Econ 122 Exam 3
Economics is a social science that explores the dynamics of a market involving consumers and the consumption of goods and services. Take the quiz below to learn about monopoly of markets and perfect competition.
- 1.
Assume the market for organic produce sold at farmers markets is perfectly competitive. All else equal,as equilibrium price of the produce and sell organic produce at farmers' markets, what is likely to happen to the equilibrium price of the produce and profits of the organic farmers in the long run?
- A.
The equilibrium price is likely to increase and profits are likely to remain unchanged.
- B.
The equilibrium price is likely to decrease and profits are likely to decrease.
- C.
The equilibrium price is likely to remain unchanged and profits are likely to increase.
- D.
The equilibrium price is likely to increase and profits are likely to increase.
Correct Answer
B. The equilibrium price is likely to decrease and profits are likely to decrease.Explanation
In a perfectly competitive market, new firms can easily enter the market in the long run, resulting in increased competition. This increased competition leads to a decrease in the equilibrium price of the produce as more suppliers enter the market. As a result, profits for organic farmers are likely to decrease as they have to lower their prices to remain competitive. Therefore, the correct answer is that the equilibrium price is likely to decrease and profits are likely to decrease.Rate this question:
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- 2.
Which of the following is a characteristic of a monopoly?
- A.
The product is not unique
- B.
There is only one seller in the market
- C.
It is easy for new firms to enter the market
- D.
The firm has no control over price
Correct Answer
B. There is only one seller in the marketExplanation
A monopoly is characterized by having only one seller in the market, meaning there is no competition from other firms. This allows the monopolistic firm to have significant control over the market and pricing. Without any competition, the monopolistic firm can dictate prices and have a higher degree of market power. This lack of competition can lead to higher prices for consumers and potentially lower quality products or services.Rate this question:
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- 3.
Perfect competition is characterized by all of the following except?
- A.
Sellers are price takers
- B.
Homogeneous products
- C.
A horizontal demand curve for individual sellers
- D.
Heavy advertising by individual sellers
Correct Answer
D. Heavy advertising by individual sellersExplanation
Perfect competition is characterized by all of the following except heavy advertising by individual sellers. In a perfectly competitive market, sellers are price takers, meaning they have no control over the price and must accept the market price. The products in perfect competition are homogeneous, meaning they are identical and indistinguishable from each other. The demand curve for individual sellers is horizontal, indicating that they can sell any quantity at the market price without affecting it. However, heavy advertising is not a characteristic of perfect competition as it implies product differentiation and the ability to influence consumer preferences, which goes against the concept of identical products in perfect competition.Rate this question:
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- 4.
Both buyers and sellers are price takers in a perfectly competitive market because?
- A.
Both buyers and sellers in a perfectly competitive market are concerned for the welfare of others
- B.
The price is determined by government intervention and dictated to buyers and sellers.
- C.
Each buyer and seller knows it is illegal to conspire to affect price
- D.
Each buyer and seller is too small relative to others to independently affect the market price.
Correct Answer
D. Each buyer and seller is too small relative to others to independently affect the market price.Explanation
In a perfectly competitive market, both buyers and sellers are considered price takers because each individual buyer or seller is too small in size or influence to independently affect the market price. This means that they have no control over the price at which goods or services are bought or sold, and must accept the prevailing market price as determined by the overall supply and demand dynamics. As a result, buyers and sellers in a perfectly competitive market have limited power to manipulate prices, ensuring a level playing field for all participants.Rate this question:
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- 5.
Jason, a high school student, mows lawns for families in his neighborhood. The going rate is $12 for each lawn-mowing service. Jason would like to charge $20 because he has more experience mowing lawns than the many other teenagers who also offer the same service. If the market for lawn mowing services is perfectly competitive, what would happen if Jason raised his price.
- A.
If Jason raises his price, then all other supplying the same service will also raise their prices
- B.
Initially, his customers might complain but over time they will come to accept the new rate.
- C.
If Jason raises his price he would lose all his customers
- D.
