Economics

Economics 2010-640Exam IIIName: ________________________________________________Multiple-choice questions – choose the best possible answer. Good luck!1. A monopoly’s marginal cost willa. be less than the price per unit of its product.b. be less than its average fixed cost.c. exceed its marginal revenue.d. equal its average total cost.2.a.b.c.d.3.a.b.c.d.4.a.b.c.d.5.A firm is deciding whether to produce or shut down in the short run. Its total costs are $15,000 ofwhich $5,000 are the total fixed costs of production. The firm should produce in the short run as longas its total revenues are at least$0$15,000.$10,000.$5,000.A firm’s average total costs are $60, its total fixed costs are $2000, and its output is 200 units. Itsaverage variable costs are$50$60$70$100As firms exit a competitive industry that is not profitable in the short-run (i.e. profits < 0), during thetransition from the short run to the long run, the economic loss of each firm remaining in the industry:decreases and the price falls.decreases and the price rises.increases and the price falls.increases and the price rises.b.c.d.A firm is producing where its marginal costs are at the lowest level. What can one most likely inferfrom this?there is either lost opportunity for further profits by producing more, or the firm should shut-down if itis competitive and price is at that low level.It is a price-taker who is producing too much.It is a monopolist who is producing the socially optimal quantity.The firm is producing rationally.6.a.b.c.d.A single-price monopolist sets pricewhere MR=demand.where supply=demandfrom the demand curve at the quantity for which MC=MR.where MR=MC.7.Assume that the Law of Diminishing Marginal Product applies at the current output level of acompetitive firm. The price is $20 and, at the current output level, marginal cost is $16 and averagetotal cost is $20. To maximize profits the firm should:produce the current output level, since average revenue (price) = average cost.produce more since marginal revenue exceeds marginal cost at current output.produce less since marginal revenue is always below average revenue.any of the above is possible, without further information.a.a.b.c.d.18.a.b.c.d.Which of the following statements is true?(i) When a competitive firm sells an additional unit of output, its revenue increases by an amountless than the price.(ii) When a monopoly firm sells an additional unit of output, its revenue increases by an amountless than the price.(iii) Average revenue is the same as price for both competitive and monopoly firms.(i) only(iii) only(i) and (ii)(ii) and (iii)9.a.b.c.d.If a firm in a competitive market triples the number of units of output sold, then total revenue willmore than triple.less than triple.exactly triple.All of the above are potentially true.10.a.b.c.d.When a competitive firm makes a decision to shut down, it is most likely thatmarginal cost is above average variable cost.marginal cost is above average total cost.price is below the minimum of average variable cost.fixed costs exceed variable costs.Table 4.Number of figs012345TCATCTVCAVCMC$80$90$90$135$92$500$60011. Table 4 presents the cost schedule for David’s Figs. If David produces three figs, David’s total variablecosts area. $276.b. $0.c. $92.d. $376.e. $106.12. Table 4 presents the cost schedule for David’s Figs. If David produces five figs, David’s marginal costsarea. $70.b. $150.c. $200.d. $700.e. None of the above.13. At a price of $20, the marginal revenue of a monopolist is $13. If the marginal cost of production is$14, what should the monopolist do?a. Increase its priceb. Decrease its pricec. Keep its price at the same leveld. Shut down2Table 2: Firm costs14.a.b.c.d.qTC10$5020$9030$17040$27050$450Refer to Table 2. In a competitive market, Qs=30+10P and Qd=110-10 P. In the long run, we expectFirms to exitFirms to enterNo change in the number of firmsNot enough information to say15. Calculate the monopolist’s profit under the following conditions. The intersection of the marginalrevenue and marginal cost curves occurs where output is 20 units. At an output of 20 units, themonopoly price is $15 per unit, the marginal cost is $8 per unit, and the average variable cost is $6 perunit, and average fixed cost is $4 per unit.a. $180b. $140c. $120d. $10016. If a competitive firm is currently producing a level of output at which marginal cost exceeds marginalrevenue, thena. a one-unit decrease in output would increase the firm’s profit.b. average revenue exceeds marginal cost.c. the firm is earning a positive profit.d. All of the above are correct.17. Firms can have:1. Accounting profits and economic losses2. Accounting profits and economic profits3. Accounting losses and economic losses4. Accounting losses and economic profitsa. i, ii, and iiib. only i and ivc. only ii and iiid. All of the above318. A reduction in a monopolist’s fixed costs woulda. possibly increase, decrease or not affect profit-maximizing price and quantity, depending on theelasticity of demand.b. decrease the profit-maximizing price and increase the profit-maximizing quantity produced.c. increase the profit-maximizing price and decrease the profit-maximizing quantity produced.d. not affect the profit-maximizing price or quantity.19.a.b.c.d.A firm’s output is 80 units, its MC is $42, its AVC is $43, and its AFC is $10. ATC isIncreasingDecreasingConstantNot enough information20. Joni’s firm faces a perfectly elastic demand curve at a price of $30 per unit. She has costs representedby TC = 2000 + 2Q + 0.2Q2, and MC = 2 + 0.4Q. If Joni maximizes her short-run profits, how muchprofit does she earn?a. -1020b. -1860c. 1020d. 1860e. 2000Refer to the following information to answer questions 21 and 22 .Assume a certain firm is producing 1,000 units of output (so Q = 1,000). At Q = 1,000, the firm’s marginalcost equals $15 and its average total cost equals $11. The firm sells its output for $12 per unit.21.a.b.c.d.At Q = 999, the firm’s total cost amounts to$10,999.$10,995.$10,990.$10,985.22.a.b.c.d.At Q = 999, the firm’s profit amounts to$1,007.$1,003.$997.$993.4Long Problems – SHOW WORK OR YOU WILL LOSE POINTS!!1. A monopolist faces demand given by: P = 100 − .4QD , and has marginal costs given by:a.MC = 10 + .2Q .Draw the demand, marginal revenue and marginal cost curves. Calculate and show how much thisfirm will sell and what they will charge.b.Calculate the producer surplus with monopoly and the consumer surplus with monopoly.5c.How much would be produced if this was a competitive market? What would be the price?d.Calculate the consumer and producer surplus for a competitive market.e.Calculate the DWL of the monopoly (if any).On my honor, as a University of Colorado at Boulder student, I have neither given nor receivedunauthorized assistance on this work.__________________________________________________67

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