Question 1

Under which of the following conditions could the monopoly price be less than the price that would result in perfect competition? When there are
A) diminishing marginal returns
B) substantial economies of scale
C) higher unit costs
D) increasing costs
E) constant returns to scale

Accepted Answer

Substantial economies of scale can lead to a situation where a monopoly can produce at a lower cost per unit than would be possible in a perfectly competitive market. This is because a single large producer can more efficiently utilize resources and spread fixed costs over a larger output, potentially leading to lower prices for consumers.

Question 2

If a firm is a price taker, then it can
A) sell below the market price and increase its economic profit
B) sell all it wants at the market price
C) sell above the market price and increase its economic profit
D) supply the entire market
E) choose its own price

Accepted Answer

A firm that is a price taker can sell any quantity of its product at the prevailing market price but cannot influence the price itself. This is characteristic of perfect competition, where many firms sell identical products.

Question 3

If a firm in a perfectly competitive industry maximizes profit by producing 100 units and the marginal cost of the 100th unit is $23, the price is
A) more than $23 since it's earning an economic profit
B) $0.23
C) $2,300
D) $23
E) not able to be calculated from the data given

Accepted Answer

In a perfectly competitive market, the price is equal to the marginal cost at the profit-maximizing output level, which in this case is $23 for the 100th unit.

Question 4

Suppose that the development of a new type of circuit lowers the costs of production in the microcomputer industry, which is perfectly competitive. The long-run effect will likely be
A) lower price and larger output
B) lower price and smaller output
C) higher price and larger output
D) higher price and smaller output
E) no change in price or output

Accepted Answer

In a perfectly competitive market, a decrease in production costs leads to a lower price and larger output as firms can produce more at a lower cost, passing savings onto consumers and stimulating demand.

Question 5

Ian McDonald owns a company that sells sleds in a perfectly competitive market. A lighter-than-normal snowfall has caused the market demand curve for sleds to shift to the left. In the short run, which of the following is likely to happen?
A) The market price for sleds will remain unchanged.
B) The market price for sleds will increase.
C) More sled producers will enter the industry.
D) Increased economic profit will be earned by the firms in the sled industry.
E) The market price for sleds will fall.

Accepted Answer

A leftward shift in the demand curve indicates a decrease in demand. In a perfectly competitive market, this leads to a decrease in the market price for sleds as suppliers compete for fewer buyers.

Question 6

If you were in the donut-making business, which of the following would most likely not be an explicit cost?
A) salaries
B) sales taxes
C) utilities, such as gas and electricity
D) insurance
E) the time you put into running the business

Accepted Answer

Explicit costs are direct payments made to others in the course of running a business, such as salaries, taxes, utilities, and insurance. The time you put into running the business is considered an implicit cost, not an explicit one, because it represents the opportunity cost of what you could be doing with your time instead.

Question 7

Ed Van Zaig is considering opening a sushi bar. To do so, he would have to quit his current job, which pays $20,000 a year, and use a building that he owns and currently rents to his brother for $6,000 a year. His costs at the sushi bar would be $50,000 for foodand $2,000 for gas and electricity. What are his explicit costs?
A) $26,000
B) $66,000
C) $78,000
D) $52,000
E) $72,000

Accepted Answer

The answer of Ed Van Zaig is considering opening a...

Question 8

Ed Van Zaig is considering opening a sushi bar. To do so, he would have to quit his current job, which pays $20,000 a year, and use a building that he owns and currentlyrents to his brother for $6,000 a year. His costs at the sushi bar would be $50,000 for food and $2,000 for gas and electricity. What are his implicit costs?
A) $26,000
B) $66,000
C) $78,000
D) $52,000
E) $72,000

Accepted Answer

Implicit costs are the opportunity costs of using resources that a business already owns. Here, Ed Van Zaig's implicit costs include the salary he would forego ($20,000) and the rental income he would lose ($6,000), totaling $26,000.

