Econ 122 Exam 3

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  • 1. 
    Assume the market for organic produce sold at farmers markets is perfectly competitive. All else equal,as equilibrium price of the produce and sell organic produce at farmers' markets, what is likely to happen to the equilibrium price of the produce and profits of the organic farmers in the long run?
    • A. 

      The equilibrium price is likely to increase and profits are likely to remain unchanged.

    • B. 

      The equilibrium price is likely to decrease and profits are likely to decrease.

    • C. 

      The equilibrium price is likely to remain unchanged and profits are likely to increase.

    • D. 

      The equilibrium price is likely to increase and profits are likely to increase.


  • 2. 
    Which of the following is a characteristic of a monopoly?
    • A. 

      The product is not unique

    • B. 

      There is only one seller in the market

    • C. 

      It is easy for new firms to enter the market

    • D. 

      The firm has no control over price


  • 3. 
    Perfect competition is characterized by all of the following except?
    • A. 

      Sellers are price takers

    • B. 

      Homogeneous products

    • C. 

      A horizontal demand curve for individual sellers

    • D. 

      Heavy advertising by individual sellers


  • 4. 
    Both buyers and sellers are price takers in a perfectly competitive market because?
    • A. 

      Both buyers and sellers in a perfectly competitive market are concerned for the welfare of others

    • B. 

      The price is determined by government intervention and dictated to buyers and sellers.

    • C. 

      Each buyer and seller knows it is illegal to conspire to affect price

    • D. 

      Each buyer and seller is too small relative to others to independently affect the market price.


  • 5. 
    Jason, a high school student, mows lawns for families in his neighborhood. The going rate is $12 for each lawn-mowing service. Jason would like to charge $20 because he has more experience mowing lawns than the many other teenagers who also offer the same service. If the market for lawn mowing services is perfectly competitive, what would happen if Jason raised his price.
    • A. 

      If Jason raises his price, then all other supplying the same service will also raise their prices

    • B. 

      Initially, his customers might complain but over time they will come to accept the new rate.

    • C. 

      If Jason raises his price he would lose all his customers

    • D. 

      He would lose some but not all his customers


  • 6. 
    In a perfect competition
    • A. 

      The market demand curve and the individuals demand are identical

    • B. 

      The market demand curve is downward sloping while demand for individual sellers product is perfectly elastic

    • C. 

      The market demand curve is perfectly elastic while demand for an individual sellers product is perfectly elastic

    • D. 

      The market demand curve is demand is perfectly inelastic while demand for an individual sellers product is perfectly elastic


  • 7. 
    Table 12-1 shows the short-run cost data of a perfectly competitive firm that produces plastic camera cases.  Assume that output can only be increased in batches of 100 units What is the fixed cost of production?
    • A. 

      $0

    • B. 

      $500

    • C. 

      $1,000

    • D. 

      It cannot be determined


  • 8. 
    Refer to Table 12-1 If the market price of each camera case $8, what is the profit-maximizing quantity, what Is the profit maximizing quantity?
    • A. 

      300 units

    • B. 

      400 units

    • C. 

      500 units

    • D. 

      600 units


  • 9. 
    Refer to table 12-1 If the market price of each camera case is $8 and the firm maximizes profit, what is the amount of the firm's profit or loss?
    • A. 

      $0 (it breaks even)

    • B. 

      Loss of $1000

    • C. 

      Profit of $440

    • D. 

      Loss of $440


  • 10. 
    Refer to table 12-1 If the firm is producing 700 units
    • A. 

      It should increase its output to maximize profit

    • B. 

      It should cut back its output to maximize profit

    • C. 

      It is making a loss

    • D. 

      It is making a profit


  • 11. 
    Refer to figure 12-1 if the firm is producing 200 units
    • A. 

      It should increase its output to maximize profit

    • B. 

      It breaks even

    • C. 

      It should cut back its output to maximize profit

    • D. 

