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__________________________ Name: Date: _____________ 1. To economists the main difference between the short run and the long run is that: A) the law of diminishing returns applies in the long run, but not in the short run. B) in the long run all resources are variable, while in the short run at least one resource is fixed. C) fixed costs are more important to decision making in the long run than they are in the short run. D) in the short run all resources are fixed, while in the long run all resources are variable. Use the following to answer question 2: Answer the next question(s) on the basis of the following output data for a firm. Assume that the amounts of all nonlabor resources are fixed. Number of workers 0 1 2 3 4 5 6 Units of output 0 40 90 126 150 165 180 2. Refer to the above data. Average product is at a maximum when: A) five workers are hired. B) four workers are hired. C) three workers are hired. D) two workers are hired. 3. If the marginal-cost curve lies below the average-variable-cost curve, the averagevariable-cost curve must be falling. A) True B) False Page 1 Use the following to answer question 4: 4. Refer to the above diagram. If labor is the only variable input, the average product of labor is at a: A) minimum at point b. B) maximum at point b. C) maximum at point a. D) maximum at point c. Use the following to answer question 5: 5. Refer to the above diagram. For output level Q, per unit costs of B are: A) unobtainable and imply the inefficient use of resources. B) unobtainable, given resource prices and the current state of technology. C) obtainable, but imply the inefficient use of resources. D) obtainable and imply least-cost production of this output. Page 2 6. A firm's economic profit is usually higher than its accounting profit. A) True B) False 7. A natural monopoly exists when: A) unit costs are minimized by having one firm produce an industry's entire output. B) several formerly competing producers merge to become the only firm in an industry. C) short-run average total cost curves are tangent to long-run average total cost curves. D) minimum efficient scale is attained at a small level of output. 8. Because the equilibrium position of a purely competitive seller entails an equality of price and marginal costs, competition produces up to an efficient allocation of economic resources. A) True B) False 9. Assume that a decline in consumer demand occurs in a purely competitive industry which is initially in long-run equilibrium. We can: A) predict that the new price will be greater than the original price. B) predict that the new price will be less than the original price. C) predict that the new price will be the same as the original price. D) not compare the original and the new price without knowing about cost conditions in the industry. 10. Assume for a competitive firm that MC = AVC at $12, MC = ATC at $20, and MC = MR at $16. This firm will: A) realize a profit of $4 per unit of output. B) maximize its profit by producing in the short run. C) minimize its losses by producing in the short run. D) shut down in the short run. 11. For a purely competitive seller, price equals: A) average revenue. B) marginal revenue. C) total revenue divided by output. D) all of the above. Page 3 12. Which of the following statements is correct? A) Economic profits induce firms to enter an industry; losses encourage firms to leave. B) Economic profits induce firms to leave an industry; profits encourage firms to leave. C) Economic profits and losses have no significant impact on the growth or decline of an industry. D) Normal profits will cause an industry to expand. 13. A purely competitive firm is precluded from making economic profit in the long run because: A) it is a "price taker." B) its demand curve is perfectly elastic. C) of unimpeded entry to the industry. D) it produces a differentiated product. 14. A firm finds that at its MR = MC output, its TC = $1000, TVC = $800, TFC = $200, and total revenue is $900. This firm should: A) shut down in the short run. B) produce because the resulting loss is less than its TFC. C) produce because it will realize an economic profit. D) liquidate its assets and go out of business. 15. Which of the following is characteristic of a pure monopolist's demand curve? A) Average revenue is less than price. B) Its elasticity coefficient is 1 at all levels of output. C) Price and marginal revenue are equal at all levels of output. D) It is the same as the market demand curve. 16. Large minimum efficient scale of plant combined with limited market demand may lead to: A) natural monopoly. B) patent monopoly C) government franchise monopoly. D) shared monopoly. 