ECON 315-70 PRACTICE FINAL EXAM 2 KEY| 2022 UPDATE

ECON 315-70 PRACTICE FINAL EXAM 2 KEY| 2022 UPDATE ECON 315-70 PRACTICE FINAL EXAM 2 KEY| 2022 UPDATE 1. You are given a total cost function as 100 + 10Q – 6Q2 + Q3. What is the minimum level of average variable cost, and thus the minimum price the firm needs to stay open? A. $1. B. $3 C. $5 D. $7 2. Should a firm shut down if its weekly revenue is $1, 000, its variable cost is $800, and its fixed cost is $1, 500? Why? The firm should A.shut down because revenue of $1 000 is less than total costs. B.shut down because because variable costs are less than fixed costs. C.produce because revenue is positive. D.produce because revenue of $1 000 is greater than variable costs. 3. Should a competitive firm ever produce when it is losing money? Why or why not? A.No, the firm should shutdown if it is making an economic loss. B.No, the firm should shutdown if it is making an accounting loss. C.Yes, as long as revenue can cover some portion of total variable costs. D.Yes, as long as revenue can cover total variable costs plus any portion of fixed costs. 4.If firms in a competitive market are not identical, then an increase in the business license cost for all firms will A.shift marginal cost to the right. B.push the most efficient firms out of the market in the long-run C.push the most inefficient firms out of the market in the long-run D.Need more information. 5. By shutting down, a firm A) stops receiving revenue but continues to pay variable costs. B) stops receiving revenue and is stuck with its fixed costs. C) avoids its sunk costs as well as its variable costs. D) can avoid paying taxes on its previously earned profits.   6. Refer to the figure above. The firm earns profits in the short-run if the market price is a) above $8. b) above $6.30 c) above $4.50 but less than $6.30. d) less than $4.50. 7. A firm will enter a competitive market when A) it can gather market share at the expense of incumbent firms. B) it would not be the last firm entering. C) it can earn a positive long-run profit. D) the long-run supply curve is upward sloping. 8. If a firm operates in a perfectly competitive market, then it will most likely A) advertise its product on television. B) take the price of its product as determined by the market. C) have a difficult time obtaining information about the market price. D) have an easy time keeping other firms out of the market. 9. Which is an example of a perfectly-competitive industry: a. Internet service providers b. Gasoline stations on a street corner c. Stock transactions of Walmart d. A ferry service crossing a river Quantity Marginal Cost Marginal Revenue 12 $5 $7.50 13 $6 $7.50 14 $7 $7.50 15 $8 $7.50 16 $9 $7.50 17 $10 $7.50 10. If the firm above is currently producing 14 units, what would you advise the owners? a. decrease quantity to 13 units b. increase quantity to 15 units c. continue to operate at 14 units d. increase quantity to 16 units 11. How does the profit-maximizing solution for a monopolist change if the cost function goes from C=10+6Q to C=100 + 6 Q? A. The increase in fixed cost causes the firm to increase both the price and quantity, and profit increases. B. The increase in fixed costs has no effect on the equilibrium quantity, but the equilibrium price increases and profit increases. C.The increase in fixed costhas no effect on the equilibrium quantity, but the equilibrium price increases and profit decreases. D.The increase in fixed cost has no effect on the equilibrium price and quantity, but profit will decrease. 12. Suppose a monopoly's price is $60.00 and its marginal cost of production is $48.00. What is the firm's markup and elasticity of demand ? a. 12%, -1.2 b. 20%, -5 c. 48%, -4 d. 60%, -0.8 13. If the inverse demand curve a monopoly faces is p = 100 -2Q, and MC is constant at 16, then the firm's Lerner Index at its profit-maximizing price equals A. 42 /58 B. 58/42 C. 58/16 D. 16/42   14. Which of the following total cost functions suggests the presence of a natural monopoly? A.TC = 100 + 2Q B. TC = 2Q C. TC = 100 + 2 Q2 D. All of the above. 15. For a monopolist, marginal revenue: a. is equal to the price of a good at each positive quantity b. is greater than the price of a good at each positive quantity c. is less than the price of a good at each positive quantity d. has no relationship with the price of the good 16.Which would not be a source of monopoly power for a good’s producer? a. economies-of-scale in production b. a patent on the good c. advertising d. control of a scarce resource input 17. All of the following government actions create barriers to entry EXCEPT A) limiting the number of airlines that may operate at an airport. B) granting a patent to a drug company. C) requiring a pizza parlor to get a business license. D) giving a power company exclusive use of the city's transmission lines. 