Exam 3 of ECON251 Purdue University In Tutorial Library

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TITLE: Exam 3 of ECON251 Purdue University

UNIVERSITY / INSTITUTE: Purdue University

CLASS / COURSE: Economics

QUESTION DESCRIPTION:

Exam 3:
 
1. (Points: 1.33)
Compared to perfect competition, under monopoly:
a. a. consumer surplus is unchanged because price and output is the same.
b. b. consumer surplus is decreased because price is higher and
output is lower.
c. c. consumer surplus is increased because price is higher and output is the
same.
d. d. consumer surplus is eliminated.
2. (Points: 1.33)
Oligopolies are difficult to analyze because:
a. a. the firms are so large.
b. b. demand and cost curves do not exist for these types of industries.
c. c. how oligopoly firms respond to a price change by a rival is
uncertain.
d. d. oligopolies are a recent development so economists have not had time
to develop models.
3. (Points: 1.33)
If your local national food store buys oranges at a low price in Florida and resells them
to you at a higher price, then the food store's revenue minus costs is known as:
a. a. arbitrage profits.
b. b. transactions profits.
c. c. pure profits.
d. d. excess profits.
4. (Points: 1.33)
In an oligopoly market:
a. a. pricing decision of all other firms has no effect on an individual firm.
b. b. individual firms pay no attention to the behavior of other firms.
c. c. advertising of one firm has no effect on all other firms.
d. d. pricing decision of one firm affects all the other firms.
5. (Points: 1.33)
A monopolist is a seller who:
a. a. has to consider the actions of other sellers.
b. b. is small relative to the market.
c. c. can ignore the threat of competition from other firms.
d. d. all of these.
6. (Points: 1.33)
The value of the four-firm concentration ratio that many economists consider
indicative of the existence of an oligopoly in a particular industry is:
a. a. anything greater than 10 percent.
b. b. anything greater than 20 percent.
c. c. anything greater than 30 percent.
d. d. anything greater than 40 percent.
7. (Points: 1.33)
A type of market structures that price discrimination is found in is:
a. a. monopoly.
b. b. monopolistic competition.
c. c. oligopoly.
d. d. all of these.
8. (Points: 1.33)
A profit maximizing monopolist's price is:
a. a. equal to what the price would be if the mononoplist's industry were
competitive.
b. b. less than what the price would be if the mononoplist's industry were
competitive.
c. c. greater than what the price would be if the mononoplist's
industry were competitive.
d. d. not consistently related to price if the market were competitive.
9. (Points: 1.33)
Compared to perfect competition, a monopoly:
a. a. increases consumer surplus.
b. b. causes a deadweight welfare loss.
c. c. increases total surplus.
d. d. all of these.
10. (Points: 1.33)
If a monopolistically competitive firm is producing at an output where marginal
revenue is $12 and marginal cost is $12., then to maximize profits this firm will:
a. a. continue to produce the same quantity.
b. b. increase output.
c. c. decrease output.
d. d. shutdown.
11. (Points: 1.39)
A marginal tax rate is:
a. a. total taxable income divided by taxes paid.
b. b. taxes paid divided by total taxable income.
c. c. change in taxes paid divided by the change in total taxable
income.
d. d. change in taxable income divided by change in taxes paid.
12. (Points: 1.33)
Wages determined in a market economy are determined by:
a. a. employers deciding how much they can afford to pay.
b. b. the government comparing the value of various jobs.
c. c. the interaction between the demand for labor and the supply of
labor.
d. d. the court system deciding what are fair wages.
13. (Points: 1.33)
Output under a monopoly is:
a. a. equal to what output would be if the industry were competitive.
b. b. less than what output would be if the industry were
competitive.
c. c. greater than what output would be if the industry were competitive.
d. d. has no consistent relationship to what output would be if the industry
were competitive.
14. (Points: 1.33)
If a competitive industry has an upsloping long-run supply curve, it is:
a. a. a constant-cost industry.
b. b. an increasing-cost industry.
c. c. a decreasing-cost industry.
d. d. a fixed-cost industry.
