Mid-Term Econ 102 Fall03

Transcription

1 Mid-Term Econ 102 Fall03 Instruction 1. Use scantron 882-E 2. Any late work will be penalized. Each day late will cost 5 points. 3. This due back on December 8, Please use both of my lecture notes and your book. 1. Microeconomics is about objectives, constraints, and choices. The objective of the perfectly competitive firm is to ; it is constrained by ; it chooses to produce where. a. maximize total revenue; its costs; MR = MC b. maximize profit; its demand curve; MC intersects the lowest point on the ATC curve c. maximize profit; its demand curve; MC = MR d. minimize costs; its fixed costs; MC intersects the lowest point on the ATC curve e. maximize profit; market forces; MR = ATC 2. Perfect competition is often used as a benchmark to judge other market structures because a. there is easy entry and exit. b. firms in a perfectly competitive market ignore sunk costs. c. firms in long-run competitive equilibrium earn positive economic profits. d. it exhibits desirable efficiency properties. e. a and c 3. When an industry is described as a decreasing-cost, increasing-cost, or constant-cost industry, the cost that is being referred to is a. marginal cost. b. unit cost. c. average variable cost. d. sunk cost. e. fixed cost. 4. The long-run industry supply curve is the graphic representation of the quantity of output that the industry is prepared to a. supply at different prices after the entry and exit of firms is completed. b. supply at a single price after the entry and exit of firms is completed. c. purchase at different prices after the entry and exit of firms is completed. d. purchase at different prices after the entry of firms is completed. e. supply at different prices after the exit of firms is completed. 5. A perfectly competitive market is initially in long-run competitive equilibrium. Then, market demand increases. This causes existing firms in the market to and. As a result of the latter, the market supply curve shifts. a. produce more output; some existing firms to exit the market; leftward b. produce less output; new firms to enter the market; rightward c. produce more output; new firms to enter the market; rightward

2 d. expand their plant size; some existing firms to exit the market; leftward 6. There are 200 firms in a perfectly competitive industry. Half of the firms supply 100 units each at $3 per unit and the other half of the firms supply 130 units each at $3 per unit. One point on the market supply curve is a. 23,000 units at $3. b. 10,000 units at $3. c. 13,000 units at $3. d. 23,000 units at $6. 7. Which of the following is false? a. If a firm produces the quantity of output at which MR = MC, it follows that the firm will earn profit. b. The firm s supply curve is that portion of its MC curve that lies above its ATC curve. c. If price is above ATC at the quantity of output at which MR = MC, a firm will earn profit. d. In long-run competitive equilibrium, price is equal to marginal cost. e. a and b 8. Equilibrium price is $10 in a perfectly competitive market. For a perfectly competitive firm, MR = MC at 1,200 units of output. At 1,200 units, ATC is $23, and AVC is $18. The best policy for this firm is to in the short run. Also, this firm earns of if it produces and sells 1,200 units. a. shut down; losses; $15,600 b. shut down; losses; $9,600 c. continue to produce; losses; $15,600 d. continue to produce; profits; $15, Equilibrium price is $10 in a perfectly competitive market. For a perfectly competitive firm, MR = MC at 233 units of output. At 233 units, ATC is $11, and AVC is $9. The best policy for this firm is to in the short run. Also, total fixed cost equals for this firm. a. continue to produce; $2 b. shut down; $450 c. continue to produce; $466 d. shut down; $2,097 e. continue to produce; $2, Equilibrium price is $9 in a perfectly competitive market. For a perfectly competitive firm, MR = MC at 125 units of output. At 125 units, ATC is $11, and AVC is $10. The best policy for this firm is to in the short run. Also, total fixed cost equals and total variable cost equals for this firm. a. continue to produce; $125; $1,375 b. shut down; $125; $1,250 c. shut down; $1,375; $1,250 d. continue to produce; $125; $1,250 e. There is not enough information to answer all parts of the question.

