Mega Unit Practice Test

Mega Unit Test
Multiple Choice
Identify the choice that best completes the statement or answers the question.
____ 1. In the short run, a perfectly competitive firm produces output and earns an economic profit if:
a. P > ATC.
b. P = ATC.
c. P < AVC.
d. AVC > P > ATC.
e. AVC < P < ATC.
Quantity
of Apples
(bushels) VC
0 $ 0
1 40
2 70
3 80
4 130
5 190
6 260
7 340
8 430
Table 58-2: Lilly's Apple Orchard
____ 2. (Table 58-2: Lilly's Apple OrcharD. Lilly is the price-taking owner of an apple orchard; its variable costs are
given in the table. Her orchard has fixed costs of $30. If the price of a bushel of apples is $25, how many
bushels will Lilly produce to maximize profit?
a. 0
b. 1
c. 2
d. 3
e. 4
____ 3. If a perfectly competitive firm increases production from 10 units to 11 units, and the market price is $20 per
unit, total revenue for 10 units is:
a. $10.
b. $20.
c. $200.
d. $210.
e. $100.
Quantity
of Lots Variable Costs
0 $0
10 200
20 300
30 500
40 750
50 1,100
Table 59-1: Variable Costs for Lots
____ 4. (Table 59-1: Variable Costs for Lots) During the winter, Alexa runs a snow-clearing service, and snow-
clearing is a perfectly competitive industry. Her only fixed cost is $1,000 for a tractor. Her variable costs per
cleared lot, shown in the table, include fuel and hot coffee. What is Alexa's shut-down price in the short run?
a. $0
b. $15
c. $50
d. $42
e. $20
Figure 59-2: Prices, Cost Curves, and Profits
____ 5. (Figure 59-2: Cost Curves and Profits) In the figure, if the market price is $18, this firm will:
a. minimize its losses by shutting down.
b. minimize its losses by continuing to produce.
c. break even.
d. earn an economic profit.
e. exit the market in the long run.
Figure 59-7: Perfectly Competitive Firm II

____ 6. (Figure 59-7: Perfectly Competitive Firm II) If this firm's MR curve is MR2, then this firm will profit-
maximize by producing ________ units of output and its economic profit will be ________.
a. Q1; positive
b. Q2; negative
c. Q3; positive
d. Q4; negative
e. zero; negative
____ 7. In the short run, for a perfectly competitive firm, the portion of the MC curve at or above the shut-down price
is also its:
a. individual short-run supply curve.
b. ATC curve.
c. AVC curve.
d. individual demand curve.
e. profit curve.
____ 8. If firms are making positive economic profits in the short run, then in the long run:
a. the short-run industry supply curve will shift leftward.
b. firms will enter the industry.
c. industry output will rise and price will rise.
d. firms will leave the industry.
e. the price will decrease to where price equals average variable cost.
____ 9.
Quantity
of Appels
(bushels) VC
0 $ 0
1 40
2 70
3 80
4 130
5 190
6 260
7 340
8 430
Table: Lilly's Apple Orchard
Lilly is the price-taking owner of an apple orchard; its variable costs are given in the table. Her orchard has
fixed costs of $30. If the price of a bushel of apples is $85, we would expect total industry output to:
a. rise, and Lilly's output will rise in the long run.
b. fall, and Lilly's output will fall in the long run.
c. fall, while Lilly's output will rise in the long run.
d. rise, while Lilly's output will fall in the long run.
e. rise, while Lilly's output will remain unchanged in the long run.
____ 10. Compared to a perfectly competitive industry, a monopolist:

a. produces a large quantity.
b. charges a higher price.
c. increases consumer surplus.
d. earns less profit in the long run.
e. is more efficient.
____ 11.
In the figure, a perfect competitor will produce at:

a. the intersection of marginal revenue and marginal cost.
b. the intersection of demand and marginal cost.
c. the intersection of demand and average total cost.
d. the intersection of marginal revenue and average total cost.
e. the intersection of marginal revenue and demand.
____ 12. If a monopolist is producing a quantity that generates MC > MR, then profit:
a. is maximized.
b. is maximized only if MC = P.
c. can be increased by increasing production to the point where MR = MC.
d. can be increased by decreasing production to the point where MR = MC.
e. can be increased by finding the output where MR = P = MC.
Figure 61-2: Computing Monopoly Profit

____ 13. (Figure 61-2: Computing Monopoly Profit) Producing at point N would:
a. result in MR = MC.
b. result in positive economic profits.
c. never be profit-maximizing, since at this output MR < 0 and MC > 0.
d. result in the firm breaking even.
e. result in the most efficient level of output.
____ 14. An increase in the fixed costs of a monopoly firm would ________ price and ________ quantity in the short
run.
a. increase; decrease
b. increase; increase
c. not change; not change
d. decrease; decrease
e. not change; increase
Figure 61-4: Monopoly Model

