Microeconomics Multiple Choice
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Which of the following statements about a firm’s market pricing of its product is true?
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Both competitive firms and monopolies are price makers.
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Both competitive firms and monopolies are price takers.
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A competitive firm is a price taker and a monopoly is a price maker.
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A competitive firm is a price maker and a monopoly is a price taker.
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Questions from Test 6-11.25 questions per round. The questions change every time you retake the test. 150 questions in total.
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- 2.
Average total cost equals
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(fixed costs + variable costs)/quantity produced.
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(fixed costs + variable costs)/change in quantity produced.
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Change in total costs/quantity produced.
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Change in total costs/change in quantity produced.
Correct Answer
A. (fixed costs + variable costs)/quantity produced.Explanation
The average total cost is calculated by adding the fixed costs and variable costs and then dividing it by the quantity produced. This formula takes into account both the fixed and variable costs and provides a measure of the average cost per unit produced. By dividing the total costs by the quantity produced, we can determine the average cost per unit and make comparisons across different production levels.Rate this question:
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- 3.
In general, elasticity is
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A measure of the competitive nature of a market.
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The friction that develops between buyer and seller in a market.
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A measure of how much government intervention is prevalent in a market
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A measure of how much buyers and sellers respond to changes in market conditions.
Correct Answer
A. A measure of how much buyers and sellers respond to changes in market conditions.Explanation
Elasticity is a measure of how responsive buyers and sellers are to changes in market conditions. It indicates the degree to which the quantity demanded or supplied of a good or service changes in response to a change in price or other market factors. A high elasticity suggests that buyers and sellers are highly responsive to changes, while a low elasticity suggests a lack of responsiveness. This measure helps in understanding the dynamics of supply and demand and how they affect market outcomes.Rate this question:
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- 4.
If the elasticity of supply of a product is greater than 1, then supply is
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Inelastic.
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Elastic.
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Unit elastic
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Not very sensitive to change in price.
Correct Answer
A. Elastic.Explanation
If the elasticity of supply of a product is greater than 1, it means that a small change in price will result in a proportionally larger change in the quantity supplied. This indicates that the supply is elastic, meaning it is highly responsive to changes in price. In other words, suppliers are willing and able to adjust their quantity supplied significantly in response to price changes.Rate this question:
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- 5.
Demand is said to be elastic if
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The price of the good responds substantially to changes in demand.
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The quantity demanded responds substantially to changes in the price of the good.
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Buyers don’t respond much to changes in the price of the good.
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Demand shifts substantially when the price of the good changes.
Correct Answer
A. The quantity demanded responds substantially to changes in the price of the good.Explanation
In this context, demand is said to be elastic when the quantity demanded responds substantially to changes in the price of the good. This means that when the price of the good increases or decreases, the quantity demanded by buyers also changes significantly. In other words, the demand for the good is highly responsive to price fluctuations.Rate this question:
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- 6.
Which of the following is a characteristic of a perfectly competitive market?
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Firms are price setters.
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There are few sellers in the market.
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Firms can exit and enter the market freely.
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All of the above are correct.
Correct Answer
A. Firms can exit and enter the market freely.Explanation
A characteristic of a perfectly competitive market is that firms can freely enter and exit the market. This means that there are no barriers to entry or exit for firms, allowing new firms to enter the market and existing firms to leave if they choose to do so. This promotes competition and ensures that there are no restrictions on firms entering or exiting the market, leading to a large number of sellers and a more efficient allocation of resources.Rate this question:
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- 7.
The local pizza restaurant makes such great bread sticks that consumers do not respond much to a change in the price. If the owner is only interested in increasing revenue, he should
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Reduce costs.
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Lower the price of the bread sticks.
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Raise the price of the bread sticks.
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Leave the price of the bread sticks alone.
Correct Answer
A. Raise the price of the bread sticks.Explanation
If consumers do not respond much to a change in the price of the bread sticks, it suggests that they are willing to pay a higher price for them. By raising the price of the bread sticks, the owner can increase the revenue without significantly affecting the demand. This is because the customers value the quality of the bread sticks more than the price, so they are likely to continue purchasing them even at a higher price. Therefore, raising the price would be the best strategy for increasing revenue in this scenario.Rate this question:
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- 8.