15. (Points: 1.33)
For a firm that can effectively price discriminate, who will be charged the lower
price?
a. a. customers who have an elastic demand for the product
b. b. customers who have an inelastic demand for the product
c. c. buyers that are members of the largest market segment
d. d. buyers that are members of the smallest market segment
16. (Points: 1.33)
Interdependence of firms is most common in:
a. a. perfectly competitive industries.
b. b. monopolistic industries.
c. c. monopolistically competitive industries.
d. d. oligopolistic industries.
17. (Points: 1.33)
If a monopolist's marginal revenue is $35 a unit and its marginal cost is $25, then:
a. a. to maximize profit the firm should increase output.
b. b. to maximize profit the firm should decrease output.
c. c. to maximize profit the firm should continue to produce the output it is
producing.
d. d. not enough information is given to say say what the firm should do to
maximize profit.
18. (Points: 1.33)
A monopolist's profit maximizing price and output is:
a. a. where average total cost are smallest.
b. b. where total costs are the smallest relative to price.
c. c. where marginal revenue equals marginal cost and charging the
price on market demand for that output.
d. d. where price is as high as possible.
19. (Points: 1.33)
A cartel is:
a. a. temporary storage facility for automobiles.
b. b. an informal agreement to fix prices to maximize joint profits.
c. c. a formal agreement to fix prices to maximize joint profits.
d. d. a competitive industry.
20. (Points: 1.33)
A natural monopoly is characterized by:
a. a. large marginal costs relative to fixed costs.
b. b. small fixed costs relative to variable costs.
c. c. large fixed costs relative to variable costs.
d. d. fixed costs that are equal to variable costs.
21. (Points: 1.33)
A network externality is:
a. a. having a network of suppliers and buyers for a good or service.
b. b. having lobbyists to advocate a public franchise.
c. c. a good or service whose usefulness increases with the number
of people using it.
d. d. a good or service that requires connection to a network for it to be
useful.
22. (Points: 1.33)
If a monopolistically competitive firm cuts its price from $10 where it sold 25 units to
$9 and sells five more units of output, its marginal revenue is:
a. a. $270.
b. b. $2.50.
c. c. $20.
d. d. $4.
23. (Points: 1.33)
If a competitive firm is paying a wage of $12 an hour and another worker would
produce five units of output in an hour which sells for $3 each, then to maximize
profits the firm should:
a. a. not change its employment.
b. b. lay off some workers.
c. c. hire an extra worker.
d. d. there is not enough information to answer the question.
24. (Points: 1.33)
If a firm charges a membership fee to gain admission to a store and then charges
members for every item they buy, it is engaging in:
a. a. odd pricing.
b. b. cost-plus pricing.
c. c. price discrimination.
d. d. a two-part tariff.
25. (Points: 1.33)
If a perfectly competitive seller is producing at an output where price is $11 and the
marginal cost is $14.54, then to maximize profits the firm should:
a. a. continue producing at the current output.
b. b. produce a larger level of output.
c. c. produce a smaller level of output.
d. d. not enough information given to answer the question.
26. (Points: 1.52)
The corporate income tax is ultimately paid by:
a. a. owners of the corporation.
b. b. employees in the form of lower wages.
c. c. customers in the form of higher prices.
d. d. all of these.
27. (Points: 1.33)
When an insurance company attracts buyers who know they are more likely make a
claim on the policy than the insurance company knows, the insurance company is
suffering:
a. a. moral hazard.
b. b. adverse selection.
c. c. asymmetric information.
d. d. economic irrationality.
28. (Points: 1.33)
With perfect price discrimination there is:
a. a. no deadweight loss.
b. b. no producer surplus.
c. c. one single price.
d. d. an increase in consumer surplus.
29. (Points: 1.33)
A necessary condition for successful price discrimination is:
a. a. no transactions costs.
b. b. differences in the elasticities of demand for the product by
different customer groups.
c. c. selling in a perfectly competitive market.
d. d. buyer ignorance.
30. (Points: 1.33)
Among the characteristics of a perfectly competitive market structure is:
a. a. a very large number of firms that are small compared to the market.
b. b. all firms sell identical products.
c. c. there are no restrictions to entry by new firms.
d. d. all of these.
