Micro test
A firm is a natural monopoly if it exhibits the following as its output increases:
Decreasing marginal revenue.
Increasing marginal cost.
Decreasing average revenue.
Decreasing average total cost.
For a profit-maximizing monopoly that charges the same price to all consumers, what is the relationship between price P, marginal revenue MR, and marginal cost MC?
P =MR and MR = MC
P > MC and MR=MC
P = MR and MR > MC
P > MC and MC > MR
If a monopoly’s fixed costs increase, its price will ____ and its profit will ______.
Decrease, increase
Stay the same, decrease
Increase, decrease
Increase, stay the same
Compared to the social optimum, a monopoly firm chooses
A quantity and a price that are both too high.
A quantity and a price that are both too low.
A quantity that is too low and a price that is too high.
A quantity that is too high and a price that is too low.
The deadweight loss from monopoly arises because
The monopoly firm makes higher profits than a competitive firm would.
Some potential consumers who forgo buying the good value it more than its marginal cost.
Consumers who buy the good have to pay more than marginal cost, reducing their consumer surplus.
The monopoly firm chooses a quantity that fails to equate price and average revenue.
When a monopolist switches from charging a single price to practicing perfect price discrimination, it reduces
The quantity produced.
The firm’s profit.
Consumer surplus.
Total surplus.
Emilio buys pizza for $10 and soda for $2. He has income of $100. His budget constraint will experience a parallel outward shift if which of the following events occur?
The price of pizza falls to $5, the price of soda falls to $1, and his income falls to $50.
The price of pizza rises to $20, the price of soda rises to $4, and his income remains the same.
The price of pizza falls to $8, the price of soda falls to $1, and his income rises to $120.
The price of pizza rises to $20, the price of soda rises to $4, and his income rises to $400.
At any point on an indifference curve, the slope of the curve measures the consumer’s
Income.
Willingness to trade one good for the other.
Perception of the two goods as substitutes or complements.
Elasticity of demand.
Matthew and Susan are both optimizing consumers in the markets for shirts and hats, where they pay $100 for a shirt and $50 for a hat. Matthew buys 4 shirts and 16 hats, while Susan buys 6 shirts and 12 hats. From this information, we can infer that Matthew’s marginal rate of substitution is _____ hats per shirt, while Susan’s is _____ .
2, 1
2, 2
4, 1
4, 2
Darius buys only lobster and chicken. Lobster is a normal good, while chicken is an inferior good. When the price of lobster rises, Darius buys
Less of both goods.
More lobster and less chicken.
Less lobster and more chicken.
Less lobster, but the impact on chicken is ambiguous.
If the price of pasta increases and a consumer buys more pasta, we can infer that
Pasta is a normal good and the income effect is greater than the substitution effect.
Pasta is a normal good and the substitution effect is greater than the income effect.
Pasta is an inferior good and the income effect is greater than the substitution effect.
Pasta is an inferior good and the income effect is greater than the substitution effect.
The labor-supply curve slopes upward if
Leisure is a normal good.
The substitution effect on leisure is greater than the income effect.
Consumption is a normal good.
The income effect on leisure is greater than the substitution effect.
Xavier opens up a lemonade stand for two hours. He spends $10 for ingredients and sells $60 worth of lemonade. In the same two hours, he could have mowed his neighbor’s lawn for $40. Xavier has an accounting profit of ____ and an economic profit of ____.
$50, $10
$90, $50
$10, $50
$50, $90
Diminishing marginal product explains why, as a firm’s output increases,
The production function gets flatter, while the total-cost curve gets steeper.
The production function and total-cost curve both get steeper.
The production function and total-cost curve both get flatter.
The production function gets steeper, while the total-cost curve gets flatter
A firm is producing 1,000 units at a total cost of $5,000. If it were to increase production to 1,001 units, its total cost would rise to $5,008. What does this information tell you about the firm?
Marginal cost is $8, and average variable cost is $5
Marginal cost is $5, and average variable cost is $8.
Marginal cost is $5, and average total cost is $8.
Marginal cost is $8, and average total cost is $5.
A firm is producing 20 units with an average total cost of $25 and a marginal cost of $15. If it were to increase production to 21 units, which of the following must occur?
Marginal cost would decrease.
Average total cost would decrease.
Average total cost would increase.
Marginal cost would increase.
The government imposes a $1,000 per year license fee on all pizza restaurants. As a result, which cost curves shift?
Average variable cost and marginal cost
Average total cost and average fixed cost
Average total cost and marginal cost
Average variable cost and average fixed cost
If a higher level of production allows workers to specialize in particular tasks, a firm will likely exhibit ___ of scale and ___ average total cost.
Economies, falling
Economies, rising
Diseconomies, falling
Diseconomies, rising
A perfectly competitive firm
Chooses its price to maximize profits.
Sets its price to undercut other firms selling similar products.
Takes its price as given by market conditions.
Picks the price that yields the largest market share.
A competitive firm maximizes profit by choosing the quantity at which
Average total cost is at its minimum.
Marginal cost equals the price.
Average total cost equals the price.
Marginal cost equals average total cost.
A competitive firm’s short-run supply curve is its ___ cost curve above its ___ cost curve.
Average total, marginal
Average variable, marginal
Marginal, average total
Marginal, average variable
If a profit-maximizing, competitive firm is producing a quantity at which marginal cost is between average variable cost and average total cost, it will
Keep producing in the short run but exit the market in the long run.
Shut down in the short run but return to production in the long run.
Shut down in the short run and exit the market in the long run.
Keep producing both in the short run and in the long run.
In the long-run equilibrium of a competitive market with identical firms, what are the relationships among price P, marginal cost MC, and average total cost ATC?
P > MC and P > ATC
P > MC and P = ATC
P = MC and P > ATC
P = MC and P = ATC
Pretzel stands in New York City are a perfectly competitive industry in long-run equilibrium. One day, the city starts imposing a $100 per month tax on each stand. How does this policy affect the number of pretzels consumed in the short run and the long run?
Down in the short run, no change in the long run
Up in the short run, no change in the long run
No change in the short run, down in the long run
No change in the short run, up in the long run
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