The cost to produce an additional unit of output is the firm’s
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Average variable cost.
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Marginal cost.
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Average opportunity cost.
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Total productivity cost.
Correct Answer
A. Marginal cost.Explanation
The cost to produce an additional unit of output is known as the marginal cost. Marginal cost represents the change in total cost when one more unit is produced. It includes both variable costs (costs that change with the level of production) and fixed costs (costs that do not change with the level of production). By calculating the marginal cost, firms can determine whether it is profitable to produce additional units and make informed decisions regarding production levels.Rate this question:
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- 9.
When firms have an incentive to exit a competitive market, their exit will
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Drive down market prices.
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Drive down profits of existing firms in the market.
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Decrease the quantity of goods supplied in the market.
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All of the above are correct.
Correct Answer
A. Decrease the quantity of goods supplied in the market.Explanation
When firms have an incentive to exit a competitive market, their exit will decrease the quantity of goods supplied in the market. This is because when firms exit the market, there are fewer producers available to supply goods, leading to a decrease in overall supply. This decrease in supply can result in higher prices and potentially create a shortage in the market. Therefore, the correct answer is that the exit of firms will decrease the quantity of goods supplied in the market.Rate this question:
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- 10.
As new firms enter a monopolistically competitive market, profits of existing firms
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Decline and product diversity in the market increases.
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Decline and product diversity in the market decreases.
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Rise and product diversity in the market decreases.
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Rise and product diversity in the market increases.
Correct Answer
A. Decline and product diversity in the market increases.Explanation
When new firms enter a monopolistically competitive market, the existing firms face increased competition, leading to a decline in their profits. This is because the new firms offer similar products, attracting some customers away from the existing firms. However, the entry of new firms also leads to an increase in product diversity in the market. This is because each firm tries to differentiate its product to attract customers and gain a competitive edge. Therefore, the correct answer is that profits of existing firms decline and product diversity in the market increases.Rate this question:
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- 11.
Assume that a 4 percent increase in income results in a 2 percent increase in the quantity demanded of a good. The income elasticity of demand for the good is
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Positive and therefore the good is a normal good.
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Negative and therefore the good is an inferior good.
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Negative and therefore the good is a normal good.
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Positive and therefore the good is an inferior good.
Correct Answer
A. Positive and therefore the good is a normal good.Explanation
If a 4 percent increase in income results in a 2 percent increase in the quantity demanded of a good, it indicates a positive relationship between income and demand. This positive relationship suggests that the good is a normal good. Normal goods are those for which demand increases as income increases, reflecting a positive income elasticity of demand. Therefore, the correct answer is "positive and therefore the good is a normal good."Rate this question:
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- 12.
Demand is elastic if elasticity is
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Equal to 0.
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Equal to 1.
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Less than 1.
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Greater than 1.
Correct Answer
A. Greater than 1.Explanation
Demand is elastic when the elasticity is greater than 1. Elasticity measures the responsiveness of demand to changes in price. If the elasticity is greater than 1, it means that a small change in price will result in a large change in quantity demanded. This indicates that demand is sensitive to price changes, and consumers are highly responsive to price fluctuations.Rate this question:
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- 13.
As the number of firms in an oligopoly grows larger, price and output in that market approach
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Those in a competitive market.
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Those in a monopoly.
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The Nash equilibrium of a duopoly.
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None of the above is correct.
Correct Answer
A. Those in a competitive market.Explanation
As the number of firms in an oligopoly grows larger, price and output in that market approach those in a competitive market. This is because in a competitive market, there are many firms competing with each other, which leads to lower prices and higher output. Similarly, in an oligopoly with a large number of firms, the competition among them increases, resulting in prices and output that resemble those in a competitive market. Therefore, the correct answer is that price and output in an oligopoly approach those in a competitive market.Rate this question:
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- 14.
The main reason for using the midpoint method is that it
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Uses fewer numbers.
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Rounds prices to the nearest dollar
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Gives the same answer regardless of the direction of change.
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Rounds quantities to the nearest whole unit.
