Econ B-251 Final Review Questions and
Answers
a firm in a monopolistic competitive market produces a quantity of 75. at this quantity its
marginal revenue and marginal cost are both $10, its average total cost is $15 at that
quantity, and the price it charges is $25. what is the firm's economic profit?
a. 750
b. 375
c. 1125
d. 0 - ANSWER-a. 750
a firm in a monopolistic competitive market produces a quantity of 75. at this quantity its
mr and mc are both $10, its atc is $35 at that quantity, and the price it charges is $25. in
the long run, firms will ____________ and the quantity of each existing firm will
____________. - ANSWER-exit, increase
A firm in a monopolistic competitive market produces a quantity of 75. Atthis quantity its
Marginal Revenue and Marginal Cost are both $10, its Average Total Cost is $35at that
quantity, and the price it charges is $25, and Average Variable Costs are $28. What is
thevalue of the firm's short-run profits at the profit-maximizing quantity? - ANSWER-
$525
a long-run market equilibrium can be defined as - ANSWER-when quantity supplied
equals the quantity demanded, given that sufficient time has elapsed for entry and exit
into the firm
a monopolist can be defined as - ANSWER-only person selling a good
no other choices, so price can be higher
a short-run market equilibrium can be defined as - ANSWER-when quantity supplied
equals the quantity demanded, taking the number of producers as given
an increase in the market demand leads to . . . - ANSWER-an increase in the firm's
demand
an increase in the market supply leads to - ANSWER-a decrease in the equilibrium
market price
an industry market supply curve can be defined as - ANSWER-price of good and total
output of industry as a whole
Assume that a clothing firm advertises, and is able to convince consumers that their
product is more differentiated from other clothing. As a result the demand the firm faces
will likely _______ and become more __________. - ANSWER-increase, inelastic
,Assume that a firm is able to create a brand following spending no money, increasing
the demand the firm faces. As a result, which of the following is true?
a. the quantity the firm produces increases
b. all of the above
c. the markup will increase
d. profits will increase - ANSWER-b. all of the above
Assume that a monopolistically competitive firm is earning positive economic profits in
the short run. Which of the following is NOT true in the long run?
a. the quantity each firm produces will decrease
b. firms will enter the market
c. profits will decrease
d. the price that each firm can charge increases - ANSWER-d. the price that each firm
can charge increases
Assume that Ford and Toyota are deciding whether or not they should invest in
researchand development (R&D). If both invest, their additional profits will be $6 million.
Ifboth decide NOT to invest their additional profits will be $0 million. If one firm
investsinto R&D and the other doesn't, then the firm investing into R&D will lose $1
million,and the one that didn't will get an additional $11 million. What is the nash
equilibrium?a. Ford Invests, Toyota Invests
b. Ford Does Not Invest, Toyota Invests
c. Ford Does Not Invest, Toyota Does Not Invest
d. Ford Invests, Toyota Does Not Invest - ANSWER-c. Ford does not invest, toyota
does not invest
Assume that in the short run the perfectly competitive market for bicycles has a market
price of $20. Each firm produces 200 bicycles and has total fixed costs of $5000 and
total variable costs of $5000. At this quantity of 200 bicycles these firms will do which of
the following:
a. choose to produce and experience positive economic profits
b. choose to produce and experience negative economic profits
c. choose to produce and experience zero economic profits
d. choose to shut down and not produce - ANSWER-d. choose to shut down and not
produce
Assume that in the short run the perfectly competitive market for bicycles has a market
price of $40. Each firm produces 200 bicycles and has total fixed costs of $5000 and
total variable costs of $5000. At this quantity of 200 bicycles these firms will do which of
the following:
a. choose to produce and experience positive economic profits
b. chose to produce and experience negative economic profits
c. choose to produce and experience zero economic profits
d. choose to shut down and not produce - ANSWER-b. choose to produce and
experience negative economic profits
, Assume that in the short run the perfectly competitive market for bicycles has a market
price of $60. Each firm produces 200 bicycles, with total fixed costs of $5000 and total
variable costs of $5000. At this quantity of 200 the firm's profits will be . . . - ANSWER-
$2,000
Assume that the profit maximizing quantity for p=80-2Qd is 10. What would be the
optimal price for the firm to charge?
a. 40
b. 20
c. 60
d. 80 - ANSWER-c. 60
Assume that two firms are choosing quantities to produce, and we know the payoffs
create a Prisoner's Dilemma. In the long run which of the following is NOT true?
a. the firms will restrict quantity and split the monopoly profits
b. the nash equilibrium results in profits that are lower than that of a monopoly
c. in the long run the market gets to the perfectly competitive outcome
d. the nash equilibrium will be that both firms break the collusion agreement to act as a
monopoly - ANSWER-a. the firms will restrict quantity and split monopoly profits
average revenue can be calculated by - ANSWER-total revenue divided by quantity
business stealing externality is - ANSWER-losses incurred by existing firms when new
firms enter the market
consumer surplus is often - ANSWER-lower under monopoly markets
dominant strategy can be defined as - ANSWER-strategy best for player regardless of
what is chosen by the other player
excess capacity can be calculated by - ANSWER-Qpc minus Qmc
firms advertise so that they can - ANSWER-manipulate consumer's taste
firms in monopolistic competition market
a. charge a price equal to marginal cost
b. charge a price equal to marginal revenue
c. charge a price that is greater than marginal revenua
d. produce the revenue-maximizing level of output - ANSWER-c. charge a price that is
greater than marginal revenue
for a competitive firm, marginal revenue must ______ price - ANSWER-equal
for a firm with monopolistic competition, less substitutes leads to - ANSWER-more
inelasticity
Answers
a firm in a monopolistic competitive market produces a quantity of 75. at this quantity its
marginal revenue and marginal cost are both $10, its average total cost is $15 at that
quantity, and the price it charges is $25. what is the firm's economic profit?
