ECON 211 Final Sample, Summer 2011

Exam Name___________________________________ MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) If a firm's operating profit is $0, then it must be true that 1) A) TFC is zero. B) TR equals TFC. C) TR equals TC. D) TR equals TVC. Refer to the information provided in Figure 8.1 below to answer the questions that follow. Figure 8.1 2) Refer to Figure 8.1. If this farmer is maximizing profits, his profit will be 2) A) $45. B) -$24. C) $48. D) $72. 3) Refer to Figure 8.1. If this farmer is maximizing profits, his total revenue will be 3) A) $135. B) $90. C) $240. D) $180. Refer to the information in Scenario 2 below to answer the following questions. SCENARIO 2: Tom borrows $40,000 from his parents to open an espresso stand. He agrees to pay his parents a 5% yearly return on the money they lent him. His other yearly fixed costs equal $10,000. His variable costs equal $25,000. He sold 40,000 dozen donuts during the year at a price of $2.00 per dozen. 4) Refer to Scenario 2. Tom's total fixed costs equal 4) A) $1,000. B) $21,000. C) $10,000. D) $12,000. 1 Refer to the data provided in Table 8.1 below to answer the questions that follow. Table 8.1 q TFC TVC TC MC AVC ATC 0 1 2 3 4 5 6 7 $50 50 50 50 50 50 50 50 $ 0 20 30 45 62 90 132 186 $ 50 70 80 95 112 140 182 236 -- 20 10 15 17 28 42 54 -- 20 15 15 15.50 18 22 26.57 -- 70 40 31.67 28 28 30.33 33.71 5) Refer to Table 8.1. If the market price is $10, then for this firm to maximize profits it should produce __________ units of output. 5) A) zero B) one C) two D) three 6) As long as price is sufficient to cover __________, the firm is better off by operating rather than by shutting down. 6) A) average fixed cost B) marginal cost C) average variable cost D) marginal revenue Refer to the information provided below in Scenario 1 to answer the following questions. SCENARIO 1: Amy borrowed $20,000 from her parents to open a bagel shop. She pays her parents a 5% yearly return on the money they lent her. Her other yearly fixed costs equal $9,000. Her variable costs equal $30,000. In her first year, Amy sold 40,000 dozen at a price of $1.50 per dozen. 7) Refer to Scenario 1. Amy's profit is 7) A) $30,000. B) $50,000. C) $20,000. D) $0. Refer to the information provided in Figure 8.1 below to answer the questions that follow. Figure 8.1 8) Refer to Figure 8.1. For this farmer to maximize profits he should produce __________ bushels of wheat. 8) A) 9 B) 12 C) 16 D) 6 2 Refer to the data provided in Table 8.1 below to answer the questions that follow. Table 8.1 q TFC TVC TC MC AVC ATC 0 1 2 3 4 5 6 7 $50 50 50 50 50 50 50 50 $ 0 20 30 45 62 90 132 186 $ 50 70 80 95 112 140 182 236 -- 20 10 15 17 28 42 54 -- 20 15 15 15.50 18 22 26.57 -- 70 40 31.67 28 28 30.33 33.71 9) Refer to Table 8.1. If the market price is $15, this firm should produce __________ units of output to maximize profits. 9) A) zero B) two C) three D) four Refer to the information provided in Figure 8.1 below to answer the questions that follow. Figure 8.1 10) Refer to Figure 8.1. This farmer would earn a zero economic profit if price was 10) A) $7. B) $11. C) $10. D) $9. 11) A firm will choose to operate rather than shut down as long as 11) A) price is greater than or equal to AVC. B) price is greater than or equal to AFC. C) AFC is greater than AVC. D) AVC is greater than MC. 12) The shutdown point for a perfectly competitive firm is 12) A) the lowest point on the ATC curve. B) the lowest point on the AVC curve. C) the point at which a firm's long-run supply curve ends. D) the lowest point on the marginal cost curve. 3 13) The Taste Freeze Ice Cream Company is a perfectly competitive firm producing where MR = MC. The current market price of an ice cream sandwich is $5.00. Taste Freeze sells 200 ice cream sandwiches. Its AVC is $8.00 and its AFC is $3.00. What should Taste Freeze do? 13) A) Continue to produce because price exceeds AFC B) Decrease production so that AVC will decrease C) Increase production so that AFC will decrease D) Shut down and produce zero sandwiches because price is less than AVC Refer to the data provided in Table 8.1 below to answer the questions that follow. Table 8.1 q TFC TVC TC MC AVC ATC 0 1 2 3 4 5 6 7 $50 50 50 50 50 50 50 50 $ 0 