MICRO ECONOMICS
REVIEW FOR TEST No. 3 Chapters 7,8,9,& 10
CHAPTER 7
How do accountants & economists measure costs?
How do accountants & economists measure profits?
CHAPTER 8
Market Structure
Perfect Competition: 4 characteristics
At what price do they sell?
Can they increase prices? Price Elasticity or Demand
Price Taker
What kind of price elasticity of demand do they experience?
If not price, what can they control?
Constant-Cost Industry
Increasing-Cost Industry
Decreasing-Cost Industry
CHAPTER 9
Monopoly: 3 characteristics
Price Searcher/Maker?
Market Monopolies & Government Monopolies
Rent Seeking
Price Elasticity of Demand of a Monopoly
Price Discrimination: Perfect Price, 2nd Degree, & 3thd Degree (conditions of Price Dis.)
CHAPTER 10
Monopolistic competition: 3 characteristics
Price Searcher?
How do they differentiate themselves?
P>MR
How would Monopolistically competitive firms become Monopolies?
Oligopoly: 3 characteristics
Price Searcher?
Price Elasticity of Demand for both market structures
Cartel theory (A cartel)
1
Practice Questions for Micro Economics Test # 3
Directions: It’s not enough to just take this practice test. Go back to your notes and to all the self-tests. Make sure to cover the How, Why and What of all required concepts. And for extra credit, don’t forget to log on to and read the top articles (pertinent to recent class discussions), listed under the heading “Today’s Topics.”
1. Who practices rent seeking? Why is it worth it for them?
2. Which market structure possesses perfectly elastic demand?
3. Which two characteristics most typify perfect competition?
4. Which price would an oil company charge?
5. Monopolies possess:
a. Inelastic Demand
b. Elastic Demand
c. A combination of elastic and inelastic, where elastic is greater
d. A combination of elastic and inelastic, where inelastic is greater
6. If explicit costs = $200,000 and implicit costs = $50,000, with total revenues = $150,000, then economic profits are:
a. $150,000b. -$50,000c. -$100,000
7. Second degree price discrimination is about purchasing each product at a different price.
8. What does second degree price discrimination help a business achieve?
9. Market monopolies exist due to patents and public franchises. If not then what does?
10. The Law of Demand exists due to (circle all that apply):
a. Law of diminishing marginal utility
b. Income Effect
c. Law of Supply
d. Value of currency
e. Substitution Effect
11. Oligopolies are mutually interdependent because (circle all that apply):
a. Sellers can track each other’s strategies and success
b. Buyers have only few companies to choose from
c. There isn’t much variety
d. Sellers cannot form a cartel
12. Which of the following determines the price of a product? Circle all that apply.
a. Supply and Demand
b. Marginal utility
c. Fiscal policy
d. Average Total Cost
e. Price elasticity of demand
f. Income taxes
13. Diseconomies of scale exist when the ATC of a product or service increases with production. Which cost-industry is this?
14. What happens to the equilibrium price in a decreasing-cost industry after an increase in demand?
15. There is no price discrimination with co-payments for medicine (within the same plan).
16. If MR > MC for a business, then this firm must ______
If MC > MR for a business, then this firm must ______
If MR = MC for a business, then this firm must ______
17. All four market structures maximize profits by producing at the level of MR = MC.
18. What is economies of scale?
19. Delta belongs to this market structure: ______, and Sony to this one: ______
20. Oligopolies do not produce homogenous products.
21. Price elasticity of oligopolies is greater than that of monopolistic competition.
22. How can monopolies go out of business?
23. Perfectly competitive firms lower their prices in order to increase their sales.
24. Monopolistically competitive firms cannot become dominant ones.
25. How many market structures seek to charge a price that is higher than their marginal cost?
26. Which are the 3 richest per-capita economies in the world?
27. What is the most significant barrier to entry for an oligopoly?
28. Cartels maximize their profits by ______their prices, and ______their output.
29. Most firms approximate (resemble) oligopolies. If not then which do they approximate? State why.
30. If ATC = $12, MR = $16, Quantity Demanded = 1000 units, then is this company making a profit?
a. Yes, its profits = $4,000
b. Yes, its profits = $10,000
c. No, its losses = -$2000
d. No, its losses = -$6000
1