economics data bank

____ 26. Suppose a competitive market has a horizontal long-run supply curve and is in long-run equilibrium. If

demand decreases, we can be certain that in the short-run,

a. at least some firms will shut down.

b. price will fall below marginal cost for some firms.

c. price will fall below average total cost for some firms.

d. at least some firms will exit the industry.

____ 27. In the short run, a market consists of 100 identical firms. The market price is $8, and the total cost to each

firm of producing various levels of output is given in the table below. What will total quantity supplied be in

the market?

Q TC

0 1

1 7

2 14

3 22

4 31

5 41

a. 200 units

b. 300 units

c. 400 units

d. 500 units

____ 28. In the short-run, a firm's supply curve is equal to

a. the marginal cost curve above its average variable cost curve.

b. the marginal cost curve above its average total cost curve.

c. the average variable cost curve above its marginal cost curve.

d. the average total cost curve above its marginal cost curve.

Name: ________________________ ID: A

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____ 29. When market conditions in a competitive industry are such that firms cannot cover their production costs,

then

a. the firms will suffer long-run economic losses.

b. the firms will suffer short-run economic losses that will be exactly offset by long-run

economic profits.

c. some firms will exit the market, causing prices to rise until the remaining firms can cover

their production costs.

d. all firms will go out of business, since consumers will not pay prices that enable firms to

cover their production costs.

____ 30. Natural monopolies differ from other forms of monopoly because they

a. are not subject to barriers to entry.

b. are not regulated by government.

c. generally don't make a profit.

d. are generally not worried about competition eroding their monopoly position in the

market.

____ 31. Which of the following statements is true about patents and copyrights?

(i) They both have benefits and costs.

(ii) They lead to higher prices.

(iii) They enhance the ability of monopolists to earn above-average profits.

a. (i) and (ii)

b. (ii) and (iii)

c. (ii) only

d. (i), (ii), and (iii)

____ 32. A firm that is a natural monopoly

a. is not likely to be concerned about new entrants eroding its monopoly power.

b. is taking advantage of economies of scale.

c. would experience a higher average total cost if more firms entered the market.

d. All of the above are correct.

____ 33. Which of the following items is a primary source of barriers to entry?

a. The costs of production make a single firm more efficient than a large number of firms.

b. A single firm hires all the people who have the management skills that are important in

the industry.

c. Contracts among firms prohibit them from competing with one another in the production

and sale of certain products.

d. All of the above are correct.

____ 34. Which of the following isnot a reason for the existence of a monopoly?

a. Sole ownership of a key resource

b. Patents

c. Copyrights

d. Diseconomies of scale

____ 35. The market demand curve for a monopolist is typically

a. unitary elastic at the point of profit maximization.

b. downward sloping.

c. horizontal.

d. vertical.

Name: ________________________ ID: A

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____ 36. A monopolist's average revenue is always

a. equal to marginal revenue.

b. greater than the price of its product.

c. equal to the price of its product.

d. less than the price of its product.

____ 37. When a monopolist increases the amount of output that it produces and sells, its average revenue

a. increases and its marginal revenue increases.

b. increases and its marginal revenue decreases.

c. decreases and its marginal revenue increases.

d. decreases and its marginal revenue decreases.

____ 38. Which of the following statements is true?

(i) When a competitive firm sells an additional unit of output, its revenue increases by

an amount less than the price.

(ii) When a monopoly firm sells an additional unit of output, its revenue increases by an

amount less than the price.

(iii) Average revenue is the same as price for both competitive and monopoly firms.

a. (ii) only

b. (iii) only

c. (i) and (ii)

d. (ii) and (iii)

Name: ________________________ ID: A

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Figure 15-2

The figure below illustrates the cost and revenue structure for a monopoly firm.

____ 39.Refer to Figure 15-2. The marginal revenue curve for a monopoly firm is depicted by curve

a. A.

b. B.

c. C.

d. D.

____ 40.Refer to Figure 15-2. The marginal cost curve for a monopoly firm is depicted by curve

a. A.

b. B.

c. C.

d. D.

Name: ________________________ ID: A

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Figure 15-3

The figure below illustrates the cost and revenue structure for a monopoly firm.

____ 41.Refer to Figure 15-3. A profit-maximizing monopoly's profit is equal to

a. P3 ×Q2.

b. P2 ×Q4.

c. (P3 - P0)×Q2.

d. (P3 - P0)×Q4.

____ 42. Suppose a firm has a monopoly on the sale of widgets and faces a downward-sloping demand curve. When

selling the 100th widget, the firm will always receive

a. less marginal revenue on the 100thwidget than it received on the 99thwidget.

b. more average revenue on the 100thwidget than it received on the 99thwidget.

c. more total revenue on the 100 widgets than it received on the first 99 widgets.

d. a lower average cost per unit at 100 units output than at 99 units of output.

____ 43. For a monopolist,

a. average revenue is always greater than the price of the good.

b. marginal revenue is always less than the price of the good.

c. marginal cost is always greater than average total cost.

d. marginal revenue equals marginal cost at the point where total revenue is maximized.

____ 44. A monopolist can sell 200 units of output for $36.00 per unit. Alternatively, it can sell 201 units of output for

$35.80 per unit. The marginal revenue of the 201stunit of output is

a. $-4.20.

b. $-0.20.

c. $4.20.

d. $35.80.

Name: ________________________ ID: A

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Scenario 15-2

A monopoly firm maximizes its profit by producing Q = 500 units of output. At that level of output, its

marginal revenue is $30, its average revenue is $60, and its average total cost is $34.

____ 45.Refer to Scenario 15-2. The firm's profit-maximizing price is

a. $30.

b. between $30 and $34.

c. between $34 and $60.

d. $60.

____ 46.Refer to Scenario 15-2.The firm's maximum profit is

a. $13,000.

b. $15,000.

c. $17,000.

d. $30,000.

____ 47. A reduction in a monopolist's fixed costs would

a. decrease the profit-maximizing price and increase the profit-maximizing quantity

produced.

b. increase the profit-maximizing price and decrease the profit-maximizing quantity

produced.

c. not effect the profit-maximizing price or quantity.

d. possibly increase, decrease or not effect profit-maximizing price and quantity, depending

on the elasticity of demand.

Table 15-2

Dreher's Designer Shirt Company, a monopolist, has the following cost and revenue information.

COSTS REVENUES

Quantit

Produced

Total Cost

($)

Marginal

Cost

Quantity

Demanded

Price

($/unit)

Total

Revenue

Marginal

Revenue

0 100 -- 0 170 --

1 140 1 160

2 184 2 150

3 230 3 140

4 280 4 130

5 335 5 120

6 395 6 110

7 475 7 100

8 565 8 90

____ 48.Refer to Table 15-2. What is the marginal revenue from selling the 2nd shirt?

a. $140

b. $150

c. $160

d. $170

Name: ________________________ ID: A

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____ 49.Refer to Table 15-2. What is the marginal revenue from selling the 8th shirt?

a. $10

b. $20

c. $40

d. $90

____ 50. Monopolies use their market power to

a. charge prices that equal minimum average total cost.

b. attain normal profits in the long run.

c. charge a price that is higher than marginal cost.

d. dump excess supplies of their product on the market.