Micro ECON Quiz 4-6

Question 1

Suppose that the price of product X rises by 12 percent and the quantity supplied of X increases by 8 percent. The price elasticity of supply for good X is

Multiple Choice
- negative, and therefore X is an inferior good.
- positive, and therefore X is a normal good.
- less than 1, and therefore supply is inelastic.
- more than 1, and therefore supply is elastic.

Answer 1

Less than 1, and therefore supply is inelastic

Explained
Elasticity of Supply =
% change in quantity supplied /
% change in price
(8%/12%)
= 0.66666

Question 2

A price increase from $25 to $27 results in an increase in quantity supplied from 200 units to 220 units. The price elasticity of supply (using the midpoint method) in this price range is

Multiple Choice
0.81.
1.24.
0.62.
10.0.

Answer 2

1.24

Explained
PES = (% change in quantity supplied) / (% change in price)

% change in quantity supplied = ((New Quantity Supplied - Initial Quantity Supplied) / Initial Quantity Supplied) x 100

(220-200 / 200) x 100 =

% change in price = ((New Price - Initial Price) / Initial Price) x 100

Question 3

If the price elasticity of demand for a product is 0.5, then regular percentage change formula) a price cut from $3.00 to $2.70 will

Multiple Choice
- increase the quantity demanded by about 50 percent.
- decrease the quantity demanded by about 5 percent.
- increase the quantity demanded by about 5 percent.
- increase the quantity demanded by about 20 percent.

Answer 3

Increase the quantity demanded by about 5 percent

Explained
% change in quantity= elasticity x % change in price

% Change Price = (2.7 -3 / 3) x 100 = -10.0
% Change Quantity = 0.5 x -10 = -5

Answer = 5%

Question 4

The price elasticity of demand for a popular sporting event is -2. If the price of a ticket to this event increases by 10%, the quantity of tickets demanded will decrease by

Multiple Choice
5%.
20%.
10%.
0.2%.

Answer 4

20%

Work
-2 / 10% = -20

Question 5

Picture on Quiz 4 Question 5

If the price decreases from P3 to P2, then the total revenue will lose areas

Multiple Choice
B + E, but it will gain areas H + I.
H + I, but it will gain areas A + B + C.
E + F + G but it will gain areas H + I + J.
A + B + C + D, but it will gain areas E + F + G.

Answer 5

B + E, but it will gain areas H + I

Question 6

When the price of candy bars increased from $0.45 to $0.55, the quantity demanded changed from 21,000 per day to 19,000 per day. In this price range, the price elasticity of demand coefficient (based on the midpoint formula) for candy bars is

Multiple Choice
-1.
-2.
-0.18.
-0.5.

Answer 6

-0.5

Question 7

To economists, the main differences between “the short run” and “the long run” are that

Multiple Choice
- the law of diminishing returns applies in
the long run, but not in the short run.
- in the short run all resources are fixed, while in the long run all resources are variable.
- fixed inputs are more important to decision making in the long run than they are in the short run.
- in the long run all resources are variable, while in the short run at least one resource is fixed.

Answer 7

In the long run all resources are variable, while in the short run at least one resource is fixed

Question 8

Economists distinguish among the immediate period, the short run, and the long run by noting that

Multiple Choice
-supply is perfectly inelastic in the short run and most elastic in the immediate period
-demand is most elastic in the long run and perfectly inelastic in the immediate period.
- supply is most elastic in the long run and perfectly inelastic in the immediate period.
- supply is most elastic in the short run and perfectly inelastic in the long run.

Answer 8

Supply is most elastic in the long run and perfectly inelastic in the immediate period

Question 9

Answer the next question based on information in the following table.

Product % Change in Income % Change in Quantity Demanded
W −1 −1
X +6 +3
Y −1 +1
Z +4 +8
Which product would be an inferior good?

Multiple Choice
product W
product X
product Y
product Z

Answer 9

Product Y

Question 10

Use the figure below to answer the following question:

Price Quantity Supplied
$10 10
8 9
6 8
4 7
2 6

Over the $10 to $8 price range, the price elasticity of supply is

Multiple Choice
- 1.
- zero.
- less than 1.
- greater than 1.

