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fin02w - Econ 1 Final Examination Fall Quarter 2002 1. A...

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Econ 1 Final Examination Fall Quarter 2002 1. A price-taking firm finds that MC = MR when 3,000 units are produced. The firm’s fixed costs are $4,000. When 3,000 units are produced, the firm’s variable costs are $5,000. If the product sells at a price of $2, then we predict that the firm would: a) Produce more than 3,000 units and earn a profit b) Shut down and lose $9,000 c) Shut down and lose $4,000 d) Produce 3,000 units for a loss of $3,000 e) Produce 3,000 units for a loss of $2,000 2. Under perfect competition, which of the following is true? a) Average total cost is equal to the difference between fixed costs and variable costs b) Marginal cost is equal to marginal revenue c) Average total cost is equal to total cost divided by price d) Marginal revenue is equal to price e) Marginal cost is equal to the ratio of average total cost and quantity 3. Which of the following is a correct explanation about a monopolistic firm? a) A monopolist gets above normal profit because it produces at a point where marginal revenue exceeds marginal cost. b) A monopolist’s marginal revenue curve is everywhere less than the demand curve. c) A monopolist produces at the point where average total cost is at its minimum, thus earning supernormal profits. d) Monopolistic environments always ensure supernormal profits. e) A monopolist that is protected by a patent earns a supernormal profit because its marginal cost curve is different from that of perfectly competitive firms. 4. Suppose there are two types of consumers with different elasticities of demand for a good produced by a monopolistic firm. Which of the following situations would you likely expect? a) The firm will charge the same price to both types of consumers, since monopolists are guaranteed supernormal profit. b) The firm will charge a higher rate to the consumers with higher elasticity. c) The firm will charge a higher rate to the consumers with the flatter demand curve. d) Cannot answer with the above information because price discrimination is not based on a consumer’s elasticity of demand for the product. e) None of the above. 5. Suppose a monopolist’s productivity shows constant returns to scale and faces a linear downward-sloping demand curve. Suppose the average total cost curve intersects the demand curve at $8 and the quantity demanded was 4000 units. What are the firm’s total costs at the production level maximizing its profit? a)
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fin02w - Econ 1 Final Examination Fall Quarter 2002 1. A...

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