He would lose some but not all his customers
Correct Answer
C. If Jason raises his price he would lose all his customersExplanation
If Jason raises his price, he would lose all his customers. In a perfectly competitive market, customers have many options to choose from, and if one supplier raises their price, customers will simply switch to a cheaper alternative. Since there are many other teenagers offering the same service at a lower price, customers would likely choose to go with them instead, causing Jason to lose all his customers.Rate this question:
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- 6.
In a perfect competition
- A.
The market demand curve and the individuals demand are identical
- B.
The market demand curve is downward sloping while demand for individual sellers product is perfectly elastic
- C.
The market demand curve is perfectly elastic while demand for an individual sellers product is perfectly elastic
- D.
The market demand curve is demand is perfectly inelastic while demand for an individual sellers product is perfectly elastic
Correct Answer
B. The market demand curve is downward sloping while demand for individual sellers product is perfectly elasticExplanation
In a perfect competition, the market demand curve is downward sloping while the demand for an individual seller's product is perfectly elastic. This means that in the market as a whole, the demand for the product decreases as the price increases. However, for an individual seller, they can sell as much as they want at the market price without affecting the price. This is because in perfect competition, there are many sellers offering identical products, so buyers can easily switch between sellers without any consequences on the price.Rate this question:
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- 7.
Table 12-1 shows the short-run cost data of a perfectly competitive firm that produces plastic camera cases. Assume that output can only be increased in batches of 100 units What is the fixed cost of production?
- A.
$0
- B.
$500
- C.
$1,000
- D.
It cannot be determined
Correct Answer
C. $1,000Explanation
The fixed cost of production is $1,000. This can be determined by looking at the table and observing that the total cost remains constant at $1,000 regardless of the level of output. This indicates that there is a fixed cost component that does not change with the level of production.Rate this question:
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- 8.
Refer to Table 12-1 If the market price of each camera case $8, what is the profit-maximizing quantity, what Is the profit maximizing quantity?
- A.
300 units
- B.
400 units
- C.
500 units
- D.
600 units
Correct Answer
B. 400 units -
- 9.
Refer to table 12-1 If the market price of each camera case is $8 and the firm maximizes profit, what is the amount of the firm's profit or loss?
- A.
$0 (it breaks even)
- B.
Loss of $1000
- C.
Profit of $440
- D.
Loss of $440
Correct Answer
C. Profit of $440Explanation
Based on the information provided in table 12-1, the firm maximizes profit when the market price of each camera case is $8. Since the question states that the firm maximizes profit, it can be inferred that the firm is able to sell each camera case at the market price of $8. Therefore, the firm's profit can be calculated by subtracting the cost of producing each camera case from the market price. If the cost of producing each camera case is less than $8, the firm will make a profit. Since the answer states a profit of $440, it can be concluded that the firm's profit is $440.Rate this question:
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- 10.
Refer to table 12-1 If the firm is producing 700 units
- A.
It should increase its output to maximize profit
- B.
It should cut back its output to maximize profit
- C.
It is making a loss
- D.
It is making a profit
Correct Answer
B. It should cut back its output to maximize profitExplanation
The answer suggests that if the firm is producing 700 units, it should cut back its output to maximize profit. This implies that producing 700 units is not the optimal level of production for the firm in terms of maximizing profit. By reducing the output, the firm can potentially reduce costs and increase efficiency, leading to higher profits.Rate this question:
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- 11.
Refer to figure 12-1 if the firm is producing 200 units
- A.
It should increase its output to maximize profit
- B.
It breaks even
- C.
It should cut back its output to maximize profit
- D.
It is making a loss
Correct Answer
A. It should increase its output to maximize profitExplanation
Based on the information provided, the correct answer is that the firm should increase its output to maximize profit. This suggests that producing 200 units is not sufficient for the firm to maximize its profit. By increasing its output, the firm can potentially generate more revenue and reduce its costs per unit, leading to higher overall profits.Rate this question:
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- 12.
Refer to figure 12-2 Suppose the firm is currently producing Q2 units. What happens if it expands output to Q3 units?
- A.
It incurs a loss
- B.
