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ECO
201 – Homework #3 50 Points
Topics 14 through 19
This is a printable version of Homework 3. Answers must be submitted through Blackboard (the
Submittable Homework button) by 11:59PM on Tuesday, November 5.
1. Marginal revenue is:
a. the change in total revenue divided by total output
b. total revenue divided by total output
c. total revenue minus total cost then divided by total output
d. the change in total revenue divided by the change in price of output
e. the change in total revenue divided by the change in total output
2. Which of the following will always equal zero when the firm’s output level is zero?
a. fixed costs b. implicit costs c. variable costs d. opportunity costs
3. The change in cost to the firm from producing one additional unit of output is:
a. average total cost
b. total variable cost
c. average variable cost
d. marginal cost
e. total cost
4. As a firm increases its output in the short run, average fixed cost:
a. rises steadily
b. falls and then rises
c. falls steadily
d. rises and then falls
e. remains unchanged
5. Which of the following is true about the relationships among various cost curves?
a. when MC exceeds ATC, ATC must be rising
b. when MC exceeds ATC, ATC could be rising or falling
c. when ATC is falling, MC must exceed ATC
d. when TC is rising, MC must exceed TC
e. TC falls when AFC falls
6. Assume that a firm has a wage rate of $300. If the firm’s AVC is $2, its APL is:
a. 0
b. 2
c. 150
d. 300
e. 600
7. If Carol’s Crayon Factory’s price exceeds its average total cost in the short run, then:
a. it should shut down
b. it is earning a positive economic profit
c. profits are being maximized
d. it should increase output
e. it should decrease output
Use the following table for questions 8 through 14.
K L
q
4 0 0
4 1
60
4 2 115
4 3 1
65
4 4 210
4 5 250
4 6 285
Assume that each unit of capital employed costs $200 and the wage rate is $50.
8. What is the total fixed cost of producing 165 units?
a. $150
b. $200
c. $600
d. $
800
e. $950
9. What is the total variable cost of producing 165 units?
a. $50
b. $100
c. $150
d. $200
e. $250
10. What is the total cost of producing 165 units?
a. $500
b. $750
c. $800
d. $850
e. $950
11. What is the average fixed cost of producing 165 units?
a. $0.91
b. $1.00
c. $2.50
d. $4.85
e. $5.76
12. What is the average variable cost of producing 165 units?
a. $0.91
b. $1.00
c. $2.50
d. $4.85
e. $5.76
13. What is the average total cost of producing 165 units?
a. $0.91
b. $1.00
c. $2.50
d. $4.85
e. $5.76
14. What is the marginal cost of producing 165 units?
a. $0.91
b. $1.00
c. $2.50
d. $4.85
e. $5.76
15. When marginal cost exceeds marginal revenue:
a. the firm can increase profits by increasing output
b. the firm will lower profits by increasing output
c. the firm is maximizing profits
d. total cost exceeds total revenue
e. average cost equals average revenue
16. The change in total profit when the firm increases its output by one unit equals:
a. total revenue minus total cost
b. total revenue minus marginal revenue
c. marginal revenue minus marginal cost
d. total revenue minus marginal cost
e. marginal revenue plus marginal cost
17. If price equals average total cost at the profit-maximizing output level, then in the short run:
a. economic profits are positive
b. economic profits are negative
c. the firm will go out of business
d. the firm will earn zero economic profit
e. the firm’s supply curve is horizontal
18. Justina’s operates in a perfectly competitive market. Which of the following is its short-run
supply curve?
a. the MC curve above its point of intersection with the ATC curve
b. the market supply curve
c. the MC curve above its point of intersection with the AVC curve
d. the market demand curve
e. its MC curve
19. If a firm shuts down in the short run:
a. it exits the industry
b. losses would equal its variable costs
c. losses would equal its fixed costs
d. profits would be zero
e. losses would equal to zero
20. If a perfectly competitive firm cannot avoid economic losses, it should continue to operate in
the short run as long as:
a. marginal revenue exceeds average fixed cost
b. price exceeds average total cost
c. the market price exceeds average total cost
d. the marginal revenue is less than the average variable cost
e. price exceeds average variable cost
21. As new firms enter a market the supply curve:
a. shifts right and price rises.
b. shifts right and price falls.
c. shifts left and price rises.
d. shifts left and price falls.
