8
$77
8
$12
124. Refer to Table 16–6. What is the profit-maximizing output for Beatrice’s Birthday Cakes?
a.
3 cakes
b.
4 cakes
c.
5 cakes
d.
6 cakes
125. Refer to Table 16–6. When maximizing profit, what price does Beatrice’s charge for a cake?
a.
$24
b.
$30
c.
$36
d.
$42
126. Refer to Table 16–6. At the profit-maximizing quantity, what is Beatrice’s total profit?
a.
$43
b.
$89
c.
$101
d.
$144
127. Refer to Table 16–6. Given the cost and revenue data, Beatrice’s is
a.
not in a long-run equilibrium. More businesses will enter the bakery market in the long-run.
b.
not in a short-run equilibrium.
c.
not in a long-run equilibrium. Some businesses currently in the bakery market will exit the market in the long-
run.
d.
in a long-run equilibrium.
128. Refer to Table 16–6. If the government required Beatrice’s to produce at the efficient scale of output, how many
cakes would Beatrice’s sell?
a.
4
b.
5
c.
6
d.
7
129. Refer to Table 16–6. If the government forced Beatrice’s to produce at the efficient scale of output, what is the
maximum profit Beatrice’s could earn?
a.
$59
b.
$67
c.
$101
d.
$126
130. Refer to Table 16–6. Suppose the government forced Beatrice’s to produce at the efficient scale of output. Who
would be better off as a result of this policy? Who would be worse off as a result of this policy?
a.
Beatrice’s would be better off; consumers would be worse off.
b.
Consumers would be better off; Beatrice’s would be worse off.
c.
No one would be better off; consumers would be worse off.
d.
No one would be better off; no one would be worse off.
Table 16-7
A monopolistically competitive firm faces the following demand schedule for its product. In addition, the firm has total
fixed costs equal to 20.
Price
Quantity
$30
1
$26
2
$22
3
$18
4
$14
5
$10
6
$6
7
131. Refer to Table 16-7. If the firm has a constant marginal cost of $7 per unit, how many units should the firm produce
to maximize profit?
a.
3 units
b.
4 units
c.
5 units
d.
6 units
132. Refer to Table 16-7. If the firm has a constant marginal cost of $7 per unit, what price should the firm charge to
maximize profit?
a.
$10
b.
$14
c.
$18
d.
$22
133. Refer to Table 16-7. If the firm has a constant marginal cost of $7 per unit, how much profit will the firm earn at the
profit-maximizing level of output?
a.
$24
b.
$25
c.
$41
d.
$66
134. Refer to Table 16-7. If the firm produces its profit-maximizing level of output and there is a constant marginal cost
of $7 per unit, which of the following is correct?
a.
This firm is operating at its efficient scale.
b.
This firm should expect its demand curve to shift to the left.
c.
Firms will leave the market and profits for firms that remain in the market will rise.
d.
This firm is in a long-run equilibrium.
Scenario 16-2
Suppose market demand for a product is given by the equation P = 20 – Q. For this market demand curve, marginal
revenue is MR = 20 – 2Q.
135. Refer to Scenario 16-2. If the marginal cost of producing this good is 0, what quantity would a profit-maximizing
monopolist produce?
a.
Q = 0
b.
Q = 2
c.
Q = 5
d.
Q = 10
136. Refer to Scenario 16-2. If the marginal cost of producing this good is 4, what quantity would a profit-maximizing
monopolist produce?
a.
