Econ: Chapter 6

Question 1

A horizontal demand curve for a firm indicates that
-the Law of Demand does not apply in the market.
-price equals average total cost.
-the firm is a monopoly.
-the firm has no market power.

Answer 1

the firm has no market power.

Question 2

Which of the following is an example of a monopoly?
-Many firms supply the same good to the market, but each has significant brand loyalty.
-One large firm supplies all quantity to a specific market.
-A few large firms supply all quantity to the market.
-One firm supplies 60 percent of all quantity to a specific market and there are two smaller rival firms

Answer 2

-One large firm supplies all quantity to a specific market.

Question 3

If Pepsi and Coca-Cola are the only two soft drink producers, they could be considered
-an oligopoly.
-perfectly competitive firms.
-a monopoly.
-a duopoly.

Answer 3

-a duopoly.

Question 4

In making a production decision, a business owner
-decides whether to buy or lease new plant and equipment.
-makes a long-run decision about output and revenues.
-decides the short-run rate of output.
-decides whether to enter or exit the market.

Answer 4

decides the short-run rate of output.

Question 5

An individual wheat farmer has no market power because
-its output is a large portion of the entire market.
-it can differentiate its wheat.
-it must accept the equilibrium market price.
-it can alter the market price.

Answer 5

it must accept the equilibrium market price.

Question 6

Obstacles that make it difficult or impossible for additional producers to begin producing or selling in a new market are referred to as
-blockades to exit.
-barriers to exit.
-barriers to competition.
-barriers to entry.

Answer 6

barriers to entry.

Question 7

In which of the following industries is the firm referred to as a price taker?
-monopoly
-oligopoly
-monopolistic competition
-perfect competition

Answer 7

-perfect competition

Question 8

Which of the following is characteristic of perfectly competitive markets?
-prices set below marginal cost
-a large number of firms
-differentiated products
-significant barriers to entry

Answer 8

a large number of firms

Question 9

Market structure is determined by
-whether or not a firm is able to alter its output.
-the number and relative size of firms in a specific market.
-the level of government regulation in a specific market.
-the equilibrium price in a specific market.

Answer 9

the number and relative size of firms in a specific market.

Question 10

Examples of barriers to entry include
-low brand loyalty.
-perfect information.
-low customer switching costs
-patents

Answer 10

patents

Question 11

Barb’s Soccer Ball Company produces 950 soccer balls per week. If the firm used marginal cost pricing to determine soccer ball output, it would produce 800 soccer balls. Consumers do not receive the most desirable quantity of soccer balls from Barb’s because
- the firm must be earning higher than normal economic profits.
-economic losses are occurring.
-the cost of producing the additional 150 soccer balls is less than the amount that consumers are willing to pay for the additional soccer balls.
-the cost of producing the additional 150 soccer balls is greater than the amount that consumers are willing to pay for the additional soccer balls.

Answer 11

the cost of producing the additional 150 soccer balls is greater than the amount that consumers are willing to pay for the additional soccer balls.

Question 12

Total profit is equal to
-the difference between marginal revenue and marginal cost.
-the difference between price and average total cost.
-average cost times quantity sold.
-the difference between total revenue and total cost.

Answer 12

the difference between total revenue and total cost.

Question 13

Marginal costs
-are equal to total costs divided by total output.
-fall as the rate of output increases.
-are the additional costs incurred in producing one more unit of output.
-are constant for a perfectly competitive firm.

Answer 13

are the additional costs incurred in producing one more unit of output.

Question 14

You own Willow’s Whatsit Factory, which is described in the chart below:
Total Output Total Cost Marginal Cost
0 $ 10 –
1 15 $ 5
2 22 7
3 31 9
4 44 13
Item14
5
points

View previous attemptItem 14
You own Willow’s Whatsit Factory, which is described in the chart below:

Total Output Total Cost Marginal Cost
0 $ 10 –
1 15 $ 5
2 22 7
3 31 9
4 44 13
If the price of a what it is $10, then you should produce _________ to maximize your company’s profits.
-1 unit
-2 units
-3 units
-4 units

Answer 14

3 units

Question 15

The marginal cost curve is a competitive firm’s short-run _________curve
-total cost
-revenue
-supply
-demand

Answer 15

-supply

Question 16

The market supply curve is calculated by
-summing the prices from individual supply curves.
-averaging the individual supply curves.
-averaging the individual marginal cost curves below average total cost.
-summing the marginal cost curves of all firms at each price.

Answer 16

summing the marginal cost curves of all firms at each price

Question 17

For a competitive firm, the marginal cost curve
-shifts to the upward when new firms enter the market
-is the short-run demand curve.
-shifts upward when wages decrease.
-is the short-run supply curve at all viable production levels.

Answer 17

is the short-run supply curve at all viable production levels.

Question 18

In the long run, a perfectly competitive market with economic losses will experience
-an increase in equilibrium quantity as firms exit.
-no change in equilibrium price or quantity.
-an increase in equilibrium price as firms exit.
-the entry of firms until economic profits are zero

Answer 18

-an increase in equilibrium price as firms exit.

Question 19

When a new firm enters a perfectly competitive market, it
-pushes the equilibrium price upward.
-shifts the market demand curve to the left
-reduces the profits of existing firms.
-shifts the market supply curve to the left.

Answer 19

reduces the profits of existing firms.

Question 20

In a competitive market with economic profits, equilibrium
-quantity will fall as new firms enter the market.
-price will fall as new firms enter the market.
-price will rise as new firms enter the market.
-quantity will remain the same as new firms enter the market.

Answer 20

price will fall as new firms enter the market.