31. (Points: 1.33)
Among the results of price discrimination is:
a. a. larger profits
b. b. smaller consumer surplus
c. c. a larger output.
d. d. all of these.
32. (Points: 1.33)
Compensating differentials are:
a. a. nonmonetary benefits from being employed such as health care.
b. b. wages paid to workers where the supply of labor is great relative to
demand.
c. c. higher wages that compensate workers for unpleasant aspects
of a job.
d. d. higher wages that compensate the more experienced workers in a
field.
33. (Points: 1.33)
In long-run competitive equilibrium, which is NOT found?
a. a. Efficient, low-cost production at the minimum efficient scale.
b. b. Marginal benefits to society equals the marginal cost of production.
c. c. Firms earning economic profit.
d. d. Production at minimum long-run average cost point.
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34. (Points: 1.33)
An oligopoly firm's demand curve is:
a. a. identical to that of a perfect competitive firm.
b. b. identical to that of a monopolistically competitive firm.
c. c. vertical on a price quantity diagram.
d. d. unknown because a response of firms to price changes by
rivals is uncertain.
35. (Points: 1.33)
If, as your taxable income decreases, you pay a larger percentage of taxable income
in taxes, the tax is:
a. a. regressive.
b. b. proportional.
c. c. progressive.
d. d. unfair.
36. (Points: 1.33)
If a firm could practice perfect price discrimination, it would:
a. a. allow resale of its product.
b. b. charge every buyer a different price.
c. c. charge a price based on the quantity of a product bought.
d. d. use odd pricing.
37. (Points: 1.33)
In perfect competition:
a. a. the market demand and the individual's demand are identical.
b. b. the market demand is perfectly inelastic while demand for an
individual seller's product is perfectly elastic.
c. c. the market demand is perfectly elastic while demand for an individual
seller's product is perfectly inelastic.
d. d. the market demand is downsloping while demand for an
individual seller's product is perfectly elastic.
38. (Points: 1.33)
If a competitive industry has a down-sloping long-run supply curve, it is:
a. a. a constant-cost industry.
b. b. an increasing-cost industry.
c. c. a decreasing-cost industry.
d. d. a fixed-cost industry.
39. (Points: 1.33)
If a firm charges different consumers different prices for the same good or service, it
is engaging in:
a. a. odd pricing.
b. b. cost-plus pricing.
c. c. price discrimination.
d. d. markup pricing.
40. (Points: 1.33)
The reason why from 8:00 a.m. to 5:00 p.m., Monday through Friday, is the highprice
time to call long distance is:
a. a. there are more customers calling long distance at this time.
b. b. the cost of making long-distance connections is greatest at this time.
c. c. businesses must call suppliers or customers during business
hours.
d. d. none of these.
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41. (Points: 1.33)
The price of a seller's product in perfect competition is determined by:
a. a. the individual seller.
b. b. a few of the sellers.
c. c. market demand and market supply.
d. d. the individual demander.
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42. (Points: 1.33)
A four-firm concentration ratio measures:
a. a. the fraction of an industry's sales accounted for by the four
largest firms.
b. b. the production of any four firms in an industry.
c. c. how the four largest firms became so concentrated.
d. d. the fraction of employment of the four largest firms in an industry.
43. (Points: 1.33)
A two-part tariff is:
a. a. when a firm charges only two different prices for the same good.
b. b. when an importer has to pay a tax at the nation's borders, then a
sales tax when the good is sold.
c. c. when a buyer pays an initial price for entrance to the market
and an additional fee for each unit of the product purchased.
d. d. when a buyer must pay a down payment and monthly payments to
buy a product like a car.
44. (Points: 1.33)
Consumer surplus is zero under:
a. a. perfect price discrimination.
b. b. two-part tariff pricing.
c. c. odd pricing.
d. d. cost plus pricing.
45. (Points: 1.33)
Marginal revenue product (MRP):
a. a. tells a firm how much to produce at each price.
b. b. tells a firm how many workers to hire at each wage rate.
c. c. tells workers how much to work at each wage rate.
d. d. tells workers how much to produce at each wage rate.