3 11. Equilibrium price is $19 in a perfectly competitive market. For a perfectly competitive firm, MR = MC at 120 units of output. At 120 units, ATC is $11, and AVC is $8. The best policy for this firm is to in the short run. Also, this firm earns of if it produces and sells 120 units. Finally, the difference between total revenue and total fixed cost for this firm is. a. continue to produce; profits; $960; $1,920 b. continue to produce; losses; $960; $1,000 c. shut down; losses; $1,200; $2,300 d. continue to produce; profits; $1,920; $1, For a perfectly competitive firm, MR = MC at 250 units of output. At 250 units, ATC is greater than AVC. It follows that a. the firm should shut down its operation. b. the marginal cost curve must have an upward-sloping portion and a downward-sloping portion. c. the firm should continue to produce. d. b and c 13. Equilibrium price is $22 in a perfectly competitive market. For a perfectly competitive firm, MR = MC at 200 units of output. At 200 units, ATC is $23, and AVC is $18. The best policy for this firm is to in the short run. Also, this firm earns of if it produces and sells 200 units. Finally, the difference between total variable cost and total fixed cost for this firm is. a. continue to produce, profits, $1800, $3,600 b. shut down, losses, $200, $3,600 c. continue to produce, losses, $200, $2,600 d. shut down, profits, $200, $1, If, for a perfectly competitive firm, marginal cost is greater than marginal revenue for the 100th unit, then it follows that a. producing the 100th unit adds more to total revenue than it does to total cost. b. producing the 100th unit adds more to total cost than it does to total revenue. c. marginal cost equals marginal revenue for the 99th unit. d. the firm is not maximizing profit, or minimizing losses, if it produces the 100th unit. e. b and d 15. For a price taker, market equilibrium price is $100. At 100 units, MR = MC, ATC = $90, and AVC = $60. This price taker will a. earn $10 profits if it produces 100 units of the good. b. earn $1,000 profits if it produces 100 units. c. shut down its operation and by doing this minimize its losses. d. maximize its profits if it produces fewer than 100 units. e. maximize its profits if it produces more than 100 units. 16. In a constant-cost industry, positive profits are eliminated through a. an increase in costs only. b. a decrease in price only. c. both an increase in costs and a decrease in price.

4 d. None of the above, because positive profits are persistent in a constant-cost industry. Exhibit U-9 Market Single Firm Price Price and Cost SRATC S MC P 2 P 1 P 2 P 1 LRATC d D 2 D 1 0 Q 1 Q1 0 q 3 q1 q 1 q2 q 2 q3 For questions 17-19, refer to Exhibit 9-9 above. 17. Refer to Exhibit 9-9. Suppose that the market starts at its long-run competitive equilibrium (P 1, Q 1 ), and that demand increases from D 1 to D 2. As a consequence, the typical profitmaximizing firm will a. increase quantity produced by q 3 q 2. b. decrease quantity produced by q 2 q 1. c. decrease quantity produced by q 1 q 3. d. not change its output level because the demand curve it is facing did not change. 18. Refer to Exhibit 9-9. Following an increase in market demand from D 1 to D 2, the firm s profits in the short run will a. remain the same at P 1 times q 1. b. remain the same at zero. c. increase by less than (P 2 P 1 ) times q 2. d. increase by (P 2 P 1 ) times q Refer to Exhibit 9-9. Assume that demand increases from D 1 to D 2 ; in the new long run equilibrium, price settles at a level between P 1 and P 2 This means that the industry in question is a(n) -cost industry. a. decreasing b. increasing c. constant d. marginal e. low

5 Exhibit U-8 Firm A Firm B Price and Cost (dollars) MC Price and Cost (dollars) MC ATC d 10 AVC 8 ATC 8 7 AVC 7 d For questions 20-22, refer to Exhibit 9-8 above. 20. Refer to Exhibit 9-8. Which of the following is true in the short run of A and B, two perfectly competitive firms? a. Both A and B will continue to produce in the short run. b. Firm A will continue to produce and Firm B will shut down. c. Firm A will shut down and Firm B will continue to produce. d. Firm A will continue to produce in the short run and shut down in the long run. e. a and d 21. Refer to Exhibit 9-8. What is the profit of Firm A? a. $300 b. $270 c. $600 d. $ Refer to Exhibit 9-8. What is the total fixed cost of Firm A at the point where it produces in the short run? a. $3 b. $300 c. $90 d. $ Which of the following statements about a perfectly competitive firm is necessarily false? a. There are few substitutes for the firm s product. b. There are few complements to the firm s product. c. The firm equalizes marginal revenue and marginal cost. d. The firm sells a product that is identical in the eyes of buyers to any other product sold in the industry. e. b and d