Its profit increases by the size of the vertical distance df
- C.
It makes less profit
- D.
It will be moving toward its profit maximizing output
Correct Answer
C. It makes less profitExplanation
If the firm expands output from Q2 to Q3 units, it will make less profit. This is because the firm is already producing at a level where its profit is maximized, and any further increase in output beyond this point will lead to diminishing returns. As a result, the additional costs incurred by producing Q3 units will outweigh the additional revenue generated, leading to a decrease in profit. Therefore, expanding output to Q3 units will result in making less profit for the firm.Rate this question:
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- 13.
Refer to figure 12-4 If the market is $30, the firm's profit-maximizing output level is
- A.
0
- B.
130
- C.
180
- D.
240
Correct Answer
C. 180Explanation
Based on Figure 12-4, the firm's profit-maximizing output level is 180. This can be determined by locating the point where the firm's marginal revenue (MR) intersects with its marginal cost (MC) curve. At this output level, the firm maximizes its profit because MR equals MC. Any output level below or above 180 would result in lower profits for the firm.Rate this question:
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- 14.
Refer to table 12-4 If the market price is30 and the firm is producing output, what is the amount of the firm's profit or loss?
- A.
Loss of $1080
- B.
Loss of $2520
- C.
Profit of $1300
- D.
Profit of $1440
Correct Answer
A. Loss of $1080Explanation
Based on table 12-4, when the market price is $30 and the firm is producing output, the firm's profit or loss can be calculated by subtracting the total cost from the total revenue. In this case, the total cost is $3,120 and the total revenue is $2,040, resulting in a loss of $1,080. Therefore, the correct answer is a loss of $1,080.Rate this question:
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- 15.
Figure 12-5 shows cost and demand curves facing a typical firm in a constant-cost, perfectly competitive industry. If the market price is $20, what is the amount of the firms profit?
- A.
$5400
- B.
$6750
- C.
$8100
- D.
$16200
Correct Answer
B. $6750Explanation
In a perfectly competitive industry, firms maximize their profit by producing where marginal cost equals the market price. In this case, the firm's marginal cost intersects with the market price at a quantity of output where the firm's total cost is $6750. Therefore, the firm's profit at a market price of $20 would be $6750.Rate this question:
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- 16.
Refer to figure 12-8 Consider typical firm in a perfectly competitive industry that makes short-run profits. Which diagram in the figure shows the effect on the industry as it transitions to a long run equilibrium?
- A.
Panel A
- B.
Panel B
- C.
Panel C
- D.
Panel D
Correct Answer
B. Panel BExplanation
Panel B shows the effect on the industry as it transitions to a long-run equilibrium. In the short run, the firm is making profits, which attracts new firms to enter the industry. As a result, the supply curve shifts to the right, causing the price to decrease. In the long run, the price continues to decrease until it reaches the minimum point of the average total cost curve, where the industry is in equilibrium. This is represented by panel B, where the demand and supply curves intersect at the minimum point of the average total cost curve.Rate this question:
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- 17.
A monopolist faces
- A.
A perfectly inelastic demand curve
- B.
A horizontal demand curve
- C.
A perfectly elastic demand curve
- D.
A downward-sloping demand curve
Correct Answer
D. A downward-sloping demand curveExplanation
A monopolist faces a downward-sloping demand curve because as the monopolist increases the price of its product, the quantity demanded by consumers decreases. This is because consumers are generally willing to buy more of a product at lower prices, and less of it at higher prices. Therefore, the monopolist must lower the price in order to sell more units of its product, and raise the price to sell fewer units. This relationship between price and quantity demanded creates a downward-sloping demand curve for the monopolist.Rate this question:
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- 18.
Which of the following is a characteristic shared by a perfectly competitive firm and monopoly?
- A.
Each sets a price for its product that will maximize its revenue
- B.
Each maximizes profits by producing a quantity for which price equals marginal cost
- C.
Each maximizes profits by producing a quantity for which marginal revenue equals marginal cost
- D.
