Intro to Econ | Quizz #3

Question 1
The term _______________ refers to a firm operating in a perfectly competitive market that must take the
prevailing market price for its product.
A. trend setter
B. price taker
C. price maker
D. price setter

Question 2
____________ refers to the additional revenue gained from selling one more unit
A. Economic profit
B. Marginal revenue
C. Total revenue
D. Accounting profit

Question 3
In economics, the term "shutdown point" refers to the point where the
A. average variable cost curve crosses the total revenue curve.
B. marginal cost curve crosses the total revenue curve.
C. marginal cost curve crosses the average variable cost curve
D. average variable cost curve crosses the marginal cost curve.

Question 4
In the ________________, if profits are not possible, the perfectly competitive firm will seek out the quantity of
output where __________________________.
A. long run; fixed costs can be eliminated
B. long run; increasing production
C. short run; fixed costs can be reduced
D. short run; losses are smallest

Question 5
Under perfect competition, any profit-maximizing producer faces a market price equal to its
A. average costs
B. total costs
C. variable costs
D. marginal costs
Question 6
Refer to Figure 1. In this instance, point e shown on the graph
indicates
A. the profit-maximizing point where MR is less than MC
B. the profit-maximizing point where MR = MC
C. the point where profits will increase by reducing output
D. the point where profits will increase by increasing output

Question 7
If a competitive firm experiences a shift in costs of production that
decreases marginal costs at all levels of output
A. expanding output levels at any given price will be profitable
B. the firm’s marginal cost curve will shift to the left.
C. producing less at any market price will off-set marginal cost
D. the firm’s demand curve will also shift to the left
Question 8
Kate’s 24-Hour Breakfast Diner menu offers one item, a $5.00 breakfast special. Kate’s costs for servers,
cooks, electricity, food, etc. average out to $3.95 per meal. Her costs for rent, insurance, cleaning supplies and
business license average out to $1.25 per meal. Since the market is highly competitive, Kate should
A. keep the business open in the short-run, and plan to expand the business in the long-run.
B. raise her prices above the perfectly competitive level set by the market.
C. lay-off her staff, break her lease, and close the business down immediately.
D. keep the business open in the short-run, but plan to go out of business in the long-run.

Question 9
When a natural monopoly exists in a given industry, the per-unit costs of production will be
A. lowest when a single firm generates the entire output of the industry
B. lower for the smaller firms than for larger firms.
C. lowest when there are a large number of producers in the industry.
D. minimized at the output that maximizes the industry's profitability.

Question 10
When a firm pursues a predatory pricing strategy, it does so
A. to increase supply to benefit consumers.
B. to maximize profits in the long run
C. to hire more staff to lower unemployment.
D. to discourage short run competition.

Question 11
Figure 2 shows the average cost
curve, demand curve, and marginal
revenue curve for a monopolist. After
maximizing profits, what do the firm’s
costs equal?

A. the area of rectangle BDEG

B. the area of rectangle ADEH
C. the area of rectangle ACFH
D. the area of rectangle ABGH

Question 12
Figure 2 shows the average cost curve, demand curve, and marginal revenue curve for a monopolist. After
maximizing profits, what does the firm’s revenue equal?
A. the area of rectangle BCFG
B. the area of rectangle ABGH
C. the area of rectangle ADEH
D. the area of rectangle BDEG

Question 13
A _______________ refers to a group of firms colluding with one another to produce at the monopoly output
and sell at the monopoly price.
A. game theory
B. duopoly
C. cartel
D. prisoner's dilemma
Question 14
The perceived demand curve for a group of competing oligopoly firms will appear kinked as a result of their
commitment to
A. stand at opposite ends of the competition spectrum.
B. match price increases, but not price cuts.
C. stand at the high point of the competition spectrum.
D. match price cuts, but not price increases.

Question 15
If a monopoly or a monopolistic competitor raises their prices, the quantity demanded will ____________.
A. expand
B. decline
C. stay the same
D. either expand, decline, or stay the same

Question 16
If a monopolistic competitor raises its price, it ___________ customers than a perfectly competitive firm, but
____________ customers compared to the number that a monopoly that raised its prices would.
A. will lose fewer; it will lose more
B. will lose more; it will lose more
C. will lose fewer; it will lose as many
D. will lose more; it will lose as many

Question 17
A monopolistically competitive firm may earn abnormally high profits in the
A. long run, but the process of entry will drive those profits to zero in the short run.
B. short run, but after entry occurs, the long run perceived demand curve shifts to the right.
C. long run, but after entry occurs, the short run perceived demand curve shifts to the right.
D. short run, but the process of entry will drive those profits to zero in the long run.

Question 18
In a monopolistically competitive market, the rule for maximizing profit is to set MR = MC, which means
A. price is lower than marginal revenue.
B. price is equal to marginal revenue.
C. price is equal to marginal cost.
D. price is higher than marginal revenue.

Question 19
When entry occurs in a monopolistically competitive industry,
A. the perceived demand and marginal revenue curves for each firm will shift to the left.
B. the perceived demand curve for each firm will shift to the right, and the marginal revenue curve for
each firm will shift to the left.
C. the perceived demand curve for each firm will shift to the left, and the marginal revenue curve for each
firm will shift to the right.
D. the perceived demand and marginal revenue curves for each firm will shift to the right.

Question 20
How can parties who find themselves in a prisoner’s dilemma situation avoid the undesired outcome and
cooperate with each other?
A. by seeking alternatives to create pressure for members to keep output high and prices low
B. sign legally enforceable contracts setting out their mutual agreement to act like a monopoly
C. find effective ways to penalize firms who do not cooperate
D. one oligopoly can physically beat up another oligopoly