ECON 2100 (Summer 2015 Sections 07 & 08) Exam #3C

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1 ECON 21 (Summer 215 Sections 7 & 8) Exam #3C Multiple Choice Questions: (3 points each) 1. I am taking of the exam. C. Version C 2. is a market structure in which there is one single seller of a unique good (with no close substitutes ) and in which there are barriers to entry which prevent rival firms from entering the market A. Monopolistic Competition B. Perfect Competition C. Monopoly D. Oligopoly 3. Average Fixed Costs of Production A. are equal to Average Total Costs of Production minus Average Variable Costs of Production. B. must decrease as the level of output of the firm is increased. C. are defined as Fixed Costs of Production divided by quantity of output produced. D. More than one (perhaps all) of the above answers are correct. 4. New firms will enter a monopolistically competitive firm in the long run if for the typical firm in the short run A. Average Fixed Costs of production are zero. B. price is less than Average Variable Costs of production. C. price is greater than Average Total Costs of production. D. None of the above answers are correct, since new firms can never enter a monopolistically competitive market in the long run. 5. In the Short Run, the only variable input which Company X hires is labor. Suppose that the Marginal Product of Labor is always positive. When increasing the amount of labor hired from 8 units to 81, output increases from 1,2 units to 1,21 units. If the production process of this firm is such that the Marginal Product of Labor is diminishing, then units of output would be produced if 82 units of labor were hired. A. more than 1,22 B. exactly 1,22 C. more than 1,21 but fewer than 1,22 D. fewer than 1,21 6. Katie opens a lemonade stand for 3 hours. She spends $1 for ingredients and sells $4 of lemonade. During these three hours she could have instead mowed a neighbor s lawn for $25 (using the neighbor s lawn mower and gas). It follows that from running the lemonade stand she has an accounting profit of and an economic profit of. A. $15; $3. B. $3; $15. C. $3; $5. D. $4; $5.

2 7. Disneyland Resort in Anaheim, CA offers a season pass to residents of Southern California and Northern Baja California for $284. The regular price for this annual pass is $389. To receive the lower price, a consumer must present a valid I.D. at the time of purchase, showing that they reside in a Southern California town with a ZIP Code in the range of 9 to or a Northern Baja California town with a Postal Code in the range of 21 to This pricing behavior is an example of A. First Degree Price Discrimination (or Perfect Price Discrimination ). B. Second Degree Price Discrimination (or Menu Pricing ). C. Third Degree Price Discrimination (or Segmented Pricing ). D. Fifth Degree Price Discrimination (or Walter Murphy Pricing ) For questions 8 through 11, consider the graph below which illustrates the maximum profit which can be earned by a firm in a perfectly competitive market as a function of its level of output. Profit of Firm 7,72 1,2 7,93 Quantity of Output 4,89 7,38 2,84 4,955 7, For this firm, Fixed Costs of production are: A. $7,72. B. $7,38. C. $4,89. D. $. 9. Marginal Revenue is greater than Marginal Cost for which of the following ranges of output? A. up to 2,84 and beyond 7,215. B. 2,84 up to 7,215 C. 1,2 up to 4,955 D. up to 1,2 and beyond 4, The current market price of this firm s output is A. below the minimum value of Average Variable Costs. B. above the minimum value of Average Variable Costs, but below the minimum value of Average Total Costs. C. exactly equal to the minimum value of Average Total Costs. D. above the minimum value of Average Total Costs. 11. If the price of this firm s output were to increase, then the maximum profit of the firm would be A. greater than $7,72. B. greater than $ but less than $7,72. C. greater than $7,38 but less than $. D. less than $7,38.