Answer 10

less than 1

Work
(Q2 - Q1) / (Q2 + Q1) / 2 DIVIDE
(P2 - P1) / (P2 + P1) / 2

(10 - 9) / (10 + 9) / 2 Divide
(10 - 8) / (10 + 8) / 2

Question 11

In some markets consumers may buy many different brands of a product. Which of the statements below best represents a situation where demand for a particular brand would be very elastic?

Multiple Choice
- “The different brands are almost identical. I always buy the cheapest.”
- “I use so little of that product that when I do buy it, I don’t pay much attention to the price.”
- “The brand I buy is so superior to other available brands that I hardly consider the others.”
- “I pinch pennies in buying other products, but like most people I feel I owe it to myself to get the best brand of this product.”

Answer 11

“The different brands are almost identical I always buy the cheapest”

Question 12

Picture on Quiz 4 Question 12

When the seller is earning maximum revenues from selling Product X, the demand is

Multiple Choice
elastic.
inelastic.
unit-elastic.
perfectly inelastic.

Answer 12

unit- elastic

Question 13

How do hunting licenses protect extinction of those animals?

Multiple Choice
- Hunters have less incentive to hunt all together.
- Hunters buy more licenses which increases costs.
- Licenses provide clear property rights to the owner to hunt.
- Licenses provide a way to eliminate opportunity costs of hunting.

Answer 13

Licenses provide clear property rights to the owner to hunt

Question 14

The table below displays the private marginal benefit and the private marginal cost for Sam’s Flower Farm.

Quantity (acres) MC Private MB Private
100 $500 $525
200 525 525
300 550 525
400 575 525
500 600 525

Sam’s Flower Farm produces wild flowers. Each acre produces $525 worth of flowers per month. Sam’s farm also serves as a local attraction for tourists looking to view birds and butterflies increasing the revenues of local businesses by $75 per month.

What is the socially efficient number of acres for Sam to plant if all costs and benefits are considered?

Multiple Choice
500 acres
300 acres
200 acres
400 acres

Answer 14

500

Work
525 + 75 = 600

Question 15

What do interventions like hunting or fishing licenses do to the market for deer or fish?

Multiple Choice
- Distinguish why people can hunt or catch in that area.
- Provide clear property rights to reduce overconsumption.
- Act as an incentive for agencies to get more profit.
- Add more costs to hunters which increases the number of hunters.

Answer 15

Provide clear property rights to reduce overconsumption

Question 16

Cleanville is evaluating a cleanup effort with the hopes of improving the quality of their local lake. The marginal cost of the cleanup is $33,000 and the marginal benefit is $39,000. Assuming the city has enough money in its budget to undertake the project, should the city undertake the project?

Multiple Choice

The marginal benefit is greater marginal cost, so the city should undertake the project.

The marginal benefit is less marginal cost, so the city should not undertake the project.

The marginal benefit is less than the marginal cost, so the city should undertake the project.

The marginal benefit is greater than the marginal cost, so the city should not undertake the project.

Answer 16

The marginal benefit is greater marginal cost, so the city should undertake the project.

Question 17

Picture on Quiz 4 Question 17

What would happen if the government subsidized consumption of this product because it has positive externalities in consumption?

Multiple Choice
- supply would increase
- demand would decrease
- demand would increase
- price would decrease

Answer 17

Demand would increase

Question 18

Asarta Inc. is polluting into the nearby aquifer and the citizens of Buttersville demand that this be cleaned up. If the benefit to cleaning up the aquifer is estimated to be about $125,000 and the cost is estimated at $130,000, will the aquifer get cleaned?

Multiple Choice
- Yes, because the benefit is high.
- Yes, because the benefits outweigh the costs.
- No, because the costs outweigh the benefits.
- Uncertain, with the information given.

Answer 18

No, Because the cost outweigh the benefits

Question 19

Sam uses Craig’s Netflix account to watch movies and shows but does not actually pay for the service himself. This is an example of

Multiple Choice
- specialization and trade.
- the free-rider problem.
- economic optimization.
- scarcity.

Answer 19

The free-rider problem

Question 20

The table below displays the private marginal benefit and the private marginal cost for Sam’s Flower Farm.

