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# Chapter _11 12 13 Quiz KEY

Course Number: ECONOMICS 2345, Spring 2010

College/University: York University

Word Count: 1021

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Chapter#11,12and13QUIZ 1. In a perfectly competitive industry the market price is \$25. A firm is currently producing 10,000 units of output; average total cost is \$28, marginal cost is \$20, and average variable cost is \$20. The firm should a. b. Raise price because the firm is losing money. Keep output the same because the firm is producing at minimum average variable cost. Produce more because the next unit of...

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a Chapter#11,12and13QUIZ 1. In perfectly competitive industry the market price is \$25. A firm is currently producing 10,000 units of output; average total cost is \$28, marginal cost is \$20, and average variable cost is \$20. The firm should a. b. Raise price because the firm is losing money. Keep output the same because the firm is producing at minimum average variable cost. Produce more because the next unit of output increases profit by \$5. Produce less because the next unit of output decreased profit by \$3. Shut down because the firm is losing money C ___ c. d. e. Questions 2-3 refer to the following figure: The graph shows demand and marginal cost for a perfectly competitive firm. 2. D a. ____ c. e. increase, \$3. decrease, \$1. decrease, \$2. b. d. ncrease, \$2. increase, \$1. If the firm is producing 100 units of output, increasing output by one unit would ______ the firm's profit by ______. 3. B If the firm is producing 300 units of output, decreasing output by one unit would ______ the firm's profit by ______. decrease, \$2. increase, \$3. increase, \$5. b. d. increase, decrease, \$5. \$2. a. ___ c. e. 4. E A competitive firm will maximize profit by producing the level of output at which: a. b. The last unit of output produced adds the same amount to total revenue as to total cost. The additional revenue from the last unit of output produced exceeds the additional cost of the last unit by the largest amount. The firm's total revenue exceeds total cost by the largest amount. Both a and b. Both a and c. ___ c. d. e. 5. D Which of the following is NOT a condition of a perfect competition: Products produced by rival firms are perfect substitutes. Any individual firm cannot affect market supply. Unrestricted entry and exit. Industry sales are small. Each firm has complete knowledge about production and prices a. b. ___ c. d. e. 6. D Which of the following is a characteristic of a monopoly market? One firm is the only supplier of a product for which there are no close substitutes. Entry into the market is blocked. The firm can influence market price. All of the above. a. b. ___ c. d. 7. C In a monopoly market, Other firms have no incentive to enter the market. Profits will always be positive because the firm is the only supplier in the market. The demand facing the firm is downward-sloping because it is the market demand. a and b. None of the above. a. b. ___ c. d. e. 8. A monopolist E a. b. ___ c. d. e. 9. E a. b. ___ c. d. e. 10. A A firm has market power because it produces a differentiated product. A firm earns economic profits in the long run because it has market power. There are a large number of firms. Both a and b. Both a and c. Can raise its price without losing any sales because it is the only supplier in the market. Can earn a greater than normal rate of return in the long run. Always charges a price that is higher than marginal revenue. Both a and b. Both b and c In a monopolistically competitive competition market, Monopolistic is similar to perfect competition in that: There are a large number of firms. Firms earn economic profits in the long run. Firms face downward-sloping demand curves. Both a and b. All of the above a. b. ___ c. d. e. 11. A monopoly is producing a level of output at which price is \$80, marginal revenue is \$40, average total cost is \$100, marginal cost is \$40, and average fixed cost is \$10. In order to maximize profit, the firm should Produce more. Produce less. b. d. Keep output the same. Shut down. D a. ___ c. 12. A A profit-maximizing firm with market power will always produce a level of output where Demand is elastic. Demand is inelastic. Price is greater than average total cost. Marginal revenue is greater than average total cost a. b. ___ c. d. Use the following figure to answer the questions 13-15. The figure shows the demand and cost curves facing a firm with market power in the short run. 13. A The profit-maximizing level of output is 60 units. 80 units. 100 units. b. d. 70 units. 90 units. a. ___ c. e. 14. D The firm will sell its output at a price of \$2. \$3.75. \$6. b. d. \$3. \$5. a. ___ c. e. 15. B The firm earns profits of \$75. \$150. \$300. b. d. \$120. \$180. a. ___ c. e. 16. E In an oligopoly market, A firm must lower price in order to sell more output. Each firm faces a demand curve that depends on how the firm's rivals behave. A few firms account for a large portion of industry sales. Both a and b. All of the above. a. b. ___ c. d. e. 17. A Oligopolists face interdependent profits because There are few firms in the market. Industry sales are large. b. d. The product is differentiated. All of the above. a. ___ c. 18. A Actions taken by oligopolists to plan for and react to actions of rival firms represent Strategic behavior. Cooperative behavior. All of the above b. d. Interdependence. Game theory. a. ___ c. e. 19. d A conditional strategic move, such as a threat or promise, can be credible only if a. Rivals believe the manager making the threat or promise can be trusted to follow through on any commitment, threat, or promise that he or she makes. The strategic move harms rivals. It can increase each firm's payoff. When the time comes to carry out the threat or promise, fulfilling the threat or promise is in the best interest of the firm making the threat or promise. None of the above. b. ___ c. d. e. 20. If incumbent firm Dell threatens potential new entrant Rising Star with the threat, "If you enter this market, we will lower our price and keep it low until you are driven out of the market," then a. b. Rising Star would never go ahead and enter if Dell has a cost advantage over Rising Star. Rising Star's decision to enter will be unaffected by the threat if the threat is not credible. Dell is making a strategic move designed to increase its profits at the expense of D ___ c. d e. Rising Star. Both b and c. All of the above

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