3 12. A competitive firm s short-run supply curve is the portion of its curve above its curve. A. Marginal Cost; Average Total Cost. B. Marginal Cost; Average Variable Cost. C. Average Variable Cost; Average Total Cost. D. Marginal Cost; Marginal Revenue. 13. If a monopolist s fixed costs were lower, then its price would have been and its profit would have been. A. lower; lower. B. lower; higher. C. the same; higher. D. higher; higher. For questions 14 and 15, consider a firm which sells a good in two different markets: Market Segment A and Market Segment B. The two graphs below illustrate demand and marginal revenue in each market (when the firm is able to set a different price in each market). The firm has constant Marginal Costs of $5 per unit, plus Fixed Costs of $1,. If the firm is restricted to charging the same price in each market, profit is maximized by charging a price of $9. $ $ 19 Market Segment A Market Segment B , 1,2 1,35 Demand A Q 2,1 Marg. Rev. A ,125 1,625 Demand B Marg. Rev. B Q 14. If this firm were able to engage in 3 rd Degree Price Discrimination (instead of engaging in standard monopoly pricing, treating the two segments as one single market), then it would choose to sell units in Market Segment A and units in Market Segment B. A. 1,; 1,125. B. 1,; 1,625. C. 1,2; 1,125. D. 1,35;. 15. If this firm were able to engage in 3 rd Degree Price Discrimination (instead of engaging in standard monopoly pricing, treating the two segments as one single market), then A. consumers in Segment A would be better off. B. consumers in Segment B would be better off. C. Both (A) and (B) are correct (i.e., consumers in both segments would be better off). D. Neither (A) nor (B) is correct (i.e., consumers in neither segment would be better off).

4 16. Consider a monopolist who is charging a price of $7 for each unit of output sold in order to sell 1,75 units of output. At this point along the demand curve, price elasticity of demand is equal to 2.5. This monopolist has constant Marginal Costs of Production of $5 for each unit (so that Variable Costs are simply VC( q) 5q ). Finally, Fixed Costs are equal to $3,25. This monopolist is A. not maximizing profit, and is not earning a positive profit. B. not maximizing profit, but is earning a positive profit. C. maximizing profit, but is not able to earn a positive profit. D. maximizing profit, and is able to earn a positive profit. For questions 17 through 19, consider a firm in a perfectly competitive market with costs of production as illustrated below: ATC min AVC min 6. $ MC(q) AVC(q) ATC(q) MC min 4.1 quantity 3,15 4,9 17. Fixed Costs of production for this firm are equal to A. $76,25. B. $68,6. C. $39,2. D. $29,4. 6, If the per unit price of output in this market were $5., then this firm would A. shutdown and produce zero units of output. B. produce more than 3,15 but less than 4,9 units of output. C. produce more than 4,9 but less than 6,25 units of output. D. produce more than 6,25 units of output. 19. At which of the following per unit prices of output would this firm be able to earn a positive profit in the Short Run? A. $5. B. $1. C. $14. D. More than one (perhaps all) of the above answers is correct,

5 2. Which of the following best describes the outcome of excess capacity which results in a monopolistically competitive market? A. The amount of output which is produced by a typical firm is less than the output level which would minimize Average Total Costs of production. B. Long Run profits in such an industry will remain positive, since the firm is easily able to prevent new entrants from entering the market. C. The market supply curve in a monopolistically competitive market is the vertical summation of the individual supply curves of each firm in the market. D. When maximizing profit, firms produce more output than is socially desirable, resulting in a positive Deadweight-Loss from too much trade. 21. Ryan sells wheat in a perfectly competitive market. If he increases his quantity sold by 25%, his total revenue will A. increase, but by less than 25%. B. increase by exactly 25%. C. increase by more than 25%. D. remain constant. For questions 22 through 24, consider a market for which in 2, 27, and 214 market shares and squared values of market shares were as reported in the two tables below. Year Share of Share of 2 nd Share of 3 rd Share of 4 th Share of 5 th Share of 6 th Year Share of Share of 2 nd Share of 3 rd Share of 4 th Share of 5 th Share of 6 th , The value of the Four Firm Concentration Ratio (C4) A. decreased between 23 and 29, but then increased between 29 and 215. B. decreased between 23 and 29, and then decreased further between 29 and 215. C. increased between 23 and 29, and then increased further between 29 and 215. D. increased between 23 and 29, but then decreased between 29 and The value of the Herfindahl-Hirschman Index (HHI) in this market in 23 was. A. 625 B. 1,86 C. 1,89 D. 1, This industry was least competitive (i.e., closest to monopoly) A. in 215 according to C4 and in 215 according to HHI. B. in 215 according to C4 and in 29 according to HHI. C. in 23 according to C4 and in 29 according to HHI. D. in 23 according to C4 and in 23 according to HHI.

