1Part I. Matching (3 Points Each)

____Economies of Scale
____Short Run
____Shutdown Point
____Marginal Revenue
____Opportunity Cost
____Monopolistic Industry
____Price Taker
____Sunk Cost
____Marginal Cost
____Diseconomies of Scale
____Total Cost
____Barriers to Entry
A.

The cost of changing the level of output by one unit.

B.

A period of time when a firm is unable to change all of its factor inputs.

C.

A firm facing the entire market demand curve is in what industry?

D.

Any conditions that prevent other firms from entering a market.

E.

Sum of fixed costs and variable costs.

F.

Firm or individual who takes the market price as given.

G.

The foregone benefit of the next-best alternative.

H.

A decrease in per-unit cost as a result of an increase in output.

I.

The added revenue from selling an additional unit of output.

J.

A cost that has already been paid and cannot be recovered.

K.

Point at which the firm will gain more by ceasing operations than it will by staying
in business.

L.

Technological conditions under which long-run average cost increases as output
increases.
2

Part II. Multiple Choice (5 Points Each)
1.

The costs of a firm that are paid directly in money are called
___ a.
explicit costs.
___ b.
implicit costs.
___ c.
opportunity costs.
___ d.
alternative costs.

2.

The firm is producing an output of 24 and has total costs of 260. Its average total
cost
___ a.
Equals 10.83.
___ b.
Equals 8.75.
___ c.
Equals 260.
___ d.
Cannot be determined from the information.

3.

Average total costs are total costs
___ a.
per unit of output.
___ b.
divided by fixed costs.
___ c.
divided by variable costs.
___ d.
per unit of labor.

4.

In perfect competition, the marginal revenue of an individual firm
___ a.
is zero.
___ b.
is positive but less than the price of the product.
___ c.
equals the price of the product.
___ d.
exceeds the price of the product.
Table 1
Quantity Sold
5
6
7

5.

Price
$15
$15
$15

In Table 1, if the firm sells 5 units of output, its total revenue is
___ a.
$15.
___ b.
$30.
___ c.
$75.
___ d.
$90.
3

6.

Price in a competitive market is $6. The firms marginal cost is $4 and the
marginal cost curve has the normal shape. What would you advise the firm to
do?
___ a.
Raise its price.
___ b.
Increase its output.
___ c.
Decrease its output.
___ d.
Lower its price.
Table 2
Output
0
1
2
3
4

Total Revenue
$0
$ 30
$ 60
$ 90
$120

Total Cost
$ 25
$ 49
$ 69
$ 91
$117

7.

In Table 2, if the firm produces 2 units of output, it will make an economic
___ a.
profit of $9.
___ b.
profit of $60.
___ c.
loss of $9.
___ d.
loss of $60.

8.

In a competitive market which of the following is the firms supply curve?
___ a.
The average cost curve.
___ b.
The marginal cost curve.
___ c.
The average variable cost curve.
___ d.
The average revenue curve.

9.

The average cost of making 10 cakes is $2.80. The average cost of making 11
cakes is $3.00. The marginal cost of the 11th cake is:
___ a.
$0.20.
___ b.
$2.00.
___ c.
$3.00.
___ d.
$5.00.

10.

If a firms production process exhibits constant returns to scale for all levels of
output, then the firms long-run average cost will be:
___ a.
horizontal.
___ b.
positively sloped.
___ c.
negatively sloped.
___ d.
U-shaped.
4

11.

A firm in a perfectly competitive market has no control over price because:
___ a.
the government imposes price ceilings on the products produced in
perfectly competitive industries.
___ b.
there are only a few firms in the industry.
___ c.
each firm is producing an identical good.
___ d.
the market demand for products produced is perfectly elastic.

12.

Which of the following is not a basic characteristic of pure competition?
___ a.
considerable nonprice competition
___ b.
no barriers to the entry or exodus of firms
___ c.
a standardized or homogeneous product
___ d.
a large number of buyers and sellers

13.

