Question 1

Refer to the accompanying figure to answer the following questions.  
-This profit-maximizing firm's total profit is equal to

Accepted Answer

A)  $160. 
B)  -$160. 
C)  $320. 
D)  -$320. 
E)  $100. 
A)  $160. 
B)  -$160. 
C)  $320. 
D)  -$320. 
E)  $100. B

Question 2

Refer to the accompanying figure to answer the following questions.  
-When this firm is producing at the profit-maximizing price and quantity,its total revenue is

Accepted Answer

A)  $1,000. 
B)  $1,950. 
C)  $2,500. 
D)  $3,750. 
E)  $5,000. 
A)  $1,000. 
B)  $1,950. 
C)  $2,500. 
D)  $3,750. 
E)  $5,000. C

Question 3

Explain why it is unrealistic to regulate a natural monopoly for a price and quantity that maximizes total economic surplus in society.

Accepted Answer

A natural monopoly occurs because of large economies of scale.This usually happens with a large startup cost and a small and constant marginal cost.To maximize total economic surplus in society,the market must produce where price equals marginal cost.At this point,a natural monopoly can incur an economic loss.Thus,if regulated at this price,the monopoly would shut down and not produce,causing an even bigger efficiency.

Question 4

A price maker

Accepted Answer

A)  is a characteristic held by a perfectly competitive firm. 
B)  must set the price at the market price. 
C)  has some control over the price it charges. 
D)  can sell its product at any price. 
E)  will always make economic profits. 
A)  is a characteristic held by a perfectly competitive firm. 
B)  must set the price at the market price. 
C)  has some control over the price it charges. 
D)  can sell its product at any price. 
E)  will always make economic profits.

Question 5

Refer to the accompanying figure to answer the following questions. 
For a firm in a competitive market, the demand curve is horizontal, as shown.  
-What will happen if the firm offers its product at a price slightly below price PC?

Accepted Answer

A)  The sales volume will plummet to essentially zero. 
B)  The number of units sold will slightly decrease. 
C)  The average total cost will slightly increase. 
D)  The firm will run into high barriers to exit from the market. 
E)  The firm will lose money on each unit sold. 
A)  The sales volume will plummet to essentially zero. 
B)  The number of units sold will slightly decrease. 
C)  The average total cost will slightly increase. 
D)  The firm will run into high barriers to exit from the market. 
E)  The firm will lose money on each unit sold.

Question 6

Lobbying the government to place harsh tariffs on imports is a form of

Accepted Answer

A)  beneficial competition. 
B)  market failure. 
C)  deregulation. 
D)  rent seeking. 
E)  natural monopoly. 
A)  beneficial competition. 
B)  market failure. 
C)  deregulation. 
D)  rent seeking. 
E)  natural monopoly.

Question 7

Which of the following is a characteristic of a monopoly but not a characteristic of a competitive market?

Accepted Answer

A)  A monopoly contains many firms. 
B)  A monopoly produces an efficient level of output. 
C)  A producer in a monopoly may earn long-run economic profits. 
D)  A producer in a monopoly has no market power. 
E)  A producer in a monopoly is a price taker. 
A)  A monopoly contains many firms. 
B)  A monopoly produces an efficient level of output. 
C)  A producer in a monopoly may earn long-run economic profits. 
D)  A producer in a monopoly has no market power. 
E)  A producer in a monopoly is a price taker.

Question 8

When a competitive market becomes controlled by a monopoly,the price ________ and the output ________.

Accepted Answer

A)  increases; stays the same 
B)  increases; increases 
C)  decreases; stays the same 
D)  increases; decreases 
E)  decreases; decreases 
A)  increases; stays the same 
B)  increases; increases 
C)  decreases; stays the same 
D)  increases; decreases 
E)  decreases; decreases

Question 9

By reducing trade barriers,the government

Accepted Answer

A)  reduces imports. 
B)  increases the price of the imported good. 
C)  reduces exports. 
D)  decreases efficiency. 
E)  decreases deadweight loss. 
A)  reduces imports. 
B)  increases the price of the imported good. 
C)  reduces exports. 
D)  decreases efficiency. 
E)  decreases deadweight loss.

