ECONOMICS TEST 10 MCQs

Question # 00652385 Posted By: Prof.Longines Updated on: 02/18/2018 07:14 AM Due on: 02/18/2018
Subject Economics Topic Environmental Economics Tutorials:
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CHAPTER 10 TESTName: __________________________ Date: _____________
1. Which of the following is (are) true?
A) Profit-maximizing behavior is based on the marginal decision rule.
B) Additional units of a good should be produced as long as MR > MC.
C) The profit-maximizing solution occurs where MR = MC.
D) All of the above are true.
Use the following to answer question 2:
2. (Exhibit: A Profit-Maximizing Monopoly Firm) This profit-maximizing monopoly firm's profit per unit is:
A) $5.
B) $13.
C) $14.
D) $20.
3. A monopoly is a market characterized by:
A) a single seller.
B) a product with many close substitutes.
C) a large number of small firms.
D) a small number of large firms.
4. Monopoly is important to study because it:
A) avoids all real-world problems and complexities.
B) avoids most real-world problems and complexities.
C) is a theoretical model used for analysis.
D) is a realistic model of many different markets.
5. A statement that best reflects an evaluation of monopoly firms is that:
A) they have a great deal of market power.
B) they are economically efficient.
C) consumers are given more choices, lower costs, and higher quality.
D) competition should replace all monopolies.
6. A monopoly can be temporary because of:
A) high barriers to entry.
B) privileges granted by the government.
C) economies of scale.
D) technological change.
7. Explain in detail the relationships among total revenue, price, marginal revenue, and the concept of the price elasticity of demand. Include in your answer a graph of total revenue, demand, and marginal revenue and show the various elasticities along the demand curve (you may use a linear demand and marginal revenue curve).
8. Define, identify, and/or explain each of the following:
A. barriers to entry
B. deadweight loss
C. monopoly power
D. monopoly
9. According to the Case in Point on hockey teams, economic theory predicts that if a sports team consistently fails to sell out its games, it will operate at a quantity where marginal revenue is:
A) the highest possible.
B) positive.
C) negative.
D) equal to marginal cost and both are equal to zero.
10. In 1999, a judge declared that Microsoft was a monopolist. Assuming that it is maximizing its profits at its current level of output, we may conclude that the absolute value of the price elasticity of demand for its systems is:
A) less than 1.
B) equal to 1.
C) greater than 1.
D) There is insufficient information upon which to make a determination.
11. Suppose that your firm has spent several decades establishing a well-known brand name through advertising. If other firms are prevented from entering your industry because of high advertising expense, your monopoly would result from:
A) sunk costs.
B) location.
C) economies of scale.
D) government restrictions.
12. When a monopoly changes price to respond to a change in marginal cost, the _______ in _______ is _______ than the _______ .
A) change; price; less; the change in marginal cost
B) increase; price; greater; change in output
C) decrease; output; greater; change in output
D) change; price; equal to; change in marginal cost
13. The Telecommunications Act of 1996 was intended to:
A) reduce cutthroat competition in the local markets of the telecommunications industry.
B) prevent mergers and acquisitions within the telecommunications industry.
C) enhance AT&T's competitive position against foreign competitors.
D) encourage greater competition in the local markets of the telecommunications industry.
14. A profit-maximizing firm finds that its marginal costs have risen by $10 per unit. In response to the increase in costs it will change its price and it will experience:
A) an increase in its total revenue.
B) a decrease in its total revenue.
C) no change in its total revenue.
D) It is not possible to predict the impact of the change on total revenue.
15. The two theoretical extremes of the market structure spectrum are occupied on one end by perfect competition and on the other end by:
A) monopoly.
B) duopoly.
C) oligopoly.
D) monopolistic competition.
16. The monopoly firm's profit-maximizing price is:
A) given by the point on the ATC curve for the profit-maximizing quantity.
B) given by the point on the demand curve for the profit-maximizing quantity.
C) determined for the quantity of output where MR > MC by the greatest amount.
D) described by B and C.
17. If a monopoly is forced to charge a price = MC:
A) output will fall.
B) resource allocation will improve.
C) the monopoly will incur an economic loss.
D) all of the above will occur.
18. The profit-maximizing rule MR = MC is:
A) followed by a monopoly, but not a perfectly competitive firm.
B) followed by a perfectly competitive firm but not by a monopoly.
C) followed by any firm.
