Microeconomics Test 4

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nikkid080
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299694
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Microeconomics Test 4
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2015-04-06 23:39:04
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Microeconomics
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ch 8-10
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  1. A classification system for the key traits of a market, including the number of firms, the similarity of the products they sell, and the ease of entry into and exit from the market.
    Market Structure
  2. A market structure characterized by (1) a large number of small firms, (2) a homogeneous product, (3) very easy entry into or exit from the market. Perfect competition is also referred to as pure competition.
    Perfect Competition
  3. Any obstacle that makes it difficult for a new firm to enter a market.
    Barrier to entry
  4. A seller that has no control over the price of the product it sells.
    Price taker
  5. The change in total revenue from the sale of one additional unit of output.
    Marginal revenue (MR)
  6. A firm's marginal cost curve above the minimum point on its average variable costs curve.
    Perfectly competitive firm's short-run supply curve
  7. The supply curve derived from horizontal summation of the marginal cost curves of all firms in the industry above the minimum point of each firm's average variable cost curve.
    Perfectly competitive industry's short-run supply curve
  8. The curve that shows the quantities supplied by the industry at different equilibrium prices after firms complete their entry and exit.
    Perfectly competitive industry's long-run supply curve
  9. An industry in which the expansion of industry output by the entry of new firms has no effect on the firm's average total cost curve.
    Constant-cost industry
  10. An industry in which the expansion of industry output by the entry of new firms decreases the individual firm's decreases the individual firms's average cost curve (cost curve shifts downward).
    Decreasing-cost industry
  11. An industry in which the expansion of industry output by the entry of new firms increases the individual firm's average total cost curve (cost curve shifts upward).
    Increasing-cost industry
  12. Explain why a perfectly competitive firm would or would not advertise.
    A perfectly competitive firm will not advertise. Because all firms in the industry sell the same product, there is no reason for customers to be influenced by ads into buying one firms's product rather than another firm's product.
  13. Perfect competition is defined as market structure in which
    A) there are many small sellers.
    B) the product is homogeneous.
    C) it is very easy for firms to enter or exit the market.
    D) All of the above answers are correct
    ~D~
  14. Under perfect competition, which of the following are the same (equal) at all levels of output?
    A) Price and Marginal cost
    B) Price and marginal revenue
    C) Marginal cost and Marginal revenue
    D) All of the above answers are correct
    ~B~
  15. A portrait photographer produces output in packages of 100 photos each. If the output sold increases from 600 to 700 photos, total revenue increases from $1,200 to $1,400. What is the marginal revenue per photo?
    A) $200
    B) $100
    C) $20
    D) $2
    E) $1
    • ~E~
    • $1400-$1200=$200 
    • *New Revenue - Old Revenue = increase:decrease

    • $200/100=$2.00
    • *Increase:Decrease / package output = Marginal revenue per photo

  16. In the short run, a perfectly competitive firm is producing at a price below average total cost. What is its economic profit?
    A) Positive
    B) Zero
    C) Negative
    D) Normal
    ~C~
  17. The point of maximum profit for a business firm is where.
    A) P = AC
    B) TR = TC
    C) MR = AR
    D) MR = MC
    ~D~
  18. Above the shutdown point, a competitive firm's supply curve coincides with its
    A) Marginal revenue curve.
    B) Marginal cost curve.
    C) Average variable cost curve.
    D) Average total cost curve.
    ~B~
  19. A perfectly competitive firm's short-run supply curve is the
    A) average total cost curve
    B) demand curve above the marginal revenue curve.
    C) same as the market supply curve
    D) Marginal cost curve above the average variable cost curve.
    ~D~
  20. A perfectly competitive firm's short-run supply curve is
    A) the segment of the marginal cost curve above average fixed cost
    B) the segment of the marginal cost curve above the minimum level of average variable cost. 
    C) the upward-sloping segment of the marginal cost curve.
