Question 1

Which of the following formulas correctly measures the profit of a monopoly?

Accepted Answer

A)  π = TR - TC 
B)  π = (P - AT
C) Q 
C)  π = (P - AV
C) Q 
D)  π = TR - TC and π = (P - AT
C) Q 
A)  π = TR - TC 
B)  π = (P - AT
C) Q 
C)  π = (P - AV
C) Q 
D)  π = TR - TC and π = (P - AT
C) Q

Question 2

If a monopolistically competitive firm's marginal cost increases, then in order to maximize profits, the firm will:

Accepted Answer

A)  reduce output and increase price. 
B)  increase output and decrease price. 
C)  increase both output and price. 
D)  reduce both output and price. 
A)  reduce output and increase price. 
B)  increase output and decrease price. 
C)  increase both output and price. 
D)  reduce both output and price.

Question 3

Suppose you are the manager of Alpha Enterprises, a firm that holds a patent that makes it the exclusive manufacturer of bubble memory chips. Based on the estimates provided by a consultant, you know that the relevant demand and cost functions for bubble memory chips are Q = 25 - 0.5P; C = 50 + 2Q.
a. What is the firm's inverse demand function?
b. What is the firm's marginal revenue when producing four units of output?
c. What are the levels of output and price when you are maximizing profits?
d. What will be the level of your profits?

Accepted Answer

a. P = 50 - 2Q.

b. MR(Q) = 50

Question 4

Which of the following market structures would you expect to yield the greatest product variety?

Accepted Answer

A)  Monopoly 
B)  Monopolistic competition 
C)  Bertrand oligopoly 
D)  Perfect competition 
A)  Monopoly 
B)  Monopolistic competition 
C)  Bertrand oligopoly 
D)  Perfect competition

Question 5

Which of the following is NOT a basic feature of a monopolistically competitive industry?

Accepted Answer

A)  There are many buyers and sellers in the industry. 
B)  Each firm in the industry produces a differentiated product. 
C)  There is free entry and exit into the industry. 
D)  Each firm owns a patent on its product. 
A)  There are many buyers and sellers in the industry. 
B)  Each firm in the industry produces a differentiated product. 
C)  There is free entry and exit into the industry. 
D)  Each firm owns a patent on its product.

Question 6

Which of the following industries is best characterized as monopolistically competitive?

Accepted Answer

A)  Cereal 
B)  Crude oil 
C)  Wheat 
D)  Local electricity service 
A)  Cereal 
B)  Crude oil 
C)  Wheat 
D)  Local electricity service

Question 7

Suppose that initially the price is $20 in a perfectly competitive market. Firms are making zero economic profits. Then the market demand shrinks permanently, some firms leave the industry, and the industry returns to a long-run equilibrium. What will be the new equilibrium price, assuming cost conditions in the industry remain constant?

Accepted Answer

A)  $20 
B)  $16 
C)  Lower than $20 but exact value cannot be known without more information. 
D)  Larger than $20 but exact value cannot be known without more information. 
A)  $20 
B)  $16 
C)  Lower than $20 but exact value cannot be known without more information. 
D)  Larger than $20 but exact value cannot be known without more information.

Question 8

You are the general manager of TU Modems Inc., and your accounting department has provided you with the following information about the total cost of producing three potential quantities of a commercial-grade modem:   The market is saturated with modems, and your sales department has been able to identify only one potential buyer of your modems. This customer has numerous options and as a result is only willing to pay $300 per modem for an order of 100,000 modems. You must decide whether to sign a contract under these terms or simply shut down your operations. What is your optimal decision?

Accepted Answer

The only costs relevant for making this

Question 9

Which of the following is true?

Accepted Answer

A)  A monopolist produces on the inelastic portion of its demand. 
B)  A monopolist always earns an economic profit. 
C)  The more inelastic the demand, the closer marginal revenue is to price. 
D)  In the short run, a monopoly will shut down if P < AVC. 
A)  A monopolist produces on the inelastic portion of its demand. 
B)  A monopolist always earns an economic profit. 
C)  The more inelastic the demand, the closer marginal revenue is to price. 
D)  In the short run, a monopoly will shut down if P < AVC.