Quantity (acres) MC Private MB Private
100 $500 $700
200 600 700
300 700 700
400 800 700
500 900 700

Sam’s Flower Farm produces wild flowers. Each acre produces $700 worth of flowers per month. Sam’s farm also serves as a local attraction for tourists looking to view birds and butterflies increasing the revenues of local businesses by $100 per month.

What is the socially efficient number of acres for Sam to plant if all costs and benefits are considered?

Multiple Choice
400 acres
300 acres
200 acres
100 acres

Answer 20

400

Work
700 + 100 = 800

Question 21

The table below shows the various levels of a city’s pollution cleanup along with the marginal benefit and marginal cost.

Pollution Cleanup

Marginal Benefit Quantity of Pollution MC $600 100 $150
500 200 200
400 300 250
300 400 300
200 500 350

What is the optimal level of pollution cleanup?

Multiple Choice
400 units
200 units
300 units
500 units

Answer 21

400

Question 22

Which of the following characteristics of property rights is key for the Coase Theorem to work?

Multiple Choice
- low transaction costs
- clear transaction costs
- high transaction costs
- zero transaction costs

Answer 22

Low transaction costs

Question 23

Picture on Quiz 4 Question 23

S1 and D1 represent the current market supply and demand, respectively. S2 and D2 represent the socially optimal supply and demand. The positions of the graphs indicate that there is (are) external

Multiple Choice
- benefits from production and external costs from consumption of the product.
- costs from production and external benefits from consumption of the product.
- benefits from production and consumption of the product.
- costs from production and consumption of the product.

Answer 23

Benefits from production and consumption of the product

Question 24

Which of the following may reduce the MC of companies emitting SO2 pollution?

Multiple Choice
- The government eliminated subsidies to companies for reducing pollution.
- The government is subsidizing scrubbers which are devices that can be used to remove some SO2 pollution.
- Consumers are worried about the pollution and stopped buying the products from companies with high pollution.
- A study came out suggesting that additional cancers are linked to exposure to SO2 pollution.

Answer 24

The government is subsidizing scrubbers which are devices that can be used to remove some SO2 pollution

Question 25

How much pollution should we emit?

Multiple Choice
- zero
- to a level where MC is greater than the MB
- a fair amount of pollution
- to a level where MB is greater than or equal to the MC

Answer 25

To a level where MB is greater than or equal to the MC

Question 26

The table below shows the utility schedule for a consumer of candy bars.

Candy Bars Consumed Total Utility
0 0
1 5
2 9
3 12
4 14
5 15
6 15
7 13

The consumption of which candy bar yields the greatest marginal utility?

Multiple Choice
- first
- fifth
- sixth
- seventh

Answer 26

First

Work
9-5 =4

Which is the biggest out of all of them

Question 27

Assume that product Alpha and product Beta are both priced at $1 per unit and that Ellie has $20 to spend on Alpha and Beta. She buys 8 units of Alpha and 12 units of Beta. The marginal utilities of the last unit of Alpha and Beta that she purchases are 40 utils and 20 utils, respectively. This indicates that

Multiple Choice
- Ellie should make no change in consumption.
- given another dollar, Ellie should buy an additional unit of Beta.
- in order to maximize utility, Ellie should buy more Beta and less Alpha.
- in order to maximize utility, Ellie should buy more Alpha and less Beta.

Answer 27

In order to maximize utility, Ellie should buy more Alpha and less beta

Question 28

After eating four slices of pizza, you are offered a fifth slice for free. You turn down the fifth slice. Your refusal indicates that the

Multiple Choice
- marginal utility for four pizza slices is negative.
- total utility for five pizza slices is negative.
- marginal utility is positive for the fourth slice and negative for the fifth slice.
- marginal utility for the fourth slice is the largest among all slices.

Answer 28

Marginal utility is positive for the fourth slice and negative for the fifth slice

Question 29

You’re buying snacks for an Econ Club meeting. You’ve been given $100 to spend on chips and soda. If bags of chips cost $3 each and soda costs $1 each and you spend as much of your money as possible on chips, how many chips and sodas will you have for the meeting?

Multiple Choice
- 33 bags of chips, 1 soda
- 33 bags of chips, 0 soda
- 34 bags of chips, 2 sodas
- 34 bags of chips, 1 soda

Answer 29

33 bags of chips, 1 soda

3 x 33= 99
1 x 1 = 1

99 + 1 = 100

Question 30

Marginal utility can be

Multiple Choice
- positive, but not negative.
- positive or negative, but not equal to zero.
- positive, negative, or equal to zero.
- decreasing, but not negative.

