run, the firm seeks to maximize profit; it the long run it seeks to minimize cost.
    C. In the short run, the firm seeks to maximize profit; it the long run it seeks to maximize revenue.
    D. The long run is long enough to allow for the entry of new firms into the industry.
  109. The ______ says that a price-taking firm's profit is maximized by producing the quantity of output at which the ______ is equal to the marginal cost of the last unit produced.

    A. optimal output rule; market price
    B. A. price-taking firm's optimal output rule; market price
    C. A. optimal output rule; total cost
    D. A. price-taking firm's optimal output rule; total revenue
  110. The U-shape of the average total cost curve is caused by the ___________ having a powerful effect at lower levels of output and the ___________ having a powerful effect at high level of output.

    A. spreading effect; diminishing returns effect
    B. diminishing returns effect; spreading effect
    C. specialization effect; spreading effect
    D. decreasing marginal productivity effect; diminishing returns effect
  111. Which of the following statements is true?

    A. Whenever marginal cost is below average total cost, marginal cost is decreasing.
    B. Whenever marginal cost is above average total cost, marginal cost is decreasing.
    C. Whenever marginal cost is above average total cost, average total cost is increasing.
    D. When marginal cost equals average total cost, marginal cost is minimized.
  112. Which of the following makes it more likely that private solutions to externality problems will succeed?
    a. high transaction costs
    b. high prices for legal services
    c. delays in the bargaining process
    d. a small number of affected parties
    e. loosely defined legal rights
    [Answer Field]
  113. The demand curve for an individual firm in a perfectly competitive industry is:

    A. perfectly inelastic.
    B. unit elastic.
    C. perfectly elastic.
    D. zero elastic.
  114. The free-rider problem arises when:

    A. goods are nonrival in consumption.
    B. there is overuse of a common resource.
    C. the marginal social cost of producing a good exceeds the private marginal cost.
    D. a good is nonexcludable.
  115. Why is collusion more likely in cases of oligopoly than in perfect competition?

    A. In oligopoly, all firms sell an identical product; but in perfect competition, the product varies between producers.
    B. There are too many firms in perfect competition to allow for collusion.
    C. Oligopoly moves towards an equilibrium outcome; perfect competition does not.
    D. Perfect competition moves towards an equilibrium outcome; oligopoly does not.
  116. Which of the following is true for a perfectly competitive industry?
    I. There are many firms, each with a large market share.
    II. The firms in the industry produce a standardized product.
    III. There are barriers to entry and exit.
    a. I only
    b. II only
    c. III only
    d. I and II only
    e. I, II, and III
  117. The long-run outcome in a monopolistically competitive industry results in
    a. inefficiency because firms earn positive economic profits.
    b. efficiency due to excess capacity.
    c. inefficiency due to product diversity.
    d. efficiency because price exceeds marginal cost.
    e. a trade-off between higher average total cost and more product diversity.
  118. Suppose that Prince Pückler's Ice Cream sells 100 cones each day. It sells the cones for $3, its average variable cost is $2.50, marginal cost is $3 and the average total cost is $3.00. From this we know:

    A. the firm is not producing according to the optimal output rule.
    B. the firm is not breaking even.
    C. the firm is making zero accounting profits.
    D. the firm is making zero economic profits.
  119. Which of the following is not an example of a barrier to entry?

    A. A copyright
    B. An innovative product
    C. A patent
    D. Economies of scale
  120. The quantity supplied by a perfectly competitive firm at a given market price is determined by the:

    A. firm's marginal cost curve.
    B. firm's average total cost curve.
    C. firm's marginal revenue curve.
    D. number of firms in the market.
  121. Which of the following is correct for a perfectly competitive firm?
    I. The marginal revenue curve is the demand curve.
    II. The firm maximizes profit when price equals marginal cost.
    III. The market demand curve is horizontal.
    a. I only
    b. II only
    c. III only
    d. I and II only
    e. I, II, and III
  122. A common resource is both:

    A. excludable and rival in consumption.
    B. nonexcludable and nonrival in consumption.
    C. excludable and nonrival in consumption.
    D. nonexcludable and rival in consumption.
  123. Which of the following is true of perfect competition but is not true of monopolistic competition?

    A. The firm faces a downward-sloping demand curve.
    B. The firm faces a downward-sloping marginal revenue curve.
    C. The firm will earn zero economic profit in the long run.
    D. The firm will produce at a point where price equals marginal cost.
  124. Suppose your state government could undertake some measures that would improve the safety of highways within the state. If the goal is to use resources efficiently, how many of the measures should be undertaken?

