Chapter 9 MCQ Flashcards
If your business decision results in marginal revenue being greater than zero, profits will increase. T F
False. Profits increase only if marginal revenue is greater than marginal cost.
Products that can easily be resold tend to have a single price. T F
True. Resale creates competition.
To sell more, monopolists must lower the price on new sales only. T F
False. For products that can be easily resold, even monopolists must live by the one-price rule.
Marginal costs tend to be constant as output increases if the business is operating below capacity. T F
True. Businesses near capacity have increasing marginal costs.
The marginal cost of adding passengers on a plane increases with every ticket sold. T F
False. Although there are marginal costs of adding passengers since additional snacks are served and fuel consumption increases — when each additional ticket is sold, marginal cost is constant as long as the airplane is below 100-percent capacity.
Constant marginal cost means total costs are always the same. T F
False. Total costs increase by the same amount when quantity increases.
If marginal costs are greater than marginal revenues, then profits decrease. T F
True. Smart to increase quantity only when marginal revenue greater than marginal cost.
An increase in the cost of rent will change the profit-maximizing quantity of output for a business. T F
False. A change in fixed costs does not change smart decisions about price or quantity.
The price your business chooses does not depend on the quantity you expect to sell. T F
False. Quantity decision comes first. Then set highest price that allows you to sell that quantity
Price discrimination occurs when a business charges different customers different prices for the same product or service. T F
True. Definition.
Price discrimination occurs more frequently among products than services. T F
False. Products are more likely than services to be resold. Things that can easily be resold tend to have a single price.
Price discrimination increases profits when businesses can provide discounts to the inelastic demand group. T F
False. Discounts should be given to the elastic-demand group, which is sensitive to prices.
Economic profits are a sign of an efficient market structure. T F
False. Efficient market structures have normal profits only.
Efficient market structures are always better than inefficient market structures. T F
False. There are benefits (product variety, innovations raising living standards) to inefficient market structures that must be compared with costs of inefficiency.
Price-making power reduces consumer surplus and increases producer surplus. T F
True. Transfers some consumer surplus to producer surplus, but also creates deadweight loss.
Marginal revenue is the additional
sales revenue from staying open later.
profit from staying open later.
cost from staying open later.
all of the above.
a) Marginal revenue is additional revenue from more sales or from selling one more unit.
Self-interest and competition will most likely push the price toward a single price for
haircuts.
coffee.
tennis lessons.
Broadway show tickets.
b) Easily resold and less differentiated than services listed in other choices.
Which statement about prices and marginal revenues is true?
Marginal revenue equals price for monopolists.
Marginal revenue equals price for businesses in perfect competition.
Marginal revenue is greater than price for monopolists.
Marginal revenue is greater than price for businesses in perfect competition.
b) Because they are small, businesses in perfect competition can increase sales without lowering the (market-set) price.
The marginal cost of staying open an extra hour includes
additional wages.
additional costs of hydro/electricity.
additional costs of time.
all of the above.
d) Notice the word additional for all. Fixed costs are not part of marginal costs.
to increase output, marginal costs increase when a business must
shift to more expensive sources of raw materials.
switch workers from jobs they are good at to jobs they are not so good at.
use more workers at overtime rates.
do all of the above.
d) Due to diminishing returns or switch to more expensive inputs.
A business probably has constant marginal costs if
workers are sending text messages and checking Facebook instead of working.
customers are angry that wait times at the checkout are ridiculously long.
it is offering workers increased overtime-pay rates.
it is selling Christmas trees and it is the Christmas season.
a) Indicates business is not operating near capacity.
With each additional item sold by a monopolist under the one-price rule,
total revenue falls.
marginal revenue falls by less than price.
marginal revenue falls by the same amount as the fall in price.
marginal revenue falls by more than price.
Use the information from question 3 of the “Refresh” summary at the end of section 9.3 (repeated here) to answer questions 8 and 9.
You have been working too many hours at your part-time job (which pays $10 per hour), and your Economics marks are suffering. Your father, who wants you to do better in school but recognizes your desire for cash, offers you this deal. For every 1-percent increase in your mark on the next test, he will pay you $6. You estimate that one additional hour of studying will raise your mark 5 percent; a second hour of studying will raise your mark 4 percent; a third hour, 3 percent; a fourth hour, 2 percent; and a fifth hour, 1 percent. If all you are trying to do is make the most money, how many hours do you study?
d) To sell more, must lower price not just on last unit sold, but on all units sold.
If all you are trying to do is make the most money, and you have only five hours to divide between studying and working, how many hours should you work?
1
2
3
4
a) For the first four hours of studying, marginal revenue is greater than the marginal opportunity cost of $10 per hour for working. For the fifth hour, you make more by working than by studying ($6).
You have only five hours to divide between studying and working. Suppose your boss gets desperate and offers to pay you $15 an hour. How many hours will you now work?
1
2
3
4
b) Marginal revenue of hours of studying still $30 for 1st hour, $24 for 2nd, $18 for 3rd, $12 for 4th. Marginal opportunity cost now = $15, so only 3 hours of studying is smart, leaving 2 hours for work.
Price discrimination increases profits when businesses can
charge lower prices to consumers with elastic demand.
charge higher prices to consumers with inelastic demand.
control resentment among higher-price buyers.
do all of the above.
d) Recipe for successful price discrimination.
The secret for successful price discrimination is to set
higher prices for customers with elastic demand.
higher prices for all customers.
lower prices for customers with elastic demand.
lower prices for customers with inelastic demand.
c) And higher prices for customers with inelastic demand.
The passenger next to you who paid more than you did for her airline ticket is probably
smarter than you.
older than you.
travelling for business.
all of the above.
c) Demand for business travel is more inelastic.
When businesses follow the recipe for maximum profits, the outcome is
always efficient.
efficient for price-taking market structures and inefficient for price-making market structures.
efficient for price-making market structures and inefficient for price-taking market structures.
also best for the economy.
b) Maximum total surplus for perfect competition and deadweight loss for other market structures.
industries with perfect competition have
maximum total surplus.
deadweight loss.
the benefits of creative destruction.
product variety.
a) No deadweight loss, product differentiation, or innovation.
Industries with price-making power have
the benefits of creative destruction.
deadweight loss.
marginal revenue equal to marginal cost at the quantity of output with maximum total profits.
all of the above.
d) Same recipe for profits; inefficient but with benefits of creative destruction.