    D) both a and b
    ~B~
  21. In long-run equilibrium, the perfectly competitive firm sets its price equal to which of the following?
    A) Short-run average total cost
    B) Short-run marginal cost
    C) Long-run average cost
    D) All of the above answers  are correct
    ~D~
  22. If there is a permanent increase in demand for the product of a perfectly competitive industry, the process of transition to a new long-run equilibrium will include
    A) the entry of new firms
    B) temporarily higher profits
    C) both a and b
    D) neither a nor b
    ~C~
  23. A market structure characterized by (1) a single seller, (2) a unique product, and (3) impossible entry into the market.
    Monopoly
  24. An industry in which the long-run average cost of production declines throughout the entire market. As a result, a single firm can supply the entire market demand at a lower cost than can two or more smaller firms
    Natural monopoly
  25. A good that increases in value to each user as the total number of users increases. As a result, a firm can achieve economies of scale. Examples include Facebook and Match.com
    Network good
  26. A firm that faces a downward-sloping demand curve and therefore it can choose among price and output combinations along the demand curve.
    Price maker
  27. The practice of a seller charging different prices for the same product that are not justified by cost differences.
    Price discrimination
  28. The practice of earning a profit by buying a good at a low price and reselling the good at a higher price
    Arbitrage
  29. The monopolist faces
    A) a perfectly inelastic demand curve
    B) a perfectly elastic demand curve
    C) the entire market demand curve
    D) All of the answers above are correct
    ~C~
  30. To maximize its profit, a monopoly should choose a price where demand is
    A) Elastic
    B) Inelastic
    C) Unitary Elastic
    D) Vertical
    ~A~
  31. When marginal revenue is zero for a monopolist facing a downward-sloping straight-line demand curve, the price elasticity of demand is
    A) greater than 1
    B) equal to 1
    C) less than 2
    D) equal to 0
    ~B~
  32. Both a perfectly competitive firm and a monopolist
    A) always earn an economic profit
    B) maximize profit by setting marginal cost equal to marginal revenue
    C) maximize profit by setting marginal cost equal to average total cost.
    D) are price takers
    ~B~
  33. Suppose a monopolist's demand curve lies below its average variable cost curve. The firm will 
    A) stay in operation in the short run
    B) earn an economic profit
    C) earn an economic profit in the long run
    D) shut down
    ~D~
  34. Which of the following statements best describes the price, output, and profit conditions of monopoly?
    A) price will equal marginal cost at the profit-maximizing level of output, and profits will be positive in the long run.
    B) Price will always equal average variable cost in the short run, and either profits or losses may result in the long run.
    C) In the long run, positive economic profit will be earned.
    D) All of the answers above are correct.
    ~C~
  35. Which of the following is true for the monopolist?
    A) Marginal revenue is less than the price charged.
    B) Economic profit is possible is the long run.
    C) Profit maximizing revenue equals marginal cost.
    D) All of the answers above are correct.
    ~B~
  36. Although a monopoly can charge any price it wishes, it chooses
    A) the highest price.
    B) the price equal to marginal cost.
    C) the price that maximizes profit.
    D) competitive prices.
    E) a fair price.
    ~E~
  37. Suppose a monopolist charges a price corresponding to the intersection of marginal cost and marginal revenue. If the price is between its average variable cost and average total cost curves, the firm will
    A) earn an economic profit
    B) stay in operation in the short run, but shut down in the long run if demand remains the same. 
    C) Shut down
    D) None of the above answers is correct.
    ~B~
  38. The act of buying a commodity in one market at a lower price and selling it in another market at a higher price is known as
    A) buying long.
    B) Selling short
    C) a tariff.
    D) arbitrage
    ~D~
  39. One necessary condition for effective price discrimination is
    A) identical tastes among buyers.
    B) a difference in the price elasticity of  demand among buyers
    C) a single, homogeneous market
    D) two or more markets with easy resale of products between them.