6 25. Kurt sells potatoes in a perfectly competitive market. During the month of June he: produced 1, pounds of potatoes, sold each pound of output at a price of $4, had fixed costs of $15,, and earned a profit of $2,5. If instead Fixed Costs had been $18, then A. he would have charged more than $4 for each pound of potatoes. B. he would have chosen to shutdown and produce zero units of output. C. his maximum short run profit would have instead been negative. D. More than one (perhaps all) of the above answers is correct. For Questions 26 through 28, consider a monopolist facing demand and with costs of production as illustrated below. Further, if this monopolist were restricted to charging a common price for every unit of output sold, Marginal Revenue would be as illustrated below by the curve labeled MR(q) $ 1.8 a b MC(q) 7.5 c f 4.8 i 2.3 j d g h e k Demand quantity 3,6 5,4 MR(q) 26. If this monopolist must charge a common price for every unit of output sold, then they will maximize profit by charging a price of for each unit sold. A. $1.8 B. $7.5 C. $4.8 D. $ Again suppose that this monopolist must charge a common price for every unit of output sold. When the monopolist charges the price and sells the quantity of output which maximize profit, A. Consumers Surplus will be equal to areas a+b. B. the monopolist realizes a Producer s Surplus equal to areas c+d+f+g+i+j. C. Deadweight-Loss will be equal to area k, due to the monopolist selling more than the efficient quantity of the good. D. More than one (perhaps all) of the above answers is correct. 28. If this monopolist is able to engage in First Degree Price Discrimination (or Perfect Price Discrimination ), then A. Deadweight-Loss would be equal to zero. B. Consumers Surplus would be equal to areas a+b+c+d+e. C. she would choose to sell 5,4 units of output. D. More than one (perhaps all) of the above answers is correct. 6,93 9,9

7 29. In a perfectly competitive market, A. there are significant barriers to entry which prevent new firms from entering the market. B. there are many buyers but relatively few sellers. C. all goods offered for sale are identical to each other. D. More than one (perhaps all) of the above answers is correct. 3. Counterintuitive Technologies is the sole producer of Good X. They were able to become the only producer of this good, primarily because total production costs of Good X are lowest when only one single firm produces all units of output. Thus, Counterintuitive Technologies can be described as a. A. Natural Monopoly B. Competitive Monopoly C. Abnormal Monopoly D. Discriminating Monopoly 31. Consider a firm with: Revenue of $2,; Variable Costs of $17,; and Fixed Costs of $2,. For this firm, Profit is and Producer s Surplus is. A. $2,; $19,. B. $18,; $37,. C. $3,; $18,. D. $1,; $3,. For questions 32 and 33, consider a perfectly competitive market in which there are four different types of firms in the short Run (Type A, Type B, Type C, and Type D). The table below provides a summary of the collective profit maximizing output of each type of firm at various output prices in the short run. For example, at a price of $3.6 the Type A firms will collectively supply 12, units of output, while all other firms will supply zero units. price Collective Output of Type A Firms Collective Output of Type B Firms Collective Output of Type C Firms Collective Output of Type D Firms , , 8, , 21, 6, 9. 54, 35, 125, 26, 32. Considering Market Supply, the total quantity supplied at a price of $7.2 would be. A. 4, B. 6, C. 12, D. 165, 33. It appears as if the Minimum Value of Average Variable Costs of Production (i.e., AVC min ) for a Type D firm is A. above $9.. B. between $7.2 and $9.. C. between $1.8 and $7.2. D. less than $1.8.

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