46. (Points: 1.33)
If the market price is $25, the average revenue of selling five units is:
a. a. $125.
b. b. $25.
c. c. $5.
d. d. $12.50.
47. (Points: 1.33)
When people who buy insurance change their behavior because they are protected
from loss by the insurance, the insurance market exhibits:
a. a. moral hazard.
b. b. adverse selection.
c. c. asymmetric information.
d. d. economic irrationality.
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48. (Points: 1.33)
How does the long run equilibrium of a monopolistically competitive industry differ
from that of a perfectly competitive industry?
a. a. In long-run equilibrium in a monopolistically competitive firm will earn
economic profits.
b. b. In long-run equilibrium in a monopolistically competitive firm price will
be higher than the average cost of production.
c. c. In long-run equilibrium in a monopolistically competitive firm
does not use fully the plant size it built.
d. d. In long-run equilibrium in a monopolistically competitive firm is
allocatively efficient while the perfectly competitive firm is not.
49. (Points: 1.33)
An oligopoly firm is in an industry characterized by:
a. a. many independent firms.
b. b. a small number of independent firms.
c. c. one firm.
d. d. a small number of interdependent firms.
50. (Points: 1.33)
If, as your taxable income decreases, you pay a smaller percentage of taxable
income in taxes, the tax is:
a. a. regressive.
b. b. proportional.
c. c. progressive.
d. d. unfair.
51. (Points: 1.33)
An example of a U.S. payroll tax is:
a. a. medicare and Social Security taxes on wages and salaries.
b. b. taxes on corporate profit.
c. c. excise taxes on gasoline.
d. d. property taxes on real estate.
52. (Points: 1.33)
For a perfectly competitive firm, which of the following is NOT true at profit
maximization?
a. a. Market price is greater than marginal cost.
b. b. Marginal revenue equals marginal cost.
c. c. Total revenue minus total cost is maximized.
d. d. Price equals marginal cost.
53. (Points: 1.33)
Is a monopolistically competitive firm allocatively efficient?
a. a. It is NOT because it does not produce at minimum average total cost.
b. b. It is because it produces where marginal cost equals marginal
revenue.
c. c. It is NOT because price is greater than marginal costs.
d. d. It is because price equals average total costs.
54. (Points: 1.33)
In a used car market where half the cars are good and half are lemons, rational
buyers will make bids half-way between what they would pay for a good car and a
lemon car and sellers will agree to sell mostly the lemons at that price resulting due
to:
a. a. moral hazard.
b. b. adverse selection.
c. c. an efficient market.
d. d. economic irrationality.
55. (Points: 1.33)
The optimal scale of production from society's viewpoint is:
a. a. the minimum efficient scale.
b. b. where maximum economic profit is earned by producers.
c. c. where firm profit is large enough to finance research and development.
d. d. none of these.
56. (Points: 1.33)
A necessary condition for successful price discrimination is:
a. a. perfect competition.
b. b. a market that can be segmented into different buyer groups.
c. c. customers being able to resell the product.
d. d. perfectly elastic demand.
57. (Points: 1.33)
Marginal revenue product (MRP) of labor for a competitive seller is:
a. a. equal to the change in total product from hiring one more worker.
b. b. equal to the marginal product of labor times the price of the
product.
c. c. equal to the price of the product times the quantity sold.
d. d. equal to the marginal revenue of the good times the price of the
product.
58. (Points: 1.33)
Cost-plus pricing is:
a. a. adding a given percentage of marginal cost to marginal cost to set the
price.
b. b. adding a given percentage of fixed cost to fixed cost to set the price.
c. c. adding a given percentage of average total cost to average
total cost to set the price.
d. d. adding a given percentage of average variable cost to average total
costs to set the price.
59. (Points: 1.33)
Which of the following relationships is NOT present for a firm in perfect competition?
a. a. Profit equals total revenue minus total cost.
b. b. Price equals average revenue.
c. c. Average revenue is greater than marginal revenue.
d. d. Marginal revenue equals the change in total revenue of selling one
more unit.
