REVIEW EXAM 2A

Question 1

1) A(n) ________ is a group of suppliers who try to act together to reduce supply.
A) monopoly
B) retailer
C) oligopoly
D) cartel

Answer 1

D

Question 2

2) Refer to the table. An oil producer owns two pumps: Oil Pump One and Oil Pump Two. If the
market price of oil is $20 per barrel, how many barrels of oil get produced?

A) 4
B) 14
C) 10
D) 6

Answer 2

C

Question 3

3) Price discrimination can be defined as:
A) selling different products to the same consumers in the same market.
B) selling the same product in two different markets.
C) selling the same product at two different prices in two different markets.
D) exporting goods to foreign countries.

Answer 3

C

Question 4

4) What is the profit maximization condition for a monopolist?
A) MR > MC
B) MR = MC
C) AR = MC
D) AR = D

Answer 4

B

Question 5

5) Monopoly power is best described as:
A) the ability to charge the profit-maximizing price.
B) the ability to produce the profit-maximizing output level.
C) the ability to earn economic profits without causing new firms to enter the market.
D) the ability to produce where marginal revenue intersects halfway between the origin and
the demand curve.

Answer 5

C

Question 6

6) Persuasive advertising:
A) is informative.
B) is wasteful.
C) can create market power for firms through brand differentiation.
D) has been shown to do little to increase sales.

Answer 6

C

Question 7

7) Refer to the table. The market price for the product is:
A) $90.
B) $80.
C) $100.
D) A dollar amount, but it cannot be determined from the information in the table.

Answer 7

A

Question 8

8) Refer to the table. For the seventh unit of output, total profit is:
A) $630.
B) $90.
C) $160.
D) $470.

Answer 8

C

Question 9

9) The marginal cost of the fifth unit of output is:
A) $70.
B) $90.
C) $450.
D) $300.

Answer 9

A

Question 10

10) The marginal revenue for the fifth unit of output is:
A) $70.
B) $90.
C) $450.
D) $20.

Answer 10

B

Question 11

11) Refer to the table. The profit maximizing output for this firm is:
A) 5.
B) 6.
C) 7.
D) 8.

Answer 11

C

Question 12

12) Refer to the table. The fixed cost for this firm is:
A) $80.
B) $90.
C) $50.
D) $100.

Answer 12

C

Question 13

13) Natural monopolies:
A) produce the optimal quantity of output, unlike other monopolies.
B) exist when one firm can produce the market output at a lower cost than two or more firms.
C) generally experience large diseconomies of scale, leading to production inefficiencies and
work stoppages.
D) face market demand curves that are perfectly elastic.

Answer 13

B

Question 14

14) Under monopolistic competition firms face ______ demand and earn ______ profits on
average.
A) downward-sloping; zero
B) downward-sloping; positive
C) perfectly-elastic; zero
D) perfectly-elastic; positive

Answer 14

A

Question 15

15) A firm would prefer that its product demand curve is:
A) perfectly elastic.
B) elastic.
C) inelastic.
D) horizontal.

Answer 15

C

Question 16

16) Which of the following is an example of price discrimination?
A) value meals at fast-food restaurants
B) senior citizen discounts
C) tax-exempt status for non-profit organizations
D) holiday sales at retail stores

Answer 16

B

Question 17

17) In their calculation of profit, accountants typically do not take into account:
A) variable costs.
B) fixed costs.
C) opportunity costs.
D) explicit costs

Answer 17

C

Question 18

18) An industry is said to be perfectly competitive when:
A) demand in the industry is high.
B) each firm has virtually no influence over the price of its product.
C) there are many buyers and sellers, and each is large relative to the total market.
D) supply in the industry is highly elastic.

Answer 18

B

Question 19

19) When there are many buyers and sellers of a good, and the product sold is identical across
firms:
A) the demand curve for each firm’s output is perfectly elastic.
B) the industry demand curve is perfectly elastic.
C) the demand curve for each firm’s output is perfectly inelastic.
D) the industry demand curve is perfectly inelastic.