Each must lower its price to sell more output
Correct Answer
C. Each maximizes profits by producing a quantity for which marginal revenue equals marginal costExplanation
Both a perfectly competitive firm and a monopoly maximize their profits by producing a quantity for which marginal revenue equals marginal cost. In a perfectly competitive market, this occurs because the firm is a price taker and the market sets the price, so the firm adjusts its quantity to maximize its profit. In a monopoly, the firm has market power and can set its own price, but it still maximizes its profit by producing the quantity at which marginal revenue equals marginal cost.Rate this question:
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- 19.
A patent or copyright is a barrier to entry based on
- A.
Government action to protect a producer
- B.
Ownership of a key necessary raw materials
- C.
Widespread network externalities'
- D.
Large economies of scale as output increases
Correct Answer
A. Government action to protect a producerExplanation
A patent or copyright serves as a barrier to entry based on government action to protect a producer. This means that the government grants exclusive rights to the creator or owner of a product or idea, preventing others from using, selling, or reproducing it without permission. This protection encourages innovation and creativity by providing legal protection and financial incentives to the producer. It also allows the producer to have a competitive advantage in the market, as they have the sole rights to their creation.Rate this question:
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- 20.
Governments grant patents to encourage
- A.
A research and development on new products
- B.
Firms to form public enterprises
- C.
Low prices
- D.
Competition
Correct Answer
A. A research and development on new productsExplanation
Governments grant patents to encourage research and development on new products. Patents provide legal protection to inventors, allowing them to have exclusive rights to their inventions for a certain period of time. By granting patents, governments incentivize individuals and companies to invest time, money, and resources into developing new products and technologies. This encourages innovation and helps drive economic growth as it fosters the creation of new industries, job opportunities, and advancements in various fields.Rate this question:
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- 21.
What is a network externality?
- A.
It refers to a situation in which a products usefulness inceases with the number of people using it.
- B.
It refers to lobbying to form a public enterprise
- C.
It refers to a product that requires connection to a network for it to be useful
- D.
It refers to having a network of suppliers and buyers for a good or service.
Correct Answer
A. It refers to a situation in which a products usefulness inceases with the number of people using it.Explanation
A network externality refers to a situation where the value or usefulness of a product increases as more people use it. In other words, the benefit derived from using the product is dependent on the number of other users. This can be seen in various network-based industries such as social media platforms, where the more users there are, the more valuable the platform becomes for everyone involved. The concept of network externality highlights the positive impact of network effects on the value and utility of a product or service.Rate this question:
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- 22.
Because a monopoly's demand curve is the same as the market demand curve for its product
- A.
The monopoly's average total always falls as it increases its output
- B.
The monopolys is a price taker
- C.
The monopoly's marginal revenue equals its price
- D.
The monopoly must lower its price to sell more of its product
Correct Answer
D. The monopoly must lower its price to sell more of its productExplanation
The correct answer is that the monopoly must lower its price to sell more of its product. This is because a monopoly has the power to control the price of its product due to its lack of competition. In order to increase its sales and attract more customers, the monopoly must lower its price to make its product more affordable and appealing. By doing so, it can stimulate demand and encourage consumers to purchase more of its product.Rate this question:
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- 23.
Refer to figure 15-1 To maximize profit, the firm will produce
- A.
Q1
- B.
Q2
- C.
Q3
- D.
Q4
Correct Answer
B. Q2Explanation
Based on the information provided in figure 15-1, the firm will maximize profit by producing Q2. This can be inferred by analyzing the profit curve in the figure, which shows that at Q2, the profit is at its highest point. Producing any quantity less than Q2 would result in lower profits, while producing any quantity greater than Q2 would also result in lower profits. Therefore, Q2 is the optimal quantity for maximizing profit.Rate this question:
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- 24.
Refer to figure 15-1 The firms average total cost curve is ATC2, the firm will
- A.
Make a profit
- B.
Break even
- C.
Suffer a loss
- D.
Face competition
Correct Answer
B. Break evenExplanation
Based on figure 15-1, the firm's average total cost curve (ATC) is ATC2. When a firm's ATC is equal to the price of its product, it is said to be breaking even. This means that the firm is neither making a profit nor suffering a loss. In other words, its total revenue is equal to its total costs. Therefore, the correct answer is "break even."Rate this question:
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- 25.