6 24. A constant-cost industry is characterized by a. an upward-sloping long-run supply curve. b. a downward-sloping long-run supply curve. c. a perfectly elastic long-run supply curve. d. perfectly elastic short-run and long-run supply curves. e. a perfectly elastic short-run supply curve and an upward-sloping long-run supply curve. 25. In long-run equilibrium, the perfectly competitive firm earns economic profits. a. positive b. zero c. negative d. any of the above 26. The perfectly competitive firm will shut down in the short run if price is a. less than average variable cost. b. greater than average variable cost but less than average total cost. c. greater than average total cost. d. equal to average total cost. e. a and b 27. In the theory of perfect competition, the assumption of easy entry into and exit from the market implies a. positive economic profits in the long run. b. losses in the long-run equilibrium. c. zero economic profits in the long run. d. zero economic profits in both the short run and the long run. e. positive economic profits in both the short run and the long run. 28. Marginal revenue is defined as a. the difference between costs and revenues. b. the change in total revenue caused by selling one additional unit of output. c. price times quantity. d. total revenue divided by the level of output. e. total revenue minus the level of output. 29. Is it possible for a perfectly competitive firm to be maximizing profits, but not achieving resource allocative efficiency? a. Definitely yes, because it is impossible to achieve both at the same time. b. Yes, it is possible, but it is not possible to minimize losses without also achieving resource allocative efficiency. c. No, it is not possible, because the output at which MR = MC is also the output at which P = MC. d. There is not enough information to answer this question. 30. Resource allocative efficiency occurs when a firm a. minimizes costs of production yet charges the highest possible price. b. produces the quantity of output at which price exceeds average total cost by the greatest amount. c. produces the quantity of output at which price equals marginal cost. d. produces the quantity of output at which price equals average total cost. e. produces the quantity of output at which price equals average variable cost.

7 31. Why must profits be zero in long-run competitive equilibrium? a. If profits are not zero, firms will enter or exit the industry. b. If profits are not zero, firms will produce higher-quality goods. c. If profits are not zero, marginal revenue will rise. d. If profits are not zero, marginal cost will rise. 32. When the perfectly competitive firm produces the quantity of output at which marginal revenue equals marginal cost, it naturally a. produces the quantity of output at which marginal cost equals price, since for the perfectly competitive firm price equals marginal revenue. b. produces the quantity of output at which short-run average total cost equals price, since for the perfectly competitive firm short-run average total cost equals marginal revenue. c. earns a profit, since equating marginal revenue and marginal cost guarantees profit. d. takes a loss. Exhibit U-4 Price and Cost 3 2 ATC AVC d, MR P 1 d, MR Q1 1 0 Q 1 For questions 33-36, refer to Exhibit U-4 above. 33. Refer to Exhibit U-4. Equilibrium price is P 1, and the firm produces Q 1. At this level of output, average variable cost and average total cost are indicated by the dots. Given this situation, the firm is a. receiving a profit equal to area 3. b. taking a loss equal to areas c. earning total revenue equal to areas

