Question 1

Equilibrium in a monopoly occurs when:

Accepted Answer

A)  the monopolist has driven out all competitors. 
B)  the monopoly firm has sold the maximum number of units. 
C)  the monopoly firm produces the quantity that maximizes its profits (or minimizes loss) where MR = MC. 
D)  the monopoly firm has gotten unions to agree to wage concessions.

Question 2

Which of the following is the gravity equation calculation?

Accepted Answer

A)  the inverse of the average GDPs times transportation costs 
B)  the sum of GDPs times total exports 
C)  the product of the GDPs in two nations divided by a measure of the distance between them times a constant, reflecting other factors affecting trade 
D)  the product of the land mass of the two nations divided by the average of their GDPs times a constant factor, reflecting other factors affecting trade

Question 3

What do tests of the gravity equation for trade between Canadian provinces and American states indicate?

Accepted Answer

A)  Individual state and individual provincial GDPs are negatively related to the amount of trade between individual states and provinces. 
B)  Individual state and individual provincial GDPs are positively related to the amount of trade between individual states and provinces. 
C)  Individual state and individual provincial GDPs are not at all related to the amount of trade between individual states and provinces. 
D)  The gravity equation does not apply to U.S.-Canadian trade.

Question 4

The index of intra-industry trade is calculated as:

Accepted Answer

A)  the minimum of imports and exports divided by the average of imports and exports. 
B)  the maximum of imports and exports divided by the sum of imports and exports. 
C)  imports divided by exports. 
D)  imports plus exports divided by the average of imports and exports.

Question 5

Products that are very similar and very close substitutes, but that may be of different quality or prices, are called:

Accepted Answer

A)  differentiated complements. 
B)  differentiated substitutes. 
C)  differentiated products. 
D)  perfect substitute products.

Question 6

Which of the following is NOT characteristic of a monopolistically competitive industry?

Accepted Answer

A)  monopoly profits 
B)  many firms in the industry 
C)  differentiated products 
D)  Individual firms can influence the market price.

Question 7

Suppose that imports and exports in an industry are both $100 million. If exports rise to $200 million, will the value of the industry's index of intra-industry trade rise, fall, or remain the same?

Accepted Answer

The answer of Suppose that imports and exports in an...

Question 8

Firm X's total fixed costs are $1,000. Its total variable costs of producing 100 units are $2,000, and its total variable costs of producing 200 units are $4,000. What are its average costs of producing 100 and 200 units of output?

Accepted Answer

A)  $30 and $25 
B)  $20 and $20 
C)  $10 and $5 
D)  $25 and $30

Question 9

Studies have concluded that NAFTA caused ________ in economic welfare to Canada.

Accepted Answer

A)  a gain 
B)  a loss 
C)  no change 
D)  first a gain, then a loss

Question 10

If a firm has a total cost of $150 and a total variable cost of $100 for producing five units of output, then the fixed cost is:

Accepted Answer

A)  $35. 
B)  $50. 
C)  $250. 
D)  $100.

Question 11

If a firm in monopolistic competition lowers its price, what will happen to the quantity of products it sells?

Accepted Answer

A)  The quantity of products sold will increase and sales revenue will fall. 
B)  The quantity of products sold will decrease because this is not perfect competition. 
C)  The quantity of products sold will increase slightly-and in some cases not at all. 
D)  The quantity of products sold and sales revenues will increase as the firm lures customers from its competitors and attracts new customers.

Question 12

(Table: Distances and GDP) According to the gravity equation, which country should be the United States' smallest trade partner?

Accepted Answer

A)  Germany 
B)  Norway 
C)  France 
D)  Sweden

Question 13

A monopolistically competitive firm faces demand given by this equation: P = 50 - Q. It has no fixed costs and its marginal cost is $20 per unit. What price will the firm charge when it is maximizing its profits?

Accepted Answer

A)  $20 
B)  $25 
C)  $30 
D)  $35

Question 14

(Figure: Costs and Demand for a Monopolistic Competitor) What price should the firm charge?

Accepted Answer

A)  $15 
B)  $10 
C)  a price greater than $15 
D)  The firm cannot be profitable, so the price is zero.

Question 15

If a firm has an average total cost of $55 and an average fixed cost of $10 for producing five units of output, then the total variable cost will be:

Accepted Answer

A)  $550. 
B)  $525. 
C)  $225. 
D)  $65.

Question 16

In the long run, a monopolistically competitive firm will produce where:

Accepted Answer

A)  average cost equals price. 
B)  average cost equals marginal revenue. 
C)  marginal revenue equals price. 
D)  marginal cost equals price.

Question 17

Which of the following is likely under free trade and monopolistic competition?

Accepted Answer

A)  Domestic firms will always be provided cash subsidies. 
B)  Some domestic firms will shut down. 
C)  Consumers will not benefit at all from trade. 
D)  Foreign firms will sell the product at a higher price in the export market.

Question 18

In the long run, after trade occurs, the equilibrium number of monopolistically competitive firms:

Accepted Answer

A)  is less than the total number of firms worldwide in autarky. 
B)  is the same as the total number of firms worldwide in autarky. 
C)  is greater than the total number of firms worldwide in autarky. 
D)  may be less than, the same as, or greater than the total number of firms worldwide in autarky.

Question 19

What did the gravity equation predict about trade within the borders of a nation?

Accepted Answer

A)  Trade between states or regions within a nation is much more likely than trade outside the borders. 
B)  Trade between states or regions within a nation is much less likely to occur. 
C)  There was no predictive value for trade within a nation's borders. 
D)  Trade between states or regions within a nation is more subject to national law and regulation and therefore not as predictable.

Question 20

Which of the following is the term describing very similar products being exported and imported by trading partners?

Accepted Answer

A)  reciprocal trade 
B)  imperfect competition 
C)  intra-industry trade 
D)  inter-industry trade

Exam 6: Increasing Returns to Scale and Monopolistic Competition