D) not followed by a monopoly, because it would reduce economic profit to zero.
19. Suppose that a profit-maximizing monopoly firm experiences a substantial technological change that reduces its marginal and average total costs by $40. Suppose also that the firm lowers its price in response to the reduction in its costs of production. Lowering its price will cause the firm's total revenue to:
A) rise.
B) fall.
C) remain unchanged.
D) It is not possible to make a determination from the information given.
20. A demand curve that is downward sloping will ensure that:
A) P = MR.
B) P > MR.
C) P < MR.
D) P = MC.
21. Public policies towards monopoly in the United States consists of:
A) laws outlawing all of them.
B) regulation of natural monopolies.
C) government takeover if monopoly profit exceeds a certain level.
D) forcing monopoly industries to become perfectly competitive.
22. A firm that confronts economies of scale:
A) at lower levels of output and then encounters diseconomies of scale at higher levels of output is a natural monopoly.
B) over the entire range of outputs demanded is called a natural monopoly.
C) at any particular level of output is called a natural monopoly.
D) has a continually rising long-run average cost curve.
23. The XYZ Company is a profit-maximizing firm with a monopoly in the production of pennants. The firm sells its pennants for $10 each. We can conclude that the XYZ Company is producing a level of output at which:
A) average total cost equals $10.
B) average total cost is greater than $10.
C) marginal revenue equals $10.
D) marginal cost equals marginal revenue.
24. If your farm has the only known source of a rare cocoa bean needed to make chocolate-covered peanuts, your monopoly would result from:
A) sunk costs.
B) location.
C) restricted ownership of inputs.
D) government restrictions.
25. The demand curve facing a price setter:
A) is vertical.
B) is horizontal.
C) is upward sloping.
D) is downward sloping.
26. A feature of monopoly that leads to unfavorable consequences is that it:
A) reduces income inequality.
B) sets marginal cost equal to price.
C) produces less output than if perfectly competitive firms characterized the same industry.
D) charges a lower price than if perfectly competitive firms characterized the same industry.
27. The demand curve for a monopoly is:
A) downward sloping, and therefore the monopoly is a price setter.
B) inelastic throughout its entire range.
C) downward sloping and therefore the monopoly is a price taker.
D) horizontal at the market-determined price.
28. A natural monopoly is most likely to result if a single firm:
A) is the only seller in a community.
B) is investor-owned, but is granted the exclusive right by the government to operate in a market.
C) experiences economies of scale over a wide range of output.
D) has gained control over a strategic input of an important production process.
29. An increase in the marginal costs of a monopoly would _______ price and _______ quantity.
A) not change; not change
B) increase; decrease
C) increase; increase
D) decrease; increase
30. If a firm possesses monopoly power, it means that:
A) the firm can set its own price based on its output decision.
B) the firm's demand curve is always elastic.
C) the firm is necessarily a monopoly.
D) A and C are true.
31. The Case in Point on hockey teams suggested that if a sports team had a large enough stadium, it would maximize its profits by selling that quantity of tickets per game where marginal revenue was:
A) the highest possible.
B) rising over the relevant range.
C) equal to marginal cost and both were equal to zero.
D) equal to total revenue.
32. In perfect competition,. price will _______ marginal cost. In monopoly, price will _______ marginal cost.
A) exceed; equal
B) equal; exceed
C) equal; be less than
D) be less than; exceed
33. When monopolies exist because economies of scale prevail over the entire range of demand:
A) they will charge prices too low to achieve the efficient level of output.
B) even then, economists insist that they do not serve a useful role.
C) economists suggest that we may want to regulate their production and pricing, but we may not want to give up their cost advantages.
D) ATC is likely to exceed price.
34. The XYZ Company is a profit-maximizing firm with a monopoly in the production of pennants. The firm sells its pennants for $10 each. We can conclude that the XYZ Company is producing a level of output at which the demand for pennants is:
A) elastic.
B) unit price elastic.
C) inelastic.
D) perfectly inelastic.
35. If the profit-maximizing price is less than LRAC, a monopoly firm will go out of business in the long run.
A) True
B) False
36. Most electric, gas, and water companies are examples of:
A) unregulated monopolies.
B) natural monopolies.
C) restricted-input monopolies.
D) sunk-cost monopolies.