22. Tommy’s Tires operates in a perfectly competitive market. If tires sell for $50 each and ATC =
$55 per tire at the profit-maximizing output level, then in the long run:
a. firms will enter the market
b. firms will exit from the market
c. the equilibrium price per tire will fall
d. average total costs must fall
e. marginal revenue will fall
23. In a long-run perfectly competitive equilibrium:
a. marginal cost and marginal revenue are the greatest distance apart
b. barriers to entry are established by entrenched firms
c. the typical firm will earn an economic profit
d. average total cost is rising
e. price and marginal cost are equal to minimum average total cost
24. Assume that there is an increase in production costs for a perfectly competitive market. What
will be
the result?
a. prices rise, profits rise, and firms enter the market
b. prices fall, profits rise, and firms exit the market
c. prices fall, profits fall, and firms exit the market
d. profits fall, firms exit the market, and prices rise
e. profits rise, firms enter the market, and prices fall
25. Assume that there is an increase in demand for a perfectly competitive market. What will be
the result?
a. prices rise, profits rise, and firms enter the market
b. prices fall, profits rise, and firms exit the market
c. prices fall, profits fall, and firms exit the market
d. profits fall, firms exit the market, and prices rise
e. profits rise, firms enter the market, and prices fall
26. The long-run supply curve in a perfectly competitive industry is horizontal:
a. in an increasing-cost industry
b. in a decreasing-cost industry
c. if the short-run supply curves for firms are upward-sloping
d. if the short-run market supply curve is negatively sloped
e. in a constant-cost industry
27. The long-run supply curve is upward sloping in a(n):
a. decreasing-cost industry
b. increasing-cost industry
c. constant-cost industry
d. labor-intensive industry
e. capital-intensive industry
28. Assume that a firm is experiencing decreasing returns to scale. If the firm increases output,
its average total cost will ____.
a. increase
b. decease
c. not change
d. unable to determine from the information given
29. A monopoly is a:
a. large number of producers each with a small share of the total market output
b. single seller of a product that has no close substitutes
c. small group of producers with similar products
d. single buyer of an input into production
e. cartel of firms with incentives to cooperate
30. A monopoly exists because of:
a. barriers to entry
b. the large number of buyers and sellers
c. the absence of barriers to entry
d. collusion among the dominant firms
e. the absence of exclusive government franchises
31. Suppose that a monopoly is earning positive economic profits in the short run. As a result:
a. no new firms will enter the industry because of barriers to entry
b. the monopolist will increase its price and lower its output
c. the market supply curve will shift to the right
d. profits will fall as new firms enter the market
e. the market demand curve will shift to the left
32. Patents and copyrights:
a. are illegal in the United States
b. reduce barriers to entry in markets
c. protect small firms from large firms
d. lead to increased output and decreased prices
e. provide incentives for firms to engage in research and development
33. If a monopoly is regulated using average cost pricing (ACP), its price will be ____ ATC, and
its economic profits will be ____.
a. equal to; zero
b. greater than; positive
c. greater than; negative
d. less than; positive
e. less than; negative
34. If a monopoly is regulated using marginal cost pricing (MCP), its price will be ____ ATC, and
its economic profits will be ____.
a. equal to; zero
b. greater than; positive
c. greater than; negative
d. less than; positive
e. less than; negative
35. Assume that a monopolist can sell 20 units for $12 each. To sell 21 units, each must be
priced at $11.50. Marginal revenue on the 21
st
unit is:
a. 0.50 b. 1.00 c. 1.50 d. 11.50 e. 12.00
36. A monopolist that maximizes profit determines price and quantity where:
a. profit per unit is the greatest.
b. MR = MC.
c. MC is the lowest possible.
d. the price is the maximum that any customer will pay.
37. If a monopoly were converted to perfect competition:
a. both price and quantity would rise
b. price would rise, but quantity would fall
c. price would fall, but quantity would rise
d. both price and quantity would fall
e. both price and quantity would be unchanged
38. If a firm wishes to engage in price discrimination, which of the following conditions must be
met?
a. the demand curve must be horizontal
b. it must be possible to prevent resale of the good from low-paying to high-paying
customers
c. the supply curve must be horizontal
d. many identical firms in the market must each have a small share of total industry output
e. price must be less than marginal cost
39. Price discrimination occurs when:
a. price exceeds marginal cost
b. a firm charges different customers different prices, and the differences are not explained
by cost factors
c. price exceeds average cost
d. a firm charges different customers different prices, where these differences are based on
cost differences
e. price equals average variable cost
40. An important difference between a perfectly competitive market and a monopolistically
competitive market is that, in the latter:
a. there are more sellers of the good
b. there are only a few large sellers
c. there are no barriers to entry or exit
d. there is only one seller of the good
e. the product is not standardized
41. In the short run, a monopolistic competitor can:
a. not earn an economic profit because of competition
b. use limit pricing to reduce competition
c. maximize profits by charging the highest price the market will bear
d. earn an economic profit
e. maximize profit by selecting the minimum efficient scale
42. In the long run, entry of new firms ensures that the typical firm in monopolistic competition
will:
a. produce at minimum efficient scale
b. earn an economic profit
c. earn a normal economic profit
d. price its output at marginal cost
e. standardize its product
43. A market in which a small number of strategically interdependent firms produce the dominant
share of output is called:
a. perfect competition
b. a monopoly
c. monopolistic competition
d. regulated
e. an oligopoly
44. When oligopolists make joint decisions concerning their prices and output levels, they are:
a. a natural oligopoly
b. colluding
c. a duopoly
d. a homogeneous oligopoly
e. practicing bilateralism
45. Limits to collusion include:
a. price discrimination
b. economies of scale
c. horizontal market demand curves
d. high prices
e. incentives to cheat on the collusive agreement
Use the following for questions 46 through 63 to determine the appropriate market structure(s) for
each of the following market attributes.
