Practice questions final OKHAN

Practice questions final OKHAN - Theory of Production 1....

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Unformatted text preview: Theory of Production 1. [f1 orchard. 7 workers. and 3 tons of fertilizer yield 1.000 bushels of peaches. while 1 orchard. 7 workers. and 4 tons of fertilizer yield 1.300 bushels. a. the average product of labor equals 1.150 bushels. b. the marginal product of labor cannot be calculated. c. the average product of fertilizer equals 1.150 bushels. d. the marginal product of fertilizer cannot be calculated. \Vllfll answering the next five questions (2-6). refer to the following graph. Bicycles (thousands per year) .................. Q \ solo.Ilotoctalaoqouoaloococoon...- O 10 20 30 40 50 60 70 “brkots per Year (given all other Inputs and technology) 2. The marginal product of labor is rising with increased use of labor until a. 10 workers are employed. 20 workers are employed. 30 workers are employed. 40 workers are employed. 9.053" 3. The average product of labor is falling with increased use of labor once a. 10 workers are employed. b. 30 workers are employed. c. 30 workers are employed d. 40 workers are employed. 4. As long as fewer than 30 workers are employed. the average product of labor exceeds the marginal product of labor. the marginal product of labor exceeds the average product of labor. the marginal product of labor is rising. both (a) and (c) are true. 9—05-93 5. Between points 0' and 8. increased use of labor means a. negative marginal product of labor. b. falling average product and falling marginal product of labor. c. marginal product of labor below average product of labor. d. all of the above. 6. 9. Maximum average product of labor corresponds to 9‘.” 53".” point a. point I). point 6. point (1’. An isoquant curve shows a. b. d. A a. b. c. d. all the alternative combinations of two inputs that yield the same maxinulm total product. all the alternative combinations of two products that can be produced by using a given set of inputs fully and in the best possible way. all the alternative combinations of two products among which a producer is indifferent because they yield the same profit. both (b) and (c). negatively sloped isoquant implies products with negative marginal utilities. products with positive marginal utilities. inputs with negative marginal products. inputs with positive marginal products. The Hmrgr'imf mte oftechm'mi substitution is a. b. the rate at which a producer is able to exchange. without affecting the quantity of output produced. a little bit of one input for a little bit of another input. the rate at which a producer is able to exchange. without affecting the total cost of inputs. a little bit of one input for a little bit of another input. the rate at which a producer is able to exchange. without affecting the total inputs used. a little bit of one output for a little bit of another output. a measure of the ease or difficulty with which a producer can substitute one technique of production for another. 10. In the presence of a diminishing marginal rate of technical substitution between labor and capital. output can be kept unchanged only if 9.057.” equal successive sacrifices of capital go hand in hand with ever smaller increases of labor. equal successive sacrifices of capital go hand in hand with ever smaller sacrifices of labor. equal successive increases in labor go hand in hand with ever smaller increases in capital. qual successive increases in labor go hand in hand with ever smaller sacrifices of capital. 1]. Ifthe capital-labor ratio changes from 100 to 150. while the marginal rate of technical substitution between capital and labor changes from 50 to 100. the elasticity of input substitution 9-0.5.” cannot be calculated. remains unchanged. equals 2. equals 0.5. 12. Ifa simultaneous and equal percentage decrease in the use of all physical inputs leads to a larger percentage decrease in physical output. a film’s production function is said to exhibit 9.” 53‘.” decreasing returns to scale. constant returns to scale. increasing returns to scale. diseconomies of scale. 14. 16. 17. 18. 19. 20. . Ifa firm triples all inputs. and output triples as well. the firm is subject to a. constant returns to scale. b. increasing returns to scale. c. economies of scale. (1. both (b) and (c). For a given short-run production function. a. technology is assumed to change as capital stock changes. b. technology is assumed to change as the labor input changes. c. technology is considered to be constant for a given production function relationship. d. technology is assumed to change positively until diminishing retums set in and then it changes in the other direction. . \Wiich is a true statement? a. Decreasing returns to scale and diminishing returns to production are two ways of stating the same thing. b. Increasing returns to scale is a short-inn concept. and diminishing returns to production is a long-iun concept. c. Constant returns to scale is a short-run concept. and decreasing rentrns to scale is a long-run concept. d. All the above are true. e. None of the above is true. An isocost line identifies a. the least costly combination of inputs needed to produce a given level of output. b. the relative prices of inputs. c. the technological relationships among inputs. (1. the rate at which one input can be substituted for another in the production process. The expansion path identifies the least costly combination of inputs required to produce various levels of output. the firm’s demand curves for the inputs. the various combinations of inputs that can be used to produce a given level of output. the least-cost combination of outputs. 