Correct Answer
A. Gives the same answer regardless of the direction of change.Explanation
The midpoint method is used because it provides the same answer regardless of whether the change is an increase or a decrease. This method is commonly used in economics and finance to calculate percentage changes. It is preferred over other methods because it eliminates any bias that may result from the direction of change. By using the midpoint method, the calculation remains consistent and accurate, regardless of whether the change is positive or negative.Rate this question:
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- 15.
The figure depicts a total cost function for a firm that produces coffee mugs. According to the figure, which of the statements below concerning production is most consistent with the shape of the total cost curve?
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Producing an additional coffee mug always has a higher cost than producing the previous coffee mug.
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Producing an additional coffee mug is always less costly than producing the previous coffee mug
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Producing an additional coffee mug always has the same cost as producing the previous coffee mug.
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None of the above is correct for all quantities
Correct Answer
A. Producing an additional coffee mug always has a higher cost than producing the previous coffee mug.Explanation
The correct answer is "Producing an additional coffee mug always has a higher cost than producing the previous coffee mug." This is consistent with the shape of the total cost curve because it is upward sloping, indicating that as more coffee mugs are produced, the total cost increases. This suggests that producing each additional mug requires more resources and incurs higher costs than producing the previous mug.Rate this question:
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- 16.
Cross-price elasticity of demand measures how the
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Quantity demanded of a good changes as price changes.
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Quantity demanded of a good changes as income changes.
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Price of a good is affected when income changes.
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Quantity demanded of one good changes as the price of another good changes.
Correct Answer
A. Quantity demanded of one good changes as the price of another good changes.Explanation
Cross-price elasticity of demand measures the responsiveness of the quantity demanded of one good to changes in the price of another good. It indicates whether the two goods are substitutes or complements. A positive cross-price elasticity suggests that the goods are substitutes, meaning that an increase in the price of one good leads to an increase in the quantity demanded of the other good. Conversely, a negative cross-price elasticity suggests that the goods are complements, meaning that an increase in the price of one good leads to a decrease in the quantity demanded of the other good.Rate this question:
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- 17.
When the loss from a business-stealing externality exceeds the gain from a product-variety externality,
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Market efficiency is likely to be enhanced by the entry of new firms.
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There are likely to be too many firms in a monopolistically competitive market.
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The market structure is likely to be above the efficient scale.
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Firms are more likely to operate at efficient scale.
Correct Answer
A. There are likely to be too many firms in a monopolistically competitive market.Explanation
When the loss from a business-stealing externality exceeds the gain from a product-variety externality, it means that the negative impact on existing firms due to competition outweighs the positive impact of having a wider range of products available in the market. In this scenario, it is likely that there are already too many firms operating in a monopolistically competitive market, leading to inefficiencies. Therefore, the entry of new firms would not enhance market efficiency, but rather exacerbate the problem of excessive competition.Rate this question:
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- 18.
The price elasticity of supply measures how much
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The quantity supplied responds to changes in the price of the good.
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The quantity supplied responds to changes in input prices.
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The price of the good responds to changes in supply
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Sellers respond to changes in technology.
Correct Answer
A. The quantity supplied responds to changes in the price of the good.Explanation
The correct answer is "the quantity supplied responds to changes in the price of the good." Price elasticity of supply is a measure of how responsive the quantity supplied of a good is to changes in its price. It indicates the percentage change in quantity supplied in response to a one percent change in price. This measure helps to determine the sensitivity of suppliers to changes in price and their ability to adjust their production levels accordingly.Rate this question:
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- 19.
The exit of existing firms from a competitive market will
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Decrease market supply and increase market prices.
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Decrease market supply and decrease market prices.
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Increase market supply and increase market prices.
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Increase market supply and decrease market prices.
Correct Answer
A. Decrease market supply and increase market prices.Explanation
When existing firms exit a competitive market, the overall supply of goods or services in the market decreases. This is because there are fewer producers contributing to the market. With reduced supply and assuming demand remains constant or increases, prices tend to rise as consumers compete for the limited available goods or services. Therefore, the exit of existing firms from a competitive market will decrease market supply and increase market prices.Rate this question:
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- 20.
The economic inefficiency of a monopolist can be measured by the
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Deadweight loss
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Excess profit generated by monopoly firms.
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Poor quality of service offered by monopoly firms.
