ECON2103L1&2Fall2013(practice)

MULTIPLECHOICE. Choosetheonealternativethatbestcompletesthestatementoranswersthequestion.

1)Intheabovefigure,whichofthefollowingstatementsisFALSE?
A)TheverticalgapbetweencurvesAandBisequaltoaveragefixedcost.
B)Totalvariablecostandtotalcostbothincreaseasoutputincreases.
C)ThetotalfixedcostcurveiscurveC.
D)MarginalcostisequaltotheslopeofcurveA.

2)Thecostofavariableinput,suchasthewagepaidtoworkers,decreases.Thisdecreaseshiftsthe
A)averagevariablecostcurvedownward. B)marginalproductoflaborcurvedownward.
C)totalfixedcostcurvedownward. D)marginalproductoflaborcurveupward.

3)Which of the following statements is correct?

A)For all firms, marginal revenue equals the price of the good
B)Only for competitive firms does average revenue equal the price of the good
C)Marginal revenue can be calculated as total revenue divided by the quantity sold
D)Only for competitive firms does average revenue equal marginal revenue

4)Which of the following is a characteristic of a natural monopoly?
A)Average cost exceeds marginal cost over large regions of output
B)Increasing the number of firms increases each firms average total cost
C)One firm can supply output at a lower cost than two firms
D)All of the above are correct

5)Suppose when a monopolist produces 50 units its average revenue is $8 per unit, its marginal revenue is $4 per unit, its marginal
cost is $4 per unit, and its average total cost is $3 per unit. What can we conclude about this monopolist?
A)The monopolist is currently maximizing profits, and its total profits are $200
B)The monopolist is currently maximizing profits, and its total profits are $250
C)The monopolist is not currently maximizing its profits; it should produce more units and charge a lower price to maximize profit
D)The monopolist is not currently maximizing its profits; it should produce fewer units and charger a higher price to maximize profit

6)Intheshortrun,afirmwill
A)produceandbreakevenifitstotalrevenuecoversitstotalfixedcostbutnotitstotalvariablecost.
B)produceandincuraneconomiclossifitstotalrevenuecoversitstotalvariablecostbutnotitstotalcost.
C)produceandearnaneconomicprofitifitstotalrevenueisequaltoitstotalcost.
D)notproduceifitstotalrevenuedoesnotcoveritstotalcost.

7)Dave and Andy are competitors in a local market. Each is trying to decide if it is better to advertise on TV, on radio, or not at all. If
they both advertise on TV, each will earn a profit of $4,000. If they both advertise on radio, each will earn a profit of $7,000. If neither
advertises at all, each will earn a profit of $10,000. If one advertises on TV and other advertises on radio, then the one advertising on
TV will earn $6,000 and the other will earn $5,000. If one advertises on TV and the other does not advertise, then the one advertising
on TV will earn $11,000 and the other will earn $2,000. If one advertises on radio and the other does not advertise, then the one
advertising on radio will earn $12,000 and the other will earn $4,000. If both follow their dominant strategy, then Dave will
A)advertise on TV and earn $4,000. B)not advertise and earn $10,000.
C)advertise on TV and earn $11,000. D)advertise on radio and earn $7,000.

8)Which of the following represents a way that a government can help the private market to internalize an externality?
A)taxing goods that have negative externalities
B)subsidizing goods that have positive externalities
C)The government cannot improve upon the outcomes of private markets.
D)Both a and b are correct.

9)Suppose that electricity producers create a negative externality equal to $6 per unit. Further suppose that the government imposes a
$8 per-unit tax on the producers. What is the relationship between the after-tax equilibrium quantity and the socially optimal quantity
of electricity to be produced?
A)The after-tax equilibrium quantity is greater than the socially optimal quantity.
B)There is not enough information to answer the question.
C)They are equal.
D)The after-tax equilibrium quantity is less than the socially optimal quantity.

10)Monte owns a dog; the dogs barking annoys Montes neighbor, Teresa. Suppose that the benefit of owning the dog is worth $200
to Monte and that Teresa bears a cost of $400 from the barking. Assuming Monte has the legal right to keep the dog, a possible private
solution to this problem is that
A)Teresa pays Monte $150 to give the dog to his parents who live on an isolated farm.
B)Teresa pays Monte $300 to give the dog to his parents who live on an isolated farm.
C)There is no private transaction that would improve this situation.
D)Monte pays Teresa $350 for her inconvenience.

