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| 1 | |
You are the manager of a firm that produces output in two plants. The demand for your firm's product is P = 80-Q, where Q = Q1 + Q2. The marginal cost associated with producing in the two plants are MC1 = Q1 and MC2 = 8. How much output should be produced in plant 1 in order to maximize profits? |
| | A) | 2. |
| | B) | 4. |
| | C) | 8. |
| | D) | 14. |
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| 2 | |
You are the manager of a firm that produces output in two plants. The demand for your firm's product is P = 80-Q, where Q = Q1 + Q2. The marginal cost associated with producing in the two plants are MC1 = Q1 and MC2 = 8. What is the profit maximizing price that the firm should charge? |
| | A) | $12. |
| | B) | $26. |
| | C) | $38. |
| | D) | $44. |
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| 3 | |
Which of the following is best characterized as monopoly? |
| | A) | Internet providers. |
| | B) | Retail clothing stores. |
| | C) | Indiana corn farmers. |
| | D) | Local electricity services. |
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| 4 | |
You are the manager of a firm that sells its product in a competitive market at a price of $250. Your firm's cost function is C = 30 + 5Q2. The profit-maximizing output for your firm is |
| | A) | 25. |
| | B) | 10. |
| | C) | 8.45. |
| | D) | 7.07. |
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| 5 | |
For a firm producing in a perfectly competitive industry the demand is |
| | A) | perfectly elastic. |
| | B) | relatively inelastic. |
| | C) | perfectly inelastic. |
| | D) | relatively elastic. |
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| 6 | |
You are the manager of a monopoly that faces an inverse demand curve described by P = 528 - 12Q. Your costs are C = 124 + 48Q. The profit-maximizing price is |
| | A) | $20. |
| | B) | $48. |
| | C) | $240. |
| | D) | $288. |
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| 7 | |
Which of the following statements is incorrect regarding perfectly competitive markets and monopolistically competitive markets? |
| | A) | Perfectly competitive firms produce homogeneous goods, while monopolistically competitive firms have differentiated products. |
| | B) | Monopolistically competitive firms charge prices above marginal costs in the long-run, while perfectly competitive firms charge prices equal to marginal costs. |
| | C) | Competition in both types of markets leaves firms with zero economic profits in the long run. |
| | D) | The long-run equilibrium in both types of markets has firms producing the level of output that equates prices to the minimum of average costs. |
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| 8 | |
You are the manager of a firm that sells its product in a competitive market at a price of $150. Your firm's cost function is C = 125 + 5Q2. Your firm's maximum short-run profits are |
| | A) | $0. |
| | B) | $500. |
| | C) | $750. |
| | D) | $1000. |
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| 9 | |
Which one of the following is a potential source of monopoly power? |
| | A) | Cost complementarities. |
| | B) | The patent system. |
| | C) | Economies of scope. |
| | D) | All are potential sources of monopoly power. |
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| 10 | |
Let the demand function for a product be Q = 20 - 4P. The inverse demand function of this demand function is: |
| | A) | P = 20 + 4Q. |
| | B) | P = 5 - 0.25Q. |
| | C) | P = 80 - 4Q. |
| | D) | P = 80 + 0.25Q. |
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| 11 | |
Suppose that initially the price is $75 in a perfectly competitive market. Each firm is operating at the minimum point on its long-run average cost curve making zero economic profits. Then the market demand declines permanently and some firms exit the industry and the industry returns back to a long run equilibrium. The new equilibrium price, assuming cost conditions in the industry remain constant, will be |
| | A) | exactly equal to $75. |
| | B) | lower than $75. |
| | C) | higher than $75. |
| | D) | either lower than, higher than, or equal to $75, depending on the number of firms that have exited the industry. |
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| 12 | |
What is the profit maximization rule for a two-plant monopolist? |
| | A) | MC1(Q1) = MC2(Q2) = P(Q1 + Q2). |
| | B) | MC1(Q1) = MC2(Q2) = MR(Q1 + Q2). |
| | C) | MC1(Q1 + Q2) = MC2(Q1 + Q2) = P (Q1 + Q2). |
| | D) | MC1(Q1) = MC2(Q2) = MR1(Q1) = MR2(Q2). |
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| 13 | |
Which of the following is a correct representation of a profit-maximizing monopoly earning positive economic profits? |
| | A) | P = MR = MC, and P > AVC. |
| | B) | ATC = MR, and P > AVC. |
| | C) | MC = MR, and P > ATC. |
| | D) | P = MC, and P > ATC. |
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| 14 | |
Which of the following is true regarding the long-run equilibrium relationship between price and costs in a perfectly competitive and monopolistically competitive industry? |
| | A) | P = MC. |
| | B) | P < MC. |
| | C) | P = average costs. |
| | D) | P > average costs. |
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| 15 | |
One of the effects of the patent system is to |
| | A) | reduce the rewards for research and development. |
| | B) | temporarily provide monopoly power to the patent owner. |
| | C) | reduce the degree of monopoly power in the short term. |
| | D) | give firms less incentive to innovate. |
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