Economic multiple choice

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In the perfectly competitive market, a firm’s marginal revenue (MR) is equal to:

		its total cost
		its marginal profit
		the market price
		its total revenue

The demand curve facing the firm in _________ is the same as the whole market demand curve.

		perfect competition
		monopolistic competition
		oligopoly
		monopoly

Individual cartel producers may find it advantageous to cheat on the agreements by increasing production,

		if the other producers obey the agreements.
		if every member cheats.
		when the punishment on cheating is severe.
		when the market demand is inelastic.

The profit-maximizing monopolist facing a negative-sloping demand curve will always produce

		at an output greater than the output where average total costs are minimized.
		at an output short of that output where average total costs are minimized.
		at an output equal to industry output under perfect competition.
		at an output short of that output where the profits are maximized.

The Lerner index, (P-MC)/P, might be an inappropriate measure for market power among firms in IT industry because

		there are too many firms in the industry.
		most firms charge a high price for their products.
		all firms’ marginal costs are very low.
		no firm has market power

In the long-run, a firm in a monopolistically competitive industry will

		earn a positive economic profit
		tend to just cover its total cost, maintaining a normal profit
		charge a price equal to its marginal cost
		become a monopoly

An average variable cost function is estimated as AVC = 96− 2Q + 0.05Q2 When Q=100, the average variable cost is _________.

		rising
		falling
		unknown.
		greater than $400

In the short-run for a perfectly competitive market, a manufacturer will stop production when:

		the total revenue is less than total costs
		the contribution cannot cover any fixed costs
		the price is greater than AVC
		operating at a negative economic profit

Refer to the following table showing the total cost schedule for a perfectly competitive firm:

Q	TC ($)
0	20
1	45
2	65
3	100
4	145
5	195

If market price is $40, how many units of output will the firm produce for profit-maximization?

		2 units of output
		3 units of output
		4 units of output.
		5 units of output.

2.5 points

Refer to the following table showing the total cost schedule for a perfectly competitive firm:

Q	TC ($)
0	20
1	45
2	65
3	100
4	145
5	195

If market price is $40, what is the maximum profit the firm can earn?

		$15
		$20
		$25
		$30

Refer to the following table showing the total cost schedule for a perfectly competitive firm:

Q	TC ($)
0	20
1	45
2	65
3	100
4	145
5	195

If market price is $20, how many units of output will the firm produce?

		0, the firm shuts down.
		1
		2
		3

Refer to the following table showing the total cost schedule for a perfectly competitive firm:

Q	TC ($)
0	20
1	45
2	65
3	100
4	145
5	195

If the firm shouts down, its short-run loss will be

		$65.
		$45.
		$20.
		unavailable because of insufficient information

A firm is using 20 units of capital and 100 units of labor to produce 1,000 units of output. Capital costs $150 per unit and labor $20 per unit. The last unit of capital added 50 units of output, while the last unit of labor added 10 units of output. The firm

		is using the cost−minimizing combination of capital and labor.
		should use more of both inputs in equal proportions.
		should use less of labor and more of capital for cost minimization.
		could produce the same level of output at a lower cost by using more labor and less capital.

In the short-run cost analysis, if a firm’s marginal cost (MC) is unavailable, the best alternative of MC is its

		average total cost (ATC)
		average fixed cost (AFC)
		total variable cost (TVC)
		average variable cost (AVC)

The Prisoner’s Dilemma 2X2 game can be used to explain why oligopolists

		tend easily to achieve collusion in games.
		choose the best strategy to benefit the whole industry.
		are suspicious that other players may double cross them.
		can rely on cooperative behavior by all parties.

A monopoly’s _______ changes with the shift of demand curve, when all the other factors remain.

		total cost (TC) curve
		marginal cost (MC) curve
		average cost (AC) curve
		marginal revenue (MR) curve

Which of the flowing is the most complicated market structure because no single model can explain the firms’ behavior thoroughly?

		Oligopoly
		Monopolistic competition
		Perfect competition
		Monopoly

Which of the following is the best definition of fixed costs?

		The costs associated with capital input.
		The long-run total costs paid by an operating firm.
		The short-run costs paid for labor input.
		The short-run total costs paid by a shutting-down firm

Which of the following profit-maximizing equilibrium condition is correct for a monopoly with positive profit?

		P = ATC = MR = MC
		P > ATC > MR > MC
		P > ATC > MR = MC
		P = ATC > MR > MC

Which of the following is NOT a market characteristic for monopoly?

		One firm is the only supplier of a product.
		Entry into the market is blocked.
		The firm can influence market price though output decision-making.
		The firm’s product has few close substitutes.

When we use the Lerner index to define the market power for two firms which are all price searchers, one firm charging at a price in which the demand is more elastic compared with another firm’s implies that the firm has

		no market power.
		less market power .
		greater market power.
		the same market power as the another.

