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Final Exam Summer 2014 Form II




Question;1Part I. Matching (3 Points Each)____Economies of Scale____Short Run____Shutdown Point____Marginal Revenue____Opportunity Cost____Monopolistic Industry____Price Taker____Sunk Cost____Marginal Cost____Diseconomies of Scale____Total Cost____Barriers to EntryA.The cost of changing the level of output by one unit.B.A period of time when a firm is unable to change all of its factor inputs.C.A firm facing the entire market demand curve is in what industry?D.Any conditions that prevent other firms from entering a market.E.Sum of fixed costs and variable costs.F.Firm or individual who takes the market price as given.G.The foregone benefit of the next-best alternative.H.A decrease in per-unit cost as a result of an increase in output.I.The added revenue from selling an additional unit of output.J.A cost that has already been paid and cannot be recovered.K.Point at which the firm will gain more by ceasing operations than it will by stayingin business.L.Technological conditions under which long-run average cost increases as outputincreases.2Part II. Multiple Choice (5 Points Each)1.The costs of a firm that are paid directly in money are called___ a.explicit costs.___ b.implicit costs.___ c.opportunity costs.___ d.alternative costs.2.The firm is producing an output of 24 and has total costs of 260. Its average totalcost___ a.Equals 10.83.___ b.Equals 8.75.___ c.Equals 260.___ d.Cannot be determined from the information.3.Average total costs are total costs___ a.per unit of output.___ b.divided by fixed costs.___ c.divided by variable costs.___ d.per unit of labor.4.In perfect competition, the marginal revenue of an individual firm___ zero.___ positive but less than the price of the product.___ c.equals the price of the product.___ d.exceeds the price of the product.Table 1Quantity Sold5675.Price$15$15$15In Table 1, if the firm sells 5 units of output, its total revenue is___ a.$15.___ b.$30.___ c.$75.___ d.$90.36.Price in a competitive market is $6. The firms marginal cost is $4 and themarginal cost curve has the normal shape. What would you advise the firm todo?___ a.Raise its price.___ b.Increase its output.___ c.Decrease its output.___ d.Lower its price.Table 2Output01234Total Revenue$0$ 30$ 60$ 90$120Total Cost$ 25$ 49$ 69$ 91$1177.In Table 2, if the firm produces 2 units of output, it will make an economic___ a.profit of $9.___ b.profit of $60.___ c.loss of $9.___ d.loss of $60.8.In a competitive market which of the following is the firms supply curve?___ a.The average cost curve.___ b.The marginal cost curve.___ c.The average variable cost curve.___ d.The average revenue curve.9.The average cost of making 10 cakes is $2.80. The average cost of making 11cakes is $3.00. The marginal cost of the 11th cake is:___ a.$0.20.___ b.$2.00.___ c.$3.00.___ d.$5.00.10.If a firms production process exhibits constant returns to scale for all levels ofoutput, then the firms long-run average cost will be:___ a.horizontal.___ b.positively sloped.___ c.negatively sloped.___ d.U-shaped.411.A firm in a perfectly competitive market has no control over price because:___ a.the government imposes price ceilings on the products produced inperfectly competitive industries.___ b.there are only a few firms in the industry.___ c.each firm is producing an identical good.___ d.the market demand for products produced is perfectly elastic.12.Which of the following is not a basic characteristic of pure competition?___ a.considerable nonprice competition___ barriers to the entry or exodus of firms___ c.a standardized or homogeneous product___ d.a large number of buyers and sellers13.Pure monopoly means:___ a.any market wherein the demand curve to the firm is downsloping.___ b.a standardized product being produced by many firms.___ c.a single firm producing a product for which there are no closesubstitutes.___ d.a large number of firms producing a differentiated product.14.Price discrimination refers to:___ a.selling a given product for different prices at two different points intime.___ b.any price above that which is equal to a minimum average total cost.___ c.the difference between the prices a purely competitive seller and apurely monopolistic seller would charge.___ d.the selling of a given product at different prices which do not reflectcost differences.15.Monopolistic competition is characterized by:___ a.few dominant firms and low entry barriers.___ b.large number of firms and substantial entry barriers.___ c.large number of firms and low entry barriers.___ d.few dominant firms and substantial entry barriers.16.Monopolistic competition means:___ a.a market situation wherein competition is based entirely on productdifferentiation and advertising.___ b.a large number of firms producing a standardized or homogeneousproduct.___ c.many firms producing differentiated products.___ d.a few firms producing a standardized or homogeneous product.517.A monopolistically competitive industry combines elements of bothcompetition and monopoly. It is correct to say that the competitiveelement results from:___ a.product differentiation and the monopolistic element from high entrybarriers.___ b.a relatively large number of firms and the monopolistic elementfrom product differentiation.___ c.a perfectly elastic demand curve and the monopolistic element fromlow entry barriers.___ d.a highly inelastic demand curve and the monopololistic elementfrom advertising and product promotion.18.In the long run new firms will enter a monopolistically competitive industry:___ a.provided economies of scale are being realized.___ b.even though losses are incurred in the short run.___ c.until minimum average total cost is achieved.___ d.until economic profits are zero.19.Monopolistically competitive firms:___ a.realize normal profits in the short run but losses in the long run.___ b.tend to endure persistent losses in both the short run and long run.___ c.may realize either profits or losses in the short run, but tend torealize a normal profit in the long run.___ d.persistently realize economic profits in the short run and long run.20.When suppliers are rent-seeking they___ a.use the present value formula to determine what the values of flowsof money are.___ b.use the present value formula to determine the value of annuities.___ c.attempt to restrict supply to increase the price they get.___ d.attempt to tax land.4Essay Part III. (8 Points Each)1.What are the assumptions of perfect competition?2.Where does the marginal cost curve intersect the average total cost andaverage variable cost curves? Explain why the relationship betweenmarginal cost and average costs determines the firms profits and thefirms shutdown point.Part IV. Complete the following table (18 Points):PriceQuantity DemandedTotal Revenue200____________182____________164____________146____________128Marginal Revenue____________________________________________________________5Part V. Matching (3 Points Each)____Price Discrimination____Cartel____Monopolistic Competition____Payoff Matrix____Oligopoly____Zero Profit Condition____Prisoners Dilemma____Market Models or Market Structure____Game Theory____CollusionA. A well-known game that nicely demonstrates the difficulty of cooperativebehavior in certain circumstances. It involves two people and their affinity tocheat.B. A box that contains the outcomes of a strategic game under variouscircumstances.C. A market structure with a few independent firms.D. A market structure in which many firms sell differentiated products.E. The general term for the physical characteristics of the market within whichfirms interact.F. The name for the application of economic principles to interdependentsituations.G. In the long run, there are no economic profits.H. A combination of firms that act like a single firm.I. The general term for an agreement between two or more producers to restrictoutput so as to increase prices and profits.J. To charge different prices to different individuals.


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