dq 1-20

1. Which of the following is inconsistent with the proposition that gambling in a fair game is not worth it?

a. increasing total utility of money

b. increasing marginal utility of money

c. diminishing marginal utility of money

d. deriving displeasure from gambling

2. Consumer equilibrium exists when an individual

a. can be made better off by buying more of a normal good and less of an inferior good.

b. is receiving the same total utility from each of the goods he or she purchases.

c. is receiving the same marginal utility from each of the goods he or she purchases.

d. has the same MU/P ratio for each of the goods he or she purchases.

e. none of the above

3. There are two goods, X and Y, and the absolute price of good Y falls. It follows that

a. a person can buy more of good Y.

b. a person cannot buy more of good Y.

c. the slope of the budget constraint changes.

d. the indifference curve between X and Y changes.

e. a and c

4. Consumer equilibrium exists when the

a. slope of the indifference curve is greater than the slope of the budget constraint. 

b. consumer is on his highest indifference curve.

c. marginal rate of substitution equals the slope of the budget constraint. 

d. slope of the indifference curve equals the slope of the budget constraint. 

e. c and d

5. If Smith will give up three units of Y to get one additional unit of X, then

a. he has transitive preferences.

b. his budget constraint is upward sloping.

c. his indifference curve is downward sloping.

d. the price of X must be three times as high as the price of Y.

e. none of the above

6. The theory of perfect competition generally assumes that

a. sellers act independently of other sellers, but buyers do not act independently of other 

buyers.

b. buyers act independently of other buyers, but sellers do not act independently of other 

sellers.

c. buyers and sellers act independently of other buyers and sellers.

d. neither buyers nor sellers act independently of other buyers and sellers

7. A "price taker" is a firm that

a. does not have the ability to control the price of the product it sells.

b. does have the ability, although limited, to control the price of the product it sells.

c. can raise the price of the product it sells and still sell some units of its product.

d. sells a differentiated product.

e. none of the above

8. Which of the following statements is 

false

?

a. The perfectly competitive firm's demand curve is horizontal at the market price.

b. The theory of perfect competition is completely and accurately descriptive of most 

real-world firms.

c. If Firm X does not strictly meet all the assumptions of the theory of perfect competition, 

but behaves as if it does, then the theory of perfect competition is relevant to it.

d. In perfect competition, the market price is established at the intersection of the market 

demand and market supply curves

9. If MR > MC, then

a. profits will be at their maximum.

b. the firm is producing too much of the good to be maximizing profits.

c. the firm can increase its profits or minimize its losses by increasing output.

d. the firm is necessarily incurring losses

10. Consider the following data: equilibrium price = $10, quantity of output produced = 100 units, average total 

cost = $13, and average variable cost = $7. What will the firm do and why?

a. Shut down in the short run, because it is taking a loss of $200.

b. Continue to produce in the short run, because price is greater than average variable cost.

c. Shut down in the short run, because average variable cost is less than average total cost.

d. Continue to produce in the short run, because firms are always stuck with having to 

produce in the short run.

11. Which of the following is not an assumption of the theory of monopolistic competition?

a. There are high barriers to entry.

b. There are many sellers and few buyers.

c. Each firm in the industry produces and sells a homogeneous product.

d. a and b

e. all of the above

12. If a monopolistic competitive firm raises its price, then

a. it should expect to lose all of its customers because there are many other sellers of the 

product.

b. this is a trick question because the firm does not have the ability to change its price.

c. it should expect to lose some, but not all, of its customers.

d. it will be able to increase its profits.

e. it can sell all it wants because it faces a horizontal demand curve

13. The demand curve facing a monopolistic competitor will be more elastic than the demand curve facing a 

monopolist because

a. there are barriers to exit for the monopolist, but not for the monopolistic competitor.

b. the monopolistic competitor attains resource-allocative efficiency, but the monopolist 

does not.

c. there are substitute goods for what the monopolistic competitor produces, but not for 

what the monopolist produces.

d. the monopolist is a price searcher, but the monopolistic competitor is not

14. If you were to rank the four market structures in terms of lowest concentration ratio to highest concentration ratio, which of the following rankings would be correct?

a. oligopoly, monopoly, perfect competition, monopolistic competition

b. monopoly, oligopoly, monopolistic competition, perfect competition

c. perfect competition, monopolistic competition, oligopoly, monopoly

d. monopolistic competition, perfect competition, oligopoly, monopoly

e. monopolistic competition, oligopoly, perfect competition, monopoly

15. The theory of oligopoly assumes

a. a few sellers and many buyers.

b. a few buyers and many sellers.

c. significant barriers to entry.

d. a and c

e. b and c

16. The Sherman Act of 1890 was passed with the intent of

a. establishing the Federal Trade Commission (FTC) to deal with "unfair methods of 

competition."

b. preventing monopolization and/or conspiracy in the restraint of trade.

c. spelling out the conditions under which mergers would be considered anti-competitive.

d. dealing with false and deceptive advertising.

e. declaring interlocking directorates illegal.

17. Which antitrust legislation was passed in an attempt to decrease the failure rate of small businesses by 

protecting them from competition from large and growing chain stores?

a. the Sherman Act.

b. the Clayton Act.

c. the Federal Trade Commission Act.

d. the Robinson-Patman Act.

e. none of the above

18. An "interlocking directorate" is

a. an arrangement whereby the leaders of a union are also in the top management of the 

business with which the union is dealing.

b. selling to a retailer on the condition that the retailer not carry any rival products.

c. an arrangement whereby the sale of one product is dependent on the purchase of some 

other product.

d. an arrangement whereby the directors of one company sit on the board of directors of 

another company in the same industry

19. The Cellar-Kefauver Antimerger Act of 1950 was designed to

a. prevent one company from acquiring another company's stock if the acquisition reduces 

competition.

b. prevent one company from acquiring another company's physical assets if the acquisition 

reduces competition.

c. require that pending mergers be reported in advance to the Federal Trade Commission 

and the Justice Department.

d. prevent price discrimination, exclusive dealing, and tying contracts.

e. prevent interlocking directorates

Suppose an industry consists of nine firms: four firms each have 20 percent of the market share, and the other 

five firms have equal shares of the rest of the market. Three of the small firms plan to merge. The Justice 

Department __________ be inclined to challenge the merger given that the Herfindahl index before the 

merger was ____________ and the merger would cause it to rise by

a. would; greater than 1,800; more than 50.

b. would; between 1,000 and 1,800; more than 100.

c. would not; between 1,000 and 1,800; less than 100.

d. would not; greater than 1,800l; more than 50.