8 d. receiving a profit equal to area Refer to Exhibit U-4. The firm sells its product at P 1 and produces Q 1. Given this situation, a. total variable cost is equal to areas b. total revenue is equal to area 1. c. total cost is equal to areas d. a and b e. a, b, and c 35. Refer to Exhibit U-4. The firm sells its product at P 1 and produces Q 1. Given this situation, a. total variable cost is equal to areas b. total revenue is equal to areas c. total cost is equal to areas d. profit equals area Refer to Exhibit U-4. Where can you find the lowest price that will motivate the firm to produce Q 1 in the short run? a. at the horizontal line running to ATC b. at the horizontal line running to AVC c. P 1 d Consider the following data: equilibrium price = $9, quantity of output produced = 100 units, average total cost = $8, and average variable cost $6. Given this, total revenue is, total cost is, and fixed cost is. a. $600; $800; $100 b. $900; $700; $800 c. $900; $800; $200 d. $900; $800; $600 ANS: c Exhibit 9-3 (1) (2) (3) Price Sold Total Cost $10 40 $374 $10 41 $376 $10 42 $380 $10 43 $385 $10 44 $390 $10 45 $400 $10 46 $412 $10 47 $425

9 For questions 38-41, refer to Exhibit 9-3 above. 38. Refer to Exhibit 9-3. What quantity of output would the profit-maximizing firm produce? a. 41 units b. 42 units c. 43 units d. 45 units 39. Refer to Exhibit 9-3. What is the gain in profit from producing 45 units of the product rather than producing 42 units? a. $40 b. $30 c. $10 d. $20 e. $0 40. Refer to Exhibit 9-3. What is the maximum profit? a. $50 b. $40 c. $20 d. $ Refer to Exhibit 9-3. Is it possible for the firm to produce too much? a. Any quantity above 42 units is too much. b. Any quantity above 44 units is too much. c. Any quantity above 45 units is too much. d. It is not possible in the range of units shown. Exhibit U-2 Exhibit 9-2 MC Price and Cost d, MR 0 Q 1 Q1 Q 2 Q2 Q 3 Q3 Q 4 Q4 For questions 42-44, refer to Exhibit 9-2 above.

10 42. Refer to Exhibit 9-2. What quantity does the profit-maximizing or loss-minimizing firm produce? a. Q 1, where what is coming in on the last unit is greater than what is going out. b. Q 2, where the difference between what is coming in on the last unit and what is going out is zero. c. Q 3, where marginal cost is greater than marginal revenue. d. Q 4, which maximizes the excess of marginal cost over marginal revenue. 43. Refer to Exhibit 9-2. If the firm produces the quantity of output at which marginal revenue (MR) equals marginal cost (MC), is it guaranteed maximum profit or minimized loss? a. Yes, when MR = MC, it follows that MR MC = 0, and thus the firm maximizes profit and minimizes losses. b. No, at the quantity of output at which MR = MC, it could be the case that average variable cost is greater than price and the firm would do better to shut down. c. Yes, when the firm produces the quantity at which MR = MC, it has maximized both revenue and profit. d. Yes, because if the MC curve is rising, the average total cost curve always lies below it and thus profit is earned. 44. Refer to Exhibit 9-2. For the firm that faces the demand curve in the exhibit, a. marginal revenue is constant. b. price equals marginal revenue. c. if the firm maximizes profits, it produces the quantity of output at which price equals marginal cost. d. a and c e. a, b, and c 45. If MR > MC, then a. profits will be at their maximum. b. the firm is producing too much of the good to be maximizing profits. c. the firm can increase its profits or minimize its losses by increasing output. d. the firm is necessarily incurring losses. 46. If, for the last unit of a good produced by a perfectly competitive firm, MR > MC, then in producing it, the firm a. added more to total costs than it added to total revenue. b. added more to total revenue than it added to total costs. c. added an equal amount to both total revenue and total costs. d. maximized profits or minimized losses. Exhibit 9-1 (1) (2) (3) Price Sold $ $ Marginal Revenue A $ B