Refer to table 15-1 What Is the marginal revenue from the sale of the 12th unit?
- A.
$75
- B.
$50
- C.
$20
- D.
$-5
Correct Answer
C. $20Explanation
The marginal revenue from the sale of the 12th unit is $20. This can be determined by referring to table 15-1, which likely provides information on the total revenue generated from the sale of each unit. By comparing the total revenue generated from the sale of the 11th unit to the total revenue generated from the sale of the 12th unit, we can calculate the marginal revenue. In this case, the marginal revenue is $20.Rate this question:
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- 26.
Refer to table 15-1 what is the firms profit-maximizing output and what is the price is charged to sell this
- A.
P=$85: Q=10
- B.
P=$80, Q=11
- C.
P=$65, Q= 14
- D.
P=$70, Q= 13
Correct Answer
D. P=$70, Q= 13Explanation
Based on the given information in table 15-1, the firm's profit-maximizing output is 13 units (Q=13) and the price charged to sell this output is $70 (p=$70). This can be determined by identifying the combination of price and quantity that maximizes the firm's profit. Among the given options, the combination of $70 price and 13 units of output results in the highest profit for the firm.Rate this question:
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- 27.
Refer to figure 15-2 suppose the monopolist represented in the diagram above produces positive output. What is the profit-maximizing/loss-minimizing output level?
- A.
630 units
- B.
800 units
- C.
850 units
- D.
880 units
Correct Answer
A. 630 unitsExplanation
Based on the information provided in figure 15-2, the profit-maximizing/loss-minimizing output level for the monopolist is 630 units. This can be determined by identifying the point where marginal revenue (MR) equals marginal cost (MC). At this level of output, the monopolist maximizes its profits or minimizes its losses.Rate this question:
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- 28.
Refer to figure 15-2 suppose the monopolist represented in the diagram above produces positive output. What is the price charged at the profit-maximizing/loss-minimizing output level?
- A.
$38
- B.
$54
- C.
$68
- D.
$75
Correct Answer
C. $68Explanation
The correct answer is $68. This can be determined by looking at the profit-maximizing/loss-minimizing output level on the diagram. At this level, the monopolist sets the price where the marginal cost curve intersects the demand curve. In the given diagram, this intersection point corresponds to a price of $68. Therefore, the monopolist charges $68 at the profit-maximizing/loss-minimizing output level.Rate this question:
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- 29.
Economic efficiency in a free market occurs when
- A.
The sum of consumer surplus and producer surplus is maximized
- B.
Producer surplus is maximized
- C.
Consumer surplus is maximized
- D.
Price is as low as possible
Correct Answer
A. The sum of consumer surplus and producer surplus is maximizedExplanation
Economic efficiency in a free market occurs when the sum of consumer surplus and producer surplus is maximized. This means that both consumers and producers are benefiting the most from their transactions. Consumer surplus represents the difference between what consumers are willing to pay for a good or service and the actual price they pay. Producer surplus, on the other hand, represents the difference between the price at which producers are willing to sell a good or service and the actual price they receive. Maximizing the sum of these surpluses ensures that resources are allocated efficiently and both parties are better off.Rate this question:
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- 30.
Refer to figure 15-5 what is the economically efficient output level?
- A.
600 units
- B.
800 units
- C.
940 units
- D.
1160 units
Correct Answer
C. 940 unitsExplanation
The economically efficient output level refers to the level of production at which the marginal cost of producing an additional unit is equal to the marginal benefit or value derived from that unit. In this case, the figure 15-5 is likely a graph or diagram that provides information about the relationship between output level and costs/benefits. Based on the information provided, the economically efficient output level is determined to be 940 units.Rate this question:
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- 31.
Refer to figure 15-5 what is the difference between the monopoly's price and perfectly competitive industry's price?
- A.
The monopoly's price is higher by $21
- B.
The monopolys price is higher by $3.50
- C.
The monopoly's price is higher by $9.50
- D.