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Number of consumers who are unable to purchase the product because of its high price.
Correct Answer
A. Deadweight lossExplanation
The economic inefficiency of a monopolist can be measured by the deadweight loss. Deadweight loss refers to the loss of economic efficiency that occurs when the monopolist restricts output and charges a higher price compared to a competitive market. This results in a reduction in consumer surplus and a misallocation of resources. It represents the value of foregone mutually beneficial transactions that would have occurred in a competitive market, leading to overall economic inefficiency.Rate this question:
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- 21.
In a perfectly competitive market, the process of entry or exit ends when
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Firms are operating with excess capacity.
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Firms are making zero economic profit.
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Firms experience decreasing marginal revenue.
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Price is equal to marginal cost.
Correct Answer
A. Firms are making zero economic profit.Explanation
In a perfectly competitive market, firms are making zero economic profit because in the long run, new firms will enter the market if existing firms are making positive economic profit. This entry of new firms increases competition and drives down prices, resulting in zero economic profit for all firms in the long run.Rate this question:
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- 22.
The monopolist’s profit-maximizing quantity of output is where
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Average cost equals marginal revenue.
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Marginal cost equals marginal revenue.
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Price equals marginal revenue
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All of the above are correct.
Correct Answer
A. Marginal cost equals marginal revenue.Explanation
The correct answer is "marginal cost equals marginal revenue." In order to maximize profits, a monopolist should produce at the quantity where marginal cost equals marginal revenue. This is because at this point, the additional cost of producing one more unit is equal to the additional revenue gained from selling that unit. Any deviation from this point would result in either a decrease in profit or missed profit opportunities. Therefore, the monopolist should produce up to the point where marginal cost equals marginal revenue to maximize their profits.Rate this question:
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- 23.
Economists compute the price elasticity of demand as
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Percentage change in the price divided by the percentage change in quantity demanded.
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Change in quantity demanded divided by the change in the price.
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Percentage change in the quantity demanded divided by the percentage change in price.
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Percentage change in the quantity demanded divided by the percentage change in income.
Correct Answer
A. Percentage change in the quantity demanded divided by the percentage change in price.Explanation
The price elasticity of demand measures the responsiveness of quantity demanded to a change in price. It is calculated by dividing the percentage change in quantity demanded by the percentage change in price. This formula allows economists to determine how sensitive consumers are to changes in price. If the resulting value is greater than 1, demand is considered elastic, meaning that quantity demanded is highly responsive to price changes. If the value is less than 1, demand is considered inelastic, indicating that quantity demanded is not very responsive to price changes.Rate this question:
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- 24.
A vertical supply curve signifies that
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An infinite quantity will be supplied at a given price
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A change in price will have no effect on quantity supplied
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The relationship between price and quantity supplied is inverse.
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A change in price will change quantity supplied in the opposite direction.
Correct Answer
A. A change in price will have no effect on quantity suppliedExplanation
A vertical supply curve signifies that a change in price will have no effect on quantity supplied. This means that regardless of the price, the quantity supplied will remain constant. This could occur in situations where the supply of a good is fixed and cannot be adjusted in response to changes in price. For example, if a company has a limited production capacity and cannot increase its output, the supply curve would be vertical, indicating that any change in price would not lead to a change in the quantity supplied.Rate this question:
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- 25.
The profits of a profit-maximizing firm equal
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P x Q.
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(P – ATC) x Q.
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(ATC – P) x Q.
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(MC – AVC) x Q.
Correct Answer
A. (P – ATC) x Q.Explanation
The correct answer is (P - ATC) x Q. This formula represents the profits of a profit-maximizing firm. P represents the price per unit, ATC represents the average total cost per unit, and Q represents the quantity of units produced and sold. By subtracting the average total cost from the price and multiplying it by the quantity, we get the total profit. This formula takes into account both the revenue generated by selling the product (P x Q) and the cost of producing it (ATC x Q), resulting in the profit earned by the firm.Rate this question:
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- 26.
Antitrust laws in general are used to
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Prevent oligopolists from acting in ways that make markets less competitive.
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Help oligopolists resolve their version of the prisoner’s dilemma.
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Encourage oligopolists to pursue cooperative-interest at the expense of self-interest.