    A. all of them
    B. all measures up to the point at which the marginal social benefit from safety improvements equals the marginal social cost
    C. all measures for which the marginal social benefits from safety improvements are greater than zero
    D. all measures for which the marginal social benefit from safety improvements is at least as great as what motorists have reported they would be willing to pay
  125. Which of the following is an example of differentiated products?
    a. Coke and Pepsi
    b. automobiles and bicycles
    c. trucks and gasoline
    d. stocks and bonds
    e. gold and silver
  126. Samir owns a coffee shop that has monthly variable costs equal to $8,560. If Samir sells 11,000 cups of coffee each month, what is the average variable cost per cup?

    A. $0.78
    B. $0.85
    C. $0.99
    D. $1.30
  127. Which of the following is true for a monopolistically competitive industry?
    I. There are many firms, each with a small market share.
    II. The firms in the industry produce a standardized product.
    III. Firms are price-takers.
    a. I only
    b. II only
    c. III only
    d. I and II only
    e. I, II, and III
  128. Monopoly is a type of:

    A. market structure.
    B. business strategy.
    C. pricing strategy.
    D. price discrimination.
  129. On the basis of the data in the table above, what is the marginal cost of the third unit of output?

    a. 40
    b. 50
    c. 60
    d. 90
    e. 130
  130. Which of the following would be considered a perfectly competitive industry?

    A. The automobile industry in which there are a handful of companies that produce cars.
    B. The oil industry, which is an industry that requires a lot of money, equipment, and know-how to enter the industry.
    C. The soybean industry in which the product is uniform and there are many buyers and sellers.
    D. The ready-to-eat-cereal industry where there are many variations in the types of cereal sold.
  131. Refer to Figure: The Monopolist. In the graph, a perfectly competitive market will produce ____________ units, at a price equal to ______________.
    A. 2,000; $40
    B. 2,000; $20
    C. 1,000; $40
    D. 1,000; $20
  132. In order to maximize net gains, the perfectly competitive firm will seek to do which of the following?

    A. minimize average variable cost
    B. minimize average total cost
    C. minimize marginal cost
    D. maximize profit
  133. Which word best characterizes the interaction among firms in any oligopoly?

    A. cooperation
    B. collusion
    C. confrontation
    D. interdependence
  134. Draw a graph showing a monopoly earning a normal profit in the short run.
  135. If a firm has a total cost of $200, its profit-maximizing level of output is 10 units, and it is breaking even (that is, earning a normal profit), what is the market price?
    a. $200
    b. $100
    c. $20
    d. $10
    e. $2
  136. A perfectly competitive firm earns an economic profit when:

    A. price is above average variable cost.
    B. price is above average total cost.
    C. total cost exceeds total revenue.
    D. total variable cost exceeds total revenue.
  137. The minimum-cost output is the quantity corresponding to the minimum point of the:

    A. marginal cost curve.
    B. marginal product curve.
    C. average variable cost curve.
    D. average total cost curve.
  138. Suppose a local manufacturing plant undertakes measures to reduce the amount of harmful emissions it releases into the air. This action is an example of:

    A. a private good provided by a public company.
    B. a public good.
    C. an excludable good that is rival in consumption.
    D. a nonexcludable good that is rival in consumption.
  139. A firm producing in the short run uses two inputs, capital and labor. The quantity of capital is fixed and generates a monthly cost of $6,000. The quantity of labor can be varied, and the wage rate per hour of labor is $20. If 400 hours of labor are hired for the month, and 140 units of output are produced, what is the firm's average total cost for the month?

    A. $123
    B. $100
    C. $43
    D. $2
  140. Monopoly arises when:

    A. there is a firm desiring to compete in many markets.
    B. there is a firm wanting to maximize profits.
    C. there are barriers to the entry of other firms.
    D. there is government intervention to establish and enforce a price ceiling.
  141. Acid rain is caused by:

    A. automobile exhaust.
    B. coal-burning power plants.
    C. oil refineries.
    D. global warming.
  142. Suppose the level of pollution is such that the marginal social benefit due to pollution is greater than the marginal social cost of pollution, then:

    A. the level of pollution should decrease to get to the socially optimal amount of pollution.
    B. the level of pollution should increase to get to the socially optimal amount of pollution.
    C. total surplus will rise if pollution is decreased.
    D. the economy is producing the socially optimal level of pollution.
  143. The socially optimal level of pollution is
    a. less than that created by the market, but not zero.
    b. more than that created by the market.
    c. whatever the market creates.
    d. determined by firms.
    e. zero.
  144. The Coase Theorem asserts that:

    A. government intervention is necessary to deal with externalities.
    B. there are no costs associated with pollution abatement.
    C. when there are external costs, the industry supply curve reflects the true social costs.
    D. when externalities are present, an economy can reach an efficient solution as long as transactions costs are not too high.
  145. If a group of oligopolistic firms, agree to sell their product at a particular price they are engaging in:

    A. price fixing.
    B. non-cooperative behavior.
    C. Bertrand behavior.
    D. price competition.
  146. An agreement among several producers to restrict output and increase profit is necessary for

    a. cooperation.
    b. collusion.
    c. monopolization.
    d. a cartel.
    e. competition.
  147. . A perfectly competitive firm will maximize profit at the quantity at which the firm's marginal revenue equals
    a. price.
    b. average revenue.
    c. total cost.
    d. marginal cost.
    e. demand.
  148. The socially optimal amount of pollution is found by choosing the amount of output such that:

    A. the marginal social cost of pollution equals zero.
    B. the marginal social benefit of pollution equals zero.
    C. the marginal social benefit of pollution equals the marginal social cost of pollution.
    D. the marginal social benefit of pollution is greater than the marginal social cost of pollution.
  149. When a firm is producing zero output, total cost equals
    a. zero.
    b. variable cost.
    c. fixed cost.
    d. average total cost.
    e. marginal cost.
  150. Suppose that Prince Pückler's Ice Cream sells 100 cones each day. It sells the cones for $3, its average variable cost is $3.10, marginal cost is $3 and the average total cost is $3.50. From this we know:

    A. the firm is not producing according to the optimal output rule.
    B. the firm is breaking even.
    C. the firm should shut down.
    D. the firm is making positive economic profits.
  151. A perfectly competitive firm is charging the market price of $18 to sell its product. The firm is producing and selling the profit-maximizing quantity of 50 units at this price. Its average total cost is $17 and its average variable cost is $15. Which of the following statements is then true?

    A. This firm should shut down now.
    B. At this current level of production, the firm's marginal cost is $17.
    C. At this current level of production, the firm's marginal cost is $15.
    D. The firm is earning an economic profit of $50.
  152. Daisy incurs $7,200 per month in fixed costs operating her floral shop. She pays her employees $9.00 per hour and has three assistants each working 120 hours per month. Her other variable costs are $800 per month. What are Daisy's total variable costs and total costs each month?

    A. Total variable costs are $800; total costs are $8,000.
    B. Total variable costs are $800; total costs are $11,240.
    C. Total variable costs are $3,240; total costs are $11,240.
    D. Total variable costs are $4,040; total costs are $11,240.
  153. The monopolist's marginal revenue curve is downward-sloping because:

    A. the monopolist must lower his price in order to sell more.
    B. he operates in the range where ATC is downward-sloping.
    C. he operates in the range where MC is downward-sloping.
    D. his total revenue declines as he sells more.
  154. Which of the following is true for a monopolistically competitive firm in long run equilibrium, but not a perfectly competitive firm?

    A. P = ATC at the equilibrium level of output.
    B. MC = MR at the equilibrium level of output.
    C. The firm has excess capacity at the equilibrium level of output.
    D. The firm is making zero economic profits at the equilibrium level of output.
  155. Refer to Figure: The Monopolist. In the graph, if the monopolist maximizes profits, then it will earn:

    A. $40,000 in profit.
    B. $30,000 in profit.
    C. $20,000 in profit.
    D. $10,000 in profit.
  156. The U.S. beer industry is characterized by market power for only a few firms, with the largest one enjoying a fifty percent market share. One reason for this is economies of scale. This means that:

    A. as beer production increases, costs increase significantly.
    B. patents have allowed beer producers to have low costs of production.
    C. as beer production increases, the average total cost of production falls.
    D. if the industry were made perfectly competitive, the costs of production would fall.
  157. Your dorm room overlooks the track and field complex, which will host the Olympic trials. Which of the following represents a positive externality of having the track located in such close proximity to your room?

    A. You can view the competition from your room free of charge.
    B. You will not be able to find a parking spot within 10 blocks of your room.
    C. The loudspeakers wake you early in the morning on the Saturday of the trials.
    D. The quiet ambiance of the grounds around your dorm is disrupted by the crush of tourists and athletes.
  158. A cartel may be difficult to maintain because there is an incentive for each firm to:

    A. raise prices.
    B. maximize industry profits.
    C. collude.
    D. cheat.
  159. Which of the following statements about oligopolies is not correct?

