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1 | ![](/olcweb/styles/shared/spacer.gif) | ![](/olcweb/styles/shared/spacer.gif) A monopolist... |
| ![](/olcweb/styles/shared/spacer.gif) | A)![](/olcweb/styles/shared/spacer.gif) | always charges a price that is higher than marginal revenue. |
| ![](/olcweb/styles/shared/spacer.gif) | B)![](/olcweb/styles/shared/spacer.gif) | can earn a greater than normal rate of return in the long run. |
| ![](/olcweb/styles/shared/spacer.gif) | C)![](/olcweb/styles/shared/spacer.gif) | can raise its price without losing any sales because it is the only supplier in the market. |
| ![](/olcweb/styles/shared/spacer.gif) | D)![](/olcweb/styles/shared/spacer.gif) | both a and b |
| ![](/olcweb/styles/shared/spacer.gif) | E)![](/olcweb/styles/shared/spacer.gif) | both b and c |
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2 | ![](/olcweb/styles/shared/spacer.gif) | ![](/olcweb/styles/shared/spacer.gif) In a monopolistically competitive market, |
| ![](/olcweb/styles/shared/spacer.gif) | A)![](/olcweb/styles/shared/spacer.gif) | no firm has any market power. |
| ![](/olcweb/styles/shared/spacer.gif) | B)![](/olcweb/styles/shared/spacer.gif) | firms are small relative to the total market. |
| ![](/olcweb/styles/shared/spacer.gif) | C)![](/olcweb/styles/shared/spacer.gif) | there is easy entry and exit in the market. |
| ![](/olcweb/styles/shared/spacer.gif) | D)![](/olcweb/styles/shared/spacer.gif) | a and b |
| ![](/olcweb/styles/shared/spacer.gif) | E)![](/olcweb/styles/shared/spacer.gif) | b and c |
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3 | ![](/olcweb/styles/shared/spacer.gif) | ![](/olcweb/styles/shared/spacer.gif) Which of the following would indicate a relatively large amount of market power? |
| ![](/olcweb/styles/shared/spacer.gif) | A)![](/olcweb/styles/shared/spacer.gif) | High demand elasticity |
| ![](/olcweb/styles/shared/spacer.gif) | B)![](/olcweb/styles/shared/spacer.gif) | Low Lerner index |
| ![](/olcweb/styles/shared/spacer.gif) | C)![](/olcweb/styles/shared/spacer.gif) | Low cross-price elasticity with other products |
| ![](/olcweb/styles/shared/spacer.gif) | D)![](/olcweb/styles/shared/spacer.gif) | all of the above |
| ![](/olcweb/styles/shared/spacer.gif) | E)![](/olcweb/styles/shared/spacer.gif) | none of the above |
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4 | ![](/olcweb/styles/shared/spacer.gif) | ![](/olcweb/styles/shared/spacer.gif) A monopolistic competitor is similar to a monopolist in that: |
| ![](/olcweb/styles/shared/spacer.gif) | A)![](/olcweb/styles/shared/spacer.gif) | both earn positive economic profit in the long run. |
| ![](/olcweb/styles/shared/spacer.gif) | B)![](/olcweb/styles/shared/spacer.gif) | both have market power. |
| ![](/olcweb/styles/shared/spacer.gif) | C)![](/olcweb/styles/shared/spacer.gif) | both produce the output at which long-run average cost is at a minimum. |
| ![](/olcweb/styles/shared/spacer.gif) | D)![](/olcweb/styles/shared/spacer.gif) | a and b |
| ![](/olcweb/styles/shared/spacer.gif) | E)![](/olcweb/styles/shared/spacer.gif) | all of the above |
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5 | ![](/olcweb/styles/shared/spacer.gif) | ![](/olcweb/styles/shared/spacer.gif) The next two questions refer to the following figure showing demand and marginal revenue for a monopoly.![](/sites/dl/free/0070601607/124373/chap13_5.gif) (5.0K) At any price above $______ demand is elastic. |
| ![](/olcweb/styles/shared/spacer.gif) | A)![](/olcweb/styles/shared/spacer.gif) | $20 |
| ![](/olcweb/styles/shared/spacer.gif) | B)![](/olcweb/styles/shared/spacer.gif) | $30 |
| ![](/olcweb/styles/shared/spacer.gif) | C)![](/olcweb/styles/shared/spacer.gif) | $40 |
| ![](/olcweb/styles/shared/spacer.gif) | D)![](/olcweb/styles/shared/spacer.gif) | $60 |
| ![](/olcweb/styles/shared/spacer.gif) | E)![](/olcweb/styles/shared/spacer.gif) | zero |