20 30 45 62 90 132 186 $ 50 70 80 95 112 140 182 236 -- 20 10 15 17 28 42 54 -- 20 15 15 15.50 18 22 26.57 -- 70 40 31.67 28 28 30.33 33.71 14) Refer to Table 8.1. In the long run, if cost conditions do not change, this firm will earn a zero economic profit if price is 14) A) $10. B) $15. C) $20. D) $28. Refer to the information in Scenario 2 below to answer the following questions. SCENARIO 2: Tom borrows $40,000 from his parents to open an espresso stand. He agrees to pay his parents a 5% yearly return on the money they lent him. His other yearly fixed costs equal $10,000. His variable costs equal $25,000. He sold 40,000 dozen donuts during the year at a price of $2.00 per dozen. 15) Refer to Scenario 2. Tom's profit is 15) A) $26,000. B) $0. C) $43,000. D) $30,000. 16) A profit-maximizing strategy becomes a loss minimization strategy when a firm in a perfectly competitive industry is producing where 16) A) AVC < P < ATC. B) MR = MC < P. C) P = ATC. D) P > ATC. 17) A firm will shut down in the short run if 17) A) total costs exceed revenues. B) fixed costs exceed revenues. C) variable costs exceed revenues. D) it is suffering a loss. 4 Refer to the information provided in Figure 8.1 below to answer the questions that follow. Figure 8.1 18) Refer to Figure 8.1. This farmer's shutdown point is at a price of 18) A) $0. B) $4. C) $7. D) $10. Refer to the information in Scenario 2 below to answer the following questions. SCENARIO 2: Tom borrows $40,000 from his parents to open an espresso stand. He agrees to pay his parents a 5% yearly return on the money they lent him. His other yearly fixed costs equal $10,000. His variable costs equal $25,000. He sold 40,000 dozen donuts during the year at a price of $2.00 per dozen. 19) Refer to Scenario 2. Tom's total revenue was 19) A) $80,000. B) $30,000. C) $45,000. D) $40,000. Refer to the information provided in Figure 8.1 below to answer the questions that follow. Figure 8.1 20) Refer to Figure 8.1. If this farmer is maximizing profit, his operating profit (or loss) is 20) A) $156. B) $48. C) $72. D) -$24. 5 21) The short-run industry supply curve for a perfectly competitive industry is the 21) A) horizontal sum of the individual firms' marginal cost curves above ATC. B) vertical sum of the individual firms' marginal cost curves above ATC. C) horizontal sum of the individual firms' marginal cost curves above AVC. D) vertical sum of the individual firms' marginal cost curves above AVC. 22) Assume the market for beef is perfectly competitive. Beef producers are currently earning a zero economic profit. If consumers switch from beef to chicken, which of the following is most likely to occur? 22) A) Beef producers will now earn economic profits in the short run and there will be no additional adjustments in the long run. B) Beef producers will incur economic losses in the short run. Some producers will exit the industry until those remaining are earning an economic profit. C) Beef producers will now incur economic losses in both the short run and the long run. D) Beef producers will incur economic losses in the short run. Some producers will exit the industry until those remaining are earning a zero economic profit. 23) A perfectly competitive firm will be operating at its shutdown point if it operates 23) A) at the minimum point on its average variable cost curve. B) at the minimum point on its average total cost curve. C) where P = MC. D) at the minimum point on its marginal cost curve. 24) Assume the tennis ball industry, a perfectly competitive industry, is in long-run equilibrium with a market price of $5. If demand for tennis balls DECREASES and this industry experiences increasing returns to scale, long-run equilibrium will be reestablished at a price 24) A) less than $5. B) greater than $5. C) equal to $5. D) either greater than or less than $5, depending on the number of firms that enter the industry. Refer to the data provided in Table 8.1 below to answer the questions that follow. Table 8.1 q TFC TVC TC MC AVC ATC 0 1 2 3 4 5 6 7 $50 50 50 50 50 50 50 50 $ 0 20 30 45 62 90 132 186 $ 50 70 80 95 112 140 182 236 -- 20 10 15 17 28 42 54 -- 20 15 15 15.50 18 22 26.57 -- 70 40 31.67 28 28 30.33 33.71 25) Refer to Table 8.1. If the market price is $20, then to maximize profits this firm should produce 25) A) one unit of output. B) zero units of output. C) two units of output. D) an output level that is indeterminate from this information. 