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All of the above are correct.
Correct Answer
A. Prevent oligopolists from acting in ways that make markets less competitive.Explanation
Antitrust laws are designed to prevent oligopolists, who are a small group of firms dominating a market, from engaging in practices that reduce competition. By doing so, these laws aim to promote fair competition, protect consumers from price manipulation, and encourage innovation and efficiency in the market. The other options, such as helping oligopolists resolve their version of the prisoner's dilemma or encouraging them to pursue cooperative interests, are not accurate explanations of the purpose of antitrust laws.Rate this question:
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- 27.
The legislation passed by Congress in 1890 to reduce the market power of large and powerful “trusts” is called the
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Clayton Act.
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14th Amendment.
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Sherman Act.
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None of the above is correct.
Correct Answer
A. Sherman Act.Explanation
The correct answer is the Sherman Act. The Sherman Act was passed by Congress in 1890 to address the issue of large and powerful trusts that had significant market power. It aimed to prevent monopolistic practices and promote fair competition in the market. The Clayton Act, on the other hand, was passed in 1914 and focused on prohibiting specific anti-competitive behaviors. The 14th Amendment is unrelated to the legislation passed to reduce the market power of trusts.Rate this question:
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- 28.
Supply tends to be
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Less price elastic in the long run
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Perfectly price inelastic in the long run.
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More price elastic in the long run.
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Perfectly price inelastic in the long run.
Correct Answer
A. More price elastic in the long run.Explanation
In the long run, supply tends to be more price elastic. This means that as time goes on, producers are more able to adjust their production levels in response to changes in price. This is because in the long run, firms have more flexibility to make changes to their production processes, find alternative inputs, and enter or exit the market. Therefore, they can more easily respond to changes in price by increasing or decreasing their supply.Rate this question:
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- 29.
OPEC often holds oil production below capacity in an effort to
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Compel consumers to search for oil substitutes.
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Compel consumers to conserve oil.
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Keep prices above the competitive level.
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Create a shift in the demand for oil.
Correct Answer
A. Keep prices above the competitive level.Explanation
OPEC often holds oil production below capacity in an effort to keep prices above the competitive level. By limiting the supply of oil, OPEC creates a scarcity in the market, which allows them to maintain higher prices. This strategy is aimed at maximizing their profits and ensuring that they have control over the global oil market. By keeping prices above the competitive level, OPEC can also discourage consumers from switching to alternative energy sources or seeking oil substitutes, as they would be less economically attractive compared to oil.Rate this question:
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- 30.
When a perfectly competitive firm makes a decision to shut down, it is most likely that
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Price is below the minimum of average variable cost.
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Fixed costs exceed variable costs.
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Average fixed costs are rising.
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Marginal cost is above average variable cost.
Correct Answer
A. Price is below the minimum of average variable cost.Explanation
When a perfectly competitive firm makes a decision to shut down, it is most likely that the price is below the minimum of average variable cost. This means that the firm is unable to cover its variable costs, such as labor and materials, with the revenue it receives from selling its products. In this situation, the firm would incur losses by continuing to operate, so it chooses to shut down and minimize its losses.Rate this question:
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- 31.
An example of an implicit cost of production would be the
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Cost of raw materials for a printing company to print books.
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Income an entrepreneur could have earned working elsewhere.
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Cost of a delivery truck in a business that rarely makes deliveries.
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All of the above are correct.
Correct Answer
A. Income an entrepreneur could have earned working elsewhere.Explanation
The correct answer is income an entrepreneur could have earned working elsewhere. Implicit costs are the opportunity costs of using resources in a particular way. In this case, the entrepreneur could have earned income by working elsewhere instead of running their own business. This income is forgone as a result of the entrepreneur's decision to allocate their time and resources to their own venture.Rate this question:
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- 32.
According to the competitive firm table shown, at a production level of 4 units which of the following is true?
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Fixed cost is zero.
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Marginal cost is $6.
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Total revenue is less than variable cost.
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Marginal revenue is less than marginal cost.
