Question

1) If a price that a perfectly competitive firm is able to get is above its average variable cost but below its average total cost then

a. The firm will suffer economic losses and should shut down immediately

b. The firm will be able to earn economic profit as soon as it can increase the size of its factory

c. The firm will suffer economic losses but should continue to operate

d. None of the above

2) In the short run, if price falls, the firm will respond by

a. Shutting down regardless of how high its variable costs are

b. Equating average variable cost to marginal revenue

c. Reducing output along its marginal cost curve as long as marginal cost curve as long as marginal revenue exceeds average variable cost

d. None of the above

3) Suppose a competitive firm is in equilibrium then the price of one of its inputs falls. What will happen?

a. The firm will hire more of the lower priced input

b. The firm will produce more output

c.The firm cost curves will downward

d. All of the above

4. A competitive industry will be in a long run equilibrium when

a. Each firm in the industry is earning zero economic profit

b. No entry or exit occurs

c.The total quantity produced at the prevailing price equals the total quantity consumers want to purchase

d. All of the above

5. In an increasing cost competitive industry, if prices rises above its long run equilibrium level which of the following will occur as the industry adjusts to a new long equilibrium ?

a. Firms will exit the industry

b. Economic profits will exits

c. Input prices will rise only when firms leave the industry

d. Price will return to its original level

6.The marginal revenue curve of a monopolist lies below the demand curve ( in the absence of price discrimination) becaus

a. The demand curve is unit elastic

b. The monopolist must lower price on all units sold in order to sell additional units

c. The monopolist is a price taker

d. The marginal revenue curve coincides with the average revenue curve

7. The demand curve for a monopolist's slopes downward because

a. Profit per unit declines

b. Demand elasticity is greater than one in the portion of the demand curve where the monopolist operates

c.It price discriminates

d. It faces the market demand curve

8. If a monopolist's is operating in the elastic portion of its demand curve then

a. An increase in price will increase total revenue

b. An increase in price will decrease total revenue

c. Marginal revenue is negative

d. An increase in price will leave total revenue unchanged

9. Marginal revenue is negative when

a. The demand curve is downward sloping

b. Demand curve is elastic

c. Demand curve is inelastic

d. Demand is unit elastic

10. The lerner index

a. Measures the monopoly power as the markup of price over average cost

b. Measures the monopoly power as the markup of price over marginal cost

c. Measures the market share of a firm

d. Measures the market capitalization of a firm

11. Compared to a competitive industry, ceteris paribus a standard monopoly firm

a. Sells more units and charges a higher price

b. Sells the same amount of units but at a higher price

c. Does not try to maximize profits as do firms in competitive industry

d. Restricts output and charges a higher price

12. A monopoly will produce the efficient rate of output if it

a. Engages in perfect price discrimination

b. Engages in no price discrimination

c. Engages in third degree price discrimination

d. Is regulates and average cost pricing is enforced

13. Which of the following types of mergers directly reduces the number of competitors in an industry?

a. Congolomerate

b. Horizontal

c. Vertical

d. Bivariate

14. Why do gas stations near airport often charge more for gasoline ?

a. They have higher costs

b. They are inconvenient

c. They face a smaller elasticity of demand

d. They must pay the airport agency for space

15. The deadweight loss due to monopoly restriction of output occurs over units of output

a. For which the willingness to pay would be greater than MC but don't get produces

b. For which the willingness to pay is greater than MC and do not get produced

c. Up until the profit maximizing level of output

d. For which the willingness to pay is less than MC but don't get produced

16. First degree discrimination

a. Is perfect because consumers benefit the most

b. Is called first degree because it does not apply to resale of products

c. Is also known as perfect price discrimination

d. Is the easiest form of price discrimination

Answer 1

1.c.suffers economic losses but should continue to operate

This is because the firm covers it's variable costs and a bit of it's fixed cost;therefore,it must aim at operating at the intersection of MC and MR curves to minimize the economic losses.

2.c.reduce output along it's MC curve.

This is done to reduce labour costs.

3.c.downward sloping cost curves.

Due to reduction in cost as output increases.

4.a.each firm is earning zero economic profit.

5.d.prices will return to the original level.

6b.the monopolist must lower the price of all units sold to sell additional units.

7.a. profit per unit falls

MR falls.

8.b.an increase in price will decrease TR.

9.c.demand curve is inelastic.

10.c.the market share of the firm

11.d.restricts output and charges a higher price.

12.it is regulated and average cost pricing is enforced.

13.b.horizontal

Merger with the competitor

14.c.they face a smaller elasticity of demand.

Since they only get travellers as their customers and not the rest of the city.

15.d.willingness to pay is less than MC but don't get produced.

Production is not carried out despite consumers surplus and producers surplus.

16.c. Is also known as perfect price discrimination.

Since the firm charges a different price for every unit.