Answer 30

positive, negative, or equal to zero

Question 31

Suppose you earn $50 a week at your job. You like to go to movies and have dinner with friends. Movies cost $15 each and dinner is $20 each time you eat out. Which of the following combinations is attainable given your weekly budget?

Multiple Choice
- 4 movies
- 2 movies and 1 dinner
- 3 dinners
- 2 dinners and 2 movies

Answer 31

2 movies and 1 dinner

Question 32

You’re buying snacks for an Econ Club meeting. You’ve been given $100 to spend on chips and soda. If bags of chips cost $3 each and Soda costs $1 each, how much of each can you buy?

Multiple Choice
- 25 bags of chips and 25 sodas
- 30 bags of chips and 15 sodas
- 40 bags of chips and 10 sodas
- 10 bags of chips and 75 sodas

Answer 32

25 bags of chips and 25 sodas

work
3 x 25 = 75
25 x 1 = 25

25 + 75 = 100

Question 33

The table below shows the utility schedule for a consumer of candy bars.

Candy Bars Consumed Total Utility
0 0
1 5
2 9
3 12
4 14
5 15
6 15
7 13

Based on the data in the above table you can conclude that the

Multiple Choice
- total utility of 2 units is 4 utils.
- marginal utility of the fourth unit is 14 utils.
- marginal utility of the third unit is 4 utils.
- marginal utility of the sixth unit is 0 utils.

Answer 33

marginal utility of the sixth unit is 0

Question 34

Ben is exhausting his income consuming products A and B in such quantities that MUa/Pa = 2 and MUb/Pb = 4. Ben should purchase

Multiple Choice
- more of A and less of B.
- more of B and less of A.
- more of both A and B.
- less of both A and B.

Answer 34

More of both A and B

Question 35

Ben is exhausting his income consuming products A and B in such quantities that MUa/Pa = 5 and MUb/Pb = 8. Ben should purchase

Multiple Choice
- more of A and less of B.
- more of B and less of A.
- more of both A and B.
- less of both A and B.

Answer 35

more of B and less of A

Question 36

Which of the following defines marginal utility?

Multiple Choice

the change in total utility divided by the price of a product

the maximum amount of satisfaction or happiness derived from consuming a product

the total satisfaction or happiness received from the consumption of a good, service, or combination of goods and services

the additional satisfaction or happiness received from the consumption of an additional unit of a good or service

Answer 36

The additional satisfaction or happiness received from the consumption of an additional unit of a good or service

Question 37

Total utility is best defined as the

Multiple Choice

change in marginal utility multiplied by the price of a product.

maximum amount of satisfaction from consuming a product.

total satisfaction received from consuming a good, service, or combination of goods and services.

additional satisfaction received from consuming an additional unit of a good or service.

Answer 37

Total satisfaction received from consuming a good, service, or combination of goods and services

Question 38

Use the following information to answer the next question.

Harvey quit his job at State University where he earned $45,000 a year. He figures his entrepreneurial talent or foregone entrepreneurial income to be $5,000 a year. To start the business, he cashed in $100,000 in bonds that earned 10 percent interest annually to buy a software company, Extreme Gaming. In the first year, the firm sold 11,000 units of software at $75 each. Of the $75, $55 goes for the costs of production, packaging, marketing, employee wages and benefits, and rent on a building.

What is the economic profit generated by Extreme Gaming in the first year?

Multiple Choice
$155,000
$160,000
$220,000
$280,000

Answer 38

160,000

Question 39

Picture on Quiz 5 Question 14

If the firm is producing at Q1, the area BADE represents the

Multiple Choice
total cost.
total variable cost.
total fixed cost.
average variable cost.

Answer 39

total fixed cost

Question 40

Economic profit is equal to

Multiple Choice
- total revenue minus total fixed cost.
- total revenue minus the cost of raw materials.
- total revenue minus the explicit and implicit costs of production.
- accounting profit plus the explicit and implicit costs of production.

Answer 40

Total revenue minus the explicit and implicit costs of production

Question 41

The table shows short-run average total cost schedules for three plants of different sizes that a firm might build in the long run.