17. In the short run a pure monopolist: A) always earns an economic profit. B) always earns a normal profit. C) always realizes a loss. D) may realize an economic profit, a normal or profit, a loss. Page 4 Use the following to answer question 18: 18. Refer to the above diagrams. With the industry structure represented by diagram: A) (A) there will be allocative inefficiency. B) (A) economic profit can persist in the long run. C) (B) output will be less than in diagram (A). D) (B) output will be the same as in diagram (A). 19. A monopolistic firm has a sales schedule such that it can sell 10 prefabricated garages per week at $10,000 each, but if it restricts its output to 9 per week it can sell these at $11,000 each. The marginal revenue of the tenth unit of sales per week is: A) -$1,000. B) $9,000. C) $10,000. D) $1,000. 20. What do economies of scale, the ownership of essential raw materials, and patents have in common? A) They must all be present before price discrimination can be practiced. B) They are all barriers to entry. C) They all help explain why a monopolist's demand and marginal revenue curves coincide. D) They all help explain why the long-run average cost curve is U-shaped. 21. For a pure monopolist marginal revenue is less than price because: A) the monopolist's demand curve is perfectly elastic. B) the monopolist's demand curve is perfectly inelastic. C) when a monopolist lowers price to sell more output, the lower price applies to all units sold. D) the monopolist's total revenue curve is linear and slopes upward to the right. Page 5 22. In long-run equilibrium a monopolistically competitive producer achieves: A) neither productive efficiency nor allocative efficiency. B) both productive efficiency and allocative efficiency. C) productive efficiency, but not allocative efficiency. D) allocative efficiency, but not productive efficiency. 23. The demand curve of a monopolistically competitive producer is: A) less elastic than that of either a pure monopolist or a pure competitor. B) less elastic than that of a pure monopolist, but more elastic than that of a pure competitor. C) more elastic than that of a pure monopolist, but less elastic than that of a pure competitor. D) more elastic than that of either a pure monopolist or a pure competitor. 24. Three major means of collusion by oligopolists are: A) cartels, tacit understandings, and price leadership. B) market sharing, mutual interdependence, and product differentiation. C) cartels, kinked-demand pricing, and product differentiation. D) tacit understandings, P = MC pricing, and mutual interdependence. 25. The excess capacity problem associated with monopolistic competition implies that fewer firms could produce the same industry output at a lower total cost. A) True B) False 26. A significant benefit of monopolistic competition compared with pure competition is: A) less likelihood of X-inefficiency. B) improved resource allocation. C) greater product variety. D) stronger incentives to achieve economies of scale. 27. The term oligopoly indicates: A) a one-firm industry. B) many producers of a differentiated product. C) a few firms producing either a differentiated or a homogeneous product. D) an industry whose four-firm concentration ratio is low. Page 6 28. In long-run equilibrium, the price charged by the monopolistically competitive firm: A) must be less than ATC. B) must be more than ATC. C) may be either equal to ATC, less than ATC, or more than ATC. D) will be equal to ATC. Use the following to answer question 29: 29. Refer to the above diagram where the numerical data show profits in millions of dollars. Beta's profits are shown in the northeast corner and Alpha's profits in the southwest corner of each cell. If Alpha and Beta engage in collusion, the outcome of the game will be at cell: A) A. B) B. C) C. D) D. Use the following to answer question 30: 30. Refer to the above diagrams, which pertain to monopolistically competitive firms. A short-run equilibrium entailing economic profits is shown by: A) diagram a only. B) diagram b only. C) diagram c only. D) both diagrams b and c. Page 7 31. Oligopolistic firms engage in collusion to: A) minimize unit costs of production. B) realize allocative efficiency, that is, the P = MC level of output. C) earn greater profits. D) increase production. Use the following to answer question 32: Answer the next question(s) on the basis of the following demand and cost data for a specific firm: (1) Price $11 9.99 9 8 7.10 6 5.15 Demand Data (2) Price $10 8.85 8 7 6.10 5 4.15 Cost Data (3) Quantity 6 7 8 9 10 11 12 Output 6 7 8 9 10 11 12 Total cost $61 62 64 67 72 79 86 32. If columns (1) and (3) of the demand data shown above are this firm's demand schedule, the profit-maximizing price will be: A) $9. B) $7. C) $11. D) $6. Page 8 Answer Key 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. 32. B D A B D B A A D C D A C B D A D C D B C A C A A C C D A B C A Page 9

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