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6 | ![](/olcweb/styles/shared/spacer.gif) | ![](/olcweb/styles/shared/spacer.gif) If the cost of production is zero, what price will the monopoly charge? |
| ![](/olcweb/styles/shared/spacer.gif) | A)![](/olcweb/styles/shared/spacer.gif) | $20 |
| ![](/olcweb/styles/shared/spacer.gif) | B)![](/olcweb/styles/shared/spacer.gif) | $30 |
| ![](/olcweb/styles/shared/spacer.gif) | C)![](/olcweb/styles/shared/spacer.gif) | $40 |
| ![](/olcweb/styles/shared/spacer.gif) | D)![](/olcweb/styles/shared/spacer.gif) | $60 |
| ![](/olcweb/styles/shared/spacer.gif) | E)![](/olcweb/styles/shared/spacer.gif) | zero |
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7 | ![](/olcweb/styles/shared/spacer.gif) | ![](/olcweb/styles/shared/spacer.gif) In a monopolistically competitive market, |
| ![](/olcweb/styles/shared/spacer.gif) | A)![](/olcweb/styles/shared/spacer.gif) | a firm earns economic profits in the long run because it has market power. |
| ![](/olcweb/styles/shared/spacer.gif) | B)![](/olcweb/styles/shared/spacer.gif) | a firm has market power because it produces a differentiated product. |
| ![](/olcweb/styles/shared/spacer.gif) | C)![](/olcweb/styles/shared/spacer.gif) | there are a large number of firms. |
| ![](/olcweb/styles/shared/spacer.gif) | D)![](/olcweb/styles/shared/spacer.gif) | both a and b |
| ![](/olcweb/styles/shared/spacer.gif) | E)![](/olcweb/styles/shared/spacer.gif) | both b and c |
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8 | ![](/olcweb/styles/shared/spacer.gif) | ![](/olcweb/styles/shared/spacer.gif) Use the following figure to answer the next 3 questions.![](/sites/dl/free/0070601607/124373/chap13_8.gif) (5.0K) The profit-maximizing level of output is... |
| ![](/olcweb/styles/shared/spacer.gif) | A)![](/olcweb/styles/shared/spacer.gif) | 40 units. |
| ![](/olcweb/styles/shared/spacer.gif) | B)![](/olcweb/styles/shared/spacer.gif) | 60 units. |
| ![](/olcweb/styles/shared/spacer.gif) | C)![](/olcweb/styles/shared/spacer.gif) | 80 units. |
| ![](/olcweb/styles/shared/spacer.gif) | D)![](/olcweb/styles/shared/spacer.gif) | 140 units. |
| ![](/olcweb/styles/shared/spacer.gif) | E)![](/olcweb/styles/shared/spacer.gif) | none of the above |
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9 | ![](/olcweb/styles/shared/spacer.gif) | ![](/olcweb/styles/shared/spacer.gif) The firm will sell its output at a price of... |
| ![](/olcweb/styles/shared/spacer.gif) | A)![](/olcweb/styles/shared/spacer.gif) | $2. |
| ![](/olcweb/styles/shared/spacer.gif) | B)![](/olcweb/styles/shared/spacer.gif) | $3. |
| ![](/olcweb/styles/shared/spacer.gif) | C)![](/olcweb/styles/shared/spacer.gif) | $3.75. |
| ![](/olcweb/styles/shared/spacer.gif) | D)![](/olcweb/styles/shared/spacer.gif) | $5. |
| ![](/olcweb/styles/shared/spacer.gif) | E)![](/olcweb/styles/shared/spacer.gif) | $6. |
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10 | ![](/olcweb/styles/shared/spacer.gif) | ![](/olcweb/styles/shared/spacer.gif) The firm earns profits of... |
| ![](/olcweb/styles/shared/spacer.gif) | A)![](/olcweb/styles/shared/spacer.gif) | $ 0. |
| ![](/olcweb/styles/shared/spacer.gif) | B)![](/olcweb/styles/shared/spacer.gif) | $75. |
| ![](/olcweb/styles/shared/spacer.gif) | C)![](/olcweb/styles/shared/spacer.gif) | $120. |
| ![](/olcweb/styles/shared/spacer.gif) | D)![](/olcweb/styles/shared/spacer.gif) | $240. |
| ![](/olcweb/styles/shared/spacer.gif) | E)![](/olcweb/styles/shared/spacer.gif) | $600. |
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11 | ![](/olcweb/styles/shared/spacer.gif) | ![](/olcweb/styles/shared/spacer.gif) Which of the following is true of a monopolist in the long run? |
| ![](/olcweb/styles/shared/spacer.gif) | A)![](/olcweb/styles/shared/spacer.gif) | The firm will charge a price that is higher than long-run marginal cost. |