Question 9

Ed Van Zaig is considering opening a sushi bar. To do so, he would have to quit his current job, which pays $20,000 a year, and take over a store building he owns and currently rents for $6,000 a year. His costs at the sushi bar would be $50,000 for foodand $2,000 for gas and electricity. What is the minimum revenue he must earn per year in order for it to be worth his while to open his sushi bar?
A) $26,000
B) $66,000
C) $78,000
D) $52,000
E) $72,000

Accepted Answer

To calculate the minimum revenue Ed must earn to make opening the sushi bar worthwhile, we need to consider both his explicit and implicit costs. Explicit costs are direct out-of-pocket expenses, such as $50,000 for food and $2,000 for gas and electricity, totaling $52,000. Implicit costs include the opportunity costs of quitting his job ($20,000) and the lost rental income from the store building ($6,000), totaling $26,000. Adding both explicit and implicit costs gives us $52,000 + $26,000 = $78,000. Therefore, Ed must earn at least $78,000 per year to justify opening the sushi bar.

Question 10

Suppose Ernie gives up his job as a financial advisor for pets, for which he earned $30,000 per year, to open up a store selling spot remover to Dalmatians. He invested $10,000 of his savings, which had been earning 5 percent interest. This year's revenues in the new business were $50,000 and explicit costs were $10,000. Calculate Ernie's economic profit.
A) $10,000
B) $50,000
C) $20,000
D) $40,000
E) $9,500

Accepted Answer

Ernie's economic profit is calculated by subtracting both explicit and implicit costs from total revenue. Explicit costs are $10,000. Implicit costs include his forgone salary of $30,000 and the forgone interest on his savings ($10,000 * 5% = $500). Therefore, implicit costs total $30,500. Subtracting both explicit ($10,000) and implicit costs ($30,500) from the total revenue ($50,000) gives an economic profit of $9,500.

Question 11

In perfect competition, an economic profit can be earned
A) only in the long run
B) only if the firm is efficient
C) only in the short run
D) never
E) always

Accepted Answer

In perfect competition, firms can earn economic profits in the short run if market conditions are favorable. However, in the long run, the entry of new firms into the market drives these profits to zero.

Question 12

If a perfect competitor is currently charging $9 for its product and the marginal cost of the last unit produced is $6, the firm should
A) cut back production and increase price
B) stay at its current price and output level
C) increase price and output
D) increase price and hold output constant
E) increase output

Accepted Answer

In a perfectly competitive market, firms maximize profit by producing until marginal cost equals marginal revenue (price). Since the price ($9) is higher than the marginal cost ($6), the firm should increase output to maximize profits.

Question 13

You hire a set of economic consultants and they tell you the following: At a price of $7,24 units of the good could be sold; at a price of $6, 29 units of output could be sold. You know then that the firm's total revenue at a price of $7 would equal
A) $174
B) $14
C) $6
D) $168
E) $342

Accepted Answer

The answer of You hire a set of economic consultants...

Question 14

The market price in a perfectly competitive industry is $13. A firm is considering increasing its output from 30 units to 40 units. The marginal revenue of each of these extra units equals
A) $13
B) $130
C) $390
D) $520
E) $130.

Accepted Answer

In a perfectly competitive market, the price of the product is equal to the marginal revenue. Therefore, if the market price is $13, the marginal revenue of selling one more unit is also $13, regardless of how many units are being produced or sold.

Question 15

Marginal revenue measures the change in
A) output generated by a change in price
B) price generated by a change in output
C) output generated by hiring one more factor of production
D) total revenue generated by a change in price
E) total revenue generated by a change in output

Accepted Answer

Marginal revenue specifically refers to the change in total revenue that results from selling one additional unit of a product or service, which directly corresponds to a change in output.

Question 16

The total revenue is the
A) (change in price) × (change in output)
B) (price) × (change in output)
C) (change in price) × (output)
D) (price) × (output)
E) (change in marginal revenue) × (price)

Accepted Answer

Total revenue is calculated by multiplying the price of the good by the quantity (or output) sold.

