Exam 2

Exam 2 - NAME PID Information for questions 1-4 Figure 1 shows the market demand marginal revenue marginal cost and average cost for a monopolist

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NAME: _____________________ PID#: _____________________ Information for questions 1 -4. Figure 1 shows the market demand, marginal revenue, marginal cost, and average cost for a monopolist. 1. The profit maximizing monopolist faced with the situation in Figure 1 will charge a price of: a) 5 b) 8 c) 9 d) 10 e) 15 2. From Figure 1, one can tell from the graph that a) The monopolist has a total revenue equal to 250 b) The monopolist has an economic profit of 97.5 c) The total cost equal to 75 d) none of the above 3. The government can make the monopolist to earn zero profit by setting the price at “fair price”. Which one of the followings is fair price? a) 10 b) 9 c) 8.5 d) 8 e) 5 4. The market shown in Figure 1 would generate the largest amount of social welfare (assume there are no consumption or production externalities) if a) Consumers were charged a price 8.5 of and the quantity produced was 15 b) Consumers were charged a price 9 of and the quantity produced was 22 c) Consumers were charged a price 10 of and the quantity produced was 20 d) Consumers were charged a price 8 of and the quantity produced was 24 e) Consumers were charged a price 8 of and the quantity produced was 18 5. If the income effect dominates in your labor supply decision, you a) increase your hours worked as your wage rate rises b) decreases your hours worked as your wage rate rises c) decreases your hours worked no matter what d) none of the above Figure 1
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6. The demand curve for a monopolistic competitor slopes downward because a) demand drops to zero after a slight price increase. b) there are close but not perfect substitutes for the product. c) customers have no loyalty to the product. d) the product is undifferentiated. 7. Which of the following will occur if a natural monopoly is broken into two smaller firms? a) The price will drop. b) Industry output will increase. c) Production costs will increase. d) Industry output will decrease. 8. The Rand Corporation estimates that the external costs imposed by alcohol consumption to be 48 cents per ounce consumed. Taxes on alcohol amount to 23 cents per ounce consumed. This information suggests: a) Alcohol is overconsumed b) Alcohol taxes should be raised c) Alcohol taxes should be lowered d) Both a and b e) Both a and c 9. Which of the following goods are counted as investment (I)? a) Purchases of new homes b) Purchases of new plants and machinery c) Purchases of consumer durable goods such as cars, refrigerators, etc. d)
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Exam 2 - NAME PID Information for questions 1-4 Figure 1 shows the market demand marginal revenue marginal cost and average cost for a monopolist

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