MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
Figure 1
1) Refer to Figure 1. What is the output price?
A) P4
B) P3
C) P2
D) P1
2) Which of the following is the best example of a quota?
A) a 40% fee imposed on all imported tires
B) a tax placed on all tires sold in the domestic market to help offset the impact of lost jobs in the domestic tire industry.
C) a limit on the quantity of tires that can be imported from a foreign country
D) a subsidy from the U.S. government to domestic manufacturers of tires to enable them to compete more effectively with foreign producers
3) Which of the following statements best describes the economic short run?
A) It is a period during which firms are free to vary all of their inputs.
B) It is a period of one year or less.
C) It is a period during which fixed inputs become variable inputs because of depreciation.
D) It is a period during which at least one of the firm's inputs is fixed.
4) Ordinarily, governments attempt to promote competition in markets. Why do governments use patents to block entry into some markets when this prohibits competition?
A) Patents are an important source of government revenue.
B) Patents encourage firms to spend money on research necessary to create new products.
C) Patents are justified because they are an important means for creating network externalities.
D) Politicians sometimes succumb to pressure from lobbyists to grant favors to businesses for political reasons.
5) To maximize their profits and defend those profits from competitors, monopolistically competitive firms must
A) achieve economies of scale.
B) lobby government to erect barriers to entry in their industries.
C) limit foreign competition in their markets by encouraging the government to impose tariffs and other trade restrictions.
D) differentiate their products.
6) Oligopolies are difficult to analyze because
A) demand and cost curves do not exist for these types of industries.
B) oligopolies are a recent development so economists have not had time to develop models.
C) how firms respond to a price change by a rival is uncertain.
D) the firms are so large.
7) Some economists argue that Microsoft become a monopoly in the market for computer software by developing MS-DOS, an operating system used for the first IBM personal computers. The more people who used MS-DOS-based programs, the greater the usefulness of a using a computer with an MS-DOS operating system. The explanation for Microsoft's monopoly is
A) control of a key resource which, in this case, is the MS-DOS operating system.
B) network externalities.
C) the development of new technology that other firms could not copy.
D) patents Microsoft obtained when it developed the MS-DOS operating system.
8) If in a perfectly competitive industry, the market price facing a firm is below its average total cost but above average variable cost at the output where marginal cost equals marginal revenue
A) firms are breaking even.
B) the industry supply will not change.
C) new firms are attracted to the industry.
D) some existing firms will exit the industry.
9) In both monopolistically competitive and perfectly competitive industries
A) there are many buyers and sellers.
B) firms are price takers.
C) there are high barriers to entry.
D) firms produce products for which there are no close substitutes.
10) In the long run which of the following is true?
A) Total cost = fixed cost + variable cost.
B) There are no fixed costs.
C) The firm can vary its explicit costs but not its implicit costs.
D) The size of a firm's physical plant can be changed but the firm cannot adopt new technology.
11) Why do most firms in monopolistic competition typically make zero profit in the long run?
A) because firms do not produce at their minimum efficient scale
B) because firms produce differentiated products
C) because the lack of entry barriers would compete away profits
D) because the total market is not large enough to accommodate so many firms
Figure 2 shows the demand and cost curves for a monopolist.
12) Refer to Figure 2. What is the price charged for the profit-maximizing output level?
A) $13
B) $21
C) $27
D) $34
13) In the real world
A) all sellers charge one price equal to the marginal cost of production.
B) profitable sellers will set one price based on the average elasticity of demand of buyers.
C) all sellers charge one price set by the government.
D) many firms charge different prices based on consumers' willingness to pay.
14) An agreement among firms to charge the same price or otherwise not to compete is called
A) a pay-off matrix.
B) a Nash equilibrium.
C) collusion.
D) a subgame-perfect equilibrium.
15) The primary purpose of labor unions is to
A) ensure that workers receive adequate safety training.
B) negotiate with employers about wages and working conditions.
C) endorse candidates and donate money to them.
D) ensure that all members earn identical incomes.
16) A firm's demand for labor curve is also called its
A) marginal revenue product of labor curve.
B) marginal valuation curve.
C) marginal factor cost of labor curve.
D) marginal benefit of labor curve.
Figure 3 shows the demand, marginal cost (MC) and average total cost (ATC) curves for Jason's House of Apples.
17) Refer to Figure 3. To maximize his profit, Jason should produce the rate of output indicated by point
A) e.
B) d.
C) b.
D) a.
Figure 4 shows the cost and demand curves for a monopolist.
18) Refer to Figure 4. If this industry was organized as a perfectly competitive industry, the market output and market price would be
A) output = 62; price = $24.
B) output = 83; price = $22.
C) output = 104; price = $20.80.
D) output = 62; price = $18.
19) As output increases
A) the difference between average total cost and average variable cost decreases.
B) marginal cost increases continuously.
C) average variable cost becomes smaller and smaller.
D) the difference between average total cost and average variable cost becomes greater and greater.
20) The economic analysis of monopolistic competition shows that market forces eliminate profits in the long run. However, it is possible for a firm to continue to earn economic profits if the firm
A) expands its marketing budget.
B) reduces its price to expand its market.
C) adopts new technologies that enable it to lower its cost of production.
D) expands its product offerings to appeal to a wider range of consumers