Practice Multiple Choices for Final Exam (FALL 2014)
For Sections 5 and 6
Chapters 6 12
1. Bette’s Breakfast a perfectly competitive eatery sells its Breakfast Special (the only item on the menu) for \$5.00. The costs of waiters cooks power food etc. average out to \$5.95 per meal; the costs of the lease insurance and other such expenses average out to \$1.25 per meal. Bette should
a. shut down immediately.
b. continue producing in the short and long run.
c. continue producing in the short run but plan to go out of business in the long run.
d. raise her prices above the perfectly competitive level.
e. lower her output.
2. The ________ elastic a firm’s demand curve the greater its ________.
a. less; monopoly power
b. less; output
c. more; monopoly power
d. more; costs
e. None of the above
3. Suppose a market with a Cournot structure has five firms and a market price elasticity of demand equal to -2. What is a Cournot firm’s Lerner Index?
a. 0.1
b. 0.2
c. 0.3
d. 0.4
e. 0.5
4. In long-run equilibrium a perfectly competitive firm will operate where the price is:
a. greater than MR but equal to MC and minimum ATC.
b. greater than MR and MC but equal to minimum AFC.
c. greater than MC and minimum ATC but equal to MR.
d. equal to MR MC and minimum to ATC.
e. equal to MR MC and minimum to AFC.
5. In a constant-cost industry price always equals
a. LRMC and minimum LRAC.
b. LRMC and LRAC but not necessarily minimum LRAC.
c. minimum LRAC but not LRMC.
d. LRAC and minimum LRMC.
e. minimum LRAC and minimum LRMC
6. The long-run supply curve in a constant-cost industry is linear and
a. upward-sloping.
b. downward-sloping.
c. horizontal.
d. vertical.
e. could have any constant slope.
7. In the model of perfect competition there:
a. are many firms producing differentiated products
b. are a few firms producing undifferentiated products
c. are a few firms producing differentiated products
d. are many firms producing undifferentiated products
e. is one firm producing a highly differentiated product
8. Compared to the equilibrium price and quantity sold in a competitive market a monopolist will charge a ________ price and sell a ________ quantity.
a. higher; larger
b. lower; larger
c. higher; smaller
d. lower; smaller
e. none of these
9. When a firm has the power to establish its price
a. P = MR.
b. P = MC.
c. P > MR.
37. When a firm experiences increasing returns to scale
a. its AFC will decrease.
b. its AFC will increase.
c. its AC will increase.
d. its AC will decrease.
38. Changes in the Short Run total costs result from changes in only:
a. Variable costs
b. Fixed costs
c. Zero
d. Total fixed costs
39. Lots Wife Manufacturing produces rear- view video systems for buses. The firms cost function is TC = 2000 + 120Q. If the systems sell for \$145 what is the break – even rate of production?
a. 200.
b. 120.
c. 80.
d. 55.
e. None of the above.
40. Lerner Index (LI) is a measure of market power. What is the expression forLerner Index?
a. LI = (P-MC)/C
b. LI = (P-MC)/P
c. LI = -1/Nh
d. b and c
e. All of the above.
41. A firm has a division that produces chemical Y whose average total costsare ATC = 50 + 2Q (where Q is the quantity of Y) and a marketing divisionthat adds its own average total costs of ATC = 20 + 3Q. There is no externalmarket price of Y. The transfer price of Y should be:
a. \$50.
b. \$4Q.
c. \$50 + 4Q.
d. \$2Q.
e. \$5Q.
42. In a Cournot duopoly we find that Firm 1’s reaction function is Q1 = 50 – 0.5Q2 and Firm 2’s reaction function is Q2 = 75 – 0.75Q1. What is the Cournot equilibrium outcome in this market?
a. Q1 = 20 and Q2 = 60
b. Q1 = 20 and Q2 = 20
c. Q1 = 60 and Q2 = 60
d. Q1 = 60 and Q2 = 20
43. The reservation prices in dollars for three classes of demanders (A B and C) for two restaurants (1 and 2) are given in the following table. What is the maximum revenue that can be generated by setting a bundled price for the two restaurants?
a. \$49.
b. \$45.
c. \$36.
d. \$34.
e. \$30.
44. Bundling is effective when the demands for the bundled products are ________ and ________ correlated.
a. different; negatively
b. different; positively
c. similar; negatively
d. similar; positively
e. identical; perfectly
45. The price elasticity of demand for nursery products is -10. The advertising elasticity of demand is 0.4. Using the Rule of Thumb for Advertising the profit maximizing level of advertising will be set at ________ of total revenue.
a. 0.25 percent
b. 0.4 percent
c. 4 percent
d. 40 percent
46. If a monopolist sets her output such that marginal revenue marginal cost and average total cost are equal economic profit must be:
a. negative.
b. positive.
c. zero.
d. indeterminate from the given information.
47. To maximize profit the firm must:
a. mark up average variable costs.
b. mark up total fixed costs.
c. mark up average fixed costs.
d. set the markup equal to 1/(h+ 1).
48. If revenues from selling quantities x and y of jointly produced goods X and Y were TRX = 300 xy + 50x and TRY = 1000 xy + 2y and 10 units of y were produced then marginal revenue with respect to X would be:
a. \$10.
b. \$20.
c. \$30.
d. \$40.
e. \$50.
49. Refer to the accompanying matrix. Which of the following is a Nashequilibrium?
a. Company A chooses Strategy 1 and Company B chooses Strategy 1.
b. Company A chooses Strategy 1 and Company B chooses Strategy 2.
c. Company A chooses Strategy 2 and Company B chooses Strategy 2.
d. Company A chooses Strategy 2 and Company B chooses Strategy 1.
e. None of the above.
50. A lower east-side cinema charges \$3.00 per ticket for children under 12 years of age and \$5.00 per ticket for anyone 12 years of age or older. The firm has estimated that the price elasticity of demand for tickets purchased by those 12 years of age or older is -1.5. What is the elasticity of demand for tickets purchased for children under 12 years of age if prices are optimal?
a. -1.75
b. -2.00
c. -2.25
d. -2.50
e. -2.75