Question 1 1. Which of the following is a characteristic of a competitive market

Question

Question 1

1. Which of the following is a characteristic of a competitive market?

A. There are many buyers but few sellers.

B. Firms sell differentiated products.

C. There are many barriers to entry.

D. Buyers and sellers are price takers.

3 points

Question 2

Why is the market for computer operating systems (like Microsoft’s Windows or Apple’s OS El Capitan) not perfectly competitive?

a. there are few sellers.

b. there are few buyers.

c. the product is differentiated.

d. A and C are both correct.

3 points

Question 3

In a competitive market, no single producer can influence the market price because

a. many other sellers are offering a product that is essentially identical.

b. consumers have more influence over the market price than producers do.

c. government intervention prevents firms from influencing price.

d. producers agree not to change the price.

3 points

Question 4

If a firm in a perfectly competitive market decides to double its production, then total revenue will

a. more than double, because the firm is able to sell the increased production at a higher price.

b. less than double, because to sell more in a perfectly competitive market the firm must lower its price.

c. exactly double, because a perfectly competitive market is able to accommodate increased production by an individual firm without reductions in price.

d. More information is needed to answer this question.

3 points

Question 5

The 100th unit of output that a firm produces has a marginal revenue of $10 and a marginal cost of $11. It follows that the

a. production of the 100th unit of output increases the firm's profit by $1.

b. production of the 100th unit of output increases the firm's average total cost by $1.

c. firm's profit-maximizing level of output is less than 100 units.

d. production of the 110th unit of output must increase the firm’s profit but by less than $1.

3 points

Question 6

Marcia is a fashion designer who runs a small clothing business in a competitive industry. A dress in this market sells for $500. The marginal cost of making the 10th dress is $400. In order to maximize profits, Marcia should

a. increase her production of dresses.

b. decrease her production of dresses.

c. continue to make 10 dresses per month.

d. We do not have enough information with which to answer the question.

3 points

Question 7

Consider the figure below.

If the market price is $10, the firm’s short-run economic (profit/loss) Blank 1is $Blank 2. The firm will earn zero economic profit if the price is equal to $Blank 3.

3 points

Question 8

Winona's Fudge Shoppe is maximizing profits by producing 1,000 pounds of fudge per day. If Winona's fixed costs unexpectedly increase and the market price remains constant, then the short run profit-maximizing level of output

a. is less than 1,000 pounds.

b. is still 1,000 pounds.

c. is more than 1,000 pounds.

d. becomes zero.

3 points

Question 9

In the short run, a firm operating in a competitive industry will produce the quantity of output where price equals marginal cost as long as the

a. price is less than average total cost.

b. marginal revenue exceeds the marginal cost.

c. price is greater than average variable cost.

d. price is greater than average fixed cost but less than average variable cost.

3 points

Question 10

Mrs. Smith operates a business in a competitive market. The current market price is $8.10. At her profit-maximizing level of production, the average variable cost is $8.00, and the average total cost is $8.25. Mrs. Smith should

a. shut down her business in the short run but continue to operate in the long run.

b. continue to operate in the short run but exit in the long run.

c. continue to operate in both the short run and long run.

d. shut down in the short run and exit in the long run.

3 points

Question 11

Consider the figure below.

A firm currently operating in this market should consider shutting down in the short-run if the price is lower than $Blank 1. It should exit the market in the long-run if the price is lower than $ Blank 2

3 points

Question 12

When new firms have an incentive to enter a competitive market, their entry will

a. increase the price of the product.

b. drive down profits of existing firms in the market.

c. shift the market supply curve to the left.

d. increase demand for the product.

3 points

Question 13

When firms have an incentive to exit a competitive market, their exit will

a. lower the market price.

b. necessarily raise the costs for the firms that remain in the market.

c. raise the profits of the firms that remain in the market.

d. shift the demand for the product to the left.

3 points

Question 14

In the long run, assuming that the owner of a firm in a competitive industry has positive opportunity costs, she

a. should exit the industry unless her economic profits are positive.

b. will earn zero accounting profits but positive economic profits.

c. will earn zero economic profits but positive accounting profits.

d. should ignore opportunity costs because they are a type of sunk cost that disappears in the long run.

3 points

Question 15

When some resources used in production are only available in limited quantities, the long-run supply curve in a competitive market is

a. downward sloping.

b. upward sloping.

c. horizontal.

d. vertical.

3 points

Question 16

If there is an increase in market demand in a perfectly competitive market, then in the short run prices will (increase/decrease) Blank 1 and profits will (increase/decrease) Blank 2. In the long run, this will lead to some firms (entering/exiting) Blank 3 the market until (economic/accounting) Blank 4 profit is (positive/negative/zero) Blank 5.

5 points

Question 17

When firms in a competitive market have different costs, it is likely that

a. free entry and exit in the market will be violated.

b. the market will no longer be considered competitive.

c. long-run market supply will be downward sloping.

d. some firms will earn positive economic profits in the long run.

3 points

Question 18

When a monopolist increases the amount of output that it produces and sells, the price of its output _________. When a perfectly competitive firm increases the amount of output that it produces and sells, the price of its output ________.

a. stays the same; decreases

b. stays the same; stays the same

c. decreases; stays the same

d. decreases; decreases

3 points

Question 19

Because monopolists must lower their prices in order to sell another unit of output, in monopolies

a. marginal revenue is less than price.

b. long-term economic profits will be zero.

c. total revenue always increases as quantity increases.

d. average revenue is less than price.

3 points

Question 20

Consider the figure, representing a monopolistic market, and fill in the blanks.

In order to maximize profits, the firm will produce Blank 1 units of the good, and sell them at a price of $Blank 2 per unit. The firm will earn a total profit of $Blank 3. If this market were perfectly competitive, the firm would produce Blank 4 units instead.

4 points

Question 21

A monopolist produces

a. more than the socially efficient quantity of output but at a higher price than in a competitive market.

b. less than the socially efficient quantity of output but at a higher price than in a competitive market.

c. the socially efficient quantity of output but at a higher price than in a competitive market.

d. possibly more or possibly less than the socially efficient quantity of output, but definitely at a higher price than in a competitive market.

3 points

Question 22

When we compare economic welfare in a monopoly market to a competitive market, the profits earned by the monopolist represent

a. a transfer of benefits from the consumer to the producer.

b. a loss in total welfare.

c. the higher marginal costs incurred by the monopolists in comparison to competitive firms.

d. the higher marginal revenues gained by the monopolists in comparison to competitive firms.

3 points

Question 23

Financial aid to college students, quantity discounts, and senior citizen discounts are all examples of

a. consumer surplus.

b. deadweight loss.

c. price discrimination.

d. nonprofit pricing strategies.

3 points

Question 24

For a firm to price discriminate,

a. it must be a natural monopoly.

b. it must be regulated by the government.

c. it must have some market power.

d. it must have information about what consumers are willing to pay for the product.

e. C & D are both necessary.

A. There are many buyers but few sellers.

B. Firms sell differentiated products.

C. There are many barriers to entry.

D. Buyers and sellers are price takers.

Explanation / Answer

If q increase by 2x, TR increase by 2x becasue prices are fixed.

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