      It is making a loss


  • 12. 
    Refer to figure 12-2 Suppose the firm is currently producing Q2 units. What happens if it expands output to Q3 units?
    • A. 

      It incurs a loss

    • B. 

      Its profit increases by the size of the vertical distance df

    • C. 

      It makes less profit

    • D. 

      It will be moving toward its profit maximizing output


  • 13. 
    Refer to figure 12-4 If the market is $30, the firm's profit-maximizing output level is
    • A. 

      0

    • B. 

      130

    • C. 

      180

    • D. 

      240


  • 14. 
    Refer to table 12-4 If the market price is30 and the firm is producing output, what is the amount of the firm's profit or loss?
    • A. 

      Loss of $1080

    • B. 

      Loss of $2520

    • C. 

      Profit of $1300

    • D. 

      Profit of $1440


  • 15. 
    Figure 12-5 shows cost and demand curves facing a typical firm in a constant-cost, perfectly competitive industry. If the market price is $20, what is the amount of the firms profit?
    • A. 

      $5400

    • B. 

      $6750

    • C. 

      $8100

    • D. 

      $16200


  • 16. 
    Refer to figure 12-8 Consider typical firm in a perfectly competitive industry that makes short-run profits. Which diagram in the figure shows the effect on the industry as it transitions to a long run equilibrium?
    • A. 

      Panel A

    • B. 

      Panel B

    • C. 

      Panel C

    • D. 

      Panel D


  • 17. 
    A monopolist faces
    • A. 

      A perfectly inelastic demand curve

    • B. 

      A horizontal demand curve

    • C. 

      A perfectly elastic demand curve

    • D. 

      A downward-sloping demand curve


  • 18. 
    Which of the following is a characteristic shared by a perfectly competitive firm and monopoly?
    • A. 

      Each sets a price for its product that will maximize its revenue

    • B. 

      Each maximizes profits by producing a quantity for which price equals marginal cost

    • C. 

      Each maximizes profits by producing a quantity for which marginal revenue equals marginal cost

    • D. 

      Each must lower its price to sell more output


  • 19. 
    A patent or copyright is a barrier to entry based on
    • A. 

      Government action to protect a producer

    • B. 

      Ownership of a key necessary raw materials

    • C. 

      Widespread network externalities'

    • D. 

      Large economies of scale as output increases


  • 20. 
    Governments grant patents to encourage
    • A. 

      A research and development on new products

    • B. 

      Firms to form public enterprises

    • C. 

      Low prices

    • D. 

      Competition


  • 21. 
    What is a network externality?
    • A. 

      It refers to a situation in which a products usefulness inceases with the number of people using it.

    • B. 

      It refers to lobbying to form a public enterprise

    • C. 

      It refers to a product that requires connection to a network for it to be useful

    • D. 

      It refers to having a network of suppliers and buyers for a good or service.


  • 22. 
    Because a monopoly's demand curve is the same as the market demand curve for its product
    • A. 

      The monopoly's average total always falls as it increases its output

    • B. 

      The monopolys is a price taker

    • C. 

      The monopoly's marginal revenue equals its price

    • D. 

      The monopoly must lower its price to sell more of its product


  • 23. 
    Refer to figure 15-1 To maximize profit, the firm will produce
    • A. 

      Q1

    • B. 

      Q2

    • C. 

      Q3

    • D. 

      Q4


  • 24. 
    Refer to figure 15-1 The firms average total cost curve is ATC2, the firm will
    • A. 

      Make a profit

    • B. 

      Break even

    • C. 

      Suffer a loss

    • D. 

      Face competition


  • 25. 
    Refer to table 15-1 What Is the marginal revenue from the sale of the 12th unit?
    • A. 

      $75

    • B. 

      $50

    • C. 

      $20

    • D. 

      $-5


  • 26. 
    Refer to table 15-1 what is the firms profit-maximizing output and what is the price is charged to sell this
    • A. 

      P=$85: Q=10

    • B. 

      P=$80, Q=11

    • C. 

      P=$65, Q= 14

    • D. 

