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Quiz #5 -- April 1, 2015 -- 2pm!
1. Which of the following characteristics relate to perfect competition?
I.
II.
III.
A)
B)
C)
D)
An industry is dominated by several large firms.
Consumers cannot distinguish one firm's product from another.
New firms can easily enter the industry.
I and II
II and III
II only
III only
2. Stu owns an ice cream parlor that is usually closed during the winter months. This winter,
however, Stu is considering opening his business in February instead of March. If Stu opens
his store in February, he will earn total revenue of $4,000 for the month, while incurring
variable costs of $3,500 and fixed costs of $1,500. If the store remains closed during
February, Stu will earn no revenues and incur fixed costs of $1,500. What should Stu do?
A) Stu should keep the ice cream parlor closed in February because he would lose $1,000 if
he opens.
B) Stu should keep the ice cream parlor closed in February because the $500 of operating
profit is insufficient to cover the $1,500 of fixed costs.
C) Stu should open the ice cream parlor in February because the $4,000 of total revenue
exceeds the $1,500 of fixed costs.
D) Stu should open the ice cream parlor in February because the $4,000 of total revenue
exceeds the $3,500 of variable costs.
3. To maximize profits, a firm should produce where:
A) MR = MC.
B) TR/Q = TC/Q.
C) P = AVC.
D) ATC < P < AVC.
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Use the following to answer question 4.
Figure 8.8
4. (Figure 8.8) Which of the following statements is TRUE?
I.
II.
III.
A)
B)
C)
D)
The firm earns $120 of profit at 24 units of output.
At prices above $5, the firm earns positive profit.
At a price of $4, the firm would produce more than 24 units of output to offset the lower
price.
I only
II and III
II only
I and III
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Use the following to answer question 5.
Figure 8.17
5. (Figure 8.17) Initially, the constant-cost industry was in long-run equilibrium at point A
when the demand for the good increased to D2 . How much output will be produced in the
long run as a result of the demand increase?
A) 3,000
B) 5,000
C) 6,000
D) 7,000
6. A perfectly competitive firm maximizes profit by producing 500 units of output—selling
each unit for $10. The firm's average variable cost is $7 and average fixed cost is $2. What is
the firm's producer surplus?
A) $500
B) $1,500
C) $1,000
D) $1.00
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7. Which of the following are sources of market power?
I.
II.
government patents and copyrights
a Minnesota law that requires all new funeral homes to have an embalming room, which costs upward of $30,000,
regardless of whether it is functional or will be used
III. a Portland, Oregon, law that makes it a crime for limousine companies to charge less than $50 per ride
A)
B)
C)
D)
I, II, and III
I only
II only
III only
Use the following to answer question 8.
Figure 9.3
8. (Figure 9.3) The profit-maximizing quantity and price are ______ and ______, respectively.
A) 6 units; $6
B) 10 units; $8
C) 14 units; $4
D) 6 units; $12
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9. Suppose a firm's inverse demand curve is given by P = 160 – 4Q. Which of the following
statements is TRUE?
I.
II.
III.
IV.
A)
B)
C)
D)
The firm's marginal revenue curve is given by MR = 160 – 8Q.
The firm's marginal revenue cannot be negative.
The firm's marginal revenue curve is given by MR = 40 – 0.50Q.
When Q = 10, MR = $80.
I and II
I and IV
II and III
III only
Use the following to answer question 10.
Figure 9.5
10. (Figure 9.5) What happens to the firm's profit-maximizing price and quantity following the
increase in demand from D1 to D 2 ?
A) The firm will increase the price to P3 and sell Q1 units of output.
B) The firm will raise the price from P2 to less than P3 and increase output from Q1 to less
than Q2 .
C) The firm will sell Q2 units of output at a price of P2 .
D) The firm will reduce output from Q3 to Q 2 and raise price from P2 to P3 .
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