60. (Points: 1.33)
The key characteristics of a monopolistically competitive market structure include:
a. a. few sellers.
b. b. sellers selling similar but differentiated products.
c. c. high barriers to entry .
d. d. all of these.
61. (Points: 1.33)
A major difference between monopolistically competitive and perfectly competitive
markets is:
a. a. the number of sellers.
b. b. the degree by which market demand slopes downward.
c. c. products are not standardized in monopolistic competition.
d. d. barriers to entry.
62. (Points: 1.33)
The demand for each seller's product in perfect competition is horizontal at the
market price because:
a. a. each seller is too small to affect market price.
b. b. the price is set by the government.
c. c. all the sellers get together and set the price.
d. d. all the demanders get together and set the price.
63. (Points: 1.33)
Some high technology products like DVD players, electronic calculators, digital
cameras, are introduced at a very high price but soon the market price starts falling
because:
a. a. production costs rises as output rises.
b. b. early buyers of a new product have a very inelastic demand
while later buyers have a more elastic demand.
c. c. demand for high-tech products is very irratic.
d. d. of sunk costs.
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64. (Points: 1.33)
If in a perfectly competitive industry market price is above average total cost at the
output where marginal revenue equals marginal cost, then:
a. a. firms are breaking even.
b. b. new firms are attracted to the industry.
c. c. existing firms will exit the industry.
d. d. market supply will remain constant.
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65. (Points: 1.33)
Odd pricing would be:
a. a. selling gasoline for $1.359 a gallon rather than $1.36 a gallon.
b. b. when the price of a good ends with something other than zero.
c. c. setting a price just below $50 like $49.95.
d. d. all of these.
66. (Points: 1.33)
If the market price is $25, the total revenue of selling five units is:
a. a. $125.
b. b. $25.
c. c. $5.
d. d. $625.
67. (Points: 1.33)
When one party to an economic transaction has less information than the other party
it is known as:
a. a. moral hazard.
b. b. economic irrationality.
c. c. asymmetric information.
d. d. adverse selection.
68. (Points: 1.33)
Monopolistic competition has:
a. a. many sellers who each face a downsloping demand curve.
b. b. a few sellers who each face a downsloping demand curve.
c. c. only one seller who faces a downsloping demand curve.
d. d. many sellers who each face a perfectly elastic demand curve.
69. (Points: 1.33)
The necessary conditions for successful price discrimination include:
a. a. a market that can be segmented into different buyer groups.
b. b. the firm has market power.
c. c. differences in customers' elasticities of demand for the product.
d. d. all of these.
70. (Points: 1.33)
A monopolistically competitive industry that earns economic profits in the short run
will:
a. a. continue to earn economic profits in the long run.
b. b. experience the entry of new rival firms into the industry in the
long run.
c. c. experience the exit of old firms out of the industry in the long run.
d. d. experience a rise in demand in the long run.
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71. (Points: 1.33)
If a monopolist's price is $50 at 63 units of output and marginal revenue equals
marginal cost and average total cost equals $43, then the firm's total profit is:
a. a. $3,150.
b. b. $2,709.
c. c. $441.
d. d. $7.
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72. (Points: 1.33)
The expenses you encounter when you buy in one market and sell in a distant
market are known as:
a. a. production costs.
b. b. fixed costs.
c. c. transactions costs.
d. d. sunk costs.
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73. (Points: 1.33)
Both individual buyers and sellers in perfect competition:
a. a. can influence the market price by their own individual actions.
b. b. can influence the market price by joining with a few of their
competitors.
c. c. have to take the market price as a given.
d. d. have the market price dictated to them by government.
74. (Points: 1.33)
To sell more units of a product a monopolistically competitive firm must:
a. a. produce more.
b. b. advertise.
c. c. reduce price.
d. d. export.
75. (Points: 1.33)
A monopolistically competitive firm that is earning profits will, in the long run,
experience:
a. a. new rivals entering the market.
b. b. demand decreases.
c. c. demand for the firm's product becomes more elastic.
d. d. all of these.
 

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