Question 10

When the government passes antitrust laws in an industry,we see

Accepted Answer

A)  higher prices,lower output,and more choices. 
B)  lower prices,higher output,and fewer choices. 
C)  lower prices,higher output,and more choices. 
D)  higher prices,lower output,and fewer choices. 
E)  higher prices,higher output,and more choices. 
A)  higher prices,lower output,and more choices. 
B)  lower prices,higher output,and fewer choices. 
C)  lower prices,higher output,and more choices. 
D)  higher prices,lower output,and fewer choices. 
E)  higher prices,higher output,and more choices.

Question 11

Refer to the accompanying figure to answer the following questions.  
-If the government forces a firm to produce at the point that generates the greatest welfare for society,that firm would make ________ in profits.

Accepted Answer

A)  $1,500 
B)  -$720 
C)  $720 
D)  -$240 
E)  $240 
A)  $1,500 
B)  -$720 
C)  $720 
D)  -$240 
E)  $240

Question 12

Refer to the accompanying figure to answer the following questions.  
-This firm

Accepted Answer

A)  is in a competitive market. 
B)  can make a profit. 
C)  does not want to maximize profit. 
D)  cannot make a profit. 
E)  is not a monopolist because it is incurring a loss. 
A)  is in a competitive market. 
B)  can make a profit. 
C)  does not want to maximize profit. 
D)  cannot make a profit. 
E)  is not a monopolist because it is incurring a loss.

Question 13

Economists view rent seeking as

Accepted Answer

A)  a good way to inspire competition between firms. 
B)  a good way to incentivize firms to invest in research and development. 
C)  essential to solving the problem of scarcity. 
D)  a detrimental form of competition. 
E)  beneficial to the consumer. 
A)  a good way to inspire competition between firms. 
B)  a good way to incentivize firms to invest in research and development. 
C)  essential to solving the problem of scarcity. 
D)  a detrimental form of competition. 
E)  beneficial to the consumer.

Question 14

Market failure occurs

Accepted Answer

A)  when the output level of the firm is efficient. 
B)  when the output level of the firm is inefficient. 
C)  when firms do not maximize profits. 
D)  only in the presence of a monopoly. 
E)  only in the presence of externalities. 
A)  when the output level of the firm is efficient. 
B)  when the output level of the firm is inefficient. 
C)  when firms do not maximize profits. 
D)  only in the presence of a monopoly. 
E)  only in the presence of externalities.

Question 15

Refer to the accompanying table, which represents the costs and production for a monopolist, to answer the following questions.  
-The profit made by this profit-maximizing firm is

Accepted Answer

A)  $8. 
B)  $4. 
C)  $3. 
D)  $7. 
E)  $9. 
A)  $8. 
B)  $4. 
C)  $3. 
D)  $7. 
E)  $9.

Question 16

Draw a graph of a typical natural monopoly.Label the profit-maximizing price and quantity P1 and Q1,respectively.Also label the price and quantity that will maximize total economic welfare P2 and Q2,respectively.Label the price and quantity that cause the firm to break even P3 and Q3,respectively.

Accepted Answer

Question 17

A tariff is a(n)

Accepted Answer

A)  tax on an import. 
B)  tax on domestically produced and sold products. 
C)  natural barrier to entry. 
D)  example of a market structure. 
E)  way to promote competition. 
A)  tax on an import. 
B)  tax on domestically produced and sold products. 
C)  natural barrier to entry. 
D)  example of a market structure. 
E)  way to promote competition.

Question 18

Refer to the accompanying figure to answer the following questions. 
For a firm in a competitive market, the demand curve is horizontal, as shown.  
-What will happen if the firm offers its product at a price slightly above price PC?

Accepted Answer

A)  The marginal revenue will drop below zero. 
B)  The firm will slightly increase its profits. 
C)  The sales volume will plummet to essentially zero. 
D)  The firm will run into high barriers to exit from the market. 
E)  The number of units sold will slightly increase. 
A)  The marginal revenue will drop below zero. 
B)  The firm will slightly increase its profits. 
C)  The sales volume will plummet to essentially zero. 
D)  The firm will run into high barriers to exit from the market. 
E)  The number of units sold will slightly increase.

Question 19

What is the usual rationale for governments to issue monopoly-promoting licenses to firms providing services such as trash collection?