____ 15. (Figure 61-4: Monopoly Model) When the firm is in equilibrium (that is, maximizing its economic profit), its
profit is the area of rectangle:
a. SPDB.
b. IPDH.
c. ISBH.
d. 0PDJ.
e. 0SBJ.
____ 16. (Figure 61-4: Monopoly Model) When the firm is in equilibrium (that is, maximizing its economic profit), its
total cost is the area of rectangle ________ and its total revenue is the area of rectangle ________.
a. 0PDJ; SPDB
b. 0IHJ; IPDH
c. IPDH; 0SBJ
d. 0SBJ; 0PDJ
e. 0SBJ; ISBH.
____ 17. If a monopolist is producing a quantity that generates MC = MR, then profit:
a. is maximized.
b. is maximized only if MC = P.
c. can be increased by increasing production.
d. can be increased by decreasing production.
e. can be increased by increasing price.
____ 18. In monopoly:

a. because P > MC, a basic condition for efficiency is violated.
b. consumers are confronted with a price that is lower than marginal cost.
c. consumers will consume more of the good than is economically efficient.
d. consumers are confronted with a price that is lower than average total cost.
e. consumers are faced with prices that are lower than marginal revenue.
____ 19. A firm that is a natural monopoly will:

a. attempt to break even by setting P = ATC.
b. produce at the socially efficient quantity where P = MC.
c. face increasing average costs of production.
d. face greater market instability than a regular monopoly.
e. maximize profit by producing where MR = MC.
____ 20. Firms will seek a price structure that offers customers with a ________ demand a ________ price and offers
customers with a(n) ________ demand a ________ price.
a. less elastic; lower; more elastic; higher
b. less elastic; higher; more elastic; lower
c. lower; higher; higher; lower
d. seasonal; lower; unchanging; higher
e. less elastic; higher; more elastic; higher
____ 21. Which of the following scenarios best describes an oligopolistic industry?
a. A single cable company serves customers in a small town.
b. Thousands of soybean farmers sell their output in a global commodities market.
c. Coca-Cola and Pepsi sell most of the soft drinks consumed around the world.
d. A college has one bookstore selling textbooks to students.
e. Hundreds of firms produce similar, but differentiated, types of shoes.
____ 22. Gary's Gas and Frank's Fuel are the only two providers of gasoline in Smalltown. Gary and Frank decide to
form a cartel to raise the price of gasoline. The total industry profits are highest when ________ and Gary's
profits are highest when ________.
a. neither firm cheats on the agreement; neither firm cheats on the agreement
b. neither firm cheats on the agreement; Gary cheats on the agreement and Frank does not
cheat
c. both firms cheat on the agreement; Gary cheats on the agreement and Frank does not cheat
d. both Gary and Frank cheat on the agreement; both Gary and Frank cheat on the agreement
e. neither firm cheats on the agreement; Frank cheats on the agreement and Gary does not
cheat
Figure 65-6: Payoff Matrix for the United States and the EU
____ 23. (Figure 65-6: Payoff Matrix for the United States and the EU) Given the payoff matrix in the figure, the
optimal combination is for:
a. both the United States and the EU to use 2 fleets.
b. the United States to use 1 fleet and for the EU to use 2 fleets.
c. both the United States and the EU to use 1 fleet.
d. the EU to use 1 fleet and for the United States to use 2 fleets.
e. No optimal combination exists for this game.
____ 24. (Figure 65-6: Payoff Matrix for the United States and the EU) Given the payoff matrix in the figure, the Nash
equilibrium combination is for:
a. No Nash equilibrium exists in this game.
b. the United States to use 1 fleet and for the EU to use 2 fleets.
c. both the United States and the EU to use 1 fleet.
d. the EU to use 1 fleet and for the United States to use 2 fleets.
e. both the United States and the EU to use 2 fleets.
Figure 65-8: Pricing Strategy in Cable TV Market II
____ 25. (Figure 65-8: Pricing Strategy in Cable TV Market II) The dominant strategy for CableNorth:
a. is to charge a high price.
b. is to always charge a low price.
c. is to always charge what CableSouth does.
d. does not exist.
e. is to charge the opposite of what CableSouth does.
____ 26. Which of the following factors increases the likelihood that oligopolists collude?
a. There are a large number of firms in the industry.
b. A firm and its rivals are currently operating at maximum productive capacity.
c. One firm has a significant cost advantage over its rivals.
d. Barriers to entry in the industry are low.
e. Firms sell products that significantly differ from rival products.
____ 27. Suppose Susan owns a business that operates in a market characterized by monopolistic competition. Susan's
profit-maximizing price is $12, her profit-maximizing output is 900 units per week, and her profits are $1,800
per week. Susan decides that she needs more profits and therefore raises her price to $15. At the new price of
$15:
a. profits will increase.
b. profits will remain at $1,800.
c. marginal revenue will be greater than marginal cost.
d. marginal revenue will be less than marginal cost.
e. price will be less than marginal cost.
Figure 67-8: Profits in Monopolistic Competition
____ 28. (Figure 67-8: Profits in Monopolistic Competition) Zero economic profit is earned if the profit-maximizing
price is price ________ in panel ________.
a. A; A
b. B; A
c. N; C
d. E; B
e. L; B
Figure 67-9: The Restaurant Market