Answer 19

A

Question 20

20) A firm with monopoly power is able to set a markup price that is:
A) lower than prices on similar goods sold by competitive firms.
B) the same as the prices on similar goods sold by competitive firms.
C) higher than prices on similar goods sold by competitive firms.
D) the maximum price a market participant will pay for similar goods.

Answer 20

C

Question 21

21) To maximize profit firms should keep producing as long as marginal revenue is:
A) greater than marginal cost.
B) equal to marginal cost.
C) less than marginal cost.
D) greater than total cost.

Answer 21

A

Question 22

22) Profit is defined as:
A) net revenue minus depreciation.
B) average revenue minus average total cost.
C) marginal revenue minus marginal cost.
D) total revenue minus total cost.

Answer 22

D

Question 23

23) Monopolistic competition is a
A) group of suppliers that tries to act as if they were a monopoly.
B) market that is dominated by a small number of firms.
C) market with a large number of firms selling similar but not identical products.
D) group of suppliers that tries to act as if they were a perfectly competitive market.

Answer 23

C

Question 24

24) Game theory is the study of:
A) random decision making.
B) strategic decision making.
C) cartel decision making.
D) decision making allowing for irrational behavior.

Answer 24

B

Question 25

25) Refer to the figure. The deadweight loss attributable to monopoly is:
A) triangle abc.
B) triangle cef.
C) square bcde.
D) triangle adf

Answer 25

B

Question 26

26) Refer to the table. What type of “game” does this payoff matrix represent?
A) cartel game
B) coordination game
C) prisoners’ dilemma
D) cheating game

Answer 26

C

Question 27

27) Refer to the table. What is Player 1’s strategy in this game?
A) always cooperate
B) always cheat
C) cooperate when Player 2 cooperates; cheat when Player 2 cheats
D) cheat when Player 2 cooperates; cooperate when Player 2 cheats

Answer 27

B

Question 28

28) Refer to the table. What is Player 2’s strategy in this game?
A) always cooperate
B) always cheat
C) cooperate when Player 1 cooperates; cheat when Player 1 cheats
D) cheat when Player 1 cooperates; cooperate when Player 1 cheats

Answer 28

B

Question 29

29) A dominant strategy is a strategy that:
A) all players must follow.
B) has a higher payoff than any other strategy no matter what the other player does.
C) leads to one player’s interests dominating the interests of the other players.
D) a player follows regardless of the strategies followed by other players.

Answer 29

B

Question 30

30) If Homer operates a small bakery and sells donuts for $4/dozen, he should:
A) sell an additional dozen donuts as long as the marginal cost of producing an additional
dozen donuts is less than $4.
B) sell an additional dozen donuts as long as the total cost of producing an additional dozen
donuts is less than $4.
C) only sell more donuts if his total revenue is greater than his total cost.
D) sell an additional dozen donuts so long as the fixed cost of production is greater than $4.

Answer 30

A

Question 31

31) When the demand curve for the profit-maximizing monopolist’s product is relatively inelastic:
A) it cannot raise the price of the product above the marginal cost of the product.
B) raising the product’s price will lower the total revenue for the product.
C) the product does not have good substitutes.
D) All of these choices are correct.

Answer 31

C

Question 32

32) Marginal cost is:
A) the change in total cost from producing one more unit of output.
B) total cost divided by the change in total output.
C) the change in total output divided by the change in total cost.
D) average cost times output.

Answer 32

A

Question 33

33) When marginal cost is rising, the average total costs:
A) could be rising or falling.
B) must be rising.
C) must be falling.
D) must be constant.

Answer 33

A

Question 34

34) Use the figure. At a price of $20 which of the following statements is FALSE?
A) AC = $15
B) Profit = (20 – 15)15
C) Average profit = $5
D) MC < AC

Answer 34

D

Question 35

35) Use the figure. At a price of $20, the firm earns profit of:
A) $75.
B) $300.
C) $225.
D) $0, because P = MC at P = $20.

