Microeconomics 201
Winter 2014, 2nd Midterm
Section 004
Professor Hellman
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Production Technology and Cost
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1) What costs do accountants include that do not reflect a monetary payment but are treated as
an expense or reduction in net value of the company?
A) Big change in market price of goods not yet sold
B) Depreciation
C) Larger number of customers are expected to default in the future on payments to
company
D) All are examples
Answer: D
2) In the short run:
A) firms have the ability to enter or exit the industry.
B) firms are able to alter some, but not all, of their factors of production.
C) firms are unable to adjust their output choices.
D) None of the above are correct.
Answer: B
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3) In the long run:
A) firms have the ability to enter or exit the industry.
B) firms are able to alter some, but not all, of their resources.
C) firms are unable to adjust their output choices.
D) None of the above are correct.
Answer: A
4) Diminishing marginal returns implies that:
A) marginal costs are decreasing.
B) marginal costs are increasing.
C) marginal costs are constant.
D) marginal costs may be increasing or decreasing.
An
Answer: B
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Microeconomics 201
Winter 2014, 2nd Midterm
Section 004
Professor Hellman
0
1
2
3
4
Units of
output
0
10
35
65
90
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Number of workers
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Table 8.1
5) Refer to Table 8.1, which gives a firm's production function. Assume that all non-labor inputs
are fixed. Diminishing marginal returns set in with the addition of the:
A) first worker.
B) second worker.
C) third worker.
D) fourth worker.
Answer: D
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6) ________ is a cost that independent of the quantity produced by the firm and is incurred by
the firm in the short run.
A) Fixed cost
B) Economic cost
C) Variable cost
D) Average total cost
Answer: A
An
7) Marginal product is defined as the change in ________ resulting from a one-unit increase in
________.
A) total product; input
B) total product; output
C) output; total product
D) total cost; output
Answer: A
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Section 004
Professor Hellman
er
K
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Microeconomics 201
Winter 2014, 2nd Midterm
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8) Figure 8.2 presents a firm's marginal, average total, average fixed, and average variable cost
curves. At Q = 200, the firm faces total fixed costs of:
A) $20.
B) $130.
C) $2200.
D) $4000.
Answer: D
9) Assuming perfect competition, Figure 8.2 presents a firm's marginal, average total, and
average variable cost curves. Assuming a market price of $150, the firm’s maximum profit is:
A) 0, as price equals average total cost
B) Unknown as the marginal revenue curve is not shown
C) 4000
D) 30000
An
Answer: C
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Section 004
Professor Hellman
er
K
ey
Microeconomics 201
Winter 2014, 2nd Midterm
10) Figure 8.3 shows a firm's marginal cost, average total cost, and average variable cost curves.
At Q=100, the variable cost is:
A) $40.
B) $100.
C) $4,000.
D) $40000.
Answer: C
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Perfect Competition
11) Which of the following is a characteristic of a perfectly competitive market?
A) a large number of firms in a market
B) selling a standardized product
C) no barriers to entry
D) all of the above
Answer: D
An
12) How does the firm-specific demand curve in a perfectly competitive market compare to that
in a monopoly?
A) The firm-specific demand curve in a perfectly competitive market is horizontal. The
demand curve in a monopoly is downward sloping.
B) they are the same
C) The firm-specific demand curve in a perfectly competitive market is horizontal. The
demand curve in a monopoly is upward sloping.
D) The firm-specific demand curve in a perfectly competitive market is vertical. The
demand curve in a monopoly is horizontal.
Answer: A
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Section 004
Professor Hellman
ey
Microeconomics 201
Winter 2014, 2nd Midterm
13) Which of the following is NOT a characteristic of a perfectly competitive market?
A) a large number of firms in a market
B) selling a standardized product
C) substantial barriers to entry
D) an individual firm having no control over price
Answer: C
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14) Marginal revenue is equal to price for a perfectly competitive firm because:
A) total revenue increases by the price of the good when an additional unit is sold.
B) total revenue increases by less than the price of the good when an additional unit is
sold.
C) firms need to lower price to increase the quantity sold.
D) firms can increase price and still increase the quantity sold.
Answer: A
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15) Brodie sells fish in a perfectly competitive market. Suppose the current market price of fish
is $4.50 per pound.
A) Brodie can sell as many fish as he can catch at $4.50 per pound.
B) Brodie can charge any price he likes for his fish, but will maximize profit if he sells
for less than $4.50.
C) Brodie should charge more than $4.50.
D) Brodie can charge more than $4.50 and still sell some fish.
Answer: A
16) If a firm suffers an economic loss, its:
A) price is less than its marginal cost.
B) price is less than its marginal revenue.
C) price is less than its average total cost.