9-057.” A tangency point between an isoquant and an isocost line identifies the least costly combination of inputs required to produce various levels of outputs. the various levels of output that can be produced using a given level of inputs. the various combinations of inputs that can be used to produce a given level of output. the least costly combination of inputs required to produce a given level of output. FL.” 53".” A film is employing 100 units of labor and 50 units of capital to produce 200 widgets. Labor costs $10 per unit and capital ‘55 per unit. For the quantities of inputs employed. MPL : 2 and MPK : 5. In this situation. the firm is producing the maximum output possible given the prices and relative productivities of the inputs. could lower its production costs by using more labor and less capital. could increase its output at no extra cost by using more capital and less labor. should use more of both inputs in equal proportions. 9093‘.” Suppose a firm is using two inputs. labor and capital. What will happen if the price of labor falls”? The finn‘s average cost curve will shift downward. The finn‘s marginal cost curve will shift downward. To produce an unchanged output. the firm would use more labor. All of the above. 29-057.” Theory of Production — Answers Theory of Cost 1. In the short 11111. a fmn’s fixed cost is zero. cannot be escaped. can be escaped only by cutting production to zero. is not correctly described by any of the above. 9.057.” 2. When average total cost rises from $10 to $30 as total production rises from 100 to 300 units. average 'ariable cost cannot be calculated. equals $10. equals $20. equals $30. 9-." 9".” When answering the next four questions (3-6). refer to the following graph. Total Cost Dollars per Year Variable Cost Fixed Cost Total Product (mm: per year] La) When total product equals 04. a. variable cost equals BC. b. average variable cost equals BC divided by 04. c. fiX€d cost equals CD. d. all of the above are true. 4. \Vlliffl total product equals 04. the associated marginal cost a. cannot be detennined from this graph. b. exceeds average total cost. c. equals DA divided by GA. d. equals the slope of the variable-cost curve at C. EJI According to this graph. a. marginal cost is positive at all levels or output. b. marginal cost is falling whenever total product rises. c. marginal cost exceeds average total cost at all levels of output. d. all of the above are true. 6. According to this graph. average total cost exceeds marginal cost at all levels of output. average total cost exceeds average variable cost at all levels of output. average fixed cost is the same at all levels of output. average fixed cost exceeds average variable cost when total product equals 0A. 9-." FT.” When answering the next 3 questions (7-9). refer to the graph below: Dollars per Unlt "no"... 5 Total Product 0 f (units per your 7. Line B represents marginal cost. average variable cost. average fixed cost. average total cost. P-P 53"?” 8. The vertical difference. at any level of output. between lines B and C represents marginal cost. average variable cost. average total cost. average fixed cost. 9-.” $75” 9. When output equals Of. a. total cost equals Of times fe. b. fixed cost equals 0f times fe. c. total variable cost equals 0ftiruesfe. d. marginal cost equals ed. 10. At the point where a straight line froru the origin is tangent to the variable-cost cruve marginal cost equals average total cost. marginal cost equals average fixed cost. marginal cost equals average variable cost. average total cost is minimized. P-P 53"?” 11. Ifa pr‘ofit-nmximizing firm‘s marginal product of labor equals 1 ton of output. while the marginal product of capital equals 7' tons of output and the use of capital is priced at $13r per unit. then the price of labor must be $2. the price of labor must be $7. the price of labor must be $11‘r as well. none of the above is true. 9-9???) 12. A firm‘s long-run average-total-cost line is a. identical to its long-run marginal—cost line. b. also its long-run supply curve. c. in fact the average-total-cost curve of the optimal plant. d. tangent to all the curves of short-run average total cost. 13. Average fixed cost is U-shaped. declines over the entire output range. is a long-run concept only. is influenced by diminishing returns to production. is described by none of the above. rip-052‘? 