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Econ 2 TEST 4

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Question;Multiple ChoiceIdentify the choice that best completes the statement or answers the question.____ 1. Five months ago Wilson opened up a health club. Which of the following is an implicit cost related to the health club?a. Wilson paid $120 for an outside laundry service to clean the towels used at the club.b. Wilson paid $100 for the pest control exterminator to spray the health club.c. Wilson previously worked as an accountant, earning $3,000 a month.d. Wilson usually eats four hamburgers a day, priced at $3 each.____ 2. Which of the following is true?a. Economists calculate only economic profit, and accountants calculate only accounting profit.b. Economic profit is always greater than accounting profit.c. Accounting profit is the difference between total revenue and explicit costs.d. Economic profit is the difference between total revenue and implicit costs.____ 3. Consider the following information about a business Diane opened last year: price = $5, quantity sold = 12,000, implicit cost = $17,000, explicit cost = $40,000. What was Diane's economic profit?a. $20,000b. $3,000c. $6,000d. $43,000e. There is not enough information provided to answer this question.____ 4. Consider the following information about a business Diane opened last year: price = $5, quantity sold = 12,000, implicit cost = $17,000, explicit cost = $40,000. What was Diane's accounting profit?a. $20,000b. $3,000c. $6,000d. $43,000e. There is not enough information provided to answer this question.____ 5. If a firm earns normal profit, then it has generated revenuesa. equal to the sum of implicit and explicit costs.b. greater than total opportunity costs.c. sufficient to cover explicit costs, but not implicit costs.d. sufficient to cover implicit costs, but not explicit costs.____ 6. Fixed costsa. are equal to explicit costs plus implicit costs.b. do not vary with output.c. are the same as total costs for any level of output greater than zero.d. are another name for sunk costs.____ 7. Implicit cost is aa. cost that is incurred when a monetary payment is made.b. cost incurred in the past that cannot be changed by current decisions and therefore cannot be recovered.c. cost that represents the value of resources used in production for which no monetary payment is made.d. sunk cost.e. b and dExhibit 7-5____ 8. Refer to Exhibit 7-5. Economies of scale are present betweena. points A and B.b. points A and C.c. points B and C.d. points B and D.e. points C and D.____ 9. Refer to Exhibit 7-5. Diseconomies of scale are present betweena. points A and B.b. points A and C.c. points B and C.d. points B and D.e. points C and D.____ 10. The main difference between the short run and the long run is thata. firms earn losses in the long run.b. the long run always refers to a time period of one year or longer.c. in the long run, only one variable can be fixed.d. in the short run, one or more inputs are fixed.e. none of the above____ 11. For a perfectly competitive firm,a. the marginal revenue curve and the demand curve are the same.b. the marginal revenue curve and the marginal cost curve are the same.c. the supply curve and the marginal revenue curve are the same.d. the demand curve and the marginal cost curve are the same.e. none of the above____ 12. For a perfectly competitive firm, profit maximization or loss minimization occurs at the output at whicha. MR = MC.b. MR = AVC.c. P = ATC.d. MR = ATC.____ 13. A perfectly competitive firm faces a __________ demand curve.a. nonlinearb. downward-slopingc. perfectly elasticd. perfectly inelastice. unit-elasticExhibit 8-7____ 14. Refer to Exhibit 8-7. The perfectly competitive, profit-maximizing firm will produce __________ units of output.a. 10b. 30c. 50d. 60e. 70____ 15. A seller is a price taker. This means that the seller sells his product at the pricea. he chooses.b. determined in the market.c. determined by the biggest firm in the market.d. determined by the largest consumer in the market.e. none of the above____ 16. The theory of monopoly assumes that the monopoly firma. faces a downward-sloping supply curve that is the same as its marginal revenue curve.b. faces a downward-sloping demand curve.c. produces more than the perfectly competitive firm under identical demand and cost conditions.d. produces a product for which there are many close substitutes.e. none of the above____ 17. The perfectly competitive firm charges a price equal to __________ while the monopolist charges a price __________.a. marginal revenue, equal to marginal costb. marginal cost, greater than marginal costc. marginal revenue, greater than marginal revenued. average total cost, greater than average total coste. b and c____ 18. Third-degree price discrimination is discrimination amonga. units.b. quantities.c. buyers.d. prices.