6 Refer to the information provided in Figure 8.4 below to answer the questions that follow. Figure 8.4 26) Refer to Figure 8.4. In the long run 26) A) the industry supply curve will shift to the left. B) firms will leave this industry. C) existing firms in this industry will contract. D) existing firms will expand and new firms will enter this industry. Refer to the information provided in Figure 8.3 below to answer the questions that follow. Figure 8.3 27) Refer to Figure 8.3. In the short run this firm or these firms should __________ and in the long run this firm should __________, if economic conditions do not change. 27) A) shut down; exit the industry B) continue to produce where MC = MR; shut down C) continue to produce where MC = MR; expand D) exit the industry; shut down 7 Refer to the information provided in Figure 8.5 below to answer the questions that follow. Figure 8.5 28) Refer to Figure 8.5. Assume this firm is in a constant-cost industry. For this firm to be in long-run equilibrium, the firm must be producing 28) A) q2 units of output. B) q1 units of output. C) q3 units of output. D) an amount that is indeterminate from this information. Refer to the data provided in Table 8.1 below to answer the questions that follow. Table 8.1 q TFC TVC TC MC AVC ATC 0 1 2 3 4 5 6 7 $50 50 50 50 50 50 50 50 $ 0 20 30 45 62 90 132 186 $ 50 70 80 95 112 140 182 236 -- 20 10 15 17 28 42 54 -- 20 15 15 15.50 18 22 26.57 -- 70 40 31.67 28 28 30.33 33.71 29) Refer to Table 8.1. If the market price is $17, then this firm should produce __________ units of output to maximize profits. 29) A) four B) three C) five D) zero 30) Which of the following is an example of economies of scale? 30) A) To attract firms to locate in its state, the state government reduced the tax rate that businesses must pay on its profits, thus lowering the costs to firms who locate in the state. B) As the computer industry has expanded, the number of professionally trained computer programmers has also increased, which has caused the salaries of computer programmers to increase. C) As the demand for calculators increased, the price of calculators actually fell. D) A firm increases in size and is therefore able to lower its health insurance costs because as the size of the group insured increases, the premium per person decreases substantially. 8 31) Firms are making profits in an increasing-cost industry. Which of the following statements describes what will happen in the long run? 31) A) Firms will exit this industry, causing the industry supply schedule to shift to the right and the LRAC curve to shift down. B) More firms will enter this industry, causing the industry supply schedule to shift to the right and the LRAC curve facing firms to shift down. C) More firms will enter this industry, causing the industry supply schedule to shift to the right and the LRAC curve facing firms to shift up. D) Firms will exit this industry, causing the industry supply schedule to shift to the left and the LRAC curve to shift down. 32) If a firm's long-run average cost curve declines as output increases, then 32) A) there should be only one firm in the industry. B) small firms would have lower average costs of production than large firms. C) there should be a large number of firms in the industry. D) small firms and large firms will have identical average costs. Refer to the data provided in Table 8.1 below to answer the questions that follow. Table 8.1 q TFC TVC TC MC AVC ATC 0 1 2 3 4 5 6 7 $50 50 50 50 50 50 50 50 $ 0 20 30 45 62 90 132 186 $ 50 70 80 95 112 140 182 236 -- 20 10 15 17 28 42 54 -- 20 15 15 15.50 18 22 26.57 -- 70 40 31.67 28 28 30.33 33.71 33) Refer to Table 8.1. The market price is $42 and this firm is producing four units of output. Which of the following would you recommend to this firm? 33) A) Continue producing four units of output, because the firm is able to make an economic profit. B) Increase output to seven units so that price is less than marginal cost. C) Increase output to six units, so that marginal cost equals marginal revenue. D) Reduce price to $17, so that marginal cost will equal marginal revenue at 4 units of output. 