14. If average total cost is 100 for a given output and marginal cost is 70. we then know that average fixed cost is a. 3 0. b. 170. c. 7 0. d. not possible to determine with the information given. 15. If average fixed cost is 40 and average variable cost is 80 for a given output. we then know that average total cost is a. 40. b. 120. c. 80. d. not possible to determine with the information given. 16. The output where diminishing returns to production begin is also the output where a. marginal cost is at a minimmn. b. average total cost is at a minimum. c. average variable cots is at a minimum. d. marginal and average cost intersect. 17. Which of the following statements about marginal cost is incorrect? a. A U-shaped marginal cost curve implies the existence of diminishing returns over all ranges of output. b. When marginal cost equals average cost. average cost is at its minimum. c. In the short run. the shape of the marginal cost curve is due to the law of diminishing marginal returns. (1. When marginal cost is falling. total cost is rising. 18. Which of the following statements about the relationship between marginal cost and average cost is correct? a. TWhen MC is falling. AC is falling. b. AC equals MC and MC’s lowest point. c. When MC exceeds AC. AC must be rising. d. When AC exceeds MC. MC must be rising. 19. The slope of the total variable cost curve equals average variable cost. marginal cost. average cost. marginal physical product. 995‘.” 20. 111 the short 11111. diminishing marginal realms are implied by a. rising marginal co at. b. rising average cost. e. rising average variable cost. d. all of the above. Theory of Cost — Answers Perfect Competition 1. A fun] operating in a perfect market maximizes its profit by adjusting its output price tutti] it exceeds average total cost as much as possible. its output price until it exceeds marginal cost as much as possible. its output until its marginal cost equals output price. its output until its average total cost is minimized. 995‘?” \Wten answering the next 3 questions (2—4). refer to the graph below: Dollars per Unit p - 4 Total Product 0 A B C D (units per year 2. Assuming this firm maximizes profit. it will produce 0A at a price of P4. produce GB at a price of P1. incur a total cost of GC times DC at point I. do all the above. 9-.” CT?” Assuming this firm maximizes profit. it will procure 0A regardless of price. produce 0A only at price of P4. make a zero profit at price Pl (output 0C). make a profit of KL times GB at price P]. L») 9!" $7?” 4. Assuming this firm maximizes profit. it will incur total fixed cost of XL at a price of P1. incur total valiable cost of HC at a price of P1. supply varying quantities in the short run. depending 011 the pricealuantities that one can read off on line E]. make a loss of FM times OB at price P3. 9‘.“ FT?” :JI In the short 11111. no firm operates with a loss. unless a. variable cost equals fixed cost. b. variable cost falls short of fixed cost. c. total revenue covers variable costs. (1. total revenue covers fixed cost. 6. For a fiml operating in a perfect market. its short-11m supply is identical with the rising arm of a. its marginal-cost curve. b. its average-fixed—cost curve. c. its average-total-cost culve. (1. none of the above. 10. 11. A good‘s short-run supply curve is shifted to the right by a. a fall in the goods price. b. a rise in the prices of inputs used to make the good. c. an improvement in the technology of making the good. d. none of the above. Being a price taker in a market means that the seller a. charges each consumer the maximum that she will be3 able to pay for the product. b. has no choice but to charge the equilibrium price that results from the market supply and demand curves. c. takes her price from her average total cost curve. d. sells her products at different prices to different customers. The statement that marginal cost : marginal revenue leads to profit maximization of loss minimization is fine all the time. only in the long run. only if marginal cost is rising at the point of equality. only if average total cost is falling at the point of equality. 9‘.