The following table shows the demand schedule for round-trip flights between Houston and Tokyo for business travelers:

Demand Schedule of Business Travelers
Price	QD
$2,000	500
$1,500	1,000
$1,000	1,500
$500	2,000

Suppose an airline’ marginal cost per seat for the round-trip fight is $500. For profit-maximization, the airline should charge $_____ per round-trip (Hint: Apply the “half-way rule” of MR in graph).

		500
		1,000
		1,500
		2,000

Which of the following about “price leadership” in oligopoly is INCORRECT?

		Price leader is generally the firm with the largest market share or the lowest average costs.
		Price followers set up the same price as the leader does.
		It is one kind of cooperative behavior in oligopoly.
		It requires explicit agreements among firms.

Under the Lerner Index of market power definition, an existing perfectly competitive firm

has zero market power because its marginal cost equal the market price.

has a positive market power because it makes a positive profit.

has the same market power as a monopoly.

Which of the following is INCORRECT in the MS Excel operation for constructing a short-run production function with labor input (L)?

The regression model should be a cubic function such as Q = AL3+BL2.

The independent variables should be L3, L2 and L.

We need to choose “Constant as zero” in regression operation.

Which of the following is most likely to be qualified as a perfectly competitive market?

		Airline industry
		Stock market
		Gas station
		Power utility industry

None of the above

is not qualified to apply the Lerner index

What is the most special market characteristic of oligopoly different from the other market structures?

		firms have market power
		product differentiation
		barriers to entry
		interdependence of decision making

Suppose that Nike and Adidas are the only sellers of athletic footwear in the United States. They are deciding how much to charge for similar shoes. The two choices are “Low” and “High”. The payoff (profit as million) 2X2 matrix is as follows:

Does Nike have the dominant strategy in the game? _____. Does Adidas have the dominant strategy in the game? _____.

Yes; Yes

No; Yes

No; No

Yes; No

A production function using K (capital) and L (labor) inputs, Q=2K+3L, exhibits

		increasing return to scale.
		decreasing return to scale.
		constant return to scale.
		economies of scale

When we construct the cubic total variable cost, TVC = aQ + bQ2 + cQ3, in order to confirm the theoretical properties, the parameters must satisfy

		a > 0, b > 0, and c < 0.
		a < 0, b > 0, and c < 0.
		a > 0, b < 0, and c > 0.
		a < 0, b < 0, and c > 0.

The U-shaped marginal cost and average cost curves come from

		the law of diminishing marginal utility.
		the law of diminishing return (marginal product).
		the law of demand
		the fixed cost

A cubic specification for a short-run total cost (TC) function is appropriate when the scatter diagram indicates

		a U-shaped total cost (TC) curve.
		a S-shaped average variable cost (AVC) curve.
		a L-shaped marginal cost (MC) curve.
		a U-shaped marginal cost (MC) curve.

A firm can choose the optimal usage of input to maximize the profit by employing the amount of input where

		the input price equals the marginal revenue product (MRP).
		the input price equals the marginal revenue (MR).
		the input price equals the marginal cost (MC).
		the input price equals the average total cost (ATC).

When a manager of manufacturing factory said, “I will achieve the maximum amount of output given the current combination of inputs,” then the manager is trying to achieve

		economic efficiency.
		technical efficiency.
		cost minimization.
		production minimization.

Economies of “scope” means that

		the average cost declines when output increases.
		the joint cost of producing two goods is less than the sum of the separate costs of producing the two goods.
		economies of scale also exhibits.
		two goods can be produced more efficiently if their production processes are separate.

If a firm can influence the market price by changing its quantity of output, then the firm

		must be a monopoly
		has market power
		will set the price equal to its average total costs
		earns a normal profit in both short-run and long-run

A firm will shutdown in the short-run if

		it makes a negative profit.
		the market price is lower than its average total cost (ATC).
		the market price is lower than its average variable cost (AVC).
		the fixed cost can be only covered partially

When participants in a game choose to take actions that represent Nash equilibrium,

		no single participant has an incentive to change its action.
		each participant has chosen the best action possible, given what the others have chosen.
		no other set of actions could make all participants better off.
		both a and b

United States Postal Service (USPS) is a monopoly in the _____ market because it _______.

		parcel delivery; exhibits economies of scale in production
		ordinary mail delivery; charges a lower price than competitors
		ordinary mail delivery; is granted by the public franchise to open every house’s mailbox
		parcel delivery; charges a lower price than competitors

Assume that a monopoly faces the inverse market demand as P = 100 – 2Q and the monopoly’s marginal cost function is MC = 40–Q. The monopoly’s optimal output should be

		20
		30
		40
		60

Refer to the following table with demand and cost schedule for a monopoly:

Price ($)	Q	TC ($)
20	4	75
19	5	88
18	6	103
17	7	120
16	8	139
15	9	159

For profit maximization, what price should the monopoly charge?

		$19
		$18
		$17
		$16

Refer to the following table with demand and cost schedule for a monopoly:

Price ($)	Q	TC ($)
20	4	75
19	5	88
18	6	103
17	7	120
16	8	139
15	9	159

The marginal revenue (MR) for the 9th unit of output (Q) is

		$10
		$9
		$8
		$7