D) none of the above
Answer: C
An
17) If a profit-maximizing firm in a perfectly competitive market is currently producing the
output where (price - average variable cost) = average fixed cost, the firm is:
A) making a positive economic profit.
B) making a zero economic profit.
C) suffering an economic loss.
D) none of the above
Answer: B
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Section 004
Professor Hellman
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Microeconomics 201
Winter 2014, 2nd Midterm
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18) Figure 9.2 shows the cost structure of a firm in a perfectly competitive market. Suppose the
current market price is $10 and the firm produces the profit maximizing output level. If the
firm's total fixed cost increases by $1000 due to a new government regulation, the short-run
response of the firm should be to:
A) produce its current output and price level.
B) increase its price by $10.
C) increase its price to collect an additional $1000.
D) There isn't sufficient information.
Answer: A
An
19) Kevin's Golf-a-Rama sells golf balls in a perfectly competitive market. At its current level of
golf ball production, Kevin has marginal costs equal to $1, and marginal cost is rising. If the
market price of golf balls is $2, Kevin should:
A) decrease the level of golf ball production.
B) continue producing the current level of production.
C) increase the production of golf balls.
D) shut down and produce no golf balls.
Answer: C
20) A firm's marginal cost curve above the minimum of the average variable cost curve is also:
A) the firm's demand for production curve.
B) the firm's producer surplus curve.
C) the firm's short-run supply curve.
D) the market supply curve.
Answer: C
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Section 004
Professor Hellman
Monopoly and Price Discrimination
21) A market served by only one firm is called a(n):
A) perfectly competitive market.
B) monopoly.
C) oligopoly.
D) Any of the above could be correct.
Answer: B
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Microeconomics 201
Winter 2014, 2nd Midterm
sw
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22) ________ is a monopoly that exists in an industry where the large economies of scale acts as
its barrier to entry.
A) A natural monopoly
B) A monopolistic competitor
C) A regulated monopoly
D) A price discriminator
Answer: A
Table 10.1
An
23) Refer to Table 10.1, which shows the relationship between the price that Gladys charges for
a product and the quantity of that product that Gladys sells. The marginal revenue that
Gladys receives from selling the sixth unit of output is:
A) $1.
B) $4.
C) $24.
D) -$1.
Answer: D
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Section 004
Professor Hellman
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K
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Microeconomics 201
Winter 2014, 2nd Midterm
sw
24) Suppose that Figure 10.4 shows a monopolist's demand curve, marginal revenue, and its
costs. The monopolist would maximize its profit by pricing its product at:
A) about $15
B) $16
C) $25
D) $35
Answer: D
An
25) Suppose that Figure 10.4 shows an industry's market demand, its marginal revenue, and the
production costs of a representative firm. If the industry was perfectly competitive, it would
produce a quantity of:
A) 30 units.
B) 50 units.
C) 60 units.
D) There is not sufficient information.
Answer: B
26) Refer to Figure 10.4. If the market is a monopoly, the consumer surplus would be:
A) $225.
B) $450.
C) $550.
D) $625.
Answer: A
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Microeconomics 201
Winter 2014, 2nd Midterm
Section 004
Professor Hellman
ey
27) The demand curve that a monopolist faces is:
A) the market demand curve.
B) the same as the demand curve that faces a perfectly competitive firm.
C) not affected by changes in the prices of other goods.
D) generally flatter than the demand curve that faces a perfectly competitive firm.
Answer: A
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28) The merit(s) of a patent system is(are):
A) the patent system gives firms strong incentives to take the risk of substantial research
and development costs.
B) the patent system may precipitate the development of new products.
C) granting monopoly power through a patent may be beneficial from society's
perspective.
D) all of the above.
Answer: D
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29) The government allows firms to engage in price discrimination unless the practice:
A) allows the firm to earn positive economic profits.
B) reduces consumer surplus.
C) drives rival firms out of business.
D) increases prices to consumers.
Answer: C
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Section 004
Professor Hellman
er
K
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Microeconomics 201
Winter 2014, 2nd Midterm
sw
30) Figure 10.6 shows prices, demands, and cost data for the only restaurant in a small town.
What is its total profit from sales to senior and non-senior customers?
A) $1,240
B) $3,760
C) $4,060
D) $5,360
Answer: C
Market Entry and Monopolistic Competition
An
31) When the government eliminates artificial barriers to entry:
A) more firms will enter the market.
B) prices to consumers will likely decrease.
C) competition in the market will increase.
D) All of the above will occur.
Answer: D
32) When a second firm enters a monopolist's market, the initial demand curve facing the
monopolist will:
A) shift to the left.
B) shift to the right.
C) remain the same.