“ PT?” In perfect competition. when economic profits exist in the short run. they are very tenuous because a. costs will inevitably increase and eliminate profit. b. price will fall because market supply will increase. c. firms are driven to increase output in the short run to the point where average total cost will equal price. d. firms are driven in the short 11111 to reduce output until average total cost equals price. When a profit-maximizing firm is at its short-run optimum point. the average cost of the product is at its lowest possible point whether a profit is being made or not. the firm will be shut down if its price is less than the average fixed cost. the profit per unit of output will be at its maximum possible level. all the above will be true. none of the above will be true. rap-.057.» . Ifa firm is producing where its SMC‘ = price and the LMC is less that LAC. then it would do better in the long run by a. increasing output with its existing plant until LMC' equals price. b. increasing plant size until LMC and SMC are identical and equal to price. c. decreasing plant size until LAC. SAC. and price are equal. d. doing nothing because it is already at the long-run profit maximizing point. . The competitive firm maximizes its profit by operating where a. average costs are at a rrrjnirnum. b. total revenue is at a maximum. c. profit per unit is at a maximmn. d. marginal cost equals price. When answering the next 4 questions (14-17). refer to the graph below: TC,TR TC TR [I‘=$|Ul TR'tP= $31 0 E 11‘ (3 Output. 14. Assume that price is $10. The profit maximizing level of output for the firm is a. 0A. b. 0E. c. 0F. d. 0G. 15. At the profit maximizing level of output at a price of $10 the firm is making economic profit. is losing money. is making zero economic profit. none of the above. 9953‘?” 16. When producing the profit-maximizing level of output at a price of $10. total fixed costs are 0A. total profits equal DC average cost equals CG.-"0G. all of the above. 29-2057?” 17. prrice fell to $8. the firm would decrease production to GP and would be operating at a loss. the firm would decrease production to GP and would be earning a normal return. the firm would decrease production to CE where it would break even. the firm would shutdown. 9053‘?” When answering the next 5 questions (18-22). refer to the graph below: Price 18. Assume price is $1 D. The profit iilaxirnizing level of output for the firm is a. 0A where marginal cost just covers AV C. b. OB where average profit per unit is the greatest. c. DC where 111arginal cost equals the $10 price. d. 0K where average cost equals avenge revenue and the firm earns a nonual rate of return. 19. At the profit rimximizing level of output. when price is $10. a. the firm X is earning economic profit. b. profits per unit are the greatest. c. average variable cost equals 2C. (1. all of the above. 20. At output level DC. profit per unit is equal to a. G2. b. ZV. c. ED. (1. GC. 2]. At output level DC. total profits equal a. FHSR. b. OSZC. c. GZSR. d. ORGC. 22. At output level DC. average fixed cost is equal to a. ZV. b. GZ. c. ED. (1. VC. 24. 26. 27. 28. 29. LN CD CL!" :39: . For a competitive firm the demand curve is horizontal coincides with the marginal revenue curve. coincides with the average revenue curve. all of the above. In the short run. if price falls. the firm will respond by 9—0 6‘51) CLO 5-9: shutting down. equating average variable cost to marginal revenue. reducing output along its marginal cost curve as long as marginal revenue exceeds average variable cost. none of the above. . In the short run. a competitive firm's supply curve is its average variable cost curve to the right of the marginal cost culye. its marginal cost cu1ve above the average variable cost curve. its marginal cost curves above its average cost curve. the horizontal summation of the marginal cost curves. In a constant cost competitive industry if price rises above its long-run equilibrium level. which of the following will M occur as the indusz adjusts to a new LR equilibrirun? a. b. c. d. New firms will enter the industry. Economic profit will be eliminated. Input prices will rise. Existing firms will increase production. The term increasing cost industry is used to describe moo-9: a firm with a rising average cost curve. an industry subject to decreasing returns to scale. an industry with a rising marginal cost curve. an industry in which the prices of one or more inputs are bid up as output expands. Along the long-run supply curve. all of the following can valy except goo-9: the level of profits the number of firms in the industry. input prices. the level of input usage. The short-run supply curve for a competitive industry is derived by CLO 5-9: CLO 6‘5» horizontally summing the marginal cost curves for each firm in the industry. horizontally summing the average variable cost curves for each firm in the industry. vertically summing the marginal cost curves for each firm in the indust1y. none of the above. . Generally. supply is more elastic in the long run than in the short run. more elastic in the short run than in the long run. more elastic the more firms in the industry. more elastic the lower the input prices. Perfect Competition — Answers 3.c -a Monopoly 1. In the long 11111. a profit-111aximizing monopoly produces an output volume that a. b. c. d. equates long-run marginal cost with 111arginal revenue. equates long-run average total cost with average revenue. assures pennanent positive profit. is correctly described by both (a) and (c). When answering questions 2-6. refer to the following graph about a monopoly firm: LN [JI Dollars pet Unit Which of the following is true? a. b. c. d. Curve A indicates average