    ~B~
  40. An example of price discrimination is the price charged for
    A) an economics textbook at a campus bookstore
    B) gasoline
    C) theater tickets that offer lower prices for children
    D) a postage stamp
    ~C~
  41. Suppose a monopolist and a perfectly competitive firm have the same cost curves. The monopolistic firm would
    A) charge a lower price than the perfectly competitive firm.
    B) charge a higher price than the perfectly competitive firm.
    C) charge the same price as the perfectly competitive firm.
    D) refuse to operate in the short run unless an economic profit could be made
    ~B~
  42. Suppose there are two markets for football games: (1) rich alumni as fully committed to their Alma mater as the lower-income students and (2) students. Based on this information, which market will have the lower elasticity, and thus the higher price, if the university can price-discriminate?
    A) the student market
    B) the alumni market
    ~B~
  43. A market structure characterized by (1) many small sellers, (2) a differentiated product, and (3) easy market entry and exit.
    Monopolistic competition
  44. The process of creating real or apparent differences between goods and services.
    Product differentiation
  45. The situation in which a firm competes using advertising, packaging, product development, better quality, and better service, rather than lower prices.
    Nonprice Competition
  46. A market structure characterized by (1) few large sellers, (2) either a homogeneous or a differentiated product, and (3) difficult market entry.
    Oligopoly
  47. A condition in which an action by one firm may cause a reaction from other firms.
    Mutual interdependence
  48. A demand curve facing an oligopolist that assumes rivals will match a price decreases, but ignore a price increase
    Kinked demand curve
  49. A price strategy in which a dominant firm sets the price for an industry and the other firms follow
    Price leadership
  50. A group of firms that formally agree to reduce competition by coordinating the price and output of a product
    Cartel
  51. A model of the strategic moves and counter-moves of rivals
    Game Theory
  52. Clothing stores in cities are an illustration of 
    A) perfect competition
    B) monopoly
    C) monopolistic competition
    D) oligopoly
    ~C~
  53. Firms in a monopolistically competitive industry produce
    A) homogeneous goods and services
    B) differentiated products
    C) competitive goods only
    D) consumption goods only
    ~B~
  54. Monopolistic competitive firms in the long run earn
    A) positive economic profits
    B) zero pure economic profits
    C) negative economic profits
    D) None of the above
    ~B~
  55. The theory of monopolistic competition predicts that in long-run equilibrium, a monopolistically competitive firm will
    A) produce at the level in which price equals long-run average cost
    B) operate at minimum long-run average cost
    C) overutilize its insufficient capacity
    D) None of the above
    ~A~
  56. Which of the following statements best describes the price, output, and profit conditions of monopolistic competition?
    A) Price will equal marginal cost at the profit maximizing level of output; profits will be positive in the long run
    B) Price will always equal average variable cost in the short run, and either profits or losses may result in the long run
    C) Marginal revenue will equal marginal cost in the short run, profit-maximizing level of output; in the long run, economic profit will be zero
    D) Marginal revenue will equal average total cost in the short run; long run economic profits will be zero
    ~C~
  57. Entry of new firms will occur in monopolistic competitive industry until
    A) marginal cost equals zero 
    B) marginal revenue equals zero
    C) marginal revenue equals marginal cost
    D) economic profit equals zero
    E) economic profit in negative
    ~D~
  58. An oligopoly is a market structure in which
    A) one firm has 100 percent of a market
    B) there are many small firms
    C) there are many firms with no control over price
    D) there are few firms selling either a homogeneous or differentiated product
    ~D~
  59. Mutual interdependence among firms in an oligopoly means that
    A) firms never practice price leadership
    B) firms never form a cartel
    C) it is difficult to know how firms will react to decisions of rivals
    D) no formal agreement is possible among firms
    ~C~
  60. A common characteristic of oligopolies is
    A) interdependence in pricing decisions.
    B) independent pricing decisions
    C) low industry concentration
    D) few or no plant-level economies of scale
    ~A~

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