Question 10

Regardless of the economic environment, every firm will maximize profits by operating at the minimum point of its average total cost curves. Is this statement true or false? Explain.

Accepted Answer

A) True 
 B)False

Question 11

John provides cheese (H) and milk (M) to the market with the following total cost function C(H, M) = 8 + 0.5H2 + 0.1M2. The prices of cheese and milk in the market are $3 and $4 respectively. Assume that the cheese and milk markets are perfectly competitive. What output of milk maximizes profits?

Accepted Answer

A)  10 
B)  20 
C)  30 
D)  40 
A)  10 
B)  20 
C)  30 
D)  40

Question 12

Which of the following is true under monopoly?

Accepted Answer

A)  P > ATC 
B)  P > MC 
C)  P = MR 
D)  P = ATC 
A)  P > ATC 
B)  P > MC 
C)  P = MR 
D)  P = ATC

Question 13

You are a manager in a perfectly competitive market. The price is $14. Your total cost curve is C(Q) = 10 + 4Q + 0.5Q2. What level of output should you produce in the short run?

Accepted Answer

A)  5 
B)  8 
C)  10 
D)  15 
A)  5 
B)  8 
C)  10 
D)  15

Question 14

Differentiated goods are NOT a feature of a:

Accepted Answer

A)  perfectly competitive market. 
B)  monopolistically competitive market. 
C)  monopolistic market. 
D)  perfectly competitive market and monopolistic market. 
A)  perfectly competitive market. 
B)  monopolistically competitive market. 
C)  monopolistic market. 
D)  perfectly competitive market and monopolistic market.

Question 15

In a monopoly where the marginal revenue and price are, respectively, given by $0.50 and $2, the price elasticity of demand is:

Accepted Answer

A)  -0.75. 
B)  -1. 
C)  -5/4. 
D)  -4/3. 
A)  -0.75. 
B)  -1. 
C)  -5/4. 
D)  -4/3.

Question 16

If a monopolist has an own price demand elasticity of -.8, is it maximizing profits? Explain.

Accepted Answer

No. An inelastic demand implies negative

Question 17

Differentiated goods are a feature of a:

Accepted Answer

A)  perfectly competitive market. 
B)  monopolistically competitive market. 
C)  monopolistic market. 
D)  monopolistically competitive market and monopolistic market. 
A)  perfectly competitive market. 
B)  monopolistically competitive market. 
C)  monopolistic market. 
D)  monopolistically competitive market and monopolistic market.

Question 18

A perfectly competitive firm faces a:

Accepted Answer

A)  perfectly elastic demand function. 
B)  perfectly inelastic demand function. 
C)  demand function with unitary elasticity. 
D)  None of the answers is correct. 
A)  perfectly elastic demand function. 
B)  perfectly inelastic demand function. 
C)  demand function with unitary elasticity. 
D)  None of the answers is correct.

Question 19

Which of the following statements is NOT correct about monopoly?

Accepted Answer

A)  A monopolist generally faces a downward-sloping demand curve. 
B)  Monopolists always make positive profits in the long run. 
C)  A monopoly may make negative profits in the short run. 
D)  There is no close substitute for a monopoly's product. 
A)  A monopolist generally faces a downward-sloping demand curve. 
B)  Monopolists always make positive profits in the long run. 
C)  A monopoly may make negative profits in the short run. 
D)  There is no close substitute for a monopoly's product.

Question 20

Eric provides cheese (H) and milk (M) to the market with the following total cost function: C(H, M) = 10 + 0.4H2 + 0.2M2. The prices of cheese and milk in the market are $2 and $5 respectively. Assume that the cheese and milk markets are perfectly competitive. What output of milk maximizes profits?

Accepted Answer

A)  1.25 
B)  12.5 
C)  15 
D)  20 
A)  1.25 
B)  12.5 
C)  15 
D)  20

Which of the following formulas correctly measures the profit of a monopoly?

If a monopolistically competitive firm's marginal cost increases, then in order to maximize profits, the firm will:

Which of the following market structures would you expect to yield the greatest product variety?

Which of the following is NOT a basic feature of a monopolistically competitive industry?

