econ 2020 exam 4 actual test
econ 2020 exam 4 actual test Econ 2020
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This 7 page Study Guide was uploaded by Natalie Partain on Monday May 2, 2016. The Study Guide belongs to Econ 2020 at Auburn University taught by William M. Finck in Spring 2016. Since its upload, it has received 22 views. For similar materials see Principles of Economics: Microeconomics in Business at Auburn University.
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Date Created: 05/02/16
VERSION 1 Name _________________ ECON 2020 Exam #4 DIRECTIONS: Read each question and EVERY possible answer VERY carefully. Select the best answer from the alternatives. Good luck! 1. Which of the following is an effect of an increase in demand on a market in long run competitive equilibrium? A. equilibrium output falls B. firms decrease q* initially C. firms earn negative economic profit D. firms enter (supply increases) 2. Monopolistically competitive firms advertise in order to ... A. increase demand B. increase price elasticity of demand C. decrease price elasticity of demand D. A and B only E. A and C only Use the following graph to answer question 3. A B C D E F MC = ATC = S PC MR D 3. The shaded area represents A. deadweight loss B. consumer surplus when the market is perfectly competitive C. consumer surplus when the market is a monopoly D. monopoly profit E. “Gretchen, stop trying to make ‘fetch’ happen. It’s not going to happen!” 1 VERSION 1 4. Kalteen sells 500 units for $7 each and the firm faces an average total cost of $4, what is Kalteen’s profit? A. $1500 B. $3500 C. $5500 D. $3 E. $2000 5. If Kalteen from the above question sells its output in a monopoly market structure, what will happen in the long run? A. profit will not change in the LR due to high barriers to entry B. firms will exit the market, D and MR will decrease, and profit = zero C. firms will exit the market, D and MR will increase, and profit = zero D. firms will enter the market, D and MR will decrease, and profit = zero E. firms will enter the market, D and MR will increase, and profit = zero Use the following graph to answer questions 6 – 7. P P1 B P2 C A D Q Q1 Q2 6. If the above firm sells Q1 units at a price of P1, then the marginal revenue from the last unit sold will be A. “It’s October 3 .” B. equal to P1 C. greater than P1 D. less than P1 7. If the above firm decreases price from P1 to P2, then total revenue A. decreases by area A and increases by area B B. decreases by area B and increases by area A C. decreases by area C and increases by area B D. decreases by area B and increases by area C 2 VERSION 1 8. Which of the following is a characteristic of monopolistic competition? A. many small buyers and sellers B. high barriers to entry C. standardized products D. all of the above E. A and B only 9. Which of the following conditions is NOT necessary for price discrimination? A. two or more groups of buyers with different elasticities B. prevention of resale C. six degrees of Kevin Bacon D. all of the above E. A and B only 10. Assume a market in long run competitive equilibrium experiences a decrease in demand. After market adjustments occur, what is the net change in market price and quantity after the market returns to long run equilibrium? A. price does not change and quantity rises B. price does not change and quantity falls C. price falls and quantity does not change D. price falls and quantity falls E. “I’m voting for Regina George because she got hit by that bus.” 11. All firms find the profit-maximizing level of output where A. P = MR B. BAE = WTH C. P = ATC D. MR = MC E. “FOUR for you, Glenn Coco! You go, Glenn Coco.” 12. Which of the following statements about monopoly is TRUE? A. Monopolists create a contrived scarcity by selling at an output below the perfectly competitive equilibrium output. B. For a monopoly, long run profit is greater than short run profit. C. Firms in a perfectly competitive market can create more technological advances and thus faster economic growth than monopolies. D. A and C only E. all of the above are FALSE 13. A monopolist can sell 14 units for $4.50 each or 15 units for $4.40 each. What is the marginal revenue earned from selling the 15 unit? A. “That's why her hair is so big – it's full of secrets.” B. $66.00 C. $4.40 D. $63.00 E. $3.00 3 VERSION 1 Use the following graph to answer questions 14 – 15. $ MC ATC P3 d3=MR3 AVC P2 d2=MR2 P1 d1=MR1 Q 0 q1 q2 q3 14. A firm facing P3 will produce ____ units and earn ____ economic profit. A. q3; negative B. q3; zero C. q3; positive D. zero; zero E. zero; negative 15. A firm facing P1 will produce ____ units and earn ____ economic profit A. q1; negative B. q1; zero C. q1; positive D. zero; zero E. zero; negative 16. Which of the following statements about monopolistic competition is FALSE? A. Monopolistically competitive markets have no barriers to entry. B. Excess capacity occurs when a monopolistically competitive firm sets output below the output that minimizes average total cost. C. Advertising increases search and information costs. D. A and B only E. A and C only 17. A firm in a perfectly competitive product market faces a market price of $28. If the firm faces marginal cost represented by the equation MC = 4 + 4q, then q* is A. 7 units B. 3.5 units C. 6 units D. 8 units E. “One time she punched me in the face. It was awesome.” 4 VERSION 1 Use the following graph to answer questions 18 – 19. MC $24 ATC $20 $14 $12 $9 D Q 38 48 55 63 MR 18. A profit-maximizing producer will sell ____ units at a price of ___ . A. 48, $9 B. 48, $20 C. 63, $14 D. 53, $12 E. 38, $24 19. If the above firm operates in a monopolistically competitive market structure, what will happen in the long run? A. firms will enter the market, D and MR will decrease, and profit = zero B. firms will enter the market, D and MR will increase, and profit = zero C. profit will not change in the LR due to high barriers to entry D. firms will exit the market, D and MR will decrease, and profit = zero E. firms will exit the market, D and MR will increase, and profit = zero 20. Assume a perfectly competitive market is in long run competitive equilibrium. How would firms respond to a decrease in costs? A. firms increase q initially, new firms enter, original firms decrease q B. firms increase q initially, firms exit, remaining firms decrease q C. firms decrease q initially, new firms enter, original firms increase q D. firms decrease q initially, firms exit, remaining firms increase q 21. When an industry exhibits productive efficiency, A. every consumer willing to pay at least the marginal cost will get the good B. P = minimum ATC C. P = maximum ATC D. A and B only E. A and C only 5 VERSION 1 Use the following information to answer question 22. MC = 12 + 2Q P = 76 – 3Q 22. For the monopolist facing this demand curve with these costs, the profit- maximizing level of output is ___ units and price is ____ . A. 8; $52 B. 8; $28 C. 9; $49 D. 11; $43 E. 13; $37 23. In the price discrimination model, the group with a lower opportunity cost A. gets charged a lower price B. gets charged a higher price C. has a more elastic demand D. A and C only E. B and C only 24. Which market characteristic implies that long run profit may be greater than zero? A. “On Wednesdays we wear pink.” B. differentiated products C. perfect information D. no close substitutes E. high barriers to entry 25. Which of the following is a type of barrier to entry? A. differentiated products B. economies of scale C. allocative efficiency D. A and B only E. B and C only 6 VERSION 1 7
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