Deck 11: Monopoly and Antitrust Policy

Question 1

Firms in competitive industries:
I) can only charge a price equal to the market price
II)cannot charge any more than the market price
III) will earn less profit if they charge less than the marketprice.

A)I only
B)I and III only
C)II only
D)I, II, and III

Answer 1

D

Question 2

When there are many buyers and sellers of a good, and theproduct 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 2

A

Question 3

Which of the following is NOT a key decision that a firm mustmake?

A)what price to set
B)what quantity to produce
C)where to produce
D)when to enter and exit an industry

Answer 3

C

Question 4

A)40.
B)3.
C)6.
D)9.

Question 5

(Table: Barrels of Oil) Refer to the table. The profit-maximizing level ofoutput is ________ barrels of oil.

A)1
B)3
C)5
D)7

Question 6

The total amount of money that a firm receives from sales ofits output is called:

A)gross profit.
B)net profit.
C)total revenue.
D)net revenue.

Question 7

(Table: Barrels of Oil) Refer to the table. The change in profit fromproducing the second barrel of oil is ________, and the marginal cost fromproducing the seventh barrel of oil is ________.

A)$140; $140
B)$100; $20
C)$60; $140
D)$140; $20

Question 8

To maximize profit firms should keep producing as long asmarginal revenue is:

A)greater than marginal cost.
B)equal to marginal cost.
C)less than marginal cost.
D)greater than total cost.

Question 9

When a firm expands output from 10 to 11 units and totalrevenue increases from $100 to $110, marginal revenue of the 11th unit is:

A)$110.
B)$11.
C)$10.
D)$210.

Question 10

In the small town of Wellsville, there is only one grocery store.Given that everyone needs food, we would expect that:

A)this grocery store is a monopoly and hence highly profitable.
B)this grocery store charges exorbitant prices.
C)this grocery store prices competitively.(True Answer )Correct
D)this grocery store faces a perfectly inelastic demand.

Question 11

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.

Question 12

To maximize profit a firm in a competitive market increasesoutput until:

A)P = TC.
B)P = AR.
C)P = MC.
D)P = AC.

Question 13

The marginal revenue (MR) for a firm is a constant $45, andthe firm's marginal cost (MC) is given by MC = 1.5Q (where Qis quantity of output). What is the firm's profit-maximizinglevel of output?

A)67.5
B)30
C)45
D)15

Question 14

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.(True
Answer )Correct
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.

Question 15

At a ski resort located over one hour from the nearest largetown, there is only one grocery store and it charges pricesmore than 200 percent above the typical retail prices. In thelong run, we would expect that:

A)another store will open that will charge equally high prices since competition is low.
B)the store will continue to earn high profits even in the long run since the size of the market is small.
C)demand will decrease since people will not want to pay the high prices.
D)another store will open that will charge lower prices.(True Answer )Correct

Question 16

Which of the following statements is TRUE?
Economistsnormally assume that the goal of the firm is to:
I) sell as much of their product as possible
II)set the price of their product as high as possibleIII. maximize profit.

A)I and II only
B)II and III only
C)I and III only
D)III only

Question 17

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.

Question 18

When there are many buyers and sellers of a good, and theproduct 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

Question 19

The amount of money that the firm pays for its inputs iscalled:

A)marginal cost.
B)total cost.
C)variable cost.
D)fixed cost.

Question 20

A perfectly competitive industry exists under which of thefollowing conditions?
I) The product sold is similar across firms
II)There are many sellers, each small relative to the totalmarket
III) There are many sellers, each with total assets less than $2million.IV. The threat of competition exists from potential sellers thathave not yet entered the market.

A)I and II only
B)I, II, and III only
C)I, III, and IV only
D)I, II, and IV only

Question 21

In their calculation of profit, accountants typically do not takeinto account:

A)variable costs.
B)fixed costs.
C)opportunity costs.
D)explicit costs.

Question 22

(Table: Barrels of Oil) Refer to the table. What is the marginalrevenue of producing the fifth barrel of oil?

A)61
B)50
C)200
D)250

Question 23

Profit can be shown graphically by depicting a firm's costs andrevenues, and is determined mathematically by calculatingthe:

A)distance from price to average cost.
B)area of the box that is price times quantity.
C)area of the box that is (price minus average cost) times the quantity.
D)area of the box that is average cost times quantity.

