American Military University > ECON201: Final Exam – 98% CURRENTLY UPDATED 2021.

ECON201: Final Exam – 98% Overall Grade (highest attempt): 157.5 / 160 - 98.44 % Question 1 5/5 One defining characteristic of pure monopoly is that: The monopolist is a price taker The monopolist uses advertising There is relatively easy entry into the industry, but exit is difficult Question 2 5/ 5 Which is a barrier to entry? Close substitutes Diseconomies of scale Price-taking behavior Question 3 5/5 Other things equal, which reduces competition in an industry? Freedom of entry for new firms An increase in the number of producers An increase in the number of buyers Question 4 5/5 The representative firm in a purely competitive industry: Will always earn a profit in the short run May earn either an economic profit or a loss in the long run Will always earn an economic profit in the long run Question 5 5/5 An example of a monopolistically competitive industry would be: Steel Soybeans Electricity Question 6 5/5 Firms in an industry will not earn long-run economic profits if: Fixed costs are zero The number of firms in the industry is fixed Production costs for a given level of output are minimized Question 7 5/5 Marginal product is: the increase in total revenue attributable to the employment of one more worker. the increase in total cost attributable to the employment of one more worker. total product divided by the number of workers employed. Question 8 5/5 The law of diminishing returns indicates that: because of economies and diseconomies of scale a competitive firm's long-run average total cost curve will be U-shaped. the demand for goods produced by purely competitive industries is downsloping. beyond some point the extra utility derived from additional units of a product will yield the consumer smaller and smaller extra amounts of satisfaction. Question 9 5/5 Which of the following is most likely to be a variable cost? interest on business loans rental payments on IBM equipment real estate taxes Question 10 5/5 If average total cost is declining, then: marginal cost must be greater than average total cost. the average fixed cost curve must lie above the average variable cost curve. total cost must also be declining. Question 11 5/5 The selling of stock is debt financing for a corporation. True Question 12 5/5 Average fixed costs diminish continuously as output increases. False Question 13 5/5 Patents and copyrights were established by the government to reduce oligopoly and monopoly power. True Question 14 5/5 Prices in oligopolistic industries are predicted to fluctuate widely and frequently compared to other market structures. True Question 15 5/5 The positive view of advertising suggests that it contributes to economic efficiency in the economy. False Question 16 5/5 Price fixing is illegal under Section 1 of the Sherman Act. False Question 17 5/5 Rent-seeking behavior refers to activities designed to transfer income or wealth to a particular firm or resource supplier at someone else's or society's expense. False Question 18 5/5 A purely competitive firm is a price maker, but a monopolist is a price taker. True Short-Run Costs Question 19 5/5 (Exhibit: Short-Run Costs) At the given price, the most profitable level of output occurs at quantity: N P T Question 20 5/5 (Exhibit: Short-Run Costs) If the price declines, the minimum quantity of output supplied in the short run is quantity: O. R. S. Question 21 5/5 (Exhibit: Short-Run Costs) If the price declines, production will continue in the short run, even though the firm incurs a loss, between quantities: O and Q. R and S. S and T. Question 22 5/5 (Exhibit: Short-Run Costs) This firm's supply curve begins at quantity: R. S. T. Profit Maximization in Monopolistic Competition Question 23 5/5 (Exhibit: Profit Maximization in Monopolistic Competition) A firm in monopolistic competition will maximize profits by producing the level of output where: P = MC P = MR price minus ATC (i.e., economic profit per unit) is the largest. Question 24 5/5 (Exhibit: Profit Maximization in Monopolistic Competition) In the short run, a firm in monopolistic competition may experience economic profits as shown in Panel (a) as the distance: PS. PS times the quantity 0M. PT times the quantity Q. Question 25 5/5 (Exhibit: Profit Maximization in Monopolistic Competition) If other firms see economic profits in the industry, they will enter it, and the demand curve for firms already in the industry will shift to the ; in the long run, this will result in economic profit _ and price . right; = 0; = ATC; = minimum ATC right; > 0; > ATC left; < 0; < ATC Question 26 5/5 (Exhibit: Profit Maximization in Monopolistic Competition) In monopolistic competition, long-run equilibrium is characterized by: P < MR. P = MR. profit maximization, which occurs where P = MR = MC. Question 27 5/5 (Exhibit: Profit Maximization in Monopolistic Competition) In Panel (a), if the firm raises its price above P, it will: lose all its customers. not lose any customers. have none of the above occur. Question 28 5/5 (Exhibit: Profit Maximization in Monopolistic Competition) In determining the price in monopolistic competition: the price to the firm is given by supply and demand for the industry. the firm is a price taker. A and B are true. Short Essay 17.5/20Which of the following goods is most likely to be produced in a perfectly competitive market - airplanes, cars, beer, fresh sweet corn, diamonds, or fast-food burgers? Explain your answer using at least 3 characteristics that define this type of market structure. Please make sure that your answer is detailed but concise.