    A. There are only a few firms in the industry.
    B. Each firm possesses some market power.
    C. Oligopolistic firms are always large.
    D. An important reason for the existence of oligopolies is the presence of economies of scale.
  160. If a monopolist sells one more unit of output:

    A. marginal revenue rises because of the price effect.
    B. marginal revenue rises because of the quantity effect.
    C. the price will be below marginal revenue due to the quantity effect.
    D. marginal revenue rises because the price on the extra goods sold falls.
  161. Which of the following is not a characteristic of a perfectly competitive industry?

    A. Each firm seeks to undercut the price of its competitors.
    B. There is easy entry and exit.
    C. Each firm has a small share of the market.
    D. Each firm is a price-taking producer.
  162. Suppose a monopolistically competitive industry is in long-run equilibrium. Rising energy prices raise average total costs in the industry. Which of the following will occur?

    A. Firms will exit the industry.
    B. Firms will begin to make positive economic profits.
    C. The firm's demand curve will lie below its average total cost curve.
    D. Eventually the individual firm demand curve will shift to the right.
  163. The monopolist's total revenue equals
    a. $80.
    b. $160.
    c. $240.
    d. $300.
    e. $480.
  164. Which of the following will make it easier for firms in an industry to maintain positive economic profit?
    a. a ban on cartels
    b. a small number of firms in the industry
    c. a lack of product differentiation
    d. low start-up costs for new firms
    e. the assumption by firms that other firms have variable output levels
  1. a B. is downward sloping.
  2. b d. a cartel.
  3. c e. I, II, and III
  4. d B. The total cost curve
  5. e A. maximize profit.
  6. f c. $240.
  7. g B. $100
  8. h a. less than that created by the market, but not zero.
  9. i A. The firm produces where ATC is minimized.
  10. j b. private bargaining.
  11. k B. firms will exit the industry.
  12. l D. nonexcludable and rival in consumption.
  13. m C. the firm should shut down.
  14. n D. The marginal revenue curve for a monopolist is downward-sloping, and for a perfect competitor it is horizontal.
  15. o c. the MC curve
  16. p A. marginal revenue = marginal cost.
  17. q D. interdependence
  18. r B. price < average variable cost.
  19. s C. A monopolist can sell as much as she wants at whatever price she chooses.
  20. t ...
  21. u A. MR = MC.
  22. v B. An innovative product
  23. w D. There are no barriers to the entry of new firms.
  24. x B. the marginal social cost of pollution.
  25. y B. MR = MC.
  26. z D. price = average total cost.
  27. aa B. marginal revenue = price
  28. ab d. either private or government actions.
  29. ac D. a flood control dam
  30. ad A. market structure.
  31. ae C. a positive production externality.
  32. af C. two parties can internalize an externality, provided the transaction costs are sufficiently low.
  33. ag B. (Price - average total cost) x quantity.
  34. ah A. In the long-run, the level of fixed costs is an important component of the entry/exit decision.
  35. ai D. a negative externality
  36. aj B. average cost is greater than marginal cost.
  37. ak A. smaller price effect
  38. al C. there are barriers to the entry of other firms.
  39. am D. Total variable costs are $4,040; total costs are $11,240.
  40. an
    e. $1,000.
  41. ao e. marginal cost.
  42. ap B. they will make zero economic profits.
  43. aq C. to either the chicken farm or the neighbor.
  44. ar A. spreading effect; diminishing returns effect
  45. as A. the monopolist must lower his price in order to sell more.
  46. at a. loud conversations in a library
  47. au e. AVC = ATC − AFC
  48. av a. 40
  49. aw C. is an example of a good subject to the free-rider problem.
  50. ax D. a good is nonexcludable.
  51. ay A. the supplier of that good can prevent people who do not pay from consuming it.
  52. az D. The demand curve faced by each firm shifts in and to the left.
  53. ba B. earn more profit.
  54. bb B. 2,000; $20
  55. bc C. $600
  56. bd B. price equals average total cost.
  57. be d. marginal cost.
  58. bf D. P = $24; Q = 8
  59. bg A. P = $48; Q = 19
  60. bh B. price is above average total cost.
  61. bi D. higher, lower
  62. bj c. $1,500
  63. bk D. P = minimum of the average total cost curve.
  64. bl Yes, with the help of barriers to entry that keep competitors out.
  65. bm D. to operate to the left of minimum cost output level.
  66. bn b. II only
  67. bo C. the firm will not cover all of its costs.
  68. bp B. all measures up to the point at which the marginal social benefit from safety improvements equals the marginal social cost
  69. bq b. 4.