Question 17

-Exhibit K-11 represents a firm's demand curve. It is clear that the firm
A) is a monopolist
B) is a monopolistic competitor
C) is perfectly competitive
D) is either a monopolist or a monopolistic competitor
E) could be either perfectly competitive or a monopolist

Accepted Answer

The answer of 
-Exhibit K-11 represents a firm's demand curve....

Question 18

-According to the information provided in Exhibit K-11, the marginal revenue of the 12th unit of output equals
A) $480
B) $40
C) $440
D) $4
E) an unknown amount because we have not been given the marginal cost

Accepted Answer

Marginal revenue refers to the additional revenue that a firm receives from selling one more unit of a good or service. It is calculated as the change in total revenue divided by the change in quantity sold. Since the specific details from Exhibit K-11 are not provided, we cannot directly calculate or confirm the marginal revenue of the 12th unit of output. However, based on the question's structure, if we assume that choice B ($40) is correct, it suggests that the information provided in the exhibit would have allowed for the calculation of marginal revenue, making the marginal revenue of the 12th unit $40. This explanation is hypothetical and assumes familiarity with the exhibit's content, which is not provided here.

Question 19

-The information in Exhibit K-11 shows that if the firm produces 11 units of output, itstotal revenue would equal
A) $40
B) $4
C) $440
D) $480
E) an unknown amount because we have no information regarding the firm's costs

Accepted Answer

Total revenue is calculated by multiplying the quantity of goods sold by the price per unit. Without the specific details from Exhibit K-11, we can't calculate the exact total revenue. However, if the question implies that producing 11 units leads to a total revenue of $440, it suggests that the information provided in the exhibit supports this calculation, likely by indicating a price per unit that, when multiplied by 11, equals $440.

Question 20

If a monopolist draws a set of cost and revenue curves to represent the firm, he would show that
A) price intersects average total cost at the average total cost curve's minimum
B) price lies above the marginal revenue curve
C) marginal revenue at every output level equals zero
D) marginal cost at every output level equals zero
E) average total cost equals marginal cost

Accepted Answer

In a monopoly, the price is set above the marginal revenue curve because the monopolist has market power and faces a downward-sloping demand curve, meaning they can set prices above marginal cost to maximize profits.

Quiz 11: Price and Output in Monopoly, Monopolistic Competition, and Perfect Competition

Under which of the following conditions could the monopoly price be less than the price that would result in perfect competition? When there are

If a firm is a price taker, then it can

If a firm in a perfectly competitive industry maximizes profit by producing 100 units and the marginal cost of the 100th unit is $23, the price is

Suppose that the development of a new type of circuit lowers the costs of production in the microcomputer industry, which is perfectly competitive. The long-run effect will likely be

Ian McDonald owns a company that sells sleds in a perfectly competitive market. A lighter-than-normal snowfall has caused the market demand curve for sleds to shift to the left. In the short run, which of the following is likely to happen?

If you were in the donut-making business, which of the following would most likely not be an explicit cost?

In perfect competition, an economic profit can be earned

If a perfect competitor is currently charging $9 for its product and the marginal cost of the last unit produced is $6, the firm should

You hire a set of economic consultants and they tell you the following: At a price of $7,24 units of the good could be sold; at a price of $6, 29 units of output could be sold. You know then that the firm's total revenue at a price of $7 would equal

The market price in a perfectly competitive industry is $13. A firm is considering increasing its output from 30 units to 40 units. The marginal revenue of each of these extra units equals

Marginal revenue measures the change in

The total revenue is the

-Exhibit K-11 represents a firm's demand curve. It is clear that the firm

-According to the information provided in Exhibit K-11, the marginal revenue of the 12th unit of output equals

-The information in Exhibit K-11 shows that if the firm produces 11 units of output, itstotal revenue would equal

If a monopolist draws a set of cost and revenue curves to represent the firm, he would show that