34) Billy Bob's Fertilizer Engineers, a perfectly competitive firm, is incurring a loss but still earning an operating profit. Then in the short run this firm should __________ and in the long run, if there is no change in economic conditions, this firm should __________. 34) A) produce where MR = MC; exit the industry B) produce where MR = MC; expand C) shut down; expand D) shut down; exit the industry 9 Refer to the information provided in Figure 8.2 below to answer the questions that follow. Figure 8.2 35) Refer to Figure 8.2. This firm's shutdown point corresponds to Point 35) A) A. B) B. C) C. D) D. Refer to the data provided in Table 8.1 below to answer the questions that follow. Table 8.1 q TFC TVC TC MC AVC ATC 0 1 2 3 4 5 6 7 $50 50 50 50 50 50 50 50 $ 0 20 30 45 62 90 132 186 $ 50 70 80 95 112 140 182 236 -- 20 10 15 17 28 42 54 -- 20 15 15 15.50 18 22 26.57 -- 70 40 31.67 28 28 30.33 33.71 36) Refer to Table 8.1. At a market price of $28, the best this firm can do is to produce __________ units of output and earn an economic profit of __________. 36) A) 0; -$50 B) 5; $0 C) 4; $0 D) either 4 or 5; $0 37) A firm is earning an economic profit. In the short run the firm should __________. In the long run the firm should probably __________. 37) A) produce where MC = MR; expand B) shut down; exit the industry C) shut down; expand D) produce where MC = MR; leave the industry 38) Engineers for The All-Terrain Bike Company have determined that a 15% increase in all inputs will cause a 15% increase in output. Assuming that input prices remain constant, you correctly deduce that such a change will cause __________ as output increases. 38) A) average costs to decrease B) marginal costs to increase C) average costs to increase D) average costs to remain constant 10 39) If a firm is incurring an operating loss, in the short run the firm should __________ and in the long run the firm should __________. 39) A) produce where MC = MR; expand B) produce where MC = MR; exit the industry C) shut down; expand D) shut down; exit the industry Refer to the data provided in Table 8.1 below to answer the questions that follow. Table 8.1 q TFC TVC TC MC AVC ATC 0 1 2 3 4 5 6 7 $50 50 50 50 50 50 50 50 $ 0 20 30 45 62 90 132 186 $ 50 70 80 95 112 140 182 236 -- 20 10 15 17 28 42 54 -- 20 15 15 15.50 18 22 26.57 -- 70 40 31.67 28 28 30.33 33.71 40) Refer to Table 8.1. If the market price was $17, then this firm's profit would be 40) A) -$50. B) -$44. C) $68. D) $6. 41) Assume the peanut industry, a perfectly competitive industry, is in long-run equilibrium with a market price of $5. If demand for peanuts increases and this industry is a decreasing-cost industry, long-run equilibrium will be reestablished at a price 41) A) less than $5. B) equal to $5. C) greater than $5. D) either greater than or less than $5, depending on the number of firms that enter the industry. 42) Assume a perfectly competitive industry is in long-run equilibrium at a price of $20. If this industry is a constant-cost industry and the demand for the product decreases, long-run equilibrium will be reestablished at a price 42) A) less than $20. B) of $20. C) greater than $20. D) either greater than or less than $20 depending on the magnitude of the decrease in demand. 11 Refer to the information provided in Figure 8.6 below to answer the questions that follow. Figure 8.6 43) Refer to Figure 8.6. The type of industry depicted in this situation is 43) A) a constant-cost industry. B) an increasing-cost industry. C) a decreasing-cost industry. D) impossible to determine from this information. 44) Which of the following is the set of conditions necessary for long-run equilibrium for a perfectly competitive firm? 44) A) P > SRMC = SRAC = LRAC B) P = SRMC = SRAC = LRAC C) P = SRMC = SRAC > LRAC D) P = SRMC < SRAC = LRAC Refer to the information provided in Figure 8.6 below to answer the questions that follow. Figure 8.6 45) Refer to Figure 8.6. This increasing cost industry's long-run supply curve would be found by drawing a line from 45) A) Points A to E. B) Points B to E. C) Points B to F. D) Points B to C. 46) Ameritech® has a monopoly over local telephone service. If Ameritech® is producing where marginal revenue is less than marginal cost, the firm 46) A) is maximizing profits. B) must be earning a zero profit. C) could increase profits by increasing output. D) could increase profits by reducing output. 