Download ECON101 2015-16 Fall Quiz 3 Answer Key

Eastern Mediterranean University Faculty of Business and Economics Department of Economics 2015‐16 Fall Semester ECON101 ‐ Introduction to Economics I Quiz 3 Type A 11 January 2016 Duration: 50 minutes Name: _________________________
Student ID: _____________________ Group No: ______________________ Part A: Multiple Choice Questions (4 points each, total 112 points) Please mark your answers on both the exam paper and the optic sheet. 1. A market is competitive if (i) firms have the flexibility to price their own product. (ii) each buyer is small compared to the market. (iii) each seller is small compared to the market. a. (i) and (ii) only b. (i) and (iii) only c. (ii) and (iii) only d. (i), (ii), and (iii) 2. A restaurant that has market power can a. minimize costs more efficiently than its competitors. b. influence the market price for the meals it sells. c. reduce its marketing budget more than its competitors. d. ignore profit­maximizing strategies when setting the price for its meals. The information below applies to a competitive firm that sells its output for $40 per unit. When the firm produces and sells 150 units of output, its average total cost is $24.50. When the firm produces and sells 151 units of output, its average total cost is $24.55. 3. Refer to the scenario above​
. When the firm produces 150 units of output, its total cost is a. $3,450.00.
b. $3,525.75.
c. $3,675.00.
d. $3,850.25. 4. Refer to the scenario above​
. When the firm produces 150 units of output, its profit is a. $2,150.00.
b. $2,325.00.
c. $3,100.75.
d. $3,675.00. 5. Refer to the scenario above​
. Suppose the firm is producing 150 units of output and its fixed cost is $975. Then its variable cost amounts to a. $2,360.25. b. $2,500.00.
c. $2,612.75.
d. $2,700.00. 6. Which of the following expressions is correct for a competitive firm? a. profit = (quantity of output) x (price ­ average total cost) b. marginal revenue = (change in total revenue)/(quantity of output) c. average total cost = total variable cost/quantity of output d. average revenue = (marginal revenue) x (quantity of output) Page 1​
of 4 7. Assume a firm in a competitive industry is producing 800 units of output, and it sells each unit for $6. Its average total cost is $4. Its profit is a. ­$1,600.
b. $1,600.
c. $3,200.
d. $8,000. 8. In the short run, a firm operating in a competitive industry will produce the quantity of output where price equals marginal cost as long as the a. price is less than average total cost. b. marginal revenue exceeds the marginal cost. c. price is greater than average variable cost. d. price is greater than average fixed cost but less than average variable cost. 9. The short­run supply curve for a firm in a perfectly competitive market is a. horizontal. b. likely to slope downward. c. determined by forces external to the firm. d. the portion of its marginal cost curve that lies above its average variable cost. Suppose that a firm in a competitive market has the following cost curves: 10. ​
Refer to the figure above. ​
The firm’s short​
run supply curve is its marginal cost curve above a. $1.
b. $3.
c. $4.50.
d. $6.30. 11. ​
Refer to the figure above. ​
The firm should shut down if the market price is a. above $8. b. above $6.30 but less than $8. c. above $4.50 but less than $6.30. d. less than $4.50. 12. ​
Refer to the figure above. ​
If the market price falls below $4.50, the firm will earn a. positive economic profits in the short run. b. negative economic profits in the short run but remain in business. c. negative economic profits in the short run and shut down. d. zero economic profits in the short run. Page 2​
of 4 13. ​
Refer to the figure above. ​
The firm will earn a positive economic profit in the short run if the market price is a. above $6.30. b. less than $6.30 but more than $4.50. c. less than $4.50. d. exactly $6.30. 14. A competitive firm a. and a monopolist are price takers. b. and a monopolist are price makers. c. is a price taker, whereas a monopolist is a price maker. d. is a price maker, whereas a monopolist is a price taker. 15. A monopoly a. can set the price it charges for its output and earn unlimited profits. b. takes the market price as given and earns small but positive profits. c. can set the price it charges for its output but faces a downward­sloping demand curve. d. can set the price it charges for its output but faces a horizontal demand curve so it can earn unlimited profits. 16. A monopoly can earn positive profits because it a. can sell unlimited quantities at any price it chooses. b. takes the market price as given and can sell unlimited quantities. c. can set the price it charges for its output but faces a horizontal demand curve. d. can maintain a price such that total revenues will exceed total costs. 17. Which of the following is ​
not ​
a characteristic of a monopoly? a. barriers to entry b. one seller ​
c. one buyer ​
d. a product without close substitutes 18. ​
Refer to the figure on the right. ​
Which of the following areas represents the profit earned by this
profit­maximizing monopolist? a. BCFE
b. ABE
c. EFG
d. CFIH 19. ​
Refer to the figure on the right. ​
Which of the following areas represents the deadweight loss from this profit­maximizing monopolist? a. ABE
b. BCFE
c. EFG
d. ACG 20. ​
Refer to the figure on the right. ​
Which of the following areas represents the consumer surplus from this profit­maximizing monopolist? a. ABE
b. BCFE
c. EFG
d. ACG Page 3​
of 4 Consider the following demand and cost information for a monopoly. Quantity Price Total Cost TR Profit MR MC 0 $30 $3 $0 $­3 ­ ­ 1 $25 $7 $25 $18 $25 $4 2 $20 $12 $40 $28 $15 $5 3 $15 $17 $45 $28 $5 $5 4 $10 $25 $40 $15 $­5 $8 21. ​
Refer to the table above​
. The marginal revenue of the 2nd unit is a. $10.
b. ​
$15.
c. ​
$20.
d. $25. 22. ​
Refer to the table above.​
The marginal cost of the 4th unit is a. $8​
.
b. $12.
c. $25.
d. $60. 23. ​
Refer to the table above.​
The maximum profit this monopolist can earn is a. $5.
b. $15.
c. $16.
d. ​
$28. 24.​
Refer to the table above.​
To maximize profit, the monopolist sets price at a. $10.
b. ​
$15.
c. $20.
d. ​
$25. 25. The social cost of a monopoly is equal to its a. economic profit.
b. fixed cost.
c. ​
dead weight loss.
d. variable cost. 26. In a competitive market, the actions of any single buyer or seller will a. discourage entry by competitors. b. influence the profits of other firms in the market. c. have a negligible impact on the market price. d. None of the above is correct. 27. For any given price, a firm in a competitive market will maximize profit by selecting the level of output at which price intersects the a. average total cost curve. b. average variable cost curve. c. marginal cost curve. d. marginal revenue curve. 28. The deadweight loss associated with a monopoly occurs because the monopolist a. maximizes profits. b. produces an output level less than the socially optimal level. c. produces an output level greater than the socially optimal level. d. equates marginal revenue with marginal cost. Page 4​
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