Exam 3 - ‘EvQ/Sél Eva/v2) Econ 2103 Q) A, Exam 3 —...

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Unformatted text preview: ‘EvQ/Sél Eva/v2) Econ 2103 Q) A, Exam 3 — Spring 2011 1. Which of the following are key characteristics of economic profit? a. It includes implicit costs, such as wages foregone and explicit costs, such as ‘7 materials and capital b. It is behavioral in that individuals and firms will pursue the activity with the greatest economic profit \/ c. It is the same as the accounting profit defined and used in other courses d. All ofthe above A and B only 2. Suppose Jon and Randy are ice cream vendors and meet at their trade association's annual conference. When Jon hears that Randy made $115,000 last year he says, "You should really think about coming out west. Last year I made $235,000.” Randy politely declines and opts to stay in his home state. From this, we can conclude Randy does not seek to maximize economic profit V/ (5:) Randy recognizes that there are implicit costs to him of moving out west and staying in his home state does indeed maximize economic profit c. The costs oflivingwlower in Randy’s home state df Randy is only concerned with accounting profit 3. Which of the following industries are typically characterized by many firms? Perfect Competition Oligopoly Monopolistic Competition ’ yd?” A and B only @ A and C only 4. In which of the following markets is advertising to promote product differentiation most (Rik essential? a. Perfect competition b. Monopoly c. Oligopoly Monopolistic Competition e. All of the above 5. When making price and production decisions, if a firm factors into its own decisions how a rival firm might respond and what impact that response would have on their demand curve, the firms are most likely in what type of market? a. Perfect Competition b. Monopoly (c) Oligopoly d. Monopolistic Competition 6. In a market served by a two-firm competing Oligopoly, the market price will be than the monopolist price and than the perfect competition price. a’. Greater; greater K Greater; less c. Less; less @ Less; greater 7. In which of the following markets is a cartel most likely to form? a. Perfect Competition \/ b. Monopoly @ Oligopoly d. Monopolistic Competition 8. All firms maximize profits by producing where (5) MR = MC b. MR = ATC ‘/ c. MP = MC d. MPPL = AVC 9. Firm profit can be calculated as TR — TC b. [P — ATC)*Q 9 c. P*Q d. All of the above Ce) A and B only 10. Suppose a firm is currently producing 175 units of output and selling their output for a price of$20 per unit. The marginal revenue generated from the production and sale ofthe 175th unit is $13 and the marginal cost ofproducing the 17th unit is $18. This firm should a. Continue producing at the current production level J Decrease production to the profit-maximizing level c. Increase production to the profit-maximizing level d. All of the above Use the following scenario to answer the subsequent questions. A perfectl com etitive firm is currently producing 100 ‘units of output that sales in the yuan-.1» 1mm a.» marketplace for $9 per unit. The marginal revenue generated from the production and sale of the 1.99F‘ERDLLL§§;39 and the marginalsgst of producing the 1.99910.nit.i.§.,$39- When it produces 100 units, the firm faces fixed costs of $2000 and total variable costs of $1750. .. "v wane . 11. The firm described above is a. Earning positive economic profits J b. Earning negative economic profits c. Maximizing profits (.3? Both B and C are correct 12. The firm described above should a; Continue to operate in the short run «ma 7 5: Shut down in the short run A % Increase its price /et. Increase its production Suppose a permfwegtlyvcgmpetitive firm operates in a market where the market supply and demand conditions are given by: Demand Supply P=600—3Q P=50+2Q :;:>v 2?”; 13. What is the market equilibrium price? w P m a: $250 (13.7 $270 5? .m . \/ c. $290 ”’ ’ f) 01. $310 ’ I 14. How would you describe the demand curve facing a perfectly competitive firm in this market (referring to the previous equations)? / a. b. c. d. Perfectly elastic at the market price Perfectly inelastic at the market quantity Unit elastic at the market equilibrium All of the above None ofthe above 15. In perfectly competitive markets, do firms strategically choose how much to produce, what price to charge, or both? {59 Only how much to produce b. Only what price to charge c. d. Both Neither \\ x Suppose a perfectly competitive firm operating in the market described by the equations above faces the costs presented in the following table. Complete the table (8 points), then use the information to answer the subsequent questions. Price Quantity Total Total Total Marginal Total Marginal Profit Fixed Variable Costs Costs Revenue Revenue Costs Costs 270 0 175 0 175 0 270 -175 270 1 175 780 955 780 270 270 -685 270 2 175 820 995 40 540 270 -455 270 3 175 920 1095 100 810 270 -285 270 4 175 1050 1225 130 1080 270 -145 270 5 175 1320 1495 270 1350 270 -145 270 6 175 1670 1845 350 1620 270 -225 16. How many units should the firm produce to maximize profits? 17. 18 \/ a. b. C. d. e. a. b. d. e. . In the long run, this firm should expect rival firms to fly cf (1. 0 O‘U'l>{>-N $0 ‘ $1620 $-145 $225 $270 Enter the market driving down the market price Exit the market driving up market price Individually and independently decide to charge a higher price, regardless of what the market does All of the above At its optimal production level, what are the firm’s maximum profits? 19. In the long run, this firm can expect to a. Make zero economic profits © Make positive economic profits A c. Make negative economic profits v p d; All of the above ,4, a r‘ 1W" " 1k ‘7 ’ :"i 1/ Suppose a monopolist faces the following market and production conditions: Demand m Total Cost N J) 3) __ 2,; _ -; P=600—3Q 80+2Q 80Q+Q2 U ‘ 1 tag-:0 20. At the firm’s optimal production and price combination, what are the firm's maximum “ profits? r r “ $16900 ,, can .2. “~30 -* W” J 8 \/ b. $26,325 ; 7; 2 ‘i: j :z p - h A “i Q c. $8,475 a 2.0 w g » d. None ofthe above 21. Is the monopolist’s production level identified in the previous question socially efficient? a. Yes, it maximizes profits b. No, the monopolist fails to produce units of output for which the consumer is willing w to pay a price that exceeds the firm’s marginal cost of production c. Yes, unregulated and free markets are aIWays socially desirable d. All of the above 22. What can the monopolist described above expect to happen in the long run? /a. Firms will enter the market driving down market prices and firm profits /b. Firms will exit the industry leaving the monopolist with greater market share /@ Barriers to entry will prevent rival firms from entering the market and offer a source of protection against competition eroding the firm’s profits 431. All of the above 23. Suppose instead that the firm above is regulated by a government agency and forced to behave in a competitive fashion. The firm will now produce __ units of output the sale at a price of $__ per unit. D /, ML \/ a. 50; $450 b. 130; $210 104; $288 if.) None ofthe above > Bonus [5 Points] — Draw the appropriate graph to illustrate the equations and answers to questions 20-23. For full credit, your graph should include all relevant information as well as the following curves: Demand, Marginal Revenue, Mflginalqost, and Average Total Cost. ...
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This note was uploaded on 01/10/2012 for the course ECON 2013 taught by Professor Staff during the Fall '11 term at Oklahoma State.

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Exam 3 - ‘EvQ/Sél Eva/v2) Econ 2103 Q) A, Exam 3 —...

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