Correct Answer
A. Marginal revenue is less than marginal cost.Explanation
At a production level of 4 units, the marginal revenue is less than the marginal cost. This means that the additional revenue generated from producing one more unit is less than the additional cost incurred to produce that unit. As a result, the firm is experiencing diminishing returns, where the cost of producing additional units is increasing faster than the revenue generated from those units.Rate this question:
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- 33.
A profit-maximizing firm making losses (negative profit), but still producing output faces which of the following conditions?
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P > ATC
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P > AVC
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Both of the above are correct.
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Neither of the above is correct.
Correct Answer
A. P > AVCExplanation
A profit-maximizing firm making losses (negative profit) but still producing output faces the condition P > AVC. This means that the price (P) at which the firm sells its output is greater than the average variable cost (AVC) of producing that output. Even though the firm is incurring losses, it is still covering its variable costs, which include costs directly related to production such as labor and raw materials. However, the price is not high enough to cover both variable and fixed costs, resulting in negative profits.Rate this question:
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- 34.
In the figure, panel (a) depicts the linear marginal cost of a firm in a competitive market and panel (b) depicts the linear market supply curve for a market with a fixed number of identical firms. According to the figure, if there are 200 identical firms in this market, what level of output will be supplied to the market when price is $2.00?
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10,000
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20,000
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40,000
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It cannot be determined from the information provided.
Correct Answer
A. 40,000Explanation
Based on the information provided in the figure, panel (b) depicts the market supply curve, which shows the quantity of output that all firms in the market are willing to supply at different prices. The linear market supply curve intersects the y-axis at 40,000 units of output, indicating that when the price is $2.00, a total of 40,000 units of output will be supplied to the market by the 200 identical firms. Therefore, the correct answer is 40,000.Rate this question:
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- 35.
When a monopolist can price discriminate perfectly then
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The price effect dominates the output effect on monopoly revenue, so profits fall.
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Consumer surplus and deadweight losses are transformed into monopoly profits.
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Consumer surplus is increased.
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Deadweight loss is increased
Correct Answer
A. Consumer surplus and deadweight losses are transformed into monopoly profits.Explanation
When a monopolist can price discriminate perfectly, they are able to charge different prices to different customers based on their willingness to pay. This allows the monopolist to extract more consumer surplus from each customer, effectively transforming it into monopoly profits. Additionally, by charging higher prices to customers with higher willingness to pay, the monopolist can reduce deadweight losses that would occur under uniform pricing. Therefore, consumer surplus and deadweight losses are transformed into monopoly profits in this scenario.Rate this question:
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- 36.
The deadweight loss that is associated with a monopolistically competitive market is a result of
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Operating in a constant cost industry.
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Pricing above marginal cost.
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Advertising costs.
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Pricing below marginal cost in order to increase market share.
Correct Answer
A. Pricing above marginal cost.Explanation
In a monopolistically competitive market, firms have some degree of market power and can set prices higher than their marginal cost. This results in a deadweight loss because the price charged is higher than the efficient price that would occur in a perfectly competitive market. As a result, consumers pay more for the product than they would in a competitive market, leading to a loss of consumer surplus. Additionally, this pricing strategy reduces the quantity demanded, leading to a loss of producer surplus as well.Rate this question:
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- 37.
If there are very few, if any, good substitutes for good A, then
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Supply of good A would tend to be price elastic
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Demand for good A would tend to be price inelastic.
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Demand for good A would tend to be price elastic.
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Demand for good A would tend to be income elastic.
Correct Answer
A. Demand for good A would tend to be price inelastic.Explanation
If there are very few, if any, good substitutes for good A, then the demand for good A would tend to be price inelastic. This means that even if the price of good A increases, the demand for it would not decrease significantly because consumers do not have many alternative options. They are willing to pay a higher price for good A because there are limited substitutes available in the market. Therefore, the demand for good A would be less responsive to changes in price, making it price inelastic.Rate this question:
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- 38.
In a competitive market, the actions of any single buyer or seller will
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Have a negligible impact on the market price.
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Adversely affect the profitability of more than one firm in the market.
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Cause a noticeable change in market production and price.
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Have little effect on market production, but ultimately change price.
Correct Answer
A. Have a negligible impact on the market price.Explanation
In a competitive market, there are numerous buyers and sellers, each with a relatively small market share. Therefore, the actions of any single buyer or seller will have a negligible impact on the overall market price. The market price is determined by the collective forces of supply and demand, and individual actions cannot significantly influence this equilibrium.Rate this question:
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- 39.
