Chapter 15
Which of the following is not an example of a barrier to entry?
a. Mighty Mitch’s Mining Company owns a unique plot of land in Tanzania, under which lies the only large deposit of Tanzanite in the world.
b. A college student starts a part-time tutoring business.
c. A novelist obtains a copyright for her new book.
d. A taxi cab driver in New York City obtains a license to legally provide transportation in New York City
b. A college student starts a part-time tutoring business.
A firm has market power if it can
a. maximize profits.
b. minimize costs.
c. influence the market price of the good it sells.
d. hire as many workers as it needs at the prevailing wage rate.
c. influence the market price of the good it sells.
Kirsten sells 300 glasses of lemonade at $0.50 each. Her total costs are $125. Her profits are
a. $25.
b. $124.50.
c. $125.
d. $150
a. $25.
Average total cost is equal to
a. output/total cost.
b. total cost -total quantity of output.
c. average variable cost + total fixed cost.
d. total cost/output
d. total cost/output
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 substitute
c. one buyer
Drug companies are allowed to be monopolists in the drugs they discover in order to
a. allow drug companies to charge a price that is equal
to their marginal cost.
b. discourage new firms from entering the drug market.
c. encourage research.
d. allow the government to earn patent revenue
c. encourage research.
Who is a price taker in a competitive market?
a. buyers only
b. sellers only
c.both buyers and sellers
d. neither buyers nor seller
c.both buyers and sellers
If a firm produces nothing, which of the following costs will be zero?
a. total cost
b. fixed cost
c. opportunity cost
d. variable cost
d. variable cost
Total revenue minus both explicit and implicit costs is called
a. accounting profit.
b. economic profit.
c. average total cost.
d. None of the above is correct.
b. economic profit.
When firms are said to be price takers, it implies that if a firm raises its price,
a. buyers will go elsewhere.
b. buyers will pay the higher price in the short run.
c. competitors will also raise their prices.
d. firms in the industry will exercise market pow
a. buyers will go elsewhere.
For a monopoly,
a. average revenue exceeds marginal revenue.
b. average revenue equals marginal revenue.
c. average revenue is less than marginal revenue.
d. price equals marginal revenue
a. average revenue exceeds marginal revenue.
Competitive firms that earn a loss in the short run should
a. shut down if P < AVC.
b. raise their price.
c. lower their output.
d. All of the above are correct.
a. shut down if P < AVC.
In the long run,
a. inputs that were fixed in the short run remain fixed.
b. inputs that were fixed in the short run become variable.
c. inputs that were variable in the short run become fixed.
d. variable inputs are rarely used.
b. inputs that were fixed in the short run become variable.
The amount of money that a firm receives from the sale of its output is called
a. total gross profit.
b. total net profit.
c. total revenue.
d. net revenue.
c. total revenue.
When new firms have an incentive to enter a competitive market, their entry will
a. increase the price of the product.
b. drive down profits of existing firms in the market.
c. shift the market supply curve to the left.
d. increase demand for the product.
b. drive down profits of existing firms in the market.
An airline knows that there are two types of travelers: business travelers and vacationers. For a particular flight, there are 100 business travelers who will pay $600 for a ticket while there are 50 vacationers who will pay $300 for a ticket. There are 150 seats available on the plane. Suppose the cost to the airline of providing the flight is $20,000, which includes the cost of the pilots, flight attendants, fuel, etc.
____
How much profit will the airline earn if it sets the price of a ticket at $600?
a. -$5,000
b. $15,000
c. $40,000
d. $60,00
c. $40,000
A firm that shuts down temporarily has to pay
a. its variable costs but not its fixed costs.
b. its fixed costs but not its variable costs.
c. both its variable costs and its fixed costs.
d. neither its variable costs nor its fixed cos
b. its fixed costs but not its variable costs.
Tony is a wheat farmer, but he also spends part of his day teaching guitar lessons. Due to the popularity of his local country western band, Farmer Tony has more students requesting lessons than he has time for if he is to also maintain his farming business. Farmer Tony charges $25 an hour for his guitar lessons. One spring day, he spends 10 hours in his fields planting $130 worth of seeds on his farm. He expects that the seeds he planted will yield $300 worth of wheat.
____
What is the total opportunity cost of the day that Farmer Tony incurred for his spring day in the field planting wheat?
a. $130
b. $250
c. $300
d. $380
d. $380
A firm's opportunity costs of production are equal to its
a. explicit costs only.
b. implicit costs only.
c. explicit costs + implicit costs.
d. explicit costs + implicit costs + total revenue.
c. explicit costs + implicit costs.
Marginal cost is equal to
a. TC/Q.
b. CHANGE IN ATC/Q.
c. CHANGE IN TC/CHANGE IN Q.
d. CHANGE IN Q/CHANGE IN TC.
c. CHANGE IN TC/CHANGE IN Q.
An airline knows that there are two types of travelers: business travelers and vacationers. For a particular flight, there are 100 business travelers who will pay $600 for a ticket while there are 50 vacationers who will pay $300 for a ticket. There are 150 seats available on the plane. Suppose the cost to the airline of providing the flight is $20,000, which includes the cost of the pilots, flight attendants, fuel, etc.
____
How much profit will the airline earn if it sets the price of a ticket at $300?
a. -$15,000
b. -$5,000
c. $25,000
d. $45,000
c. $25,000
When a profit-maximizing firm in a competitive market has zero economic profit, accounting profit
a. is negative.
b. is at least zero.
c. is also zero.
d. could be positive, negative or zero.
b. is at least zero.
The Wacky Widget company has total fixed costs of $100,000 per year. The firm's average variable cost is $5 for 10,000 widgets. At that level of output, the firm's average total costs equal
a. $10
b. $15
c. $100
d. $150
b. $15
The cost of producing an additional unit of output is the firm's
a. marginal cost.
b. productivity offset.
c. variable cost.
d. average variable cost.
a. marginal cost.
Which of the following is NOT a characteristic of a competitive market?
a. Buyers and sellers are price takers.
b. Each firm sells a virtually identical product.
c. Free entry is limited.
d. Each firm chooses an output level that maximizes profits.
c. Free entry is limited.