12 Refer to the information provided in Figure 12.4 below to answer the questions that follow. Figure 12.4 47) Refer to Figure 12.4. This firm's marginal revenue will be negative at 47) A) prices above $12. B) all prices. C) prices between $4 and $18 D) prices below $10. 48) For a monopolist, price 48) A) is less than marginal revenue. B) equals marginal revenue. C) is greater than marginal revenue. D) can be greater than or less than marginal revenue. Refer to the information provided in Figure 12.3 below to answer the questions that follow. Figure 12.3 49) Refer to Figure 12.3. This firm's marginal revenue will be negative at 49) A) prices below $5. B) all prices. C) prices above $5. D) prices between $4 and $8. 13 50) The XYZ Computer Company has a monopoly over the production of a specialized color printer. The XYZ Computer Company will find it profitable to increase the production of specialized color printers as long as marginal cost 50) A) is positive. B) is less than marginal revenue. C) is greater than marginal revenue. D) equals marginal revenue. Refer to the information provided in Figure 12.7 below to answer the question that follows. Figure 12.7 51) Refer to Figure 12.7. The Memory Company's operating profit is 51) A) $800. B) -$1,000. C) -$800. D) $1,000. 52) Relative to a competitively organized industry, a monopoly produces 52) A) more output, charges higher prices and, earns economic profits. B) less output, charges lower prices and, earns only a normal profit. C) less output, charges higher prices and, earns economic profit. D) less output, charges lower prices and, earns economic profits. 14 Refer to the information provided in Figure 12.3 below to answer the questions that follow. Figure 12.3 53) Refer to Figure 12.3. The marginal revenue of the sixth pound of cheese is 53) A) -$1. B) $4. C) -$4. D) $1. 54) Refer to Figure 12.3. This firm's marginal revenue will be positive at 54) A) prices above $5. B) all prices. C) prices between $4 and $8. D) prices below $5. 55) The XYZ Computer Company has a monopoly over the production of a specialized color printer. The XYZ Computer Company will find it profitable to reduce output as long as marginal revenue 55) A) is greater than marginal cost. B) is less than marginal cost. C) equals marginal cost. D) is positive. Refer to the information provided in Figure 12.7 below to answer the question that follows. Figure 12.7 56) Refer to Figure 12.7. The profit-maximizing level of profit for the Memory Company is 56) A) -$1,800. B) -$800. C) -$1,200. D) $0. 15 Refer to the information provided in Figure 12.5 below to answer the questions that follow. Figure 12.5 57) Refer to Figure 12.5. If this firm is producing the profit-maximizing quantity and selling it at the profit-maximizing price, the firm's profit will be 57) A) $80. B) $84. C) $132. D) $88. 58) Stereo Sound Unlimited has a monopoly over the installation of quadraphonic sound systems. If Stereo Sound Unlimited's total revenue from installing 10 sound systems is $20,000 and its total revenue from installing 11 sound systems is $18,000, what is the marginal revenue of the eleventh sound system? 58) A) $3,800 B) $2,000 C) -$1,000 D) -$2,000 Refer to the information provided in Figure 12.5 below to answer the questions that follow. Figure 12.5 59) Refer to Figure 12.5. The profit-maximizing level of output for this monopolist is __________ units of output. 59) A) 20 B) 22 C) 26 D) 24 16 Refer to the information provided in Figure 12.4 below to answer the questions that follow. Figure 12.4 60) Refer to Figure 12.4. The marginal revenue of the eighth pound of burritos is 60) A) $1. B) $6. C) $3. D) $24. 61) Refer to Figure 12.4. This firm's marginal revenue will be positive at 61) A) prices between $4 and $8. B) prices above $20. C) prices above $10. D) all prices. 62) The administrators of the only two hospitals in a city agree that their hospitals will provide different surgical specialties. This is an example of 62) A) collusion. B) rent-seeking behavior. C) market power. D) regulatory control. 