21 Jul WHAT SHOULD THE FIRM DO TO MAXIMIZE ITS PROFITS?
MC. What should the firm do to ma Show more Suppose a monopolist is producing a level of output such that MR > MC. What should the firm do to maximize its profits? The firm should hire less labor. The firm should do nothing > it wants to maximize the difference between MR and MC in order to maximize its profits. The firm should increase price. The firm should increase output. Question 2 Which of the following conditions holds for a profit-maximizing perfect competitor but not for a monopolist at the profit-maximizing level of output? Price = marginal cost. Price = average revenue. Marginal revenue = marginal cost. Total cost = average total cost quantity. Question 3 Viewed from the perspective of economic efficiency which of the following barriers to entry is the best justification for monopoly? Significant economies of scale. Ownership of an essential raw material. Unfair competition. A patented production technique. Question 4 Which of the following statements is correct? The monopolists supply curve is that section of its MC curve that lies above its AVC curve. The monopolists supply curve is that section of its MC curve that lies above its MR curve. The monopolist does not have a supply curve. The monopolists supply curve is its MC curve Question 5 The requirement that certain professionals possess a license in order to work in a particular market has the effect of reducing the supply of those services which in turn causes: price to increase and the profits of firms in the market to decrease. price and the profits of firms in the market to decrease. price and the profits of firms in the market to increase. price to decrease and the profits of firms in the market to increase. Question 6 In comparing monopoly to a perfectly competitive market which of the following is correct? Employment will be higher under monopoly. Consumers will be better off with the monopoly. Equilibrium quantity will be higher under perfect competition. Market price will be higher under perfect competition. Question 7 If an industry is characterized by economies of scale: the costs of entry into the market are likely to be substantial. barriers to entry are usually not very large. long-run average costs of production increase as the quantity the firm produces increases. capital requirements are small due to the efficiency of the large-scale operations. Question 8 Which of the following is the best example of a public good? Local telephone service. A car. Information. A new cancer-fighting drug. Question 9 The barrier to entry that exists because the value of the product to a consumer depends on the number of consumers using the product is referred to as: a pecuniary externality. a technological externality. a negative externality. a network externality. Question 10 Which of the following is not a type of lock-in that acts as a barrier to entry into a particular market? Loyalty programs. Pricing at or below the average cost of production. Purchases of durable goods. Specialized suppliers. Question 11 Based upon recent changes that have occurred in the market for telecommunication services in California in that market SBC would be classified as: a perfectly competitive firm. a monopolistic competitor. a monopolist. an oligopolist. Question 12 A concentration ratio is a measure of market power that focuses on: the share of the market controlled by the X largest firms in the market. the sum of the squares of the market share of each firm in an industry. the ratio of the price of a firms product to the price elasticity of demand for the product. the difference between a firms product price and its marginal costs of production. Question 13 The Lerner Index is a measure of market power that focuses on: the share of the market controlled by the X largest firms in the market. the difference between a firms product price and its marginal costs of production. the sum of the squares of the market share of each firm in an industry. the ratio of the price of a firms product to the price elasticity of demand for the product. Question 14 Assume that for a particular firms output price = $80 marginal cost = $30 average total cost = $25. This information suggests that the firm in question has: absolute market power. no market power. a fair degree of market power. very little market power. Question 15 Assume the managers of the two major firms in an industry agree to set the price of their output at a fixed level so as to discourage new entrants into the market. This would be considered a violation of the: Sherman Act of 1890. Clayton Act of 1914. Federal Trade Commission Act of 1914. Celler-Kefauver Act of 1950. Question 16 Assume it is announced that a large number of new competitors have entered the market for mountain bikes each offering a different model. Based on this information this industry is best characterized as: an oligopoly. a monopoly. monopolistically competitive. perfectly competitive. Question 17 Which of the following is the best example of a monopolistically competitive market? The restaurant market. The market for automobiles. The electricity market. The wheat market. Question 18 The monopolistically competitive sellers demand curve will tend to become more elastic the: more significant the barriers to entering an industry. greater the degree of product differentiation. larger the number of close competitors. smaller the number of sellers. Question 19 For which of the following reasons is the monopolistic competitors demand curve downward sloping? Homogenous output. A monopolistic competitor can only use price as a decision variable in its attempts to maximize profits. Ease of entry and exit. Product differentiation. Question 20 Suppose the firms in a monopolistically competitive market are incurring economic losses. During the adjustment to long-run equilibrium which of the following will occur? The firms demand curves will become more elastic. More close substitutes will appear in the market. The demand curves faced by firms that remain in the market will shift to the left. Some firms will exit the market if they cant cover all of their fixed and variable costs. Show less
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