Use the following to answer question 37:Assume that Sandy Chip Products, Inc., is the world's only producer of a special kind of computer chip. Its patents assure that it will continue to be the only producer for at least the next decade. Chip production requires clean water. The firm gets its water from a river, which is being polluted by paper mills located upstream. Sandy Chip therefore has to process the water before using it. A recently enacted pollution-control program, whereby the paper mills will be fined for polluting the river, will result in less pollution and thus lower Sandy Chip's costs. Sandy Chip expects its marginal and average cost to fall by $20 per chip.
37. (Exhibit: Chip Production) With the reduction in its costs, Sandy Chip will probably:
A) lower its price by $20.
B) lower its price, but by less than $20.
C) lower its price, but by more than $20.
D) It is not possible to make a determination from the information given.
38. A horizontal demand curve exists for:
A) a monopoly, but not for a perfectly competitive firm.
B) a perfectly competitive firm, but not for a monopoly.
C) both a monopoly and a perfectly competitive firm.
D) either a monopoly or a perfectly competitive firm, depending on the costs of production.
39. The profit-maximizing rule MC = MR is followed by:
A) a monopoly, but not a perfectly competitive firm.
B) a perfectly competitive firm, but not a monopoly.
C) both a monopoly and a perfectly competitive firm.
D) neither a monopoly nor a perfectly competitive firm.
Use the following to answer question 40:
40. (Exhibit: Computing Monopoly Profit) At point E, the price elasticity of demand is:
A) equal to 1.
B) in the elastic range.
C) in the inelastic range, and if price falls, total revenue will increase.
D) in the inelastic range, and if price rises, so will total revenue.
41. The Case in Point on the rise and fall of the Roman Empire suggested that up to the first century A.D. the Roman Empire's rise to power could be explained in part by recognizing the role of:
A) economies of scale in putting up legions of soldiers.
B) the technology of warfare and the significant diseconomies of scale that smaller states confronted when using large, labor intensive armies against Rome's more streamlined and compact armies on horseback.
C) the technology of warfare that allowed Rome to fight with small, capital-intensive armies.
D) the invention of the saddle and the stirrup.
42. A monopoly is a market structure characterized by:
A) a single buyer and several sellers.
B) a product with many close substitutes.
C) a large number of small firms.
D) barriers to entry and exit.
43. Monopoly will produce at the output level where MR = MC.
A) True
B) False
44. A monopoly:
A) allocates resources in a socially optimal way.
B) produces less than it would if it adhered to the MC = P standard.
C) adheres to the MC = P standard.
D) encourages greater efficiency.
45. The pricing in monopoly prevents some mutually beneficial trades from taking place. The value of these unrealized mutually beneficial trades is called:
A) sunk costs.
B) opportunity costs.
C) a deadweight loss.
D) inequities.
46. Define, identify and/or explain each of the following:
A. natural monopoly
B. network effects
C. price setter
D. sunk cost
47. A downward-sloping demand curve exists for:
A) a monopoly, but not for a perfectly competitive firm.
B) a perfectly competitive firm, but not for a monopoly.
C) both a monopoly and a perfectly competitive firm.
D) either a monopoly or a perfectly competitive firm, depending on the costs of production.
48. The Case in Point on the rise and fall of the Roman Empire suggested that between the first and ninth centuries A.D. the Roman Empire's fall from power could be explained in part by recognizing the role of:
A) the invention of the saddle and the stirrup.
B) gunpowder, which was invented by Rome's enemies and used effectively against it.
C) the absence of economies of scale when Rome was forced to fight against cavalry units that could produce military force at a lower cost per unit than foot soldiers.
D) both A and C.
49. A monopoly has no effective rivals.
A) True
B) False
Use the following to answer question 50:
50. (Exhibit: Short-Run Monopoly) The marginal cost of producing the profit-maximizing quantity is cost:
A) N.
B) O.
C) P.
D) Q.
51. A decrease in the demand facing a monopoly firm would _______ quantity and _______ price.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
52. Because of monopoly, consumers typically have:
A) fewer choices.
B) higher costs.
C) lower quality.
D) all of the above.
Use the following to answer question 53:
53. (Exhibit: Computing Monopoly Profit) Which of the following is (are) true?
A) Lowering the price from the profit-maximizing price will decrease total revenue.
B) Marginal profit when the price is P3 is equal to zero.
C) The profit-maximizing condition for any firm is MR > MC.
D) All of the above are true.
Use the following to answer question 54:
54. (Exhibit: A Profit-Maximizing Monopoly Firm) This profit-maximizing monopoly firm's cost per unit at its profit-maximizing quantity is:
A) $8.