63) When the demand curve is a downward sloping straight line, the slope of the marginal revenue curve is 63) A) half as steep as the demand curve. B) the same as the slope of the demand curve. C) twice as steep as the demand curve. D) always equal to one. 64) Because of a patent, Alcoa is the only manufacturer of soda cans with a stay-put tab. Alcoa can earn a profit on the sale of soda cans with stay-put tabs 64) A) in the long run but not the short run because the monopolist will face competition in the short run. B) in the long run because entry into the industry by new firms is blocked until the patent expires. C) only in the long run because government regulations prevent monopolists from earning profits in the short run. D) in the short run but not in the long run because new firms will enter the industry in the long run. 65) A profit-maximizing monopolist will produce output where 65) A) marginal revenue is zero. B) marginal revenue equals marginal cost. C) price equals marginal cost. D) marginal cost is minimized. 17 66) Which of the following made tying contracts illegal and banned price discrimination? 66) A) the Sherman Act B) the Clayton Act C) the Federal Trade Commission Act D) the Cellar-Kefauver Act Refer to the information provided in Figure 12.9 below to answer the questions that follow. Figure 12.9 67) Refer to Figure 12.9. From society's point of view the efficient level of electricity production are __________ megawatts. 67) A) 600 B) 800 C) 500 D) 1200 68) The notion that the government becomes the tool of the rent seeker and makes the allocation of resources even less efficient than before is known as 68) A) public choice theory. B) conspiracy theory. C) collusion. D) government failure. Refer to the information provided in Figure 12.8 below to answer the questions that follow. Figure 12.8 69) Refer to Figure 12.8. For Armstrong Cable the profit-maximizing number of subscribers is 69) A) 2,500. B) 2,200. C) 800. D) 1,000. 18 Refer to the information provided in Figure 12.9 below to answer the questions that follow. Figure 12.9 70) Refer to Figure 12.9. If Ohio Edison is regulated to act as a perfectly competitive firm 70) A) output would increase from 500 to 600 units. B) the net social gain to society equals ACF. C) consumer surplus would increase by the area FGBC. D) the firm will earn profits of BEC. Refer to the information provided in Figure 12.8 below to answer the questions that follow. Figure 12.8 71) Refer to Figure 12.8. If Armstrong Cable is forced to sell the efficient level output it will 71) A) earn a profit of $4,000. B) incur a loss of $1,250. C) earn a zero profit. D) incur a loss of $7,250. 19 Refer to the information provided in Figure 12.9 below to answer the questions that follow. Figure 12.9 72) Refer to Figure 12.9. If this industry was originally perfectly competitive and becomes monopolized, the amount of consumer surplus transferred to Ohio Edison in the form of profits is 72) A) BEC. B) FABE. C) FGBC. D) FGBE. 73) Which of the following declared monopoly and trade restraints illegal? 73) A) the Clayton Act B) the Sherman Act C) the Cellar-Kefauver Act D) the Federal Trade Commission Act Refer to the information provided in Figure 12.9 below to answer the questions that follow. Figure 12.9 74) Refer to Figure 12.9. The amount of consumer surplus under monopoly is equal to area 74) A) AFC. B) GAB. C) BEC. D) AFE. 75) Refer to Figure 12.9. If Ohio Edison engages in rent-seeking behavior to maintain their monopoly, the true net social cost of monopoly is 75) A) AGB and the portion of area FGBE that pays for the rent-seeking behavior. B) FAC. C) FGBC. D) BEC and the portion of area FGBE that pays for the rent-seeking behavior. 20 76) Perfect price discrimination 76) A) is an attempt by monopolists to capture consumer surplus as profit. B) is charging different prices to different buyers. C) can eliminate the deadweight loss to society of a monopoly. D) do all of the above. 77) Which of the following is NOT an example of price discrimination? 