| ![](/olcweb/styles/shared/spacer.gif) | B)![](/olcweb/styles/shared/spacer.gif) | The firm will produce that level of output at which long-run average cost is minimum. |
| ![](/olcweb/styles/shared/spacer.gif) | C)![](/olcweb/styles/shared/spacer.gif) | The firm will charge a price that is equal to or greater than long-run average cost. |
| ![](/olcweb/styles/shared/spacer.gif) | D)![](/olcweb/styles/shared/spacer.gif) | both b and c |
| ![](/olcweb/styles/shared/spacer.gif) | E)![](/olcweb/styles/shared/spacer.gif) | none of the above |
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12 | ![](/olcweb/styles/shared/spacer.gif) | ![](/olcweb/styles/shared/spacer.gif) Cost-plus pricing... |
| ![](/olcweb/styles/shared/spacer.gif) | A)![](/olcweb/styles/shared/spacer.gif) | does not take demand conditions into account. |
| ![](/olcweb/styles/shared/spacer.gif) | B)![](/olcweb/styles/shared/spacer.gif) | sets price by adding a percentage markup to average total cost. |
| ![](/olcweb/styles/shared/spacer.gif) | C)![](/olcweb/styles/shared/spacer.gif) | bases price on marginal, rather than average, cost. |
| ![](/olcweb/styles/shared/spacer.gif) | D)![](/olcweb/styles/shared/spacer.gif) | both a and b |
| ![](/olcweb/styles/shared/spacer.gif) | E)![](/olcweb/styles/shared/spacer.gif) | both b and c |
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13 | ![](/olcweb/styles/shared/spacer.gif) | ![](/olcweb/styles/shared/spacer.gif) The next 8 questions refer to the following:The market demand for a monopoly firm is established to be:Qd = 80,000 − 400P + 3M + 2000PR where Q is output, P is price, M is income, and PR is the price of a related good. The manager has forecasted the values of M and PR will be $60,000 and $15, respectively, in 2002. For 2002, the forecasted demand function is... |
| ![](/olcweb/styles/shared/spacer.gif) | A)![](/olcweb/styles/shared/spacer.gif) | Q = 80,000 - 400P |
| ![](/olcweb/styles/shared/spacer.gif) | B)![](/olcweb/styles/shared/spacer.gif) | Q = 290,000 - 400P |
| ![](/olcweb/styles/shared/spacer.gif) | C)![](/olcweb/styles/shared/spacer.gif) | Q = 300,000 - 200P |
| ![](/olcweb/styles/shared/spacer.gif) | D)![](/olcweb/styles/shared/spacer.gif) | Q = 210,000 - 400P |
| ![](/olcweb/styles/shared/spacer.gif) | E)![](/olcweb/styles/shared/spacer.gif) | none of the above |
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14 | ![](/olcweb/styles/shared/spacer.gif) | ![](/olcweb/styles/shared/spacer.gif) For 2002, the inverse demand function is... |
| ![](/olcweb/styles/shared/spacer.gif) | A)![](/olcweb/styles/shared/spacer.gif) | Q = 80 - 0.004P. |
| ![](/olcweb/styles/shared/spacer.gif) | B)![](/olcweb/styles/shared/spacer.gif) | P = 800 - 0.004Q. |
| ![](/olcweb/styles/shared/spacer.gif) | C)![](/olcweb/styles/shared/spacer.gif) | P = 725 - 0.002Q. |
| ![](/olcweb/styles/shared/spacer.gif) | D)![](/olcweb/styles/shared/spacer.gif) | P = 725 - 0.003Q. |
| ![](/olcweb/styles/shared/spacer.gif) | E)![](/olcweb/styles/shared/spacer.gif) | none of the above |
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15 | ![](/olcweb/styles/shared/spacer.gif) | ![](/olcweb/styles/shared/spacer.gif) For 2002, the marginal revenue function is... |
| ![](/olcweb/styles/shared/spacer.gif) | A)![](/olcweb/styles/shared/spacer.gif) | MR = 80 - 0.002P. |
| ![](/olcweb/styles/shared/spacer.gif) | B)![](/olcweb/styles/shared/spacer.gif) | MR = 800 - 0.008Q. |
| ![](/olcweb/styles/shared/spacer.gif) | C)![](/olcweb/styles/shared/spacer.gif) | MR = 725 - 0.004Q. |
| ![](/olcweb/styles/shared/spacer.gif) | D)![](/olcweb/styles/shared/spacer.gif) | MR = 725 - 0.0015Q. |
| ![](/olcweb/styles/shared/spacer.gif) | E)![](/olcweb/styles/shared/spacer.gif) | none of the above |
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16 | ![](/olcweb/styles/shared/spacer.gif) | ![](/olcweb/styles/shared/spacer.gif) The average variable cost function is estimated to beAVC = 725 − 0.01Q + 0.000001Q2 Total fixed cost in 2002 is expected to be $50,000.