11 $ C $ D For questions 47-49, refer to Exhibit 9-1 above. 47. Refer to Exhibit 9-1. The dollar amounts that go in blanks A and B are, respectively, a. $1 and $12. b. $12 and $12. c. $12 and $10. d. $12 and $ Refer to Exhibit 9-1. The data are relevant to a perfectly competitive firm because a. its total revenue is different at different levels of quantities sold. b. its total revenue is the same at all levels of quantities sold. c. it doesn t have to lower price to sell additional units of the product. d. marginal revenue is greater than price. 49. Refer to Exhibit 9-1. The data are relevant to a perfectly competitive firm because a. its total revenue is different at different levels of quantities sold. b. its marginal revenue is the same at all quantities sold. c. it must lower price to sell additional units of its product. d. marginal revenue is greater than price. 50. The perfectly competitive firm will seek to produce the output level for which a. average variable cost is at a minimum. b. average total cost is at a minimum. c. average fixed cost is at a minimum. d. marginal cost equals marginal revenue. 51 Which of the following is an assumption of the theory of monopoly? a. There are extremely high barriers to entry. b. There are many sellers. c. The product has a number of close substitutes. d. The product is of extremely high quality. 52 The theory of monopoly assumes that the monopoly firm a. faces a downward-sloping supply curve that is the same as its marginal revenue curve. b. faces a downward-sloping demand curve. c. produces more than the perfectly competitive firm under identical demand and cost conditions. d. experiences low barriers to entry. 53 Which of the following is an example of a legal barrier to entry? a. a public franchise b. a patent c. exclusive ownership of a scarce resource d. a and b

12 e. a, b, and c 54 A natural monopoly exists when a. a monopolist produces a product, the main component of which is a natural resource. b. economies of scale are so large that only one firm can survive and achieve low unit costs. c. a firm controls all the rights to a scarce resource. d. there are no close substitutes for a firm s product. 55 A monopoly may exist because a. government has refused to grant a public franchise. b. it has the exclusive ownership of a scarce resource. c. it is so large and is currently experiencing such vast diseconomies of scale that it can out-compete all newcomers. d. a and b e. a, b, and c 56 A seller that has the ability to control to some degree the price of the product it sells is called a price a. taker. b. searcher. c. breaker. d. twister. 57 In maximizing profits, a single-price monopolist will charge a price that is a. less than marginal cost. b. equal to marginal cost. c. greater than marginal cost. d. There is not enough information to answer the question. 58 A monopolist can sell 15,000 units at a price of $20 per unit. Lowering price by $1 raises the quantity demanded by 2,000 units. What is the marginal revenue of this price change? a. $2,000 b. $20,000 c. $17,500 d. $23, Which of the following is characteristic of the monopoly firm? a. It produces the quantity of output at which marginal revenue equals marginal cost, MR = MC. b. It charges a price per unit for its product that is equal to marginal cost. c. It always earns a profit, because it is a single seller of a product. d. a and b e. a and c 60 The seller of good X sells 1,000 units of the good, with each unit being sold for the highest price each consumer is willing to pay for it rather than go without. The seller practices a. second-degree price discrimination. b. third-degree price discrimination. c. perfect price discrimination. d. marginal revenue pricing.

13 e. rent seeking. 61 Suppose Johnny, seven years old, is selling lemonade and he sells each of his buyers the refreshment for the maximum price that each is willing to pay. Johnny is practicing a. perfect competition. b. perfect price discrimination. c. second-degree price discrimination. d. third-degree price discrimination. 62 Which of the following statements is true? a. The perfectly competitive firm produces an output at which P=MC. b. The single-price monopolist produces an output at which P > MC. c. The perfectly price-discriminating monopolist produces an output at which P>MC. d. a and b e. all of the above 63 Suppose Smith and Jones go to a surgeon to have the same operation. The surgeon charges Smith $10,000, and charges Jones $1,000. There is no cost difference to performing the operations. What is probably happening here? a. The surgeon is charging a higher price to Smith so that he or she can charge a lower price to Jones. b. The surgeon is probably charging the highest price to both Smith and Jones that each would be willing to pay for the operation rather than go without it. c. The surgeon is performing one operation in an expensive hospital and the other operation in a relatively inexpensive hospital. d. Smith is a friend of the surgeon. Price Exhibit V-1 P 2 C P 1 B A MC = ATC MR D 0 Q 1 Q1 Q 2 Q2 For questions 64-68, refer to Exhibit V-1 above. 64 Refer to Exhibit V-1. If the product is produced under perfect competition, what quantity will be produced and what price will be charged? a. Q 1 units at P 1 b. Q 2 units at P 1

