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Unformatted text preview: Name: Class: Date: ID: B ECO 3033, Exam 2 Sample Objective Questions PART I. TruelFalse 10. The breakeven level of output of a ﬁrm occurs where gross proﬁt contribution is zero. Under perfect competition, there are many small firms, and each individual ﬁrm gets to deviate as much as it
wishes from the market price. Normal proﬁt is never considered to be an economic cost of production. In a market that is characterized by free entry and exit, economic loss serves a resource allocation function
by causing some ﬁrms to leave the industry in the long run. The demand curve of the perfectly competitive ﬁrm is the same as its average revenue curve. Under perfect competition in the short run, as long as SMC = MR = P, if price is greater than average
variable cost, the ﬁrm should operate with Q > 0. The market demand curve in a perfectly competitive market can be expected to be downward-sloping.
Because a monopoly is the only ﬁrm in an industry, it can never operate at a loss. In the absence of gOvernment regulation, a monopoly ﬁrm can indeﬁnitely sustain greater than normal
proﬁts. Price rigidity refers to the inability for ﬁrms to change price because of rival‘s reactions. PART II. Multiple Choice 1. 2. All of the following are characteristics of monopolistic competition EXCEPT: a. The use of advertising to differentiate (:1. Firms' fear of rival reactions.
b. A relatively large number of buyers. e. Each seller ﬁrm attempts to retain or increase its market share by
differentiating its product from the
output of other ﬁrms.
c. Each seller ﬁrm is not particularly
concerned about the relationship between
its individual actions and those of other
firms in the industry. If a monopoly produces where marginal revenue is equal to marginal cost then: a. if short run average cost is less than d. if short run average cost is greater than
price, the monopoly will have a normal price, the monopoly will have a normal
proﬁt. proﬁt. b. if shOrt run average cost is less than c. if average variable cost is greater than price, the monopoly will produce output
but be operating at a loss. price, the monopoly will have a
greater-than-nonnal proﬁt. c. the monopoly is guaranteed to make a
normal proﬁt. Name: 10. ID:B Break-even analysis is: a. a more complex type analysis than proﬁt d.
maximization analysis. the preferred method even when the firm
knows its quantity demanded depends on
price. I). based on a linear TR and a linear TVC. e. never used by businesses today.
c. always used in the long run analysis of ﬁrms because of its accuracy. Birdie heaven is a miniature golf course in Minneapolis. When winter comes, it is rational for the ﬁrm to
temporarily shut down because: a. its ﬁxed costs will rise dramatically. d. the cross elasticity of demand between
golf and football is negative.
b. golf clubs break when they are cold. e. its proﬁt contribtion will be positive, but not sufﬁcient.
c. it will not be able to cover its variable
costs. A monopoly will have only normal proﬁt in the long run if: a. it maximizes total revenue. d. P -~ LAC where its rising LMC crosses
b. its price is greater than AFC. e. LMC = MR and P > LAC. c. it operates where LAC is minimum. A perfectly competitive ﬁrm is operating where marginal cost is $5.50 and rising, average ﬁxed cost and average variable cost are each $1.50 per unit of output, and it is charging the market price of $5.50. To
maximize proﬁt, it should: :1. reduce output and raise its price. d. shut down until price increases.
b. increase output and lower its price. e. make no change in its output.
c. increase output and keep its price the same. A ﬁrm that is in monopolistic competition (not monopoly) differs from one in perfect competition because:
a. it faces a horizontal demand curve. d. it decides on its own price. b. it has no concept of marginal cost. e. it has a great deal of monopoly power. c. it always has increasing returns to scale. Suppose an oligopolistic ﬁrm is operating in the short run where MR -- MC, price is greater than AVC, and
marginal proﬁt is zero and falling. It should: a. temporarily shut down. d.
b. raise price. e.
c. cut price to sell more. make no change in price or quantity sold.
keep price constant and reduce quantity. ECO 3033, Exam 2 Sample Objective Questions
Answer Section TRUE/FALSE MULTIPLE CHOICE
1. F L D
2. F 2. B
3- F 3' D
4. T 4' D
5. T 5' D
6. T 6_ C
7. T 7. D
s. F 8' E
9- T 9. D
10. T 10‘ D ...
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