ABSE 203 Mock Quiz # 2

  1. At present output levels, a competitive firm is in the following position: output = 8, market price = €1, FC = €2, VC = €6, MC = $1. This firm is:

a)not maximizing its profit but could do so by decreasing its output.

b)making a zero economic profit.

c)losing money, although it could make a profit by increasing its output.

d)Making economic losses and should shut down.

  1. Market conditions for monopolisticcompetition can produce all of the following short-run results EXCEPT:

a)greater than market price.

b)normal profit.

c)greater than normal profit.

d)operating loss.

  1. Which of the following is consistent with long-run equilibrium under perfect competition:

a)AC are minimized;

b)MC < MR;

c)prices can be lowered without forcing the firm out of the industry;

d)MC < P

  1. As compared to the perfect competitors with the same cost structure, monopolistic competitors produce:

а)more output;

b)less output;

c)the same output, but sell it at a higher price;

d)more output, but sell it at a higher price.

  1. The short-run shut down point for the monopolistic competition occurs:

a)when the demand curve facing the firm is tangent to its average variable cost curve.

b)where total revenue is just sufficient to cover all explicit cost but not any implicit or imputed costs.

c)when the firm is able to cover only its variable costs.

d)when the firm is able to cover only its fixed costs.

  1. At the profit-maximizing output for a monopolist, price:

a)always exceeds average total cost.

b)is less than marginal cost.

c)exceeds marginal cost.

d)equals marginal cost.

  1. In the long run, the profit-maximizing, perfect competitors produce a level of output where:

a) AC = MC.

b) P = AC.

c) P = MC.

d) all of the above

  1. In a monopolistically competitive industry, a firm in long-run equilibrium will be operating where price is:

a) greater than AC but equal to MC;

b) greater than AC and greater than MC.

c) equal to both AC and MC.

d) greater than MC but equal to ATC.

  1. Perfect competition occurs;

a)when any individual firm can increase its production and sales without affecting the price of the good;

b) whenever firms are losing money;

c)when firms have some control over price;

d)all of the above.

  1. When typical firms in a perfectly competitive industry are making economic profits, then all of the following will take place except:

a) new firms will enter the industry.

b) the industry supply curve will shift to the right.

c) the firm demand curves will shift upwards.

d) all of the above will occur.

  1. Consider the market for wheat. You know that there are numerous firms in the market, all of which are relatively small. Assume further that there are no entry costs that cannot be recovered on exiting the industry. Suppose that a health fad emerges in the country that encourages the consumption of natural grains and cereals. What will be the effect on profits of wheat farmers, the price of wheat and output in both the short-run and the long-run? (Assume that input prices are constant over the relevant range.)

a)price, quantity and profits will rise in the short-run but remain constant in the long-run.

b)price, quantity and profits will rise in both the short-run and the long-run.

c)quantity will rise in both the short and the long-run, price will rise in the short-run but remain constant in the long-run, profits will rise in the short-run but fall to zero in the long-run.

d)price and quantity will increase in both the short and the long-run while profits, although initially rising, will fall to zero in the long-run.

  1. That portion of a perfectly competitive firm's marginal cost curve lying above its AVC curve has all of the following characteristics except:

a) it is the firm's supply curve.

b) it intersects the firm's ATC curve at minimum ATC.

c) its intersection with the firm's MR curve determines the firm's profit maximizing output level.

d) all of the above are true.

  1. When in long-run equilibrium, perfectly competitive firms:

a)must employ the most efficient (least costly) production technology or be driven out of the business by competition.

b)are paid a price that equals the maximum value of the long-run average cost curve.

c)collectively produce more output than society desires.

d)reap economic profits if the firm is exceptionally efficient.

  1. If the monopolist operates in the elastic range of its demand curve:

a) it could raise total revenue by lowering price.

b) the firm would be acting to maximize total revenue rather than profit.

c) marginal revenue would be negative.

d) it could increase its profit by increasing both price and output.

  1. When a monopoly firm is operating in a range of output where total revenue is rising as output rises, then marginal revenue:

a) is also rising.

b) is constant.

c) is falling but is greater than zero.

d) is falling but is less than zero.

  1. The simple analysis of monopoly that we carried out in class suggested that monopolists are inefficient from society's viewpoint. However, monopolists may not always be inefficient. Which of the following is not an argument which could be used to justify the existence of monopoly power on the basis of economic efficiency?

a)entry and exit are almost always relatively costless so that the mere threat of competition will force the monopolist's price to the competitive price.

b)when substantial economies of scale exist, the monopolist may have lower costs than any number of smaller firms.

c)when there is a threat of entry, monopolist firms have more incentive to innovate than perfectly competitive firms.

d)none of the above.

  1. Congratulations! You are appointed as an economic consultant to a profit maximizing firm that is currently described by the graph below. Indicate on the graph:

a)the level of the profit maximizing output;

b)the level of the profit maximizing price;

c)the size of the firm’s profit;

  • indicate the market structure.
  • Classify the firm’s profit (economic profit, economic loss; normal profit)

  1. A natural monopoly in water supply in a town is presented on the graph below:

Show on the graph

a)Profit maximizing output and price

b)The monopoly profit

c)loss of consumer surplus, transferred to monopoly;

d)deadweight loss of consumer surplus;

e)deadweight loss of producer surplus.