S11 Practice Test

S11 Practice Test

Multiple Choice

Identify the choice that best completes the statement or answers the question.

1.

Output / Total Cost
0 / $10
1 / 60
2 / 80
3 / 110
4 / 170
5 / 245
Table: Total Cost and Output

The table describes Bart's perfectly competitive ice cream-producing firm. If the market price is $67.50, how many units of output will the firm produce?

a. / one
b. / two
c. / three
d. / four
e. / five
Quantity
of Apples
(bushels) / VC
0 / $ 0
1 / 40
2 / 70
3 / 80
4 / 130
5 / 190
6 / 260
7 / 340
8 / 430
Table 58-2: Lilly's Apple Orchard

2.(Table 58-2: Lilly's Apple OrcharD. Lilly is the price-taking owner of an apple orchard; its variable costs are given in the table. Her orchard has fixed costs of $30. If the price of a bushel of apples is $25, how many bushels will Lilly produce to maximize profit?

a. / 0
b. / 1
c. / 2
d. / 3
e. / 4
Quantity
of Lots / Variable Costs
0 / $0
10 / 200
20 / 300
30 / 500
40 / 750
50 / 1,100
Table 59-1: Variable Costs for Lots

3.(Table 59-1: Variable Costs for Lots) During the winter, Alexa runs a snow-clearing service, and snow-clearing is a perfectly competitive industry. Her only fixed cost is $1,000 for a tractor. Her variable costs per cleared lot, shown in the table, include fuel and hot coffee. What is Alexa's shut-down price in the short run?

a. / $0
b. / $15
c. / $50
d. / $42
e. / $20

Figure 59-2: Prices, Cost Curves, and Profits

4.(Figure 59-2: Cost Curves and Profits) In the figure, if the market price is $18, this firm will:

a. / minimize its losses by shutting down.
b. / minimize its losses by continuing to produce.
c. / break even.
d. / earn an economic profit.
e. / exit the market in the long run.

5.

The figure shows cost curves for a firm operating in a perfectly competitive market. If the market price is P4:

a. / firms will leave the industry and the price will fall in the long run.
b. / there will be economic profits and firms will enter the industry in the long run.
c. / the market supply curve will shift to the left and price will fall in the long run.
d. / the firm will produce q4.
e. / the price will rise in the long run as economic profits fall to zero.

6.Suppose that the market for haircuts in a community is a perfectly competitive constant-cost industry and that the market is initially in long-run equilibrium. Subsequently, an increase in population increases the demand for haircuts. In the long run, we expect that:

a. / more firms will enter the market, driving the price of haircuts up and the profits of individual firms back down to zero.
b. / more firms will enter the market, driving the price of haircuts down and the profits of individual firms back down to zero.
c. / firms will leave the market, driving the price of haircuts up and the profits of individual firms up.
d. / firms will leave the market, driving the price of haircuts up and the profits of individual firms back down to zero.
e. / more firms will enter the market, driving the price of haircuts down and the profits of individual firms up.

7.The ability of a monopolist to raise the price of a product above the competitive level by reducing the output is known as:

a. / product differentiation.
b. / barrier to entry.
c. / economies of scale.
d. / patents and copyrights.
e. / market power.

Figure 61-6: Short-Run Monopoly

8.(Figure 61-6: Short-Run Monopoly) The profit-maximizing output rule is satisfied by the intersection at point:

a. / G.
b. / H.
c. / J.
d. / L.
e. / I.

9.

The graph shows a monopoly firm that sells gadgets. If the firm is regulated such that the firm earns zero economic profit, the firm will sell ______units at a price of ______per unit.

a. / Q1;P1
b. / Q2;P1
c. / Q4;P3
d. / Q3;P2
e. / Q3;P3

10. Suppose a perfectly competitive market is suddenly transformed into one that operates as a monopoly market. We would expect:

a. / price to rise, output to fall, consumer surplus to rise, producer surplus to rise, and deadweight loss to fall.
b. / price to rise, output to fall, consumer surplus to fall, producer surplus to fall, and deadweight loss to rise.
c. / price to rise, output to fall, consumer surplus to fall, producer surplus to fall, and deadweight loss to fall.
d. / price to fall, output to rise, consumer surplus to rise, producer surplus to fall, and deadweight loss to fall.
e. / price to rise, output to fall, consumer surplus to fall, producer surplus to rise, and deadweight loss to rise.

11.Price discrimination leads to a ______price in the market with a ______demand.

a. / higher; less elastic
b. / higher; more elastic
c. / higher; perfectly elastic
d. / lower; less elastic
e. / lower; perfectly inelastic

12.The main reason a monopoly engages in price discrimination is that:

a. / it wants to discriminate against a particular ethnic group.
b. / doing so creates a favorable public opinion toward the firm.
c. / it wants to discourage potential competitors.
d. / by charging a lower price to some people, it may succeed in discouraging efforts to regulate it.
e. / doing so increases its profits.