Quiz_130 - 56...

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Unformatted text preview: 56) For a profit-maximizing monopolistically competitive firm, for the last unit sold, the marginal cost of production is less than the marginal benefit received by a customer from the purchase of that unit. Answer: True 56) False Diff: 1 Page Ref: 435-436/435-436 Topic: Short-Run Profit Maximization Learning Outcome: Micro 15: Discuss the role of differentiation in monopolistic competition in comparison to other market conditions AACSB: Reflective Thinking 57) Consumers in a monopolistically competitive market do not receive any consumer surplus because the price paid for the product exceeds the marginal cost of production. Answer: True 57) False Diff: 2 Page Ref: 435-436/435-436 Topic: Short-Run Profit Maximization Learning Outcome: Micro 15: Discuss the role of differentiation in monopolistic competition in comparison to other market conditions AACSB: Reflective Thinking 58) Assume that price exceeds average variable cost over the relevant range of demand. If a monopolistically competitive firm is producing at an output where marginal revenue is $111.11 and marginal cost is $118, then to maximize profits the firm should increase its output. Answer: True False Diff: 2 Page Ref: 435-436/435-436 Topic: Short-Run Profit Maximization Learning Outcome: Micro 15: Discuss the role of differentiation in monopolistic competition in comparison to other market conditions AACSB: Reflective Thinking SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question. 59) Arturo runs a Taco Bell franchise. He is selling 250 Gordita Supremes per week at a price of $2.75. If he lowers the price to $2.70, he will sell 251 Gordita Supremes. What is the marginal revenue of the 251st Gordita Supreme? If selling the extra Gordita Supreme adds $0.20 to Arturoʹs costs, what will be the effect on his profit from selling 251 Gordita Supremes instead of 250? 59) Answer: The marginal revenue of the 251st Gordita Supreme is ($2.70 × 251) - ($2.75 × 250) = -$9.80. If selling the extra Gordita Supreme adds $0.20 to Arturoʹs costs, and selling 1 extra Gordita Supreme decreases his total revenue by $9.80, his profit will decrease by $9.80 + $0.20 = $10.00. Diff: 2 Page Ref: 435-436/435-436 Topic: Profit in the Short Run Learning Outcome: Micro 15: Discuss the role of differentiation in monopolistic competition in comparison to other market conditions AACSB: Analytic Skills 60) Central Grocery in New Orleans is famous for its muffaletta, a large round sandwich filled with deli meats and topped with a tangy olive salad. Suppose the following table represents cost and revenue data for Central Grocery. Muffalettas Price Sold per (P) Day 0 $15 Total Revenue (TR) $0 Marginal Revenue (MR) --- Total Marginal Average Profit Cost (TC) Cost (MC) Total Cost (ATC) $12 -- -- -$12 19 60) 58) 1 2 3 4 5 6 7 8 9 10 14 13 12 11 10 9 8 7 6 5 14 26 36 44 50 54 56 56 54 50 $14 12 10 8 6 4 2 0 -2 -4 18 20 21 23 26 30 35 42 52 78 $6 2 1 2 3 4 5 7 10 16 $18.00 10.00 7.00 5.75 5.20 5.00 5.00 5.25 5.70 7.80 -4 6 15 21 24 24 21 14 2 -28 Illustrate this data by graphing the demand, MR, MC, and ATC curves. Identify the profit-maximizing price and quantity, and show the area representing the total profit received by Central Grocery. Answer: Diff: 2 Page Ref: 435-436/435-436 Topic: Short-Run Profit Maximization Learning Outcome: Micro 15: Discuss the role of differentiation in monopolistic competition in comparison to other market conditions AACSB: Analytic Skills 20 Figure 13-5 Figure 13-5 shows cost and demand curves for a monopolistically competitive producer of iced -tea. 61) Refer to Figure 13-5. to answer the following questions. a. What is the profit-maximizing output level? b. What is the profit-maximizing price? c. At the profit-maximizing output level, how much profit will be realized? d. Does this graph most likely represent the long run or the short run? Why? 61) Answer: a. The profit-maximizing output level is 22. b. The profit maximizing price is $16. c. The profit is $88. d. Since the firm is making a profit, this most likely represents the short run. Diff: 2 Page Ref: 435-436/435-436 Topic: Short-Run Profit Maximization Learning Outcome: Micro 15: Discuss the role of differentiation in monopolistic competition in comparison to other market conditions AACSB: Analytic Skills MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 62) A monopolistically competitive industry that earns economic profits in the short run will A) experience the exit of existing firms out of the industry in the long run. B) continue to earn economic profits in the long run. C) experience the entry of new rival firms into the industry in the long run. D) experience a rise in demand in the long run. Answer: C Diff: 1 Page Ref: 437/437 Topic: Monopolistic Competition in the Long Run Learning Outcome: Micro 15: Discuss the role of differentiation in monopolistic competition in comparison to other market conditions AACSB: Reflective Thinking 21 62) 63) In the long run, if price is less than average cost, A) there is an incentive for firms to exit the market. B) there is no incentive for the number of firms in the market to change. C) there is profit incentive for firms to enter the market. D) the market must be in long-run equilibrium. 63) Answer: A Diff: 1 Page Ref: 439/439 Topic: Monopolistic Competition in the Long Run Learning Outcome: Micro 15: Discuss the role of differentiation in monopolistic competition in comparison to other market conditions AACSB: Reflective Thinking 64) A monopolistically competitive firm that is earning profits will, in the long run, experience all of the following except A) a decrease in demand for its product. B) demand for the firmʹs product becomes more elastic. C) new rivals entering the market. D) a decrease in the number of rival products. 64) Answer: D Diff: 2 Page Ref: 437-438/437-438 Topic: Monopolistic Competition in the Long Run Learning Outcome: Micro 15: Discuss the role of differentiation in monopolistic competition in comparison to other market conditions AACSB: Reflective Thinking 65) Assuming that the total market size remains constant, a monopolistically competitive firm earning profits in the short run will find the demand for its product decreasing in the long run because A) new entrants into the market are more likely to have cutting edge products. B) its costs of production rises. C) some of its customers have switched to purchasing the products of new entrants in the market. D) as the firm raises its price in the long run, it will lose some customers to new entrants in the market. Answer: C Diff: 2 Page Ref: 437-438/437-438 Topic: Monopolistic Competition in the Long Run Learning Outcome: Micro 15: Discuss the role of differentiation in monopolistic competition in comparison to other market conditions AACSB: Reflective Thinking 22 65) ...
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