a. Perfect competition
b. Monopolistic competition
c. Monopoly
d. both perfect and monopolistic competition
e. both monopolistic competition and monopoly
46. There are many firms in the market.
47. A single firm serves the entire market.
48. Each firm produces a single standardized product.
49. The firm’s product has no close substitutes.
50. Firms produce differentiated products.
51. There are no, or very low, barriers to entry.
52. There are very high barriers to entry.
53. P > MR
54. P = MR
55. Firms have a perfectly elastic demand curve.
56. Firms have a downward sloping demand curve.
57. The firm demand curve is the same as the market demand curve.
58. Firms have no control over price.
59. Firms have a small degree of control over price.
60. A firm has complete control over price.
61. Long run = 0.
62. In the long run, P = MR = MC = ATC.
63. In the long run P = ATC > MR = MC.
Use the following subscripts for questions 64 through 66.
PC: Perfect competition
MC: Monopolistic competition
M: Monopoly
64. Which of the following represents the long run price relationship among the above market
structures?
a. PM = PMC = PPC
b. PM < PMC < PPC
c. PM > PMC > PPC
d. PM > PMC = PPC
e. PM < PMC = PPC
65. Which of the following represents the long ATC relationship among the above market
structures?
a. ATCM = ATCMC = ATCPC
b. ATCM < ATCMC < ATCPC
c. ATCM > ATCMC > ATCPC
d. ATCM > ATCMC = ATCPC
e. ATCM < ATCMC = ATCPC
66. Which of the following represents the long run relationship among the above market
structures?
a. M = MC = PC
b. M > MC > PC
c. M < MC < PC
d. M > MC = PC
e. M < MC = PC 67. Which of the following is the best example of perfect competition?
a. a bank
b. gold
c. American Water Company
d. a local jewelry retailer
68. Which of the following is the best example of monopolistic competition?
a. a bank
b. gold
c. American Water Company
d. a local jewelry retailer
69. Which of the following is the best example of a monopoly?
a. a bank
b. gold
c. American Water Company
d. a local jewelry retailer
70. Which of the following is the best example of an oligopoly?
a. a bank
b. gold
c. American Water Company
d. a local jewelry retailer
Use the following graph for questions 71 through 78.
71. What is the firm’s total revenues?
a. 47,500
b. 50,000
c. 54,000
d. 58,500
e. 67,500
72. What is the firm’s total costs?
a. 47,500
b. 50,000
c. 54,000
d. 58,500
e. 67,500
73. What is the firm’s economic profit?
a. ,500
b. 9,000
c. 15,000
d. 18,500
e. 27,500
74. What is the firm’s total variable cost?
a. 47,500
b. 50,000
c. 54,000
d. 58,500
e. 67,500
75. What is the firm’s average fixed cost?
a. 5
b. 10
c. 60
d. 65
e.
75
$/unit
q
75
65
60
900
76. What is the firm’s total fixed cost?
a. 4,500
b. 9,000
c. 15,000
d. 18,500
e. 27,500
77. What is the firm’s marginal cost?
a. 5
b. 10
c. 60
d. 65
e. 75
78. What is the firm’s marginal revenue?
a. 5
b. 10
c. 60
d. 65
e. 75
79. What is the firm’s total revenues?
a. 54,000
b. 60,000
c. 64,000
d. 72,000
e. 75,000
80. What is the firm’s total costs?
a. 54,000
b. 60,000
c. 64,000
d. 72,000
e. 75,000
q
$/unit
90
800
80
70
75
81. What is the firm’s economic profit?
a. 4,000
b. 8,000
c. 10,000
d. 12,000
e. 15,000
82. What is the firm’s total variable cost?
a. 54,000
b. 60,000
c. 64,000
d. 72,000
e. 75,000
83. What is the firm’s average fixed cost?
a. 5
b. 10
c. 15
d. 25
e. 30
84. What is the firm’s total fixed cost?
a. 4,000
b. 8,000
c. 10,000
d. 12,000
e. 15,000
85. What is the firm’s marginal cost?
a. 15
b. 70
c. 75
d. 80
e. 90
86. What is the firm’s marginal revenue?
a. 15
b. 70
c. 75
d. 80
e. 90