  70. br e. a trade-off between higher average total cost and more product diversity.
  71. bs D. The good should be excludable and rival in consumption.
  72. bt C. a weather forecast provided only to those who pay for the service
  73. bu C. Cournot behavior.
  74. bv A. in a cartel.
  75. bw B. an inefficiently high amount of pollution will be produced.
  76. bx C. More firms will enter the market, thereby increasing the industry supply and lowering the market price.
  77. by C. then the supplier reduces consumer surplus from what it would be if the price were zero.
  78. bz b. common resources.
  79. ca D. has some degree of market power.
  80. cb c. $20
  81. cc A. overuse of a common resource.
  82. cd D. maximize profit
  83. ce C. Because this point maximizes profit for the firm.
  84. cf A. Firms will exit the industry.
  85. cg B. a public good.
  86. ch B. There are too many firms in perfect competition to allow for collusion.
  87. ci D. the firm is making zero economic profits.
  88. cj a. I only
  89. ck b. profit equal to $250.
  90. cl C. as beer production increases, the average total cost of production falls.
  91. cm B. shift to the left.
  92. cn A. firm's marginal cost curve.
  93. co A. because it is impossible to force those who benefit from the good to pay for it
  94. cp D. specialization effect; diminishing returns effect
  95. cq d. $160.
  96. cr A. firms will enter the industry.
  97. cs d. I and II only
  98. ct C. a positive externality.
  99. cu C. the same unit of the good cannot be consumed by more than one person at the same time.
  100. cv e. all of the above
  101. cw a. Coke and Pepsi
  102. cx C. The soybean industry in which the product is uniform and there are many buyers and sellers.
  103. cy A. They are nonexcludable and nonrival in consumption.
  104. cz B. making a loss.
  105. da B. the firm has positive economic profits.
  106. db B. total cost curve.
  107. dc A. Each firm seeks to undercut the price of its competitors.
  108. dd A. You can view the competition from your room free of charge.
  109. de
    e. I, II, and III
  110. df B. price is below the minimum point of AVC.
  111. dg b. $80.
  112. dh b. a small number of firms in the industry
  113. di B. total revenue = total cost.
  114. dj D. the marginal cost curve above the minimum of average variable cost.
  115. dk d. inefficiently low production of the good.
  116. dl d. minimum AVC.
  117. dm C. The firm has excess capacity at the equilibrium level of output.
  118. dn C. The spreading effect reduces ATC, because a given fixed cost can be spread across more units of output.
  119. do B. zero.
  120. dp B. marginal revenue rises because of the quantity effect.
  121. dq A. new producers will seek to enter the industry.
  122. dr A. price fixing.
  123. ds B. one; unique
  124. dt C. the marginal social benefit of pollution equals the marginal social cost of pollution.
  125. du D. The firm will produce at a point where price equals marginal cost.
  126. dv B. coal-burning power plants.
  127. dw A. a negative externality.
  128. dx a. colluding
  129. dy D. The long run is long enough to allow for the entry of new firms into the industry.
  130. dz C. The firm will earn positive economic profits in the long run.
  131. ea C. Oligopolistic firms are always large.
  132. eb C. its marginal cost curve above average variable cost.
  133. ec A. Pharmaceuticals
  134. ed
    C. $20,000 in profit.
  135. ee D. asphalt pavement.
  136. ef D. when externalities are present, an economy can reach an efficient solution as long as transactions costs are not too high.
  137. eg D. average total cost curve.
  138. eh B. the level of pollution should increase to get to the socially optimal amount of pollution.
  139. ei C. She is incurring a loss, because price is less than ATC.
  140. ej c. fixed cost.
  141. ek B. A. price-taking firm's optimal output rule; market price
  142. el A. property rights can be used to make a good excludable.
  143. em D. The firm is earning an economic profit of $50.
  144. en D. cheat.
  145. eo D. Marginal cost depends upon the level of fixed costs.
  146. ep B. the firm is making a loss.
  147. eq C. perfectly elastic.
  148. er D. zero; left
  149. es
  150. et a. public goods
  151. eu A. $0.78
  152. ev C. is the industry demand curve.
  153. ew C. Whenever marginal cost is above average total cost, average total cost is increasing.
  154. ex A. $600
  155. ey b. downward sloping
  156. ez d. a small number of affected parties
  157. fa D. Each firm is producing at the minimum point on the MC curve.
  158. fb b. many sellers
  159. fc D. average fixed cost.
  160. fd
  161. fe D. lies below the demand curve.
  162. ff d. ATC < P.
  163. fg A. long-run average total cost curve.
  164. fh A. Each firm distinguishes its product from that of its competitors.