____ 19. Second-degree price discrimination is discrimination amonga. units.b. quantities.c. buyers.d. prices.Exhibit 9-1____ 20. Refer to Exhibit 9-1. If the product is produced under perfect competition, what quantity will be produced and what price will be charged?a. Q1 units at P1b. Q2 units at P1c. Q1 units at P2d. Q2 units at P2____ 21. Refer to Exhibit 9-1. If the product is produced under single-price monopoly, what quantity will be produced and what price will be charged?a. Q2 units at P1b. Q1 units at P1c. Q1 units at P2d. Q2 units at P2____ 22. In general, electric, gas, and water companies are examples of __________ monopolies.a. unregulatedb. patentc. naturald. GovernmentExhibit 9-2____ 23. Refer to Exhibit 9-2. The monopolist is maximizing profits ata. Q0 units and charging a price of P0.b. Q0 units and charging a price of P1.c. Q0 units and charging a price of P3.d. Q0 units and charging a price of P2.e. none of the above____ 24. "Rent seeking" refers toa. trying to pay the lowest rent possible for an apartment or house.b. trying to lower rent that is paid on a factory in order to lower fixed costs.c. the actions of individuals who spend resources to influence public policy in the hope of transferring income to themselves from others.d. the fact that the deadweight loss triangle is a genuine cost of monopoly.e. none of the above____ 25. Which of the following is descriptive of rent seeking?a. A domestic company hires a lobbyist to go to Washington, D.C. and try to influence legislators to impose tariffs on Brazilian (imported) goods that compete with the good it produces.b. Company X hires an accountant to work for it.c. Jill pays her apartment rent a few days late each month and usually ends up having to pay a late fee.d. This year Bob earned a large profit from the small business he owns and operates.e. b and d____ 26. The demand curve facing a firm in monopolistic competition is downward sloping, because the firma. sells a differentiated product.b. is the entire industry by itself.c. is small relative to the market.d. b and ce. none of the above____ 27. Suppose a professor gives up her teaching job to devote her time to writing textbooks. If salaries of professors rise,a. her accounting profit will rise.b. her accounting profit will fall.c. her explicit costs will rise.d. her economic profit from textbooks will fall.e. her economic profit from textbooks will rise.____ 28. Which of the following would be considered an implicit cost?a. health insurance of employees paid for by the firmb. the water bill of the firmc. the salaries paid to the managers of the firmd. foregone rent on assets owned by the firm____ 29. Sunk or "historical" costs are costsa. associated with current operational decisions.b. that have already been incurred as the result of past decisions.c. that add to the firm's marginal costs.d. that form the major component of the firm's variable costs.____ 30. Which of the following is a primary difference between price searchers and price takers?a. Price searchers maximize profits, but price takers do not.b. Price searchers have to cut their price to sell additional output, but price takers do not.c. The market demand for goods produced by price searchers is downward sloping, while the market demand for goods produced by price takers is horizontal.d. Profit-maximizing price searchers will expand output to the quantity where marginal revenue equals marginal cost, but price takers will not.____ 31. In competitive price-taker markets, firmsa. can sell all of their output at the market price.b. produce differentiated products.c. can influence the market price by altering their output level.d. are large relative to the total market.____ 32. When we say that a firm is a price taker, we are indicating that thea. firm takes the price established in the market then tries to increase that price through advertising.b. firm can change output levels without having any significant effect on price.c. demand curve faced by the firm is perfectly inelastic.d. firm will have to take a lower price if it wants to increase the number of units that it sells.____ 33. Competitive price-taker markets are characterized bya. firms that all produce the same product.b. a small number of firms in the market.c. firms that are large relative to the size of the market.d. widespread use of advertising as a competitive weapon.____ 34. Harry Smith sells wheat in a price-taker market. With regard to Smith's price and output choices, which of the following is true?a. Smith will constantly attempt to increase the price of his product so he can increase his total revenue.b. Since the price of his product is dictated by the market, Smith will not have an incentive to control per-unit cost.c. Since the price of his product is dictated by the market, Smith has no production decisions to make.d. It would be senseless for Smith to try to increase sales by lowering the price of his product.____ 35. In a price-taker market, how does the elasticity of the market demand curve compare with the elasticity of demand of an individual firm in the market?a. Both demand curves have the same elasticity.b. Both demand curves are perfectly elastic.c. The firm's demand curve is downward sloping, while the industry demand curve is flat at low levels of output.d. The firm's demand curve is perfectly elastic, while the industry demand curve is not.Figure 9-12____ 36. Figure 9-12 illustrates aa. competitive price-taker firm that is earning economic profit.b. competitive price-taker firm that is only able to break even when it is maximizing economic profit.c. firm that should shut down immediately.d. competitive price-taker firm that is making economic losses.The graph below depicts the cost structure for a firm in a competitive market.Figure 9-13____ 37. Refer to Figure 9-13. When price rises from P3 to P4, the firm finds thata. fixed costs are lower at a production level of Q4.b. it can earn a positive profit by increasing production to Q4.c. profit is still maximized at a production level of Q3.d. average revenue exceeds marginal revenue at a production level of Q4.