total cost. Curve B indicates average total cost. Curve C indicates average fixes cost. Curve D indicates marginal cost. To maximize profit. the firm should a. b. c. d. \Wien it produces its profit-111aximizing output volume. the fnm' s a. b. c. d. When it produces its profit-111aximizing output volume the firm’s 909‘?” When it produces its profit-111aximizing output volume. the fnm‘ s a. b. C. d. shut down at once. produce an output volume of 0d. produce an output volume of 0m. charge a price ofsu. price will be ion. marginal revenue will be fl. total fixed cost will be git multiplied by 03'. marginal cost will be xz. average profit will be equal H. average profit will equal be. average revenue will equal 93'. average revenue will equal up. output will equal 0r. total cost will equal Em multiplied by Our. total cost will equal to multiplied by 0M. total cost will equal 111' multiplied by 011'. Output {millions 01 units pet day) 7. With respect to price elasticity. it is true that monopoly market demand need not be less elastic than market demand in a competitive industry. monopoly firms face less elastic demand than do competitive firms. a monopolist should not produce where demand is inelastic. all the above are correct statements. 9-.” 93‘?” 8. A monopolist will maximize profit where total revenue is maximized. where the slope of the total revenue function equals the slope of the total cost function where average cost is at a minimum. where all the above are true. somewhere other than the solutions listed because none of them is true. rat-LOST.” 9. In the figm‘e below. for the demand curve shown. marginal revenue for the price reduction from a to b can be measured by a. adding 1; + y. b. subtracting x from y. c. measuring only d. subtracting y from X. e. none of the above. L - a b 3’ L I Demand Q 10. If the LMC curve is below the MR curve at the point of output for a monopolist that is making profit. then the firm has too large a plant size. too small a plant size. insufficient knowledge about plant size until he knows his short-run marginal cost. insufficient knowledge about plant size until he lcuows his demand curve. 51.057?” 11. If a monopolist‘ s demand cuive is downward sloping and linear. then its total revenue curve must be a. identical to the demand curve. b. a ray from the origin with a slope equal to price. c. negativer sloped with twice the slope of the demand curve. d. a rising function of output that increases at an increasing rate. e. a rising function of output that increases at a decreasing rate. reaches a maximum. then falls. 12. 14. 16. 17. 18. All of the following are true about a monopolist except a. average and marginal revenue are not the same. b. marginal revenue is greater than price. c. marginal revenue is zero if price elasticity of demand equals 1. d. marginal revenue decreases with increases in output. e. marginal revenue can be negative. . Suppose that an excise tax is imposed on the monopolist‘s product. If the monopolist’s marginal cost is horizontal in the relevant range. which of the following statements must be true'? The price will increase by an amount less than the tax. The price will increase by an amount equal to the tax. The price will increase by an amount greater than the tax. The price may either increase or decrease. An excise tax will have no effect on the price-output decision of a monopolist. 09057.22 Which of the following is not tiue? a. A monopolist typically seeks to maximize profits. b. A monopolist sets price as high as possible. c. A monopolist may engage in adveltising. d. Monopolists price on the elastic portion of their demand curves. e. Profits are not guaranteed even if the firm is a monopolist. Since entry is barred in a monopoly. in the long 11111 the monopolist will a. do nothing since entry will not force an adjustment. b. adjust output but leave the price at the short run profit 111aximizing level. c. adjust price but leave the output at the short 1un profit 1mximizing level. d. adjust both price and output levels to reflect long run scale of plant adjustments. e. set price equal to long run average costs. The cost curves associated with monopolists are a. always different from those faced by perfectly competitive firms. b. always lower than those faced by competitive fmns. c. always higher than those faced by competitive firms. d. always L-shaped rather than U-shaped. e. typically have no relationship to the selling side of the market. If a monopolist had no costs. the best possible price would be where demand is a. infinitely elastic. b. relatively (but not perfectly) elastic. c. unit elastic. d. relatively (but not completely) inelastic. e. completely inelastic. If a monopolist has only fixed costs and chooses that output at which marginal cost equals price. it will a. earn positive economic profits. b. eam zero economic profits. c. incur a loss equal to its variable costs. d. incur a loss equal to its fixed costs. e. cannot tell from the information given. 