      P=$70, Q= 13


  • 27. 
    Refer to figure 15-2 suppose the monopolist represented in the diagram above produces positive output. What is the profit-maximizing/loss-minimizing output level?
    • A. 

      630 units

    • B. 

      800 units

    • C. 

      850 units

    • D. 

      880 units


  • 28. 
    Refer to figure 15-2 suppose the monopolist represented in the diagram above produces positive output. What is the price charged at the profit-maximizing/loss-minimizing output level?
    • A. 

      $38

    • B. 

      $54

    • C. 

      $68

    • D. 

      $75


  • 29. 
    Economic efficiency in a free market occurs when
    • A. 

      The sum of consumer surplus and producer surplus is maximized

    • B. 

      Producer surplus is maximized

    • C. 

      Consumer surplus is maximized

    • D. 

      Price is as low as possible


  • 30. 
    Refer to figure 15-5 what is the economically efficient output level?
    • A. 

      600 units

    • B. 

      800 units

    • C. 

      940 units

    • D. 

      1160 units


  • 31. 
    Refer to figure 15-5 what is the difference between the monopoly's price and perfectly competitive industry's price?
    • A. 

      The monopoly's price is higher by $21

    • B. 

      The monopolys price is higher by $3.50

    • C. 

      The monopoly's price is higher by $9.50

    • D. 

      The monopoly's price is higher by $13


  • 32. 
    Refer to figure 15-9 the firm would maximize profit by producing
    • A. 

      Q1 units

    • B. 

      Q2 units

    • C. 

      Q3 units

    • D. 

      Q4 units


  • 33. 
    Refer to figure 15-9 if the government regulates Erickson power company so that the firm can earn a normal profit, the price would be set at ____ and the output level is___.
    • A. 

      P2,q2

    • B. 

      P3,q2

    • C. 

      P2,q3

    • D. 

      P1,q4


  • 34. 
    Refer to figure 15-9 what is the economically efficient output level and what is the price at that level?
    • A. 

      Q4,p1

    • B. 

      Q2,p3

    • C. 

      Q2,p2

    • D. 

      Q3,p2


  • 35. 
    Refer to figure 15-7 following the entry of Verizon,the subscription price falls from Pm to Pc. what is the increase in consumer surplus as  a result of his change?
    • A. 

      The area b+c

    • B. 

      The area A+B+C

    • C. 

      The area D+F

    • D. 

      The area of B+C+D


  • 36. 
    Refer to 15-7 what Is the size of the deadweight loss prior to Verizon entering the market and what happens to this deadweight loss after Verizon does enter the market?
    • A. 

      The deadweight loss of area D is converted to producer surplus

    • B. 

      The total deadweight loss is the area D+F; D is converted to consumer surplus and F to producer surplus

    • C. 

      The deadweight loss of area C+D is converted to consumer surplus

    • D. 

      The deadweight loss of area D is converted to consumer surplus


  • 37. 
    Which of the following is not a way by which price discriminating firms can segment a market?
    • A. 

      By requiring an advance purchase, for example air tickets

    • B. 

      On the basis of time of purchase, for example long-distance calling

    • C. 

      On the basis of the supplier's marginal cost of production, for example requiring customers to pay a premium for customizing options

    • D. 

      On basis of the buyers location, for example requiring out-of-state students to pay higher tuition


  • 38. 
    Refer to table 16-2 how many tubes of toothpaste will Neem sell in Middle Fall and at what price?
    • A. 

      Q=5 units, p=$4

    • B. 

      Q=3 units, p=$6

    • C. 

      Q= 2 units, p=$7

    • D. 

      Q=4 units, p=$5


  • 39. 
    refer to table 16-2 how many tubes of toothpaste will Neem sell In west fall and at what price?
    • A. 

      Q=4,p=$3.50

    • B. 

      Q=3 units, p=$4

    • C. 

      Q=5 units, p=$3

    • D. 

      Q=2 units, p=$4.50


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