Pure monopoly means:
___ a.
any market wherein the demand curve to the firm is downsloping.
___ b.
a standardized product being produced by many firms.
___ c.
a single firm producing a product for which there are no close
substitutes.
___ d.
a large number of firms producing a differentiated product.

14.

Price discrimination refers to:
___ a.
selling a given product for different prices at two different points in
time.
___ b.
any price above that which is equal to a minimum average total cost.
___ c.
the difference between the prices a purely competitive seller and a
purely monopolistic seller would charge.
___ d.
the selling of a given product at different prices which do not reflect
cost differences.

15.

Monopolistic competition is characterized by:
___ a.
few dominant firms and low entry barriers.
___ b.
large number of firms and substantial entry barriers.
___ c.
large number of firms and low entry barriers.
___ d.
few dominant firms and substantial entry barriers.

16.

Monopolistic competition means:
___ a.
a market situation wherein competition is based entirely on product
differentiation and advertising.
___ b.
a large number of firms producing a standardized or homogeneous
product.
___ c.
many firms producing differentiated products.
___ d.
a few firms producing a standardized or homogeneous product.

5

17.

A monopolistically competitive industry combines elements of both
competition and monopoly. It is correct to say that the competitive
element results from:
___ a.
product differentiation and the monopolistic element from high entry
barriers.
___ b.
a relatively large number of firms and the monopolistic element
from product differentiation.
___ c.
a perfectly elastic demand curve and the monopolistic element from
low entry barriers.
___ d.
a highly inelastic demand curve and the monopololistic element
from advertising and product promotion.
18.
In the long run new firms will enter a monopolistically competitive industry:
___ a.
provided economies of scale are being realized.
___ b.
even though losses are incurred in the short run.
___ c.
until minimum average total cost is achieved.
___ d.
until economic profits are zero.
19.
Monopolistically competitive firms:
___ a.
realize normal profits in the short run but losses in the long run.
___ b.
tend to endure persistent losses in both the short run and long run.
___ c.
may realize either profits or losses in the short run, but tend to
realize a normal profit in the long run.
___ d.
persistently realize economic profits in the short run and long run.
20.
When suppliers are rent-seeking they
___ a.
use the present value formula to determine what the values of flows
of money are.
___ b.
use the present value formula to determine the value of annuities.
___ c.
attempt to restrict supply to increase the price they get.
___ d.
attempt to tax land.

4

Essay Part III. (8 Points Each)
1.

What are the assumptions of perfect competition?

2.

Where does the marginal cost curve intersect the average total cost and
average variable cost curves? Explain why the relationship between
marginal cost and average costs determines the firms profits and the
firms shutdown point.

Part IV. Complete the following table (18 Points):
Price

Quantity Demanded

Total Revenue

20

0

____________

18

2

____________

16

4

____________

14

6

____________

12

8

Marginal Revenue

____________

____________
____________
____________
____________

5

Part V. Matching (3 Points Each)

____Price Discrimination
____Cartel
____Monopolistic Competition
____Payoff Matrix
____Oligopoly
____Zero Profit Condition
____Prisoners Dilemma
____Market Models or Market Structure
____Game Theory
____Collusion
A. A well-known game that nicely demonstrates the difficulty of cooperative
behavior in certain circumstances. It involves two people and their affinity to
cheat.
B. A box that contains the outcomes of a strategic game under various
circumstances.
C. A market structure with a few independent firms.
D. A market structure in which many firms sell differentiated products.
E. The general term for the physical characteristics of the market within which
firms interact.
F. The name for the application of economic principles to interdependent
situations.
G. In the long run, there are no economic profits.
H. A combination of firms that act like a single firm.
I. The general term for an agreement between two or more producers to restrict
output so as to increase prices and profits.
J. To charge different prices to different individuals.Click here to have a similar paper done for you by one of our writers within the set deadline at a discounted…