Plant 1
Output ATC
10 $10
20 9
30 8
40 9
50 10
Plant 2
Output ATC
10 $ 15
20 10
30 7
40 10
50 14
Plant 3
Output ATC
10 $20
20 15
30 10
40 8
50 9

What is the long-run average total cost of producing 30 units of output?

Multiple Choice
$7
$8
$9
$10

Answer 41

$7

Question 42

If the short-run average variable cost of production for a firm is decreasing, then it follows that

Multiple Choice
- average variable cost must be greater than average fixed cost.
- average variable cost must be greater than marginal cost.
- average fixed cost must be constant.
- marginal cost must be decreasing.

Answer 42

Average variable cost must be greater than marginal cost

Question 43

If marginal cost exceeds average total cost in the short run, then which is likely to be true?

Multiple Choice
- Average total cost is increasing.
- Average variable cost is decreasing.
- Average total cost is less than average variable cost.
- Marginal cost is less than average variable cost.

Answer 43

Average total cost is increasing

Question 44

If you know that when a firm produces 8 units of output, average fixed cost is $12.50 and average variable cost is $81.25, then the average total cost associated with this output level is

Multiple Choice
$93.75.
$97.78.
$750.00.
$880.00.

Answer 44

$93.75

Work
$12.50 + $81.50 = $93.75

Question 45

If all resources used in the production of a product are increased by 20 percent and total output increases by 20 percent, then the firm must be experiencing

Multiple Choice
- economies of scale.
- diseconomies of scale.
- constant returns to scale.
- increasing average total costs.

Answer 45

Constant returns to scale Implicit costs are

Question 46

Implicit costs are

Multiple Choice
- equal to total fixed costs.
- composed entirely of variable costs.
- opportunity costs of using owned resources.
- always greater in the short run than in the long run.

Answer 46

Opportunity costs of using owned resources

Question 47

If a firm increases all of its inputs by 10 percent and its output increases by 10 percent, then

Multiple Choice
- it is encountering diseconomies of scale.
- it is encountering economies of scale.
- it is encountering constant returns to scale.
- the firm’s long-run ATC curve will be rising.

Answer 47

It is encountering constant returns to scale

Question 48

A decrease in the long-run average total cost as output increases is due to

Multiple Choice
- a declining average fixed cost.
- the law of diminishing returns.
- economies of scale.
- externalities.

Answer 48

Economies of scale

Question 49

Use the following information to answer the next question.

Harvey quit his job at State University where he earned $45,000 a year. He figures his entrepreneurial talent or foregone entrepreneurial income to be $5,000 a year. To start the business, he cashed in $100,000 in bonds that earned 10 percent interest annually to buy a software company, Extreme Gaming. In the first year, the firm sold 11,000 units of software at $75 each. Of the $75, $55 goes for the costs of production, packaging, marketing, employee wages and benefits, and rent on a building.

What is the accounting profit generated by Extreme Gaming in the first year?

Multiple Choice
$5,000
$160,000
$220,000
$780,000

Answer 49

$220,000

Question 50

The ability of Intel to spread product development costs over a larger number of units of output arises from

Multiple Choice
- economies of scale.
- diseconomies of scale.
- minimum efficient scale.
- constant returns to scale.

Answer 50

economies of scale

Question 51

Use the following table to answer the next question.

Output Avg. FC Avg. VC Avg. TC MC
1 $300 $100 $400 $100
2 150 75 225 50
3 100 70 170 60
4 75 73 148 80
5 60 80 140 110
6 50 90 140 140
7 43 103 146 180
8 38 119 156 230
9 33 138 171 290
10 30 160 190 360

The table shows cost data for a perfectly competitive firm. If the market price for the firm’s product is $80, the firm will

Multiple Choice
- produce 4 units to maximize profits.
- produce 5 units to maximize profits.
- produce 6 units to maximize profits.
- shut down.

Answer 51

Produce 4 units to max profit

Question 52

The short-run supply curve of a perfectly competitive firm is based primarily on its

Multiple Choice
AVC curve.
ATC curve.
AFC curve.
MC curve.

Answer 52

MC curve

Question 53

If the demand curve faced by an individual firm is perfectly elastic, the firm must be a(n)

Multiple Choice
pure monopoly.
perfectly competitive firm.
oligopolistic firm.
monopolistically competitive firm.