19. 20. 21. 22. 24. If the monopolist maxinnzes profits when marginal revenue equals marginal cost equals average cost. economic profits must be negative. positive. zero. either (a) or (c). cannot tell from the information given. rip-r357.” A monopolist will discontinue production if a. marginal revenue is less than marginal cost. b. marginal revenue is less than average total cost. c. marginal revenue is less than average fixed cost. d. price is less than average total cost. e. price is less than average variable cost. The supply curve for a monopolist a. is equal to the 111argina1 cost curve above the average variable cost crave. b. is equal to the 111arginal cost curve above the average cost curve. c. cannot be uniquely determined. d. is equal to the average variable cost curve above the marginal cost crave. e. is typically perfectly inelastic. If a monopoly is unable to cover its short-run variable costs. it should shut down. raise price. lower price. increase output. a. b. c. d. e. reduce output. . If the product demand curve and the industiy‘ s cost curves were the same whether the industry operated under conditions of perfect competition or monopoly. what could be said about the price and output under monopoly vis-a-vis the competitive price and output'? price would be the same: output would be lower under monopoly. Output would be the same: price would be higher under monopoly. Price would be the same; output would be lower under perfect competition. Price would be higher and output would be lower under monopoly. Both price and output would be lower under perfect competition. 0.9-9.6.” The conditions necessary for a film to be able to price discriminate include segmentable 111arkets. differences in price elasticity of demand among the segments. the inability of customers to transfer products. all of the above. none of the above. rip-or.” . Price discrimination is illegal. a technique that can improve the firm‘s revenue and profit performance. immoral in most cases. impossible if consumers have perfect information. difficult to administer. rip-r357.” 26. If GM sells cars. as shown in the diagram below. a it will earn positive economic profits. b. it will break even. c. it will suffer a loss equal to its fixed costs. (1. it will suffer a loss equal to its variable costs. e. it should discontinue production. M C ATC AVC AF! CARS Monopoly — Answers fl 1.a . 3.C Imperfect Competition 1. 2. LN UI A nronopolistically competitive market is characterized by all of the following mazpr easy ently. differentiated products. excess capacity. economic profit in the long run. moo-9: An oligopolistic industry can be characterized by all of the following err-rep: many sellers. mutual interdependence economies of scale. a hornogenous product. goo-.2) The kinked demand curve faced by an oligopolist is based on the assumption that rivals will follow a price increase but not a price cut. rivals will follow a price decrease but not a price increase rivals will follow both a price decrease and a price increase. rivals will ignore both a price increase and a price decrease 90:79: A common criticism of the kirrlced demand curve model is that it does not explain the interdependence of the demand curve. it does not explain why costs remain rigid in the face of changing demand. it does not explain how price was determined. none of the above. moo-9: Which of the following does not characterize monopolistic competition? a. Product differentiation. b. Many producers. c. Absence of advertising. d. Some control over price. e. All of the above characterize monopolistic corupetition. Product differentiation gives each seller a small amorurt of monopoly power because a. little or nothing can be said concerning the social desirability or rurdesirability of product differentiation. there can be little substitution between product groups. the products of other firms are not perfect substitutes. the presence of excess capacity greatly reduces ruonopoly power. the ruorropolistic competitor faces a downward sloping deruand cruve. 09-015" A monopolistically competitive firm differs from a perfectly competitive fu‘m in that. rurlike the perfectly competitive fnnr. it a. faces a downward sloping demand curve. can change the characteristics of its product. can vary the price of its product. tends to operate with excess capacity. all of the above. EDP-053‘ 10. 11. 14. One of the differences between a perfectly competitive firm’s long-run equilibrium and the long-run equilibrium of a morropolistically competitive fnm is that a. 09.0.5" LMS = MR under perfect competition. but not under monopolistic competition. SAC : LAC“ under perfect competition. but not under monopolistic competition. 