Answer 35

A

Question 36

36) The elimination principle illustrates the idea that:
A) above-normal profits will be eliminated by decreases in demand due to high prices.
B) losses will be eliminated by the innovation of new products.
C) above-normal profits will be eliminated by the entry of new firms into the industry.
D) losses will be eliminated by firms decreasing their costs.

Answer 36

C

Question 37

37) Economic profit differs from accounting profits because of its inclusion of:
A) explicit costs.
B) incidental costs.
C) potential costs.
D) implicit costs.

Answer 37

D

Question 38

38) Tying is:
A) the practice of a firm selling one product that requires the consumer to purchase another of
the firm’s products.
B) the practice of buying one unit at full price and the second unit at half off.
C) the same thing as buy one get one free.
D) the practice of a firm’s paying the sales tax in exchange for a consumer’s purchase of an
extended warranty.

Answer 38

A

Question 39

39) What is perfect price discrimination?
A) This occurs when a seller charges each separate consumer an amount that is exactly equal
to his or her maximum willingness to pay.
B) This occurs when a seller is able to charge two different prices in different markets.
C) This occurs when consumer surplus is maximized in a given market.
D) All of the answers are correct.

Answer 39

A

Question 40

40) In a monopoly market:
A) the lack of competition causes the price of the product to equal average cost.
B) a firm maximizes profits by producing the level of output that minimizes average cost.
C) the additional revenue from selling one more unit of output usually is greater than the price.
D) the lure of above-normal profits may give a firm an incentive to develop new products and
technologies.

Answer 40

D

Question 41

41) Women tend to pay more for haircuts than men. One possible explanation is price
discrimination. Another possible explanation is that
A) women, on average, make less money than men.
B) women are more likely to be more demanding about their hair than men.
C) women are less likely to be bald, which pushes up demand.
D) women tend to take better care of their hair than men.

Answer 41

B

Question 42

42) Disneyland sells goods that are largely
A) tied.
B) bundled.
C) aggregated.
D) separated.

Answer 42

B

Question 43

43) An oligopoly is a
A) group of suppliers that tries to act as if they were a monopoly.
B) market that is dominated by a small number of firms.
C) market with a large number of firms selling similar but not identical products.
D) group of suppliers that tries to act as if they were a perfectly competitive market.

Answer 43

B

Question 44

44) In a decreasing industry:
A) cost rises as the industry expands.
B) cost falls as the industry expands.
C) average costs rise as the industry expands.
D) the price exceeds average cost, even in the long run.

Answer 44

B

Question 45

45) The prisoner’s dilemma describes situations where the pursuit of:
A) all interests lead to a group outcome that is in the interest of no one.
B) all interests lead to a group outcome that is in the interest of everyone.
C) individual interest leads to a group outcome that is in the interest of no one.
D) individual interest leads to a group outcome that is in the interest of everyone.

Answer 45

C

Question 46

46) Refer to the figure. How much profit is the firm making at the profit maximizing quantity?
A) a profit of $300
B) a profit of $70
C) The firm is not making a profit—it is making a loss of $300.
D) The firm is not making a profit—it is making a loss of $70.

Answer 46

A

Question 47

47) Which of the following makes a cartel short-lived?
A) stable market demand
B) few firms in the cartel
C) cheating
D) contracting

Answer 47

C

Question 48

48) Firms will enter an industry when the:
A) price rises above the minimum of the marginal cost curve.
B) price rises above the minimum of the average total cost curve.
C) marginal cost rises above the minimum of the average total cost curve.
D) average cost rises above the minimum of the marginal cost curve.

Answer 48

B

Question 49

49) Airlines try to differentiate their customers by willingness to pay based on:
A) how long in advance a person books their flight.
B) a person’s weight.
C) the ethnicity of a person’s last name.
D) All of the answers are correct.

Answer 49

A

Question 50

50) Monopolistically competitive firms create
A) zero deadweight loss.
B) a small deadweight loss.
C) a large deadweight loss.
D) negative deadweight loss.

Answer 50

B