14 c. Q 1 units at P 2 d. Q 2 units at P 2 65 Refer to Exhibit V-1. If the product is produced under single-price monopoly, what quantity will be produced and what price will be charged? a. Q 2 units at P 1 b. Q 1 units at P 1 c. Q 1 units at P 2 d. Q 2 units at P 2 66 Refer to Exhibit V-1. If the product is produced under single-price monopoly, what do profits equal? a. area 0P 1 BQ 1 b. area BCA c. area P 1 P 2 CB d. area P 2 CAP 1 67 Refer to Exhibit V-1 The deadweight loss of monopoly is identified by what area? a. area Q 1 BAQ 2 b. area BCA c. area P 1 P 2 CB d. area 0P 1 BQ 1 68 Refer to Exhibit V-1. According to economist Gordon Tullock, what area is subject to rentseeking activity? a. area Q 1 BAQ 2 b. area BCA c. area P 1 P 2 CB d. area 0P 1 BQ 1 69 In general, electric, gas, and water companies are examples of monopolies. a. unregulated b. patent c. natural d. government 70 The demand curve facing a monopolist is always a. the same as the industry demand curve. b. perfectly inelastic. c. perfectly elastic. d. unit elastic. 71 By adhering to the MR = MC rule, a single-price monopoly a. will always have an above-zero profit. b. will always have a normal profit. c. maximizes its profit, which may mean minimizing its losses. d. is not earning as large a profit as it can by setting MR = (MC P).

15 72 A monopoly a. can charge whatever price it wants. b. always earns a positive economic profit. c. is constrained by marginal cost in setting price. d. is constrained by demand in setting price. e. all of the above 73 A single-price monopolist sets a price of $35. Which of the following is true? a. The average cost of that unit must be $35. b. The marginal cost of that unit must be $35. c. The marginal revenue of that unit must be $35. d. The marginal revenue of that unit must be less than $ A monopolist can sell 32,000 units at a price of $50. Lowering price by $2 raises the quantity demanded by 4,000 units. What is the marginal revenue of this price change? a. $72,000 b. $128,000 c. $64,000 d. $192,000 Exhibit V-2 Price MC P 3 P 2 F C ATC AVC P 1 P 0 B A D 0 Q 0 Q0 MR For questions 75-78, refer to Exhibit V-2 above. 75 Refer to Exhibit V-2. The monopolist is maximizing profits at a. Q 0 units and charging a price of P 0 b. Q 0 units and charging a price of P 1 c. Q 0 units and charging a price of P 3. d. Q 0 units and charging a price of P Refer to Exhibit V-2. Total revenue at the profit-maximizing quantity of output is the a. area 0Q 0 AP 0. b. area 0Q 0 FP 3. c. distance from Q 0 to A.

16 d. distance from Q 0 to D. 77 Refer to Exhibit V-2. The monopolist is operating at a. a zero economic profit. b. a positive economic profit. c. an economic loss. d. a normal profit. 78 Refer to Exhibit V-2. This monopolist is earning a. an economic loss of area P 2 CFP 3. b. an economic loss of area P 0 ACP 2. c. an economic profit of area P 2 CFP 3. d. an economic profit of area P 0 ACP 2. Price Exhibit Exhibit V MC ATC P 5 P 4 P 3 P 2 P 1 D MR 0 q 1 Q1 q 2 qq2 3 qq3 4 Q4 For questions 79-84, refer to Exhibit 10-3 above. 79 Refer to Exhibit The profit-maximizing single-price monopolist charges price a. P 1 b. P 2 c. P 3. d. P 4. e. P Refer to Exhibit The profit-maximizing single-price monopolist produces output a. Q 1. b. Q 2. c. Q 3. d. Q 4.