Accepted Answer

A)  lower risk for investors in the firms 
B)  increased customer choice 
C)  better-quality services 
D)  economies of scale 
E)  public safety 
A)  lower risk for investors in the firms 
B)  increased customer choice 
C)  better-quality services 
D)  economies of scale 
E)  public safety

Question 20

Sandra's Steel Mill has decided that lobbying Congress to pass a tariff on imported steel will cost less than trying to modernize its facility to compete with foreign steel prices.Sandra's Steel Mill will

Accepted Answer

A)  decide that lobbying is wrong and modernize its facility. 
B)  participate in rent seeking and lobby Congress for the tariff. 
C)  lobby Congress for the tariff and modernize its facility. 
D)  produce more steel to attract more customers. 
E)  lower its price to compete with the imported foreign steel. 
A)  decide that lobbying is wrong and modernize its facility. 
B)  participate in rent seeking and lobby Congress for the tariff. 
C)  lobby Congress for the tariff and modernize its facility. 
D)  produce more steel to attract more customers. 
E)  lower its price to compete with the imported foreign steel.

Exam 10: Understanding Monopoly

Refer to the accompanying figure to answer the following questions. -This profit-maximizing firm's total profit is equal to

Refer to the accompanying figure to answer the following questions. -When this firm is producing at the profit-maximizing price and quantity,its total revenue is

Explain why it is unrealistic to regulate a natural monopoly for a price and quantity that maximizes total economic surplus in society.

A price maker

Refer to the accompanying figure to answer the following questions. For a firm in a competitive market, the demand curve is horizontal, as shown. -What will happen if the firm offers its product at a price slightly below price PC?

Lobbying the government to place harsh tariffs on imports is a form of

Which of the following is a characteristic of a monopoly but not a characteristic of a competitive market?

When a competitive market becomes controlled by a monopoly,the price ________ and the output ________.

By reducing trade barriers,the government

When the government passes antitrust laws in an industry,we see

Refer to the accompanying figure to answer the following questions. -If the government forces a firm to produce at the point that generates the greatest welfare for society,that firm would make ________ in profits.

Refer to the accompanying figure to answer the following questions. -This firm

Economists view rent seeking as

Market failure occurs

Refer to the accompanying table, which represents the costs and production for a monopolist, to answer the following questions. -The profit made by this profit-maximizing firm is

Draw a graph of a typical natural monopoly.Label the profit-maximizing price and quantity P1 and Q1,respectively.Also label the price and quantity that will maximize total economic welfare P2 and Q2,respectively.Label the price and quantity that cause the firm to break even P3 and Q3,respectively.

A tariff is a(n)

Refer to the accompanying figure to answer the following questions. For a firm in a competitive market, the demand curve is horizontal, as shown. -What will happen if the firm offers its product at a price slightly above price PC?

What is the usual rationale for governments to issue monopoly-promoting licenses to firms providing services such as trash collection?

Sandra's Steel Mill has decided that lobbying Congress to pass a tariff on imported steel will cost less than trying to modernize its facility to compete with foreign steel prices.Sandra's Steel Mill will

Five Foundations of Economics

Model Building and Gains From Trade

The Market at Work: Supply and Demand

Elasticity

Market Outcomes and Tax Incidence

Price Controls

Market Inefficiencies: Externalities and Public Goods

Business Costs and Production

Firms in a Competitive Market

Price Discrimination

Monopolistic Competition and Advertising

Oligopoly and Strategic Behavior

The Demand and Supply of Resources

Income,inequality,and Poverty

Consumer Choice

Behavioral Economics and Risk Taking

Health Insurance and Health Care

Introduction to Macroeconomics and Gross Domestic Product

Unemployment

The Price Level and Inflation

Savings,interest Rates,and the Market for Loanable Funds

Financial Markets and Securities

Economic Growth and the Wealth of Nations

Growth Theory

The Aggregate Demandaggregate Supply Model

The Great Recession, the Great Depression, and Great Macroeconomic Debates

Federal Budgets: the Tools of Fiscal Policy

Fiscal Policy

Money and the Federal Reserve

Monetary Policy

International Trade

International Finance

Filters

Refer to the accompanying figure to answer the following questions. For a firm in a competitive market, the demand curve is horizontal, as shown. -What will happen if the firm offers its product at a price slightly below price P_C?

When a competitive market becomes controlled by a monopoly,the price and the output .

Refer to the accompanying figure to answer the following questions. For a firm in a competitive market, the demand curve is horizontal, as shown. -What will happen if the firm offers its product at a price slightly above price P_C?