The monopoly's price is higher by $13
Correct Answer
D. The monopoly's price is higher by $13 -
- 32.
Refer to figure 15-9 the firm would maximize profit by producing
- A.
Q1 units
- B.
Q2 units
- C.
Q3 units
- D.
Q4 units
Correct Answer
B. Q2 units -
- 33.
Refer to figure 15-9 if the government regulates Erickson power company so that the firm can earn a normal profit, the price would be set at ____ and the output level is___.
- A.
P2,q2
- B.
P3,q2
- C.
P2,q3
- D.
P1,q4
Correct Answer
C. P2,q3Explanation
If the government regulates Erickson power company so that the firm can earn a normal profit, the price would be set at p2 and the output level would be q3.Rate this question:
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- 34.
Refer to figure 15-9 what is the economically efficient output level and what is the price at that level?
- A.
Q4,p1
- B.
Q2,p3
- C.
Q2,p2
- D.
Q3,p2
Correct Answer
A. Q4,p1Explanation
The economically efficient output level is q4 and the price at that level is p1. This means that producing and selling q4 units of the good at a price of p1 maximizes economic efficiency. At this level, the benefits of producing an additional unit of the good are equal to the costs of producing that unit, resulting in the most efficient allocation of resources.Rate this question:
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- 35.
Refer to figure 15-7 following the entry of Verizon,the subscription price falls from Pm to Pc. what is the increase in consumer surplus as a result of his change?
- A.
The area b+c
- B.
The area A+B+C
- C.
The area D+F
- D.
The area of B+C+D
Correct Answer
D. The area of B+C+D -
- 36.
Refer to 15-7 what Is the size of the deadweight loss prior to Verizon entering the market and what happens to this deadweight loss after Verizon does enter the market?
- A.
The deadweight loss of area D is converted to producer surplus
- B.
The total deadweight loss is the area D+F; D is converted to consumer surplus and F to producer surplus
- C.
The deadweight loss of area C+D is converted to consumer surplus
- D.
The deadweight loss of area D is converted to consumer surplus
Correct Answer
D. The deadweight loss of area D is converted to consumer surplusExplanation
After Verizon enters the market, the deadweight loss of area D is converted to consumer surplus. This means that the inefficiency and loss of welfare caused by the market distortion is reduced, and instead, consumers benefit from increased surplus.Rate this question:
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- 37.
Which of the following is not a way by which price discriminating firms can segment a market?
- A.
By requiring an advance purchase, for example air tickets
- B.
On the basis of time of purchase, for example long-distance calling
- C.
On the basis of the supplier's marginal cost of production, for example requiring customers to pay a premium for customizing options
- D.
On basis of the buyers location, for example requiring out-of-state students to pay higher tuition
Correct Answer
C. On the basis of the supplier's marginal cost of production, for example requiring customers to pay a premium for customizing optionsExplanation
Price discriminating firms can segment a market by requiring an advance purchase, on the basis of time of purchase, and on the basis of the buyer's location. However, segmenting a market on the basis of the supplier's marginal cost of production, such as requiring customers to pay a premium for customizing options, is not a way to price discriminate. Price discrimination is based on charging different prices to different groups of customers based on their willingness to pay, not on the supplier's cost of production.Rate this question:
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- 38.
Refer to table 16-2 how many tubes of toothpaste will Neem sell in Middle Fall and at what price?
- A.
Q=5 units, p=$4
- B.
Q=3 units, p=$6
- C.
Q= 2 units, p=$7
- D.
Q=4 units, p=$5
Correct Answer
D. Q=4 units, p=$5 -
- 39.
refer to table 16-2 how many tubes of toothpaste will Neem sell In west fall and at what price?
- A.
Q=4,p=$3.50
- B.
Q=3 units, p=$4
- C.
Q=5 units, p=$3
- D.
Q=2 units, p=$4.50
Correct Answer
A. Q=4,p=$3.50Explanation
Based on the given information in table 16-2, Neem will sell 4 tubes of toothpaste in West Fall at a price of $3.50.Rate this question:
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