18. Market power guarantees profit. A) True, which is why firm's locate as far away from each other as possible. B) False, market power guarantees price greater than marginal cost. C) True, market power guarantees price greater than average cost. D) False, market power guarantees price equal to average cost. 19. A profit-maximizing monopolist will never operate in the portion of the demand curve with price elasticity equal to A) -3. B) -1. C) -1/3. D) None of the above—the price elasticity does not matter. 20. Suppose a monopolistically competitive industry evolved into a perfectly competitive industry. Which of the following statements is correct? A.The industry would produce more output and charge a lower price after the change. B.This industry would produce the same level of output at lower prices in the long run than before the change. C.Elasticity of demand for the firm's product would remain the same after this change occurred. D.The industry would produce at decreasing returns to scale.   21. Disneyland price discriminates because A.local residents likely wouldn't go to the park at prices Disneyland can charge for tourists, which would reduce Disneyland's profits. B.children are cheaper to service, so Disneyland can charge lower prices for a children's ticket. C.everyone loves going to The Happiest Place on Earth, so they'll pay whatever Disneyland wants to charge. D.only a certain number of people can get into Disneyland at any given time, limiting supply, and the market demand curve is nearly completely inelastic. 22. Bob is the only carpet installer in a small isolated town. The above figure shows the demand curves of two distinct groups of customers-residential and business. If the marginal cost of installing carpet is a constant $1 per sq yard, what price does Bob charge each segment? A.$1 in each market B.$10 in the residential market and $15 in the business market C.$1 in the residential market and $5 in the business market D.$5.50 in the residential market and $8 in the business market 23. During a hot summer weekend, the only supermarket near the beach decides to charge consumers $6.50 for the first 12-pack of soda pop, $5.50 for the second and third 12-packs, and $5.25 for all subsequent purchases during the same shopping trip. This would be considered A.not very smart since consumers will buy soda pop regardless of the price. B.an example of monopoly pricing. C.an example of an inelastic demand curve. D.an example of declining-block pricing. 24. Which of the following is an example of peak-load pricing? A) Charging less for vacations to Hawaii during December and January B) Charging more for electricity on hot days C) Setting price equal to marginal cost when there is a capacity constraint D) Selling excess capacity at lower prices   25. Suppose two types of consumers buy suits. Consumers of type A will pay $100 for a coat, and $50 for pants. Consumers of type B will pay $75 for a coat, and $75 for pants. The firm selling suits faces no competition and has a marginal cost of zero. If the firm charges $100 for a suit (which includes both pants and a coat), the firm will sell a suit to: a) type A consumers. b) type B consumers. c) both a and b. d) none of the above. 26. If reservation prices are positively correlated, then A) pure bundling cannot increase a firm's profit. B) pure bundling can increase a firm's profit. C) it is unclear whether or not pure bundling can increase a firm's profit. D) consumers lose leverage over firms. 27. With two-part pricing, a firm A) charges a lump-sum fee that gives the consumer the right to buy a good or service. B) must have market power. C) must be able to prevent resale. D) All of the above. 28. Group price discrimination has ________ consumer surplus than under ________. A) more; perfect competition B) less; perfect competition C) more; an elastic demand curve D) less; single-price monopoly 29. A monopoly sells its good in the United States, where the elasticity of demand is -2.4, and in Japan, where the elasticity of demand is -5.2. Its marginal cost is $9. At what price does the monopoly sell its good in each country if resales are impossible? a. The price in the United States is $15.43, the price in Japan is $11.14 b. The price in the United States is $11.14, the price in Japan is $15.43 c. The price in the United States is $18, the price in Japan is $9 d. The price in the United States and Japan is $19.5 30. First-degree (perfect) price discrimination means: a. Charging the same price to all buyers b. Charging two groups of buyers two different prices c. Charging each individual his/her willingness-to-pay d. Charging a high price for a large quantity of an item and not offering a small quantity  31. An accurate description of an oligopoly industry is: a. a limited number of firms producing standardized or differentiated products b. a large number of small firms producing differentiated products c. a large number of small firms producing standardized products d. a single firm producing a differentiated product 32. What is a best-response curve? A) the different prices a firm chooses to sell a target profit-maximizing quantity. B) the output or price a firm chooses to maximize its profit, given its belief about its rival’s action. C) the output a firm chooses to maximize its profit after the firm and its rival decide how to divide the total market quantity. D) the rival’s choice of price after a firm sets its quantity. 