Question 24

(Table: Competitive Firm) Refer to the table. For the seventhunit of output, total profit is:

A)$630.
B)$90.
C)$160.
D)$470.

Question 25

(Table: Oil Production) Refer to the table. What is the total cost ofproducing eight barrels of oil?

A)$50
B)$206
C)$178
D)$336

Question 26

Which of the following is TRUE?

A)Price times quantity equals profit.
B)Profit equals marginal revenue minus marginal cost.
C)Profit equals total revenue minus average cost.
D)Profit equals (price minus average cost) times quantity.

Question 27

(Table: Barrels of Oil) Refer to the table. The maximum profitavailable to the company is:

A)$184.
B)$210.
C)$224.
D)$266.

Question 28

Total profit for a given quantity of output can be calculatedas:

A)Total Revenue - Total Costs.
B)Marginal Revenue - Marginal Cost.
C)Total Revenue - Marginal Revenue.
D)Marginal Profit + Marginal Revenue.

Question 29

Damien produces 400 gallons of milk a day in a verycompetitive industry. The market price for a gallon of milk is$2. Damien's marginal revenue per gallon of milk is:

A)$200.
B)$800.
C)$2.
D)There is not enough information to answer the question.

Question 30

When the level of production is relatively low, the average costper unit of output would ________ if output increased.

A)increase
B)decrease
C)either increase or decrease depending on marginal cost
D)remain constant

Question 31

(Table: Competitive Firm) Refer to the table. The profitmaximizing output for this firm is:

A)5.
B)6.
C)7.
D)8.

Question 32

(Table: Barrels of Oil) Refer to the table. What is the marginalcost of producing the seventh barrel of oil?

A)36
B)50
C)90
D)126

Question 33

Economic profit differs from accounting profits because of itsinclusion of:

A)explicit costs.
B)incidental costs.
C)potential costs.
D)implicit costs.

Question 34

(Table: Competitive Firm) The marginal cost of the fifth unitof output is:

A)$70.
B)$90.
C)$450.
D)$300.

Question 35

As the price of a good fluctuates, a profit-maximizing firm willexpand or contract production along its:

A)average cost curve.
B)average product curve.
C)marginal cost curve.
D)marginal product curve.

Question 36

Reference: Ref 11-2(Table: Barrels of Oil) Refer to the table. How many barrels of oilshould the company produce to maximize profit?

A)6
B)7
C)8
D)9

Question 37

(Table: Competitive Firm) Refer to the table. The marketprice 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.

Question 38

(Figure: Costs of Oil Production) Refer to the figure.Assuming that price equals marginal cost, the profit ofproducing eight barrels of oil is:

A)$160.
B)$240.
C)$400
D)It cannot be determined from the information given.

Question 39

(Figure: Costs of Oil Production) Refer to the figure.Assuming that price equals marginal cost, the total cost ofproducing eight barrels of oil is:

A)$60.
B)$240.
C)$400.
D)It cannot be determined from the information given.

Question 40

For a small firm in an extremely competitive industry,marginal revenue is always equal to price because:

A)the firm has no ability to influence the market price.(True Answer )Correct
B)each firm has large economies of scale.
C)each firm has large fixed costs.
D)if consumers increase their demand for the product, producer surplus falls.

Question 41

Figure: Costs (Figure: Costs) Use the figure. At a price of $20 which of thefollowing statements is FALSE?

A)AC = $15
B)Profit = (20 - 15)15
C)Average profit = $5
D)MC < AC

Question 42

(Table: Competitive Firm) Refer to the table that shows therevenue and cost schedules for a competitive firm. What is theaverage fixed cost at the profit maximizing quantity?

A)$54.30
B)$4.28
C)$50
D)$80

Question 43

Figure: Profits and Competitive Firms (Figure: Profits and Competitive Firms) Refer to the fourpanels in the figure. Which of the panels shows a competitivefirm making positive economic profits?

A)Panel A
B)Panel B
C)Panel C
D)Panel D

Question 44

Reference: Ref 11-7(Table: Competitive Firm) Refer to the table that shows therevenue and cost schedules for a competitive firm. How muchprofit will this firm earn?

A)$0; this firm is making a loss
B)$50
C)$170
D)$180

Question 45

Profit is positive whenever price is greater than:

A)total cost.
B)average cost.
C)fixed cost.
D)marginal cost.

Question 46

(Table: Competitive Firm) Refer to the table that shows therevenue and cost schedules for a competitive firm. What is theprofit maximizing quantity?