Answer 53

Perfectly competitive firm

Question 54

Assume that the market for soybeans is perfectly competitive. Currently, firms growing soybeans are experiencing economic profits. In the long run, we can expect

Multiple Choice
- new firms to enter, causing the market price of soybeans to decrease.
- new firms to enter, causing the market price of soybeans to increase.
- some firms to exit, causing the market price of soybeans to decrease.
- some firms to exit, causing the market price of soybeans to increase.

Answer 54

New firms to enter, causing the market price of soybeans to decrease

Question 55

A purely competitive firm currently producing 30 units of output earns marginal revenues of $12 from each extra unit of output it sells. If it sells 30 units, then its total revenues would be

Multiple Choice
$360.
$240.
$120.
indeterminate based on the information given.

Answer 55

$360

Work
Total revenue = $12 * 30 = 360

Question 56

Farmer Jones is producing wheat and must accept the market price of $6.00 per bushel. At this time, her average total costs and her marginal costs both equal $8.00 per bushel. Her minimum average variable costs are $5.00 per bushel. In order to maximize profits or minimize losses in the short run, Farmer Jones should

Multiple Choice
increase output.
increase selling price.
produce zero output and shut down.
continue producing, but reduce output.

Answer 56

Continue producing, but reduce output

Explained
In the short run, the decision to continue production depends on whether the price covers the average variable costs (AVC). Farmer Jones’s AVC is $5 per bushel, and the market price is $6.00 per bushel. Since the market price exceeds the AVC, she is covering her variable costs and contributing to some of the fixed costs. Shutting down immediately would mean not covering any fixed costs, leading to a higher loss. By continuing production, she minimizes her losses to the extent that the revenue from selling the wheat at least covers the variable costs and contributes something towards the fixed costs. The strategy to reduce output comes from the idea that reducing quantity might help in adjusting to a point where marginal cost (MC) is closer to the market price, potentially reducing losses further if fixed costs are somewhat flexible or if reducing quantity helps in managing costs better.

Question 57

Clara produces and sells tomatoes in a perfectly competitive market. This implies that Clara’s marginal revenue generated from selling an additional unit of tomatoes is always equal to

Multiple Choice
price.
average cost.
variable cost.
profit per unit.

Answer 57

Price

Question 58

Picture on Quiz 6 Question 8

At what minimum price would the firm be willing to produce output in the short run?

Multiple Choice

P1
P2
P3
P4

Answer 58

P3

Explained
Cause of AVC

Question 59

The following table shows cost data for a perfectly competitive firm.

Output Avg. FC Avg. VC Avg. TC MC
1 $300 $100 $400 $100
2 150 75 225 50
3 100 70 170 60
4 75 73 148 80
5 60 80 140 110
6 50 90 140 140
7 43 103 146 180
8 38 119 156 230
9 33 138 171 290
10 30 160 190 360

If the market price for the firm’s product is $180, the firm will produce

Multiple Choice
7 units and earn economic profits of $278.
8 units and earn economic profits of $120.
7 units and earn economic profits of $238.
8 units and earn economic profits of $278.

Answer 59

7 Units and earn Economic profits of $238

Explained 180 is MC

Question 60

Under what conditions would an increase in market demand lead to the same long-run equilibrium price?

Multiple Choice
- The firms in the market are part of a decreasing-cost industry.
- The firms in the market are part of an increasing-cost industry.
- Potential new firms in the market are not attracted by economic profits.
- The firms in the market are part of a constant-cost industry.

Answer 60

The firms in the market are part of a constant-cost industry

Question 61

T-Shirt Enterprises is operating in a perfectly competitive market. It is producing 3,000 t-shirts and selling them for $10 each. At this level of output, the average total cost is $10.50 and the average variable cost is $10.20. Based on these data, the firm should

Multiple Choice
shut down in the short run.
decrease production to 2,500 t-shirts.
continue to produce 3,000 t-shirts.
increase production to 3,500 t-shirts.

Answer 61

Shut down in the short run

Explained
The current selling price pf $10
is below the average variable costs of
$10.20 . This mean that the firm will be unable to even cover its variable costs. Hence, Option (A) is correct i.e. shut down in the short run.