Predatory pricing is best exemplified when a firm
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Exercises its monopoly power by raising its price.
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Cuts its prices in order to make itself more competitive.
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Cuts its prices temporarily in order to drive out any competition.
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Exercises its oligopoly power by raising its price through the formation of a cartel.
Correct Answer
A. Cuts its prices temporarily in order to drive out any competition.Explanation
Predatory pricing is a strategy used by a firm to eliminate competition by temporarily lowering its prices. By doing so, the firm aims to attract customers away from its competitors and drive them out of the market. This allows the predatory firm to establish a monopoly position and subsequently raise prices to exploit its market power. This behavior is considered anti-competitive and illegal in many jurisdictions as it harms consumer welfare and restricts competition.Rate this question:
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- 40.
Total revenue necessarily equals
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Total output multiplied by the average cost of output.
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Total output multiplied by sales price of output.
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(total output multiplied by sales price) – inventory surplus.
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(total output multiplied by the average cost of output) – inventory shortage.
Correct Answer
A. Total output multiplied by sales price of output.Explanation
Total revenue is calculated by multiplying the total output by the sales price of the output. This is because revenue is the total amount of money generated from selling a certain quantity of goods or services. The sales price represents the price at which each unit of output is sold, and multiplying it by the total output gives the total revenue. The other options, such as subtracting inventory surplus or inventory shortage, do not accurately represent the calculation of total revenue.Rate this question:
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- 41.
Suppose a producer is able to separate customers into two groups, one having a price inelastic demand and the other having a price elastic demand. If the producer’s objective is to increase total revenue, she should
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Charge the same price to both groups of customers.
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Increase the price for both groups of customers.
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Increase the price charged to customers with the price elastic demand and decrease the price charged to customers with the price inelastic demand.
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Decrease the price charged to customers with the price elastic demand and increase the price charged to customers with the price inelastic demand.
Correct Answer
A. Decrease the price charged to customers with the price elastic demand and increase the price charged to customers with the price inelastic demand.Explanation
The producer should decrease the price charged to customers with price elastic demand and increase the price charged to customers with price inelastic demand in order to increase total revenue. This is because customers with price elastic demand are more sensitive to price changes, so decreasing the price will incentivize them to purchase more, resulting in a larger increase in quantity sold. On the other hand, customers with price inelastic demand are less sensitive to price changes, so increasing the price will lead to a higher profit margin for each unit sold.Rate this question:
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- 42.
Diminishing marginal product of labor would arise when
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Workers are discouraged about the lack of help from other workers.
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Only new workers are trained in using the most productive capital.
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Crowded office space reduces the productivity of new workers.
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Union workers are told to reduce their work effort in preparation for a new round of collective bargaining talks
Correct Answer
A. Crowded office space reduces the productivity of new workers.Explanation
Diminishing marginal product of labor refers to a situation where the addition of more workers leads to a decrease in the overall output or productivity. In this scenario, the crowded office space reduces the productivity of new workers. This can be attributed to factors such as limited physical space, distractions, and difficulties in communication and coordination. As a result, the productivity of new workers decreases, leading to diminishing marginal product of labor.Rate this question:
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- 43.
A fundamental source of monopoly market power arises from
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Availability of “free” natural resources, such as water or air.
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Perfectly elastic demand.
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Perfectly inelastic demand.
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Barriers to entry.
Correct Answer
A. Barriers to entry.Explanation
The correct answer is barriers to entry. This means that the fundamental source of monopoly market power comes from obstacles or restrictions that prevent new firms from entering the market and competing with existing monopolies. These barriers can include factors such as high start-up costs, exclusive access to resources or technology, legal restrictions, or economies of scale that make it difficult for new firms to compete effectively. By limiting competition, barriers to entry allow monopolies to maintain their market power and charge higher prices.Rate this question:
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- 44.
In theory, perfect price discrimination increases
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The monopolist’s profits.
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Consumer surplus.
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Deadweight loss.
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All of the above are correct.