The estimated marginal cost function is... |
| ![](/olcweb/styles/shared/spacer.gif) | A)![](/olcweb/styles/shared/spacer.gif) | MC = 725 − 0.02Q + 0.000003Q2 |
| ![](/olcweb/styles/shared/spacer.gif) | B)![](/olcweb/styles/shared/spacer.gif) | MC = 362.5 − 0.02Q + 0.000001Q2 |
| ![](/olcweb/styles/shared/spacer.gif) | C)![](/olcweb/styles/shared/spacer.gif) | MC = 725 − 0.02Q + 0.000002Q2 |
| ![](/olcweb/styles/shared/spacer.gif) | D)![](/olcweb/styles/shared/spacer.gif) | MC = 362.5 − 0.005Q + 0.000003Q2 |
| ![](/olcweb/styles/shared/spacer.gif) | E)![](/olcweb/styles/shared/spacer.gif) | none of the above |
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17 | ![](/olcweb/styles/shared/spacer.gif) | ![](/olcweb/styles/shared/spacer.gif) The profit-maximizing level of output for 2002 is... |
| ![](/olcweb/styles/shared/spacer.gif) | A)![](/olcweb/styles/shared/spacer.gif) | 1,000 units. |
| ![](/olcweb/styles/shared/spacer.gif) | B)![](/olcweb/styles/shared/spacer.gif) | 4,000 units. |
| ![](/olcweb/styles/shared/spacer.gif) | C)![](/olcweb/styles/shared/spacer.gif) | 5,000 units. |
| ![](/olcweb/styles/shared/spacer.gif) | D)![](/olcweb/styles/shared/spacer.gif) | 10,000 units. |
| ![](/olcweb/styles/shared/spacer.gif) | E)![](/olcweb/styles/shared/spacer.gif) | 20,000 units. |
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18 | ![](/olcweb/styles/shared/spacer.gif) | ![](/olcweb/styles/shared/spacer.gif) The profit-maximizing price for 2002 is... |
| ![](/olcweb/styles/shared/spacer.gif) | A)![](/olcweb/styles/shared/spacer.gif) | $80.75. |
| ![](/olcweb/styles/shared/spacer.gif) | B)![](/olcweb/styles/shared/spacer.gif) | $712.50. |
| ![](/olcweb/styles/shared/spacer.gif) | C)![](/olcweb/styles/shared/spacer.gif) | $362.50. |
| ![](/olcweb/styles/shared/spacer.gif) | D)![](/olcweb/styles/shared/spacer.gif) | $725. |
| ![](/olcweb/styles/shared/spacer.gif) | E)![](/olcweb/styles/shared/spacer.gif) | $700. |
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19 | ![](/olcweb/styles/shared/spacer.gif) | ![](/olcweb/styles/shared/spacer.gif) The manager should ________________ because_____________. |
| ![](/olcweb/styles/shared/spacer.gif) | A)![](/olcweb/styles/shared/spacer.gif) | shut down; P = $362.50 < TVC = $820 |
| ![](/olcweb/styles/shared/spacer.gif) | B)![](/olcweb/styles/shared/spacer.gif) | shut down; P = $712.50 < AVC = $725 |
| ![](/olcweb/styles/shared/spacer.gif) | C)![](/olcweb/styles/shared/spacer.gif) | operate; P = $725 > AVC = $700 |
| ![](/olcweb/styles/shared/spacer.gif) | D)![](/olcweb/styles/shared/spacer.gif) | operate; P = $712.50 > AVC = $700 |
| ![](/olcweb/styles/shared/spacer.gif) | E)![](/olcweb/styles/shared/spacer.gif) | none of the above |
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20 | ![](/olcweb/styles/shared/spacer.gif) | ![](/olcweb/styles/shared/spacer.gif) The firm's profit is... |
| ![](/olcweb/styles/shared/spacer.gif) | A)![](/olcweb/styles/shared/spacer.gif) | $35,000. |
| ![](/olcweb/styles/shared/spacer.gif) | B)![](/olcweb/styles/shared/spacer.gif) | $15,000. |
| ![](/olcweb/styles/shared/spacer.gif) | C)![](/olcweb/styles/shared/spacer.gif) | -$50,000. |
| ![](/olcweb/styles/shared/spacer.gif) | D)![](/olcweb/styles/shared/spacer.gif) | $62,500. |
| ![](/olcweb/styles/shared/spacer.gif) | E)![](/olcweb/styles/shared/spacer.gif) | $12,500. |
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