Question 62

The representative firm in a perfectly competitive industry

Multiple Choice
- will always earn an economic profit in the short run.
- may earn either an economic profit or a loss in the long run.
- will always earn an economic profit in the long run.
- will earn a normal profit in the long run.

Answer 62

Will earn a normal profit in the long run

Question 63

A third-degree price-discriminating pure monopoly will follow a system where

Multiple Choice
- buyers with relatively more inelastic demands are charged higher prices than buyers with relatively more elastic demands.
- buyers with relatively more inelastic demands are charged lower prices than buyers with relatively more elastic demands.
- all buyers are charged the same price regardless of their elasticity of demand.
- the price of the product is held the same even if the demand changes.

Answer 63

Buyers with relatively more inelastic demands are charged higher prices than buyers with relatively more elastic demands

Question 64

Silent auctions are an example of what type of price discrimination?

Multiple Choice
first-degree price discrimination
second-degree price discrimination
third-degree price discrimination
It is not price discrimination.

Answer 64

First-degree price discrimination

Question 65

A pure monopoly will find that marginal revenue

Multiple Choice
- exceeds price.
- is identical to price.
- is sometimes greater and sometimes less than price.
- is less than price.

Answer 65

is less than price

Question 66

Price Number of Baskets Sold
$20 3
18 5
16 7
14 10
12 15
10 30
The table shows the demand schedule facing Nina, a monopolist selling baskets. What is the change in total revenue if she increases the price from $12 to $14?

Multiple Choice
Total revenue will decrease by $30.
Total revenue will increase by $10.
Total revenue will decrease by $40.
Total revenue will increase by $180.

Answer 66

Total revenue will decrease by $40

Work
1215=180
1410=140

180-140=40

Question 67

Why might it be a bad idea to engage in first-degree price discrimination?

Multiple Choice
- The information needed can be costly and can lead to decreased profits for the company.
- The information needed does not exist and scarce resources should not be used searching for it.
- Price discrimination is illegal and can lead to lawsuits and lost customers.
- Price discrimination in any form is not viable for most companies as a way to increase profits.

Answer 67

The information need can be costly and can lead to decreased profits for the company

Question 68

Which type of price discrimination results in the highest profits for firms?

Multiple Choice
first-degree price discrimination
second-degree price discrimination
third-degree price discrimination
regular price discrimination

Answer 68

First-degree price discrimination

Question 69

Use the following table, which shows the demand schedule faced by Nina baskets, a pure monopoly selling baskets, to answer the next question.

Price Number of Baskets Sold
$20 3
18 5
16 7
14 10
12 15
10 30

What is the change in total revenue if the pure monopoly raises the price from $10 to $12?

Multiple Choice
−$300
+$300
+$120
−$120

Answer 69

-$120

Work
1030= 300
1215=180

300-180=120

Question 70

Which of the following best approximates a pure monopoly?

Multiple Choice
the NFL
the steel market
the oil market
the fast food market

Answer 70

the NFL

Question 71

Chipotle offered free burritos to celebrate teachers. What type of price discrimination does this demonstrate?

Multiple Choice
first-degree price discrimination
second-degree price discrimination
third-degree price discrimination
It is not price discrimination.

Answer 71

Third-degree price discrimination

Question 72

A shoe-store having a BOGO (buy one get one free) sale is what type of price discrimination?

Multiple Choice
first-degree price discrimination
second-degree price discrimination
third-degree price discrimination
It is not price discrimination.

Answer 72

Second-degree price discrimination

Question 73

The problem with adopting a normal profit pricing policy for a natural monopoly is that

Multiple Choice
profits will be positive.
losses will be large and sustained.
it is allocatively efficient.
it is not allocatively efficient.

Answer 73

Itis not allocatively efficient

Question 74

In many large U.S. cities, taxicab companies operate as near monopolies because of

Multiple Choice
patents.
licenses.
economies of scale.
strategic pricing.

Answer 74

licenses

Question 75

Purchasing blueberries at a store that are $2.50 per carton or 2/$5 is an example of what type of price discrimination?

Multiple Choice
first-degree price discrimination
second-degree price discrimination
third-degree price discrimination
It is not price discrimination.

Answer 75

it is not price discrimination