a. 750
b. 375
c. 1125
d. 0 - ANSWER-a. 750
a firm in a monopolistic competitive market produces a quantity of 75. at this quantity its
mr and mc are both $10, its atc is $35 at that quantity, and the price it charges is $25. in
the long run, firms will ____________ and the quantity of each existing firm will
____________. - ANSWER-exit, increase
A firm in a monopolistic competitive market produces a quantity of 75. Atthis quantity its
Marginal Revenue and Marginal Cost are both $10, its Average Total Cost is $35at that
quantity, and the price it charges is $25, and Average Variable Costs are $28. What is
thevalue of the firm's short-run profits at the profit-maximizing quantity? - ANSWER-
$525
a long-run market equilibrium can be defined as - ANSWER-when quantity supplied
equals the quantity demanded, given that sufficient time has elapsed for entry and exit
into the firm
a monopolist can be defined as - ANSWER-only person selling a good
no other choices, so price can be higher
a short-run market equilibrium can be defined as - ANSWER-when quantity supplied
equals the quantity demanded, taking the number of producers as given
an increase in the market demand leads to . . . - ANSWER-an increase in the firm's
demand
an increase in the market supply leads to - ANSWER-a decrease in the equilibrium
market price
an industry market supply curve can be defined as - ANSWER-price of good and total
output of industry as a whole
Assume that a clothing firm advertises, and is able to convince consumers that their
product is more differentiated from other clothing. As a result the demand the firm faces
will likely _______ and become more __________. - ANSWER-increase, inelastic
,Assume that a firm is able to create a brand following spending no money, increasing
the demand the firm faces. As a result, which of the following is true?
a. the quantity the firm produces increases
b. all of the above
c. the markup will increase
d. profits will increase - ANSWER-b. all of the above
Assume that a monopolistically competitive firm is earning positive economic profits in
the short run. Which of the following is NOT true in the long run?
a. the quantity each firm produces will decrease
b. firms will enter the market
c. profits will decrease
d. the price that each firm can charge increases - ANSWER-d. the price that each firm
can charge increases
Assume that Ford and Toyota are deciding whether or not they should invest in
researchand development (R&D). If both invest, their additional profits will be $6 million.
Ifboth decide NOT to invest their additional profits will be $0 million. If one firm
investsinto R&D and the other doesn't, then the firm investing into R&D will lose $1
million,and the one that didn't will get an additional $11 million. What is the nash
equilibrium?a. Ford Invests, Toyota Invests
b. Ford Does Not Invest, Toyota Invests
c. Ford Does Not Invest, Toyota Does Not Invest
d. Ford Invests, Toyota Does Not Invest - ANSWER-c. Ford does not invest, toyota
does not invest
Assume that in the short run the perfectly competitive market for bicycles has a market
price of $20. Each firm produces 200 bicycles and has total fixed costs of $5000 and
total variable costs of $5000. At this quantity of 200 bicycles these firms will do which of
the following:
a. choose to produce and experience positive economic profits
b. choose to produce and experience negative economic profits
c. choose to produce and experience zero economic profits
d. choose to shut down and not produce - ANSWER-d. choose to shut down and not
produce
Assume that in the short run the perfectly competitive market for bicycles has a market
price of $40. Each firm produces 200 bicycles and has total fixed costs of $5000 and
total variable costs of $5000. At this quantity of 200 bicycles these firms will do which of
the following:
a. choose to produce and experience positive economic profits
b. chose to produce and experience negative economic profits
c. choose to produce and experience zero economic profits
d. choose to shut down and not produce - ANSWER-b. choose to produce and
experience negative economic profits
, Assume that in the short run the perfectly competitive market for bicycles has a market
price of $60. Each firm produces 200 bicycles, with total fixed costs of $5000 and total
variable costs of $5000. At this quantity of 200 the firm's profits will be . . . - ANSWER-
$2,000
Assume that the profit maximizing quantity for p=80-2Qd is 10. What would be the
optimal price for the firm to charge?
a. 40
b. 20
c. 60
d. 80 - ANSWER-c. 60
Assume that two firms are choosing quantities to produce, and we know the payoffs
create a Prisoner's Dilemma. In the long run which of the following is NOT true?
a. the firms will restrict quantity and split the monopoly profits
b. the nash equilibrium results in profits that are lower than that of a monopoly
c. in the long run the market gets to the perfectly competitive outcome
d. the nash equilibrium will be that both firms break the collusion agreement to act as a
monopoly - ANSWER-a. the firms will restrict quantity and split monopoly profits
average revenue can be calculated by - ANSWER-total revenue divided by quantity
business stealing externality is - ANSWER-losses incurred by existing firms when new
firms enter the market
consumer surplus is often - ANSWER-lower under monopoly markets
dominant strategy can be defined as - ANSWER-strategy best for player regardless of
what is chosen by the other player
excess capacity can be calculated by - ANSWER-Qpc minus Qmc
firms advertise so that they can - ANSWER-manipulate consumer's taste
firms in monopolistic competition market
a. charge a price equal to marginal cost
b. charge a price equal to marginal revenue
c. charge a price that is greater than marginal revenua
d. produce the revenue-maximizing level of output - ANSWER-c. charge a price that is
greater than marginal revenue
for a competitive firm, marginal revenue must ______ price - ANSWER-equal
for a firm with monopolistic competition, less substitutes leads to - ANSWER-more
inelasticity
