Micro - HW 4 MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) In central Florida during the spring, strawberry growers are price takers. The reason these growers are price takers is because there are strawberry growers in this area. A) more than one or two but not many B) one or two C) no D) many E) Both answer C and answer D are correct. 1) 2) Bill owns a lawn-care company in Windermere, Florida, whose cost curves are illustrated in the above figure. The market equilibrium price in this perfectly competitive market equals $32 per lawn mowed. Bill's average total cost curve is ATC, so his total cost of production equals A) more than $1,400 per week and less than $1,800 per week. B) $0 because Bill shuts down. C) more than $1,200 and less than $1,400 per week. D) more than $1,800 per week. E) more than $0 and less than $1,200 per week. 2) 3) The firm's over-riding objective is to 3) A) maximize total revenue. B) maximize economic profit. C) maximize normal profit. D) earn a normal profit. E) avoid an economic loss. 1
4) For a perfectly competitive firm, marginal revenue is 4) A) greater than the price. B) undefined because the firm's demand curve is horizontal. C) equal to the change in profit from selling one more unit. D) less than the price. E) equal to the price. 5) A market is classified as an oligopoly when 5) A) only one firm sells a product with no close substitutes. B) a few firms compete. C) many firms produce a slightly differentiated product. D) many firms produce the same product. E) no matter how many firms are in the market, a barrier blocks entry by other new firms. 6) A perfectly competitive market arises when 6) A) a firm has control over a unique resource. B) there are many buyers but few sellers. C) each of the many firms produces a slightly different product. D) the market demand is small relative to the output of a firm. E) the market demand is very large relative to the output of one seller. 7) In the short run, a perfectly competitive firm 7) A) can possibly earn an economic profit or possibly incur an economic loss. B) can change only its fixed inputs. C) produces the level of output that sets the average total cost equal to the market price. D) can vary all its inputs. E) can earn only a normal profit. 8) Rent seeking 8) A) is the attempt to get rent from tardy renters. B) occurs when landlords advertise for apartments and other property for rent. C) is the act of obtaining special treatment by the government to create economic profit. D) occurs when a firm charges different prices for different units of its good or service. E) is an attempt to sell a property and capture economic profit. 9) One of the tendencies that is common among firms regulated using rate of return regulation is to 9) A) exaggerate the costs of production. B) overstate their total revenue. C) incur losses. D) increase production to an inefficient level. E) understate the costs of production. 10) Total revenue is equal to 10) A) the change in price resulting from a one-unit increase in quantity sold. B) the amount people will buy at a given price. C) the price at which the good or service is sold. D) price multiplied by the quantity sold. E) the change in the quantity sold when you change the price by one unit. 2
11) The social interest theory of regulation asserts that the purpose of regulating a natural monopoly is to i. minimize the deadweight loss created by a monopoly. ii. maximize economic profit. iii. minimize consumer surplus. A) ii only. B) ii and iii. C) i only. D) i and ii. E) iii only. 11) 12) The above figure definitely shows 12) A) a long-run equilibrium for a perfectly competitive firm. B) an industry with few firms. C) a long-run equilibrium for a monopolistically competitive firm. D) a short-run equilibrium for a monopoly. E) a long-run equilibrium for a perfectly competitive market. 13) Which of the following is the best example of a differentiated product? 13) A) diamonds B) beets in the local supermarket C) airlines D) electricity E) running shoes 14) When a firm maximizes its profit, which of the following is correct for firms in monopolistic competition and perfect competition? A) P = MR = MC for firms in perfect competition and P > MR = MC for firms in monopolistic competition. B) P = MC for both types of firms. C) MR = MC for firms in perfect competition and MR > MC for firms in monopolistic competition. D) P = ATC always for firms in both perfect competition and monopolistic competition. E) P > MR = MC for firms in both perfect competition and monopolistic competition. 14) 3
15) When an oligopoly reduces its price with the intent of driving away its competitors, it is said to be engaging in A) predatory pricing. B) price fixing. C) price discrimination. D) pricing differential. E) a price-tying agreement. 15) 16) The figure above shows the market demand curve and the ATC curve for a firm. If all firms in the market have the same ATC curve, the efficient scale for one firm is units per hour. A) 2,000 B) 4,000 C) 8,000 D) 10,000 E) more than 10,000 16) 17) A cartel is a collusive agreement among a number of firms that is designed to 17) A) restrict output and lower prices to a predatory level. B) restrict output and raise prices. C) expand output and raise prices. D) expand output and lower prices but not to a predatory level. E) expand output and lower prices to a predatory level. 4
18) If a perfectly competitive firm's average total cost is less than the price, then the firm 18) A) earns a normal profit. B) earns either a normal profit or an economic profit depending on whether the marginal revenue is equal to or greater than the price. C) earns an economic profit. D) incurs an economic loss. E) None of the above answers is correct because the relationship between the price and average total cost has nothing to do with the firm's profit. 19) The hog market is perfectly competitive, with thousands of hog farmers. In the 1990s, new farmers entered the hog market, driving the price of pork down. Initially, entry the economic profit of the initial hog farmers and in the long run the initial hog farmers. A) decreased; earned a normal profit B) increased; earned a normal profit C) increased; earned an economic profit D) decreased; incurred an economic loss E) increased; earned an even greater economic profit than initially 19) 20) If Microsoft is a monopoly and currently charges prices where its demand is elastic, then Microsoft's marginal revenue is A) undefined. B) zero. C) minimized. D) positive. E) negative. 20) 21) Which of the following is correct? 21) A) Monopoly has a four-firm concentration ratio of 100. B) Perfect competition has a four-firm concentration ratio near zero. C) Monopolistic competition has a four-firm concentration ratio of more than 40. D) Both answers A and B are correct. E) Both answers A and C are correct. 5
22) In the above figure, the output of an oligopoly will range between 22) A) Q2 and Q3. B) Q1 and Q2. C) 0 and Q1. D) 0 and Q2. E) Q1 and Q3. 23) Consider a short-run equilibrium in a perfectly competitive market. Suppose that the firms' average total cost and marginal cost schedules differ. In the short run, A) all firms in the market must be able to earn either an economic profit or a n normal profit. B) all firms in the market must be able to earn an economic profit. C) all firms produce equal amounts of output. D) some firms might incur an economic loss, but still produce output. E) some firms might earn an economic profit and, as a result, shut down. 23) 24) When a government agency removes the restrictions on prices, product standards and types, and the conditions under which firms can enter an industry, it is referred to as A) underallocation. B) anti-trust. C) deregulation. D) post-regulation. E) regulation. 24) 25) If there are four firms in an industry with market shares of 50 percent, 40 percent, 5 percent, and 5 percent, the Herfindahl-Hirschman Index is A) 25. B) 4150. C) 3450. D) 100. E) undefined because there are not 50 firms in the industry. 25) 6