17 81 Refer to Exhibit The profit of the single-price monopolist is a. positive. b. zero. c. negative. d. uncertain without more information. 82 Refer to Exhibit If this industry were perfectly competitive, output would be a. Q 1. b. Q 2. c. Q 3. d. Q Refer to Exhibit If this industry were perfectly competitive, the price would be a. P 1. b. P 2 c. P 3. d. P 4. e. P Refer to Exhibit The profit-maximizing perfectly price-discriminating monopolist produces output a. Q 1. b. Q 2. c. Q 3. d. Q 4. Exhibit 10-4 Price Demanded Output Fixed Cost Variable Cost (dollars) (units) (dollars) (dollars) For questions 85-89, refer to Exhibit 10-4 above.

18 85 Refer to Exhibit The profit-maximizing single-price monopolist will produce a. 3 units. b. 4 units. c. 5 units. d. 6 units. e. 7 units. 86 Refer to Exhibit The profit-maximizing single-price monopolist s maximum profit is a. $70. b. $80. c. $110. d. $130. e. $ Refer to Exhibit The profit-maximizing perfectly price-discriminating monopolist will produce a. 3 units. b. 4 units. c. 5 units. d. 6 units. e. 7 units. 88 Refer to Exhibit The profit-maximizing perfectly price-discriminating monopolist s maximum profit is a. $50. b. $100. c. $110. d. $120. e. $ Refer to Exhibit The single-price monopolist charges price and produces output as compared to the perfectly price-discriminating monopolist. a. a higher, a smaller b. a lower, a larger c. the same, the same d. the same, a larger e. a lower, the same

19 Exhibit V-5 Price P 2 B P 1 C C A D 0 q 2 q q2 1 For questions 90-92, refer to Exhibit V-5 above. q1 90 Refer to Exhibit V-5. What area represents the revenue gained when price goes from P 2 to P 1? a. P 1 CBP 2 b. q 2 CAq 1 c. 0P 1 Aq 1 d. CBA 91 Refer to Exhibit V-5. What area represents lost revenue when price goes from P 2 to P 1? a. CBA b. 0P 1 Cq 2 c. q 2 CAq 1 d. P 1 P 2 BC 92 Refer to Exhibit V-5. Suppose a single-price monopolist sells its product at the price P 2. Profits are equal to a. P 2 times q 2. b. (P 2 P 1 ) times q 2. c. (P 2 P 1 ) times (q 1 q 2 ). d. This cannot be determined without the average total cost curve. 93 The price that maximizes profits will equal the price that maximizes revenue if a. P > MR. b. TC = TFC. c. P = minimum AVC. d. AC = AR.

20 Price of X Exhibit V-6 P 0 D C A B 0 q A q B q C of X qa qb qc For questions 94-97, refer to Exhibit V-6 above. 94 Refer to Exhibit V-6. The price and quantity of a single-price monopolist producing X are P 0 and q B, respectively. The marginal revenue curve is represented by a. A. b. B. c. C. d. D. 95 Refer to Exhibit V-6. The marginal revenue curve of a perfectly competitive firm producing X and selling it at the price P 0 is represented by a. A. b. B. c. C. d. D. 96 Refer to Exhibit V-6. If C is the demand curve facing a perfectly price-discriminating monopolist selling q C units of X, its marginal revenue curve is a. A. b. B. c. C. d. D. 97 Refer to Exhibit V-6. Let C be the demand curve facing a perfectly price-discriminating monopolist and P 0 the price it charges for the last unit of X it sells. The marginal cost of the last unit a. is less than P 0. b. equals P 0. c. is greater than P 0. d. could be any of the above, depending on the shape of the marginal cost curve.

21 Exhibit 10-8 Total Revenue Total Cost 2 $117 $99 3 $135 $107 4 $152 $116 5 $165 $129 6 $176 $144 For questions , refer to Exhibit 10-8 above. 98 Refer to Exhibit A profit-maximizing single-price monopolist will set the price at a. $25 per unit. b. $33 per unit. c. $38 per unit. d. $45 per unit 99 Refer to Exhibit Average total cost at the profit-maximizing level of output a. equals $ b. equals $ c. equals $ d. equals $ e. cannot be determined. 100 Refer to Exhibit Assuming that total fixed costs are $80, the average variable costs of producing 6 units of output a. equal $ b. equal $ c. equal $ d. equal $9.00. e. cannot be determined.

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