81le = LMC under perfect competition. but not under monopolistic competition. LAC = LMC under perfect competition. but not under monopolistic competition. economic profits are zero under perfect competition. but not under monopolistic competition. In the neighborhood of the long-run equilibrium of a nrorropolistically competitive fnm. average cost will be 09.0579 decreasing. constant. increa sing. at a minimum. either (a) or (c). A conclusion that monopolistic competition will be characterized by excess capacity a. {VP-OFT means that the firm produces less than the profit-maximizing level of output. means that the firm produces more than the profit-maximizing level of output. means that the firm does not operate its plant at the minimum point of the long-run average cost curve. means that the firm does not operate its plant at the minimum point of the long-run marginal cost curve. means that there are too rrrany firms in the industry. The long-11111 equilibrium price charged by the monopolistic competitor is 0909‘.” likely to be lower than the perfect competitor's price. likely to equal long-run marginal cost. likely to exceed long-run average cost so that all fnms are earning positive economic profits. likely to exceed the monopolist“ s price. likely to lie somewhere between the perfect competitor‘s price and the monopolist‘s price. . The firm under monopolistic competition is likely to produce less and set a higher price than under perfect competition because a. 09.057 9‘.” $7?” the firm faces decreasing returns to scale. the firm faces increasing costs. the firm must incur selling expenses. including advertising. the firm operates where marginal revenue equals marginal cost. the firm faces a downward sloping demand curve. . In order to constitute an oligopolistic market structlu‘e there must be a few firms in a given relevant market. there must be a few firms selling in a national market. there must be more than 20 fnms selling in the international market. there must be fewer than 15 fn‘ms in any given market. The key feature of oligopoly is rip-0.51m excess capacity. high profitability. product differentiation. interdependence of firms. the impersonal nature of the market. 15. The basic behavioral assuruption of the kjnlced demand model is 9‘.” $7.” each duopolist assumes that his or her rival‘s price is invariant with respect to his or her own price. each duopolist assumes that his or her rival‘s output is invariant with respect to his or her own output. duopolists recognize their ruutual interdependence and agree to act in unison. each duopolist assumes that if he or she lowers the price. his or her rivals will do the same but that if he or she raises the price. his or her rivals may not follow suit. none of the above. 16. The lcinked demand curve is used to 09-05793 illustrate the difference between pure and differentiated oligopoly. explain the stability of oligopolistic prices. illusn'ate the nature of zero-sum games. explain the prevalence of oligopoly in American industry. illustrate the linear progrannuing problem faced by the firm. 1?. The basic behavioral assumption of the Cournot model is 995‘.” each duopolist assumes that his or her rival‘s price is invariant with respect to his or her own price. each duopolist assumes that his or her rivals ’ output is invariant with respect to his or her own output. duopolists recognize their mutual interdependence and agree to act in unison. each duopolist assumes that if he or she lowers the price. his or her rivals will do the same but that if he or she raises the price. his or her rivals may not follow suit. none of the above. 18. A typical Couniot solution is defined as a. b. c. d. one in which the solution is identical to the purely competitive market. one in which the solution is identical to the monopoly solution. one in which the output is above the monopoly and below the purely competitive result. none of the above 19. Ifthe firms in a monopolistically competitive "industry" made economic profit. a. b. c. d. they might earn this profit permanently. new firms would enter their "industry" until the profit was eliminated. the price elasticity of demand would have to be less than one in absolute value. both (b) and (c) would be true. When answering questions 20-22 refer to the following graph about a monopolistically competitive firm: Dollars per Unit 0 Average Total Cost 3 A mand Quantity 0 (units per year) Marginal Revenue 20. The finn’s profit-maximizing output level equals a. b. c. d. 0] 0H 06 none of the above. 21. The firm‘s profit in the long 11111 a. equals BCDE. b. equals ABEF. c. equals zero. (1. cannot be detennined from this graph. . When it produces output 06‘. the firm‘s a. fixed cost equals OAF G. b. variable co st cannot be detennined. c. profit equals BCDE. (1. total revenue equals BC’DE. Ix) Ix) . In long-Jun equilibrimn. a monopolisticallv competitive fiim will find a. marginal cost below average total cost. b. marginal cost equal to minimum average total cost. c. both (a) and (b). d. neither (a) nor (b). Iv DJ Imperfect Competition — Answers ...
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Practice questions final OKHAN - Theory of Production 1....

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