Dr.Smith
Advertise Dontadvertise
Advertise S: $80J: $70
S: $60
J: $110
Dr.Jones

Dont
advertise
S: $120
J: $60
S: $100
J: $90

11)Libertyvillehastwooptometrists,Dr.SmithandDr.Jones.Eachoptometristcanchoosetoadvertisehisserviceornot.
Theincomesofeachoptometrist,inthousandsofdollars,aregiveninthepayoffmatrixabove.Whichofthefollowing
statementscorrectlydescribesDr.SmithsstrategygivenwhatDr.Jonesmaydo?
A)Dr.SmithshouldadvertisenomatterwhatDr.Jonesdoes.
B)Dr.SmithshouldnotadvertisenomatterwhatDr.Jonesdoes.
C)Dr.SmithshouldadvertiseonlyifDr.Jonesdoesntadvertise.
D)Dr.SmithshouldadvertiseonlyifDr.Jonesadvertises.

Gateway
Cutprice Holdprice
Cutprice
G: $10
D: $10
G: $5
D: $20
Dell
Holdprice
G: $20
D: $5
G: $15
D: $15

12)DellandGatewaymustdecidewhethertolowertheirprices,basedonthepotentialeconomicprofitsshowninthe
payoffmatrixabove.(Theprofitsareinmillionsofdollars.)IntheNashequilibrium,
A)bothDellandGatewaykeeppriceshigh.
B)DellkeepsitspriceshighandGatewaylowersitsprices.
C)bothDellandGatewaylowerprices.
D)GatewaykeepsitspriceshighandDelllowersitsprices.

13)Which of the following is true of markets characterized by positive externalities?

A)Social value exceeds private value, and market quantity exceeds the socially optimal quantity.
B)Social value exceeds private value, and market quantity is less than the socially optimal quantity.
C)Social value is less than private value, and market quantity exceeds the socially optimal quantity.
D)Social value seldom exceeds private value; therefore, social quantity is less than private quantity.

14)A profit-maximizing monopolist charges a price of $12. The intersection of the marginal revenue and marginal cost curves occurs
where output is 10 units and marginal cost is $6. Average total cost for 10 units of output is $5. What is the monopolists profit?
A)$60 B)$70 C)$100D)$120

15)How does a competitive market compare to a monopoly that engages in perfect price discrimination?
A)Consumer surplus is the same in both cases.
B)In both cases, total social welfare is the same.
C)Total social welfare is higher in the competitive market than with the perfectly price discriminating monopoly.
D)In both cases, some potentially mutually beneficial trades do not occur.

16)Which of the following factors is most likely to shift IBM's total cost and marginal cost curves downward?
A)a reduction in subsidies from the state government
B)increased wages to attract additional computer operators
C)a technological advance resulting in increased productivity
D)higher property taxes charged by the municipal government

17)Laura is a gourmet chef who runs a small catering business in a competitive industry. Laura specializes in making wedding
cakes. Laura sells 20 wedding cakes per month. Her monthly total revenue is $5,000. The marginal cost of making a wedding
cake is $300. In order to maximize profits, Laura should
A)continue to make 20 wedding cakes per month
B)make more than 20 wedding cakes per month
C)make fewer than 20 wedding cakes per month
D)We do not have enough information with which to answer the question

18)Which of the following statements is correct for a monopolist?

(i) The firm maximizes profits by equating marginal revenue with marginal cost
(ii) The firm maximizes profits by equating price with marginal cost
(iii) Demand equals marginal revenue
(iv) Average revenue equals price
A)(i)and(iv)only B)(iii),and(iv)only
C)(ii),and(iv)only D)(i),(ii),(iii),and(iv)

19)In the long run, assuming that the owner of a firm in a competitive industry has positive opportunity costs, she
A)will earn zero economic profits but positive accounting profits
B)should ignore opportunity costs because they are a type of sunk cost that disappears in the long run
C)should exit the industry unless her economic profits are positive
D)will earn zero accounting profits but positive economic profits

20)A firm in a competitive market has the following cost structure:

Output Total Cost
0 $5
1 $10
2 $12
3 $15
4 $24
5 $40
If the market price is $16, this firm will

A)shut down in the short run and exit in the long run.
B)produce 4 units of output in the short run and exit in the long run.
C)produce 5 units of output in the short run and face competition from new market entrants in the long run.
D)produce 5 units of output in the short run and exit in the long run.

1)A
2)A
3)D
4)D
5)B
6)B
7)D
8)D
9)D
10)B
11)A
12)C
13)B
14)B
15)B
16)C
17)C
18)A
19)A
20)C