A)5
B)6
C)7
D)8

Question 47

(Figure: Costs) Use the figure. At a price of $20, the firm earnsprofit of:

A)$75.
B)$300.
C)$225.
D)$0, because P = MC at P = $20.

Question 48

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.

Question 49

Which of the following statements is correct?

A)When the marginal cost curve is above the average cost curve, the average cost curve must be rising.(True Answer
)Correct
B)When the marginal cost curve is below the average cost curve, the average cost curve must be rising.
C)When MR = MC, the average cost curve is at its minimum point.
D)When MR = P, the average cost curve is at its minimum point.

Question 50

(Table: Competitive Firm) Refer to the table that showsrevenue and cost schedules for a competitive firm. At theprofit-maximizing quantity, which of the following is TRUE?
I) MR = MCII. Producer surplus is maximized
III) Profits are equal to $180.

A)I only
B)I and II only
C)I and III only
D)I, II, and III

Question 51

Which of the following statements about cost is correct?

A)Marginal cost is constant.
B)Marginal cost is always falling.
C)Average total cost is U-shaped.
D)Average total cost always declines.

Question 52

Figure: Profits and Competitive Firms (Figure: Profits and Competitive Firms) Refer to the fourpanels in the figure. Which of the panels shows a competitivefirm making an economic loss?

A)Panel A
B)Panel B
C)Panel C
D)Panel D

Question 53

A)a profit of $200
B)The firm is not making a profit-it is making a loss of $220.
C)The firm is not making a profit-it is making a loss of $200.
D)The firm is not making a profit-it is making a loss of $320.

Question 54

(Table: Competitive Firm) Refer to the table that shows therevenue and cost schedules for a competitive firm. What is theaverage cost at the profit maximizing quantity?

A)$54.30
B)$58.75
C)$50
D)$80

Question 55

(Figure: AC) Refer to the set of four panels in the figure.Which of the panels shows the typical shape of the averagecost curve in a competitive market?
Figure: AC

A)Panel A
B)Panel B
C)Panel C
D)Panel D

Question 56

(Table: Competitive Firm) Refer to the table that shows therevenue and cost schedules for a competitive firm. What is themarginal cost at the profit maximizing quantity?

A)$50
B)$80
C)$230
D)$300

Question 57

(Table: Oil Production) Refer to the table. What are the fixed costs ofproduction for this firm?

A)$34
B)$4
C)$30
D)$50

Question 58

(Figure: Profits and Competitive Firms) Refer to the fourpanels in the figure. Which of the panels shows a competitivefirm making zero economic profits?

A)Panel A
B)Panel B
C)Panel C
D)Panel D

Question 59

Stating that TR = TC is equivalent to stating that:

A)MR = MC.
B)P = AC.
C)P = Average fixed cost.
D)MR = P.

Question 60

(Table: Oil Production) Refer to the table. What is the profit of producingten barrels of oil?

A)$80
B)$154
C)$180
D)$194

Question 61

Which of the following statements are TRUE?
A firm'sentry/exit decision is about:
I) whether profits are positive or negative now
II)whether the stream of future profits is positive or negative
III) government regulations.

A)I, II, and III
B)I only
C)I and II only
D)II and III only

Question 62

Figure: Industry Firms (Figure: Industry Firms) Use the figures. The market for a normal good ischaracterized by demand curve D₂ and supply curve S₂. A decrease in incomewill cause:

A)the demand curve to shift D₁ causing firms to earn economic profits.The supply curve will not change, so price will rise and firms will earn normal
Profits.
B)the supply curve to shift D₁ causing firms to earn economic profits.The supply curve will decrease to S₁ as firms exit the industry.Eventually the
Market price will rise and firms will earn above normal profits.
C)the demand curve to shift D₁ causing firms to earn economic losses.The supply curve will decrease to S₁ as firms exit the industry.Eventually the market price will rise and firms will earn normal profits.(True Answer
)Correct
D)the supply curve to shift S₁ causing firms to earn economic losses.The demand curve will decrease to D₁ as firms enter the industry.Eventually the
Market price will fall and firms will earn normal profits.

Question 63

A firm pays a monthly lease of $10,000 and generates $8,000 ofrevenue a month. Which of the following is true?

A)Firms will enter the industry.
B)This firm will exit the industry in the long run.(True Answer )Correct
C)The recoverable costs are less than the difference between revenues and variable costs.
D)The recoverable costs are less than operating profit.