B) $15.
C) $16.
D) $18.
55. Total revenue is at a maximum when MR = 0.
A) True
B) False
56. If regulation of a monopoly results in a price equal to marginal cost, but price is below average total cost:
A) the firm can still make an economic profit.
B) the firm will earn only a zero economic profit.
C) efficiency in allocation will be less.
D) the firm will require subsidization or it will go out of business.
57. The profit-maximizing rule P = MC is:
A) followed by a monopoly.
B) followed by a perfectly competitive firm.
C) a rule for any firm that wants to maximize profits.
D) false for all of the above.
58. If a monopolist is producing a quantity that generates MC < MR, then profit:
A) is maximized.
B) is maximized only if MC = P.
C) can be increased by increasing production.
D) can be increased by decreasing production.
59. An expenditure that cannot be recovered is called a sunk cost.
A) True
B) False
60. A demand curve that is linear and downward sloping:
A) means that marginal revenue is equal to price.
B) means that total revenue is always upward sloping.
C) will result in a marginal revenue that is greater than price.
D) has a price elasticity of demand that is equal to -1 when marginal revenue is equal to zero.
61. In a monopoly industry in the long run:
A) economic profits will be eliminated by the entry of rival firms.
B) economic profits will be reduced, but not eliminated entirely, by the entry of rival firms.
C) entry will not occur.
D) none of the above are true.
62. Which of the following is true?
A) Instead of applying the marginal decision rule, monopoly firms just set the price as high as possible.
B) If demand is downward sloping, P = MR.
C) If demand is downward sloping, P = ATC.
D) If demand is downward sloping, P > MR.
63. Monopoly presents a problem of economic inefficiency.
A) True
B) False
64. The profit-maximizing rule MC = P is followed by:
A) a perfectly competitive firm, but not a monopoly.
B) a monopoly, but not a perfectly competitive firm.
C) both a monopoly and a perfectly competitive firm.
D) neither a monopoly nor a perfectly competitive firm.
65. Unlike a perfectly competitive firm, a monopoly maximizes profits at the quantity that equates marginal revenue to marginal cost.
A) True
B) False
66. A perfectly competitive firm is a _______ ; a monopoly is a _______ .
A) price setter; price setter
B) price taker; price taker
C) price taker; price setter
D) price setter; price taker
67. The demand curve facing a monopolist is:
A) downward sloping.
B) vertical.
C) horizontal.
D) upward sloping.
68. Assume that an industry that was perfectly competitive suddenly becomes monopolized. Which of the following best completes the statement? A monopoly will _______ the competitive firms, taken collectively.
A) earn lower profits than
B) sell less output than
C) sell more output than
D) earn about the same profits as
Use the following to answer question 69:
69. (Exhibit: Demand, Elasticity, and Total Revenue) Panels (a) and (b) show that:
A) when a demand curve is downward sloping, P < MR.
B) a firm will never maximize profits by producing a quantity where the demand curve is in the inelastic range.
C) when TR is at a maximum, marginal revenue is negative.
D) all of the above are true.
70. Marginal revenue is _______ in the _______ range of the demand curve, _______ in the _______ range of the demand curve and _______ where demand is unit price elastic.
A) positive; positive, negative, negative; greater than zero
B) negative; inelastic; positive; elastic; zero
C) positive; inelastic; negative; positive; zero
D) negative; positive; positive; negative; less than zero
71. Microsoft holds patents on Windows, but another source of its monopoly power identified in the book is:
A) the network effects associated with the standards set by Windows.
B) its willingness to use catalog sales as its primary form of retail sales.
C) its exclusive franchise from the government.
D) its restricted ownership of silica, the principle ingredient in manufacturing computer chips.
72. Suppose that a monopolist increases production from 10 units to 11 units. If the market price declines from $20 per unit to $19 per unit, marginal revenue for the eleventh unit is:
A) $1.
B) $9.
C) $19.
D) $20.
73. The Case in Point on hockey teams suggested that the market behavior of hockey teams can best be analyzed using the model of:
A) monopoly.
B) demand and supply.
C) duopoly.
D) both A and B are true.
74. The power a firm has to set is own price is called:
A) competition.
B) discrimination.
C) legislative control.
D) monopoly power.
75. Why would a monopoly firm never produce in the inelastic portion of its demand curve?

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