77) A) Airlines charging lower prices to travelers who stay over a Saturday night B) Student discounts at movie theaters C) Discounted coffee for senior citizens at restaurants D) back-to-school sales 78) For a monopoly to be a natural monopoly, 78) A) economies of scale must be realized at a scale that is close to total demand in the market. B) economies of scale must be realized at a scale that is small relative to the market. C) the long-run average cost curve must continue to increase until it hits the market demand curve. D) there must be constant returns to scale. Refer to the information provided in Figure 12.8 below to answer the questions that follow. Figure 12.8 79) Refer to Figure 12.8. The type of industry pictured is a 79) A) patent monopoly. B) strategic resource monopoly. C) profit maximizing monopoly. D) natural monopoly. 80) An industry that realizes such large economies of scale in producing its product that single-firm production of that good or service is most efficient is called a(n) 80) A) patent monopoly. B) fixed cost monopoly. C) natural monopoly. D) economies of scale monopoly. 81) It would be inefficient to break up a 81) A) patent monopoly. B) natural monopoly. C) profit-maximizing monopoly. D) strategic resource monopoly. 21 82) The Do It Yourself Hardware Store is a monopolistically competitive firm. Its marginal revenue curve 82) A) is identical to its demand curve. B) lies below its demand curve intersecting the quantity axis midway between the origin and the point at which the demand curve intersects it. C) lies below its demand curve intersecting the quantity axis at the same point at which the demand curve intersects it. D) is below its demand curve if demand is elastic and above the demand curve if demand is inelastic. 83) Mama Lena's, a frozen food producer, is a monopolistically competitive firm. Mama Lena's is currently selling frozen lasagna at a price of $10. Mama Lena's marginal cost is $5 and marginal revenue is $5. This firm should __________ to maximize profits. 83) A) continue to produce the same output level B) decrease output to where price just equals marginal cost C) increase output to where price just equals marginal cost D) decrease output so that marginal revenue exceeds marginal cost 84) For monopolistically competitive firms in long-run equilibrium, 84) A) at the profit-maximizing quantity, the demand curve must be tangent to the average total cost curve. B) the demand curve must be tangent to the average total cost curve at its minimum. C) the demand curve must intersect average total cost at its minimum. D) at the profit-maximizing quantity, the demand curve must intersect the average total cost curve quantity. Refer to the information provided in Figure 13.4 below to answer the questions that follow. Figure 13.4 85) Refer to Figure 13.4. Assume The Custom Shirt Shop has fixed costs of $150 and is a monopolistically competitive firm. If this firm is producing the profit-maximizing level of output and selling it at the profit-maximizing price, the firm's profit is 85) A) -$100. B) -$250. C) -$50. D) -$150. 22 Refer to the information provided in Figure 13.5 below to answer the questions that follow. Figure 13.5 86) Refer to Figure 13.5. Assume The Custom Sweater Shop has fixed costs of $500 and is a monopolistically competitive firm. To maximize profits in the short run, this firm should set a price of 86) A) $36. B) $46. C) $50. D) $44. 87) Refer to Figure 13.5. Assume The Custom Sweater Shop has fixed costs of $500 and is a monopolistically competitive firm. If this firm is producing the profit-maximizing level of output and selling it at the profit-maximizing price, the firm's profit is 87) A) -$400. B) -$200. C) -$350. D) -$50. 88) As new firms enter a monopolistically competitive industry, the demand 88) A) and marginal revenue curves facing each firm begin to shift to the right. B) curve facing each firm shifts to the left, but the marginal revenue curve remains constant. C) and marginal revenue curves facing each firm begin to shift to the left. D) curve facing each firm begins to shift to the right but the marginal revenue curve remains constant. 89) The Specialty Cake Store, a monopolistically competitive firm, is producing 200 decorated cakes per day and selling each cake for $12. At that production level ATC is $20, AVC is $15, AFC is $10, and both MR and MC are $8. This firm should 89) A) produce zero cak