Econ 111 (04) 2nd Midterm A

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1 Econ 111 (04) 2nd Midterm A MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Which one of the following does not occur in perfect competition? A) There are many buyers. B) There are significant restrictions on entry into the market. C) Sellers and buyers are well informed about prices. D) Established firms have no advantage over new ones. E) No single firm can exert a significant influence on the market price of the good. 1) 2) In a perfect competitive market, the market demand curve is illustrated by A) a line that is horizontal at the market price. B) a curve that is bowed towards the origin. C) a line that is vertical at the market output. D) an upward-sloping curve. E) a downward-sloping curve. 2) Use the figure below to answer the following questions. Figure 1 3) Refer to Figure 1. Curve A represents the firmʹs A) average fixed cost curve. B) average variable cost curve. C) total fixed cost curve. D) marginal revenue curve. E) total revenue curve. 3) 1

2 4) Refer to Figure A is a straight line because the firm A) has perfect information. B) is a price taker. C) has constant marginal cost. D) faces constant returns to scale. E) wants to maximize profits. 4) 5) If a firm faces a perfectly elastic demand for its product, then A) it will always make zero economic profit. B) it is not a price taker. C) it will want to lower its price to increase sales. D) it will want to raise its price to increase total revenue. E) its marginal revenue curve is horizontal at the market price. 5) 6) The slope of a perfectly competitive firmʹs demand curve is A) negative. B) zero. C) greater than 1. D) 1. E) infinity. 6) 7) Complete the following sentence. Marginal revenue is A) the change in total revenue that results from a one-unit increase in the quantity sold. B) total revenue minus total cost. C) the change in total quantity that results from a one-unit increase in the price of the good. D) the change in economic profit that results from a one-unit increase in the quantity sold. E) economic profit divided by the quantity sold. 7) 8) The maximum loss a firm will experience in the short run equals A) its marginal cost. B) its total fixed cost. C) zero. D) its total cost. E) its total variable cost. 8) 9) If a profit-maximizing monopoly is producing an output at which marginal cost exceeds marginal revenue, it A) is incurring an economic loss. B) should lower price and increase output. C) should raise price and decrease output. D) is maximizing profit. E) should lower price and decrease output. 9) 2

3 Use the figure below to answer the following questions. Figure 2 10) For the single-price monopoly shown in Figure 2, when profit is maximized, quantity is A) 4 and price is $5. B) 3 and price is $6. C) 3 and price is $3. D) 4 and price is $4. E) 5 and price is $4. 10) Use the figure below to answer the following question. Figure 3 11) Refer to Figure 3. This single-price monopoly produces units per day and charges a price of $ per unit. A) 20; 20 B) 20; 75 C) zero; 0 D) 40; 50 E) 20; 50 11) 3

4 Use the figure below to answer the following question. Figure 4 12) Refer to Figure 4, which shows a perfectly competitive firmʹs total revenue and total cost curves. Which one of the following statements is false? A) At an output of Q1 units a day, the firm makes zero economic profit. B) At an output greater than Q3 units a day, the firm incurs an economic loss. C) Economic profit is the vertical distance between the total revenue curve and the total cost curve. D) At an output of Q2 units a day, the firm incurs an economic loss. E) At an output less than Q1 units a day, the firm incurs an economic loss. 12) 13) A cartel is A) an arrangement among firms to reduce output and raise prices. B) an arrangement among firms to capture the regulator. C) an arrangement to flood the market and eliminate competition. D) an arrangement to steal secret industrial processes from rival firms. E) usually a stable organization, with no threat from cheaters on the cartel arrangements. 13) 14) A monopolist under rate of return regulation has an incentive to A) maximize consumer surplus. B) produce more than the efficient quantity of output. C) pad costs. D) charge a price equal to marginal cost. E) maximize shareholder profits 14) 15) A monopolistically competitive firm is able to influence the price of what it sells because of A) the fact there are many buyers. B) barriers to entry. C) product differentiation. D) inelastic demand. E) economies of scale. 15) 4