D) none of the above
Answer: A
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Microeconomics 201
Winter 2014, 2nd Midterm
Section 004
Professor Hellman
ey
33) Which of the following is NOT a characteristic of a monopolistically competitive market?
A) Firms hold patents on their products.
B) The products that firms sell are slightly different.
C) Firms have some control over price.
D) There are no artificial barriers to entry.
Answer: A
Answer: B
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34) Which of the following is an example of a monopolistically competitive firm?
A) Farmer Smith's corn farm
B) Tino's Italian eatery, a local restaurant
C) TCI Cablevision, a supplier of cable television services
D) Northwest Electricity, a distribution supplier of electricity in the Northwest U.S.
35) A benefit to consumers of monopolistically competitive markets is that:
A) consumers only have to choose from one product.
B) consumers have a variety of products from which to choose.
C) goods are sold at the lowest possible average cost of production.
D) price is equal to marginal cost in equilibrium.
Answer: B
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36) As compared to a perfectly competitive firm, a monopolistically competitive firm will:
A) have more control over price.
B) have less control over price.
C) face more barriers to entry.
D) face many more competitors.
Answer: A
An
37) For a monopolistically competitive firm, the firm's demand curve is:
A) downward sloping.
B) horizontal.
C) upward sloping.
D) none of the above
Answer: A
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Section 004
Professor Hellman
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K
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Microeconomics 201
Winter 2014, 2nd Midterm
Figure 11.5
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38) The monopolistically competitive firm in Figure 11.5 will produce where:
A) MC= MR.
B) MC=D.
C) MR= D.
D) all of the above
Answer: A
An
39) Where the monopolistically competitive firm in Figure 11.5 produces it will:
A) make a positive economic profit.
B) suffer a loss.
C) make a zero economic profit.
D) make a negative economic profit.
Answer: C
40) The monopolistic competitive industry in Figure 11.5 will tend to:
A) contract.
B) remain the same size.
C) expand.
D) go out of business.
Answer: B
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Section 004
Professor Hellman
ey
Microeconomics 201
Winter 2014, 2nd Midterm
er
K
Oligopoly and Strategic Behavior
Table 12.1
41) The three-firm concentration ratio for the market depicted in Table 12.1 is:
A) 5%.
B) 12%.
C) 82%.
D) 92%.
Answer: C
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42) The Herfindahl-Hirschman Index measures
A) the degree of concentration in a market.
B) the percentage of market share held by the four largest firms in a market.
C) the percentage of market share held by the largest firm in a market.
D) the market share held by the largest firm in a market divided by the market share held
by all other firms in the market.
Answer: A
An
43) Oligopoly differs from monopoly and perfect competition in that:
A) firms consider each others actions when choosing price and quantity.
B) there are a few firms in the industry.
C) firms act strategically.
D) all of the above
Answer: D
44) Suppose that there are six firms in a market, with five each controlling 10% of the market,
and the remaining firm controlling 50% of the market. The HHI would equal
A) 100.
B) 1000.
C) 3000.
D) 30000.
Answer: C
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Section 004
Professor Hellman
ey
Microeconomics 201
Winter 2014, 2nd Midterm
45) In general, the quantity of output in an oligopoly market is:
A) lower than in perfect competition.
B) higher than in perfect competition.
C) the same as in perfect competition.
D) The answer depends on the shape of the average cost curve.
Answer: A
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46) A low price guarantee on car stereos leads to:
A) higher prices for consumers.
B) instability in oligopoly.
C) cheating on cartel agreements.
D) competition among oligopolists.
Answer: A
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47) Which of the following is an example of limit pricing?
A) In order to buy Microsoft Windows, you must also purchase Internet Explorer.
B) Bus rides are cheaper for senior citizens than for other people.
C) Prices are set low enough to drive other firms out of a market.
D) Prices are set low enough to prevent other firms from entering the market.
Answer: D
48) Figure 12.2 shows demand, marginal revenue, and costs of an individual duopolist. If the two
duopolists have the same costs and split the market equally, each profit maximizing duopolist
will produce and sell a quantity of ________.
A) 1,000 units
B) 500 units
C) 250 units
D) 125 units
Answer: C
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Section 004
Professor Hellman
ey
Microeconomics 201
Winter 2014, 2nd Midterm
sw
er
K
49) Figure 12.2 shows demand, marginal revenue, and costs of a duopolist. If the two duopolists
have the same costs and split the market equally, each profit maximizing duopolist will earn
a profit of ________.
A) $30,000
B) $15,000
C) $10,000
D) $0
Answer: C
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50) Consider Figure 12.3. Which of the following statements is true? David chooses a low price
A) only if Becky chooses a high price.
B) only if Becky chooses a low price.
C) regardless of whether Becky chooses a high or low price.
D) in order to induce Becky to choose a high price.
Answer: C
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