Download Economics 1 - Bakersfield College

Economics 1
Unit #3 Test
Name:
Class Day and Time:
Part A. Answer the following question in the space provided. It is worth 4 points.
1. Draw a diagram illustrating the case of a monopoly firm making a loss. Label the demand curve D,
the marginal revenue curve MR, the marginal cost curve MC, and the average total cost curve
ATC. Show the quantity the firm will choose to produce and the price it will charge and mark
those Q1 and P1 respectively.
Part B. Answer whether the following two economic statements are true, false, or uncertain in the space
provided.. Be sure to explain your answer. Each question is worth 4 points.
1. When a monopoly produces one more unit and sells it, its marginal revenue is equal to the price
that unit sells at. For example, an umbrella monopoly that makes and sells a 3rd umbrella for a
price of $4 will gain $4 in revenue.
2. When businesses form a cartel, the cartel will last until the government finds out about it and
breaks it up.
Part C. List the 3 properties or attributes for the following two market structures.
Monopolistic Competition
(1)
(2)
(3)
Oligopoly
(1)
(2)
(3)
Part D. 1. Fill in the blanks for MPP (marginal physical product) and MRP (marginal revenue product
If Q represents boxes of cookies made by a factory and the boxes sell for $2 each. This
Question is worth 2 points.
N
3
Q
120
MPP
---
MRP
---
4
180
_______
_______
5
210
_______
_______
6
220
________
_______
2. Continuing the above problem, if the marginal factor cost of a worker is $80, how many
workers will this business hire? Answer with an integer. This questions is worth 2 points.
Part E. Answer the following multiple choice questions by marking the letter of the best answer on
your scantron. Each question is worth 2 points.
1. In the long-run, profits in monopolistic competition:
a. never go to zero.
b. sometimes go to zero.
c. usually go to zero.
d. Always go to zero.
2. For which of the market structures is it true that marginal revenue is below price?
a. Perfect competition.
b. Monopoly.
c. Monopolistic Competition.
d. Both b and c.
e. All of the above.
3. For which market structure is the demand curve a horizontal line (a line straight flat across)?
a. Perfect competition.
b. Monopoly.
c. Monopolistic Competition.
d. Both b and c.
e. All of the above.
4. How does the production and prices for a market controlled by a monopoly usually compare to market with
perfect competition?
a. The monopolist makes more of the product and charges a higher price than there would be with
competition.
b. The monopolist makes less of the product and charges a higher price than with competition.
c. The monopolist makes more of the product and charges a lower price than with competition.
d. The monopolist makes less of the product and charges a lower price than with competition.
5. What is the primary reason donut shops traditionally give 13 donuts when a customer orders 12?
a. To get the customer to come back.
b. To get the customer to buy more donuts.
c. Because bakers are jolly, generous people.
d. Trick question, bakers do not actually do this.
6. Which of the following is a good example of monopolistic competition?
a. Wheat farming, when there are many wheat farmers.
b. Restaurants, when there are many restaurants.
c. One electric company which powers a whole town.
d. The cola industry, dominated by the 2 large companies of Pepsi and Coca-Cola.
7. Businesses in which of the following market structures have to lower their price to sell more?
a. Perfect competition.
b. Monopolistic competition.
c. Monopoly.
d. All of the above.
e. Both b and c.
8. If a good goes out of favor so its price falls, the workers who make it will see their MRP:
a. rise.
b. fall.
c. stay the same.
d. any of the above.
9. The demand curve for labor by a firm is equal to:
a. its marginal physical product curve.
b. its marginal revenue product curve.
c. its marginal factor cost curve.
d. its average factor cost curve.
10. If a worker has a marginal factor cost of $50, then he will be hired if his marginal revenue product
is:
a. $10.
b. $25.
c. $40.
d. all of the above.
e. none of the above.
11. A cartel is when businesses get together and agree to:
a. produce more and lower the price.
b. produce less and lower the price.
c. produce more and raise the price.
d. produce less and raise the price.
12. According to the prisoner’s dilemma, firms in a cartel:
a. have no reason to ever produce more than they promised the cartel.
b. might cheat if the other firms cheated on them, but would never cheat if no one else cheated first.
c. have an incentive to cheat on the cartel no matter what the other firms do.
d. usually turn in their fellow cartel members to the government, so the leaders go to prison.
13. The diagram for a business in monopolistic competition looks like the diagram for:
a. monopoly.
b. oligopoly.
c. perfect competition.
d. trick question, there is no diagram for monopolistic competition.
14. Which of the following is a possible barrier to entry for a monopoly?
a. Economies of scale.
b. Control of a scarce resource.
c. Legal barriers.
d. All of the above.
15. When a firm in monopolistic competition raises its price, it is assumed that the other firms in the market:
a. raise their prices also.
b. lower their prices.
c. keep the same price they had before.
d. trick question, there are no other firms in the market to respond.
16. The diagram for a business in an oligopoly looks like the diagram for:
a. monopoly.
b. oligopoly.
c. perfect competition.
d. trick question, there is no diagram for oligopoly.
17. When technological progress increases the productivity of workers, the result is:
a. the demand curve for workers shifts right.
b. the demand curve for workers shifts left.
c. the supply curve for workers shifts right.
d. the supply curve for workers shifts left.
18. Amy runs the cash register at the movie theater snack bar. This job has an MRP of $16 an hour.
Bart picks napkins off the flour. This job has an MRP of $8 an hour. Amy and Bart are
interchangeable workers. What does the marginal productivity theory of factor input prices
predict are going to be the wages of Amy and Bart?
a. Both make $16 an hour.
b. Both make $8 an hour.
c. Amy makes $16 an hour and Bart makes $8 an hour.
19. Which of the following are the 3 properties of a monopoly?
a. One firm, similar products, high barriers to entry.
b. Few firms, no close substitutes, high barriers to entry.
c. Many firms, identical products, easy entry.
d. Few firms, similar products, easy entry.
e. One firm, no close substitutes, high barriers to entry.