____ 29. (Figure 67-9: The Restaurant Market) The figure shows curves facing a typical restaurant in a community.
Assume that many firms, differentiated products, and easy entry and easy exit characterize the market. For the
restaurant shown here, its profit per unit is:
a. ae.
b. fd.
c. bf.
d. bd.
e. 0b.
____ 30. A monopolistically competitive firm is operating in the short run at the optimal level of output and is earning
negative economic profits. Which of the following must be true?
a. ATC > P > MR = MC
b. ATC = P > MR = MC
c. ATC > P = MR = MC
d. ATC > P > MR > MC
e. P > ATC > MR = MC
____ 31. Assume that a firm under monopolistic competition is producing a quantity that generates MC = MR. In this
case, we can assume that profit:
a. can be increased by increasing production.
b. is maximized.
c. can be increased by decreasing the price.
d. is maximized only if MC = P.
e. can be increased by decreasing production.
____ 32. The broccoli market is perfectly competitive. This means that the price of broccoli is ________ than the price
would be if the market was monopolistically competitive, and broccoli output is ________ than if it was
monopolistically competitive.
a. lower; greater
b. lower; less
c. greater; less
d. greater; greater
e. lower; no different
Figure 67-11: Comparing Long-Run Equilibriums
____ 33. (Figure 67-11: Comparing Long-Run Equilibriums) In the figure, which of the following statements is false?
a. The firm in panel (a) produces where price equals marginal cost, and thus it maximizes
profit and breaks even.
b. The firm in panel (b) produces where price equals marginal cost, and thus it maximizes
c. The firm in panel (b) produces where price equals average cost, and thus it maximizes
d. The firm in panel (a) produces where price equals average cost, and thus it maximizes
e. The firms in both panels produce where marginal revenue equals marginal cost and thus it
maximizes profit.
____ 34. Monopolistic competition within an industry will result in ________ because they produce ________.
a. overutilization of plants; the minimum-cost output
b. less advertising than in perfect competition; the minimum-cost output
c. lower prices than in perfect competition; more than the minimum-cost output
d. chronic excess capacity; less than the minimum-cost output
e. chronic excess capacity; less than the output where marginal cost is minimized
____ 35. In the long run, monopolistic competitors will:

a. earn zero economic profits.
b. produce at the minimum of their ATC curves.
c. set price where MC = MR.
d. collude with other firms.
e. produce where P = ATC = MR = MC.
Mega Unit Test
Answer Section
MULTIPLE CHOICE
1. ANS: A PTS: 1 DIF: M REF: Module 58/22

MSC: Concept-Based
MSC: Analytical Thinking
3. ANS: C PTS: 1 DIF: M REF: Module 58/22
4. ANS: B PTS: 1 DIF: D REF: Module 59/23
MSC: Critical Thinking
5. ANS: D PTS: 1 DIF: M REF: Module 59/23
6. ANS: B PTS: 1 DIF: M REF: Module 59/23
9. ANS: D PTS: 1 DIF: D REF: Module 60/24
MSC: Concept-Based
MSC: Concept-Based
MSC: Concept-Based
14. ANS: C PTS: 1 DIF: D REF: Module 61/25
16. ANS: D PTS: 1 DIF: D REF: Module 61/25
MSC: Concept-Based
MSC: Concept-Based
19. ANS: E PTS: 1 DIF: M REF: Module 62/26
MSC: Concept-Based
21. ANS: C PTS: 1 DIF: E REF: Module 62/48
MSC: Concept-Based
24. ANS: E PTS: 1 DIF: M REF: Module 65/29
MSC: Concept-Based
29. ANS: C PTS: 1 DIF: D REF: Module 67/31
30. ANS: A PTS: 1 DIF: D REF: Module 67/31
MSC: Concept-Based
MSC: Concept-Based
MSC: Concept-Based
MSC: Fact-Based

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Mega Unit Test

Figure 59-2: Prices, Cost Curves, and Profits

Figure 59-7: Perfectly Competitive Firm II

____ 10. Compared to a perfectly competitive industry, a monopolist:

In the figure, a perfect competitor will produce at:

Figure 61-2: Computing Monopoly Profit

Figure 61-4: Monopoly Model

____ 18. In monopoly:

____ 19. A firm that is a natural monopoly will:

Figure 65-8: Pricing Strategy in Cable TV Market II

Figure 67-8: Profits in Monopolistic Competition

Figure 67-9: The Restaurant Market

____ 35. In the long run, monopolistic competitors will:

1. ANS: A PTS: 1 DIF: M REF: Module 58/22

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