Question 64

Whenever marginal cost is greater than the average total cost:

A)marginal cost is falling.
B)average cost is falling.
C)average cost is constant.
D)average cost is rising.

Question 65

With fluctuating prices in an industry, firms are likely to:

A)immediately exit any time profits are negative.
B)enter any time profits are positive.
C)consider lifetime profits of entering or exiting the industry.
D)act risk averse by producing only where (2 × MR) > MC.

Question 66

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.

Question 67

The decision to enter or exit an industry is based:

A)only on the level of profits/losses today.
B)only on the level of profits/losses in the future.
C)on lifetime expected profits.
D)on the marginal cost of production.

Question 68

The typical average cost curve in a competitive market is:

A)an upward sloping straight line because fixed costs are constant, and variable costs are increasing with the level of
Output.
B)U-shaped because the firm's fixed costs are first spread over greater quantities, but then increasingly greater quantities will
Create production capacity constraints.
C)downward sloping until fixed costs are eliminated and then it becomes a horizontal line.
D)U-shaped because increasing quantities of output cause a decrease in fixed costs but an offsetting increase in variable
Costs.

Question 69

What condition is necessary in a constant cost industry?

A)Prices of the industry's inputs do not change as the industry expands.
B)Prices of the industry's inputs decline as the industry expands.
C)Prices of the industry's inputs rise as the industry expands.
D)There are barriers that prevent new firms from entering such an industry.

Question 70

(Table: Decision to Enter) Use the table. A firm is consideringwhether to enter an industry, with the conditions upon entryset forth in the table. Entering the industry would require thefirm to pay $800 per day in fixed costs. This firm should________ the industry because its profits would be ________per day.

A)not enter; -$1,350
B)not enter; -$800
C)enter; $700
D)enter; $150

Question 71

A)a profit, because P >AC.
B)a loss, because MC > AC.
C)a profit, because MR > MC.
D)a loss, because TR < TC.

Question 72

A firm should exit an industry if:

A)P < MC.
B)P - AC > 0.
C)P - AC < 0.
D)P - AC = 0.

Question 73

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.

Question 74

Figure: Industry Firms (Figure: Industry Firms) Refer to the figures. The market is characterized bydemand curve D₂ and supply curve S₁. The firms in the industry are earning________, which will cause the:

A)profit; supply curve to shift to S₂.
B)losses; demand curve to shift to D₁.
C)profit; supply curve to shift to S₂ and the demand curve to shift to D₁.
D)losses; supply curve to shift to S₂ and the demand curve to shift to D₁.

Question 75

Profit is positive whenever:

A)P < AC.
B)P < MC.
C)P > MC.
D)P > AC.

Question 76

Which of the following statements is TRUE?

A)Entry and exit from an industry depend on the firm's market share.
B)Fixed costs fall as firms produce more output, the so-called ―spreading of the costs.‖
C)High profits in an industry give entrepreneurs an incentive to enter that industry.
D)A firm should enter an industry if average costs are less than producer surplus.

Question 77

(Figure: Industry Firms) Refer to the figures. This industry is a(n):

A)increasing cost industry.
B)decreasing cost industry.
C)constant cost industry.
D)quadratic cost industry.

Question 78

A firm should exit the industry if which of the followingconditions apply?

A)TR > TC
B)P < AC
C)Lifetime expected profit is positive.
D)Prices are low now but expected to rise.

Question 79

A baker wants to establish a pie factory. The cost of leasingthe factory is $1,000 per day. The profit maximizing quantityof pies is 1,000 pies a day. Each pie sells for $3 and costs only$2.10 to make. Which of the following is a correct conclusionbased on this data?

A)The baker will enjoy profits of $900 per day.
B)The baker should not enter the industry.(True Answer )Correct
C)At the profit maximizing quantity, the baker's producer surplus is -$200.
D)The baker will enjoy profits of $3,000 per day.

Question 80

In a constant cost industry, the market price and average costare equal to $23. Therefore, which of the following is correct?

A)An increase in demand will cause the short-run price to rise above $23 but, in the long run, the price will return to
$23)
B)An increase in demand will cause profits to rise and firms to enter the industry until profits return to normal.
C)A decrease in demand will cause market price to fall below average cost and thus firms will earn negative
Profits.
D)All of the answers are correct.