33. Assuming a homogeneous product, the Bertrand duopoly equilibrium price is A.greater than the Cournot equilibrium price. B.the same as the Cournot equilibrium price. C.less than the Cournot equilibrium price. D.equal to the monopoly price. 34. The Cournot Model of Oligopoly assumes that A) firms decide what quantity to produce. B) firms make their decisions simultaneously. C) firms do not cooperate. D) All of the above. 35. In an oligopoly, the total output produced in the market is a. higher than the total output that would be produced if the market were a monopoly and higher than the total output that would be produced if the market were perfectly competitive. B .higher than the total output that would be produced if the market were a monopoly but lower than the total output that would be produced if the market were perfectly competitive. C .lower than the total output that would be produced if the market were a monopoly but higher than the total output that would be produced if the market were perfectly competitive. d. lower than the total output that would be produced if the market were a monopoly and lower than the total output that would be produced if the market were perfectly competitive. 36. In a monopolistically competitive market A) firms are price setters. B) barriers to entry are high. C) firms earn positive economic profit in the long run. D) products are undifferentiated. 37. In the long run a monopolistic competitor A) sets MR = MC. B) produces where P = AC. C) sets P > MC. D) All of the above. 38. Product differentiation A) may allow firms to price above a competitive level. B) generates value as consumers value more choices. C) depends on perceived differences between products. D) All of the above. 39. In the long-run monpolistic competition figure below, in order to maximize its profit, the firm will choose to produce a. 100 units of output, and its profit will be negative. b. 100 units of output, and its profit will be zero. c. 133.33 units of output, and its profit will be negative. d. 133.33 units of output, and its profit will be zero. 40. In the long-run monopolistic competition figure below, efficient scale is reached a. at 100 units. b. at 133.33 units. c..between 133.33 units and 154.92 units. d. at 154.92 units.   SHORT ANSWER 1.Assume a competitive firm faces a market price of $45 a cost curve of: C = 1/3 q3 + 9 q + 1, 250 TC= 1/3 q3 + 9 q + 1, 250 and a marginal cost of: q2 + 9 What is the firm's profit maximizing output level? 6.00 units.  What is the firm's profit maximizing price? $45 What is the firm's profit? $- 1106: TR = (P*Q) = $270 TC (@q=6) = 72+54+1250=1376 Notice: the total revenue of $270 is > than the variable components of cost (underlined) $126. Also, we can calculate the average variable cost: VC= 1/3 q3 + 9 q so AVC = 1/3 q2 + 9 @q=6, AVC = 12+9 = 21 < price =$45 STAY OPEN 2. Assume a competitive firm faces a market price of $55 a short-run cost curve of: C = 0.003q3+ 30q + 750 and marginal cost curve of: MC = 0.009q2 + 30 What will happen to the price, quantity and profit facing this firm in the long-run? The firm's profit maximizing output level (to the nearest tenth) is 52.7 and the profit at this output level is $128.41 In this case, firms will enter. This will cause the market supply to shift right. This will continue until the price is equal to the minimum average cost of $52.50. At this price level the profit will be zero. 3. The regular demand curve a monopoly faces is Qx= 65 – 1/2Px The firm's cost curve is C (Q) = 10 + 6Qx What is the profit-maximizing solution? The profit-maximizing quantity is 31.00 . The profit-maximizing price is $68.00   4. Joe has just moved to a small town with only one golf course, the Northlands Golf Club. His inverse demand function is P= 180-q, where q is the number of rounds of golf that he plays per year. The manager of the Northlands Club negotiates separately with each person who joins the club and can therefore charge individual prices. This manager has a good idea of what Joe's demand curve is and offers Joe a special deal, where Joe pays an annual membership fee and can play as many rounds as he wants at $40,which is the marginal cost his round imposes on the Club. What membership fee would maximize profit for the Club? The manager could have charged Joe a single price per round. How much extra profit does the Club earn by using two-part pricing? Find that the target quantity will be 140 units. The profit-maximizing membership fee (F) (the consumer surplus at this quantity) is $9,800 The Club's extra profit (above what its profit would have been from charging a single per-round price) is $4,900 (since the monopoly solution of q=70, p=$110 provides $4900 profit) . 5. What is the homogeneous-good duopoly Cournot equilibrium if the market demand function is Q=10,000-1,000p,and each firm's marginal cost is $0.28 The Cournot-Nash equilibrium occurs where q 1= 3240 and q 2=3240 Furthermore, the equilibrium occurs at a price of $3.52