5 16) In monopolistic competition, firms compete on the basis of A) price only. B) marketing only. C) quality only. D) quality and marketing, but not price. E) price, quality, and marketing. 16) 17) In monopolistic competition A) the goods produced by each firm are identical. B) there are barriers to entry. C) firms do not have any control over the price of their products. D) a small number of firms compete. E) firms practice product differentiation. 17) 18) Which of the following goods is best described as being sold in a monopolistically competitive market? A) fast food B) automobiles C) the local newspaper D) wheat E) postage stamps 18) 19) One factor that distinguishes a monopoly from monopolistic competition is that A) barriers to exit exist in monopolistic competition. B) no barriers to entry exist in a monopoly. C) firms are price-takers in monopolistic competition. D) firms in monopolistic competition practice collusion. E) close substitutes are available in monopolistic competition. 19) 5

6 Use the figure below to answer the following questions. Figure 5 20) Refer to Figure 5. Assume this firm is a single-price monopoly. How many tickets does this monopolist sell to maximize economic profit? A) 20 tickets B) 30 tickets C) 60 tickets D) 100 tickets E) 50 tickets 20) 21) Why might only a few firms dominate an oligopolistic industry? A) Decreasing returns to scale may make small-scale firms more advantageous. B) It is due to the outcome of the prisonersʹ dilemma. C) Perfectly elastic demand makes small-scale operation economically inefficient. D) A natural or legal barrier to entry exists. E) Inelastic market demand leads to the domination of the industry by a few firms. 21) 22) The market structure in which natural or legal barriers prevent the entry of new firms and a small number of firms compete is A) monopoly. B) oligopoly. C) duopoly. D) monopolistic competition. E) perfect competition. 22) 6

7 Use the figure below to answer the following question. Figure 6 23) Which one of the following statements about the sections of the kinked demand curve in Figure 6 is correct? A) AB assumes no new firms will enter the industry, while BC assumes new firms will enter. B) AB assumes other firms will match a price increase, while BC assumes other firms will not match a price decrease. C) AB assumes other firms will not match a price increase, while BC assumes other firms will match a price decrease. D) The kink between sections reflects market imperfections. E) AB assumes new firms will enter the industry, while BC assumes no new firms will enter. 23) 24) Which one the following industries is the best example of an oligopoly? A) the market for wheat B) the fast-food industry C) the automobile industry D) the restaurant industry E) the clothing industry 24) 25) According to the kinked demand curve theory of oligopoly, each firm believes that if it raises its price, A) the government will impose price controls. B) other firms will lower theirs. C) other firms will not raise theirs. D) other firms will raise their prices by an identical amount. E) its profit will rise by the same percentage. 25) 7

8 26) Monopolistic competition differs from monopoly because in monopolistic competition A) firms maximize profits. B) firms are free to enter and exit. C) firms set marginal revenue equal to marginal cost to maximize profit. D) All of the above are differences between monopoly and monopolistically competitive firms. E) None of the above are differences between monopoly and monopolistically competitive firms. 26) 27) Which one of the following quotations best describes the kinked demand curve model of oliogopoly? A) ʺGas prices in this town always go up and down together.ʺ B) ʺConstruction prices in this town seem to be always set by Big Jimʹs Dandy Construction Company.ʺ C) ʺEvery time Sparrowʹs Donuts has a donut sale, so does Tim Hortonʹs.ʺ D) All of the above. E) None of the above. 27) 28) Toronto has a large number of retail stores that sell clothes. Each store has its own characteristics which differ from the other stores. The clothing business in Toronto is an example of A) a monopolistically competitive market. B) a duopoly. C) a monopoly. D) a perfectly competitive market. E) an oligopoly. 28) 29) If a perfectly competitive firm in the short run is able to pay its variable costs and part, but not all, of its fixed costs, then it is operating in the range on its marginal cost curve that is anywhere A) above the shutdown point. B) below the shutdown point. C) above the break-even point. D) below the break-even point. E) between the shutdown and break-even points. 29) 30) If a perfectly competitive firm is producing in the short run at an output where price is less than average total cost, the firm A) will shut down. B) is still making a positive economic profit. C) is incurring an economic loss but will continue to operate as long as price is above minimum average fixed cost. D) is breaking even. E) is incurring an economic loss but will continue to operate as long as price is above minimum average variable cost. 30) 8

9 Answer Key Testname: ECON 111 (04) 2ND MT WINTER 2015 A 1) B 2) E 3) E 4) B 5) E 6) B 7) A 8) B 9) C 10) B 11) B 12) D 13) A 14) C 15) C 16) E 17) E 18) A 19) E 20) B 21) D 22) B 23) C 24) C 25) C 26) B 27) C 28) A 29) E 30) E 9

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