____ 38. If you were the owner of a price-taker firm operating at an output level where the marginal cost of producing another unit was $5, and the market price was $7, then youa. could increase your profit by expanding output.b. could increase your profit by decreasing output.c. are maximizing your profit at your current output level.d. will be able to earn positive economic profits in the long run.____ 39. If consumers suddenly began desiring more apples and fewer oranges,a. the market price of apples would rise, creating short-run economic profits in the apple industry. Current firms will expand output and new firms will enter the industry.b. the market price of oranges would fall, creating short-run economic losses in the orange industry. Current firms will reduce output and some will go out of business in the long run.c. neither a nor b are correct.d. both a and b are correct.____ 40. How can you tell whether a firm is a price taker or a price searcher?a. Price takers must accept the market price if they are going to sell any of their output, but price searchers will be able to increase their quantity sold if they are willing to cut their price.b. Price searchers must accept the market price if they are going to sell any of their output, but price takers will be able to increase their quantity sold if they are willing to cut their price.c. Price takers operate in competitive markets, but price searchers do not.d. Price searchers operate in competitive markets, but price takers do not.____ 41. Which of the following is the general distinction between price takers and price searchers?a. Price takers must compete with rival sellers, price searchers do not confront rival sellers.b. Price searchers can raise their price without losing sales, price takers must lower their price in order to sell more of their product.c. Price takers confront a perfectly elastic demand curve, price searchers face a downward-sloping demand curve.d. Price takers may make either economic profits or losses in the short run, but price searchers do not.____ 42. To gain from price discrimination, price searchersa. must charge a higher price to those with a more inelastic demand.b. must be pure monopolists.c. must have small economies of scaled. must have access to widely available natural resources.____ 43. A law that requires hairdressers to undergo many hours of training and acquire a license before they can offer haircuts to the public, is an example of aa. positive externality.b. natural monopoly.c. barrier to entry.d. public good.____ 44. New York City limits the number of taxi cabs that can legally operate in the city. The most likely result of this practice is thata. cab fares will be lower.b. cab fares will be higher.c. the cost of operating a taxicab will be lower.d. subway fares will decrease.____ 45. Collusiona. is exactly the same thing as competition.b. involves cooperative actions by sellers at the expense of buyers.c. requires competitive actions by sellers to win customers from rival firms.d. can only be achieved in price-taker markets.____ 46. Under which one of the following market structures are firms most likely to enter into a price-fixing agreement designed to maximize their joint profit?a. price-taker markets with low entry barriersb. pure monopolyc. price-searcher markets with low entry barriersd. oligopolyUse the figure to answer the following question(s).Figure 11-10____ 47. Given the cost and revenue curves illustrated in Figure 11-10, what price will a profit-maximizing monopolist charge?a. P1b. P2c. P3d. P4____ 48. A market situation in which only a small number of mutually interdependent, rival sellers exists is known as a(n)a. oligopoly market.b. monopoly market.c. open price-taker market.d. competitive price-searcher market.____ 49. In general, an organization of sellers designed to coordinate supply decisions so that the joint profits of the members is maximized is called a(n) ____. If they are successful, the total market output and price will most closely approximate the output and price in a(n) ____ market. (Fill in the blanks.)a. cooperative, open price-takerb. cartel, monopolyc. cartel, open price-takerd. OPEC, competitive price-searcher____ 50. An expansion in the number of plumbers in a local area has resulted in lower profits. The local plumbing contractors have called a meeting to discuss ways to improve their long-run profitability. Of the four plans being discussed seriously, which would most likely increase their long-run profits?a. passage of legislation requiring new contractors to be licensed, which would require passing a stiff licensing exam and paying a $5,000 feeb. an "off-the-record" agreement that each plumbing contractor would increase his or her prices by an average of 7 percentc. passage of legislation requiring the local government to share the cost of installing all private sewage systemsd. repeal of the current tax on installations of plumbing units

 

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