Correct Answer
A. The monopolist’s profits.Explanation
Perfect price discrimination refers to a situation where a monopolist is able to charge each individual consumer the maximum price they are willing to pay for a product or service. This allows the monopolist to extract all of the consumer surplus, resulting in higher profits. By charging different prices to different consumers, the monopolist eliminates deadweight loss, which is the loss in economic efficiency that occurs when the market is not in equilibrium. Therefore, all of the given options are correct, as perfect price discrimination increases the monopolist's profits, eliminates deadweight loss, and reduces consumer surplus.Rate this question:
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- 45.
The profit-maximizing rule for a firm in a monopolistically competitive market is to produce the quantity at which
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Average revenue equals average total cost.
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Average total cost is at its minimum.
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Marginal revenue is equal to marginal cost.
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Marginal cost is at its minimum.
Correct Answer
A. Marginal revenue is equal to marginal cost.Explanation
In a monopolistically competitive market, where firms have some degree of market power, the profit-maximizing rule is to produce the quantity at which marginal revenue (MR) equals marginal cost (MC). This is because MR represents the additional revenue gained from selling one more unit, while MC represents the additional cost incurred from producing one more unit. By equating the two, the firm ensures that the last unit produced adds as much to revenue as it does to cost, maximizing its overall profit. Therefore, the correct answer is that the profit-maximizing rule is to produce the quantity at which marginal revenue is equal to marginal cost.Rate this question:
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- 46.
On a downward-sloping, linear demand curve, total revenue would be at a maximum at the
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Upper end of the demand curve
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Midpoint of the demand curve.
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Lower end of the demand curve.
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It is impossible to tell without knowing the price and quantity demanded.
Correct Answer
A. Midpoint of the demand curve.Explanation
On a downward-sloping, linear demand curve, total revenue would be at a maximum at the midpoint of the demand curve. This is because at the midpoint, the price and quantity demanded are balanced in such a way that any increase or decrease in price would result in an equal decrease or increase in quantity demanded, thus keeping the total revenue constant. If we move away from the midpoint towards the upper or lower end of the demand curve, any change in price would have a greater impact on quantity demanded, leading to a decrease in total revenue.Rate this question:
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- 47.
The main determinant of the price elasticity of supply is
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Time.
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Luxuries vs. necessities
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The definition of the market.
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The number of close substitutes.
Correct Answer
A. Time.Explanation
The main determinant of the price elasticity of supply is time. This means that the responsiveness of the quantity supplied to a change in price is influenced by the time period under consideration. In the short run, it may be difficult for producers to adjust their output levels, resulting in a less elastic supply. However, in the long run, producers have more flexibility to adjust their production processes and inputs, making the supply more elastic. Therefore, time plays a crucial role in determining the price elasticity of supply.Rate this question:
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- 48.
Which list contains all market structures having many firms?
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Oligopoly and perfect competition
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Oligopoly and monopolistic competition
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Perfect competition and monopolistic competition.
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Oligopoly, perfect competition, and monopolistic competition.
Correct Answer
A. Perfect competition and monopolistic competition.Explanation
The correct answer is perfect competition and monopolistic competition. In perfect competition, there are many firms in the market, each producing identical products and having no control over the market price. Monopolistic competition also involves many firms, but they differentiate their products to some extent and have some control over the price. Oligopoly, on the other hand, consists of a few large firms dominating the market, while monopoly involves a single firm having complete control over the market. Therefore, the list that contains market structures with many firms is perfect competition and monopolistic competition.Rate this question:
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- 49.
A central issue in the Microsoft antitrust lawsuit involved Microsoft’s integrating its Internet browser into its Windows operating system, to be sold as one unit. This practice is known as
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Collusion.
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Tying.
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Resale price maintenance.
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Price fixing.
Correct Answer
A. Tying.Explanation
The correct answer is tying. Tying refers to the practice of bundling two or more products together and selling them as a single unit. In the Microsoft antitrust lawsuit, the company integrated its Internet browser into its Windows operating system, making it difficult for users to choose alternative browsers. This tying practice was seen as anti-competitive behavior as it limited consumer choice and hindered competition in the browser market.Rate this question:
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Feb 06, 2024Quiz Edited by
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Jan 30, 2019Quiz Created by
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