Which of the following industries is best characterized as monopolistically competitive?

Which of the following is true?

Regardless of the economic environment, every firm will maximize profits by operating at the minimum point of its average total cost curves. Is this statement true or false? Explain.

John provides cheese (H) and milk (M) to the market with the following total cost function C(H, M) = 8 + 0.5H² + 0.1M². The prices of cheese and milk in the market are $3 and $4 respectively. Assume that the cheese and milk markets are perfectly competitive. What output of milk maximizes profits?

Which of the following is true under monopoly?

You are a manager in a perfectly competitive market. The price is $14. Your total cost curve is C(Q) = 10 + 4Q + 0.5Q². What level of output should you produce in the short run?

Differentiated goods are NOT a feature of a:

In a monopoly where the marginal revenue and price are, respectively, given by $0.50 and $2, the price elasticity of demand is:

If a monopolist has an own price demand elasticity of -.8, is it maximizing profits? Explain.

Differentiated goods are a feature of a:

A perfectly competitive firm faces a:

Which of the following statements is NOT correct about monopoly?

The Fundamentals of Managerial Economics

Market Forces: Demand and Supply

Quantitative Demand Analysis

The Theory of Individual Behavior

The Production Process and Costs

The Organization of the Firm

The Nature of Industry

Basic Oligopoly Models

Game Theory: Inside Oligopoly

Pricing Strategies for Firms With Market Power

The Economics of Information

Advanced Topics in Business Strategy

A Managers Guide to Government in the Marketplace

Filters

Exam 8: Managing in Competitive, Monopolistic, and Monopolistically Competitive Markets

Which of the following formulas correctly measures the profit of a monopoly?

If a monopolistically competitive firm's marginal cost increases, then in order to maximize profits, the firm will:

Which of the following market structures would you expect to yield the greatest product variety?

Which of the following is NOT a basic feature of a monopolistically competitive industry?

Which of the following industries is best characterized as monopolistically competitive?

Which of the following is true?

Regardless of the economic environment, every firm will maximize profits by operating at the minimum point of its average total cost curves. Is this statement true or false? Explain.

John provides cheese (H) and milk (M) to the market with the following total cost function C(H, M) = 8 + 0.5H2 + 0.1M2. The prices of cheese and milk in the market are $3 and $4 respectively. Assume that the cheese and milk markets are perfectly competitive. What output of milk maximizes profits?

Which of the following is true under monopoly?

You are a manager in a perfectly competitive market. The price is $14. Your total cost curve is C(Q) = 10 + 4Q + 0.5Q2. What level of output should you produce in the short run?

Differentiated goods are NOT a feature of a:

In a monopoly where the marginal revenue and price are, respectively, given by $0.50 and $2, the price elasticity of demand is:

If a monopolist has an own price demand elasticity of -.8, is it maximizing profits? Explain.

Differentiated goods are a feature of a:

A perfectly competitive firm faces a:

Which of the following statements is NOT correct about monopoly?

Eric provides cheese (H) and milk (M) to the market with the following total cost function: C(H, M) = 10 + 0.4H2 + 0.2M2. The prices of cheese and milk in the market are $2 and $5 respectively. Assume that the cheese and milk markets are perfectly competitive. What output of milk maximizes profits?

The Fundamentals of Managerial Economics

Market Forces: Demand and Supply

Quantitative Demand Analysis

The Theory of Individual Behavior

The Production Process and Costs

The Organization of the Firm

The Nature of Industry

Basic Oligopoly Models

Game Theory: Inside Oligopoly

Pricing Strategies for Firms With Market Power

The Economics of Information

Advanced Topics in Business Strategy

A Managers Guide to Government in the Marketplace

Filters

John provides cheese (H) and milk (M) to the market with the following total cost function C(H, M) = 8 + 0.5H² + 0.1M². The prices of cheese and milk in the market are $3 and $4 respectively. Assume that the cheese and milk markets are perfectly competitive. What output of milk maximizes profits?

You are a manager in a perfectly competitive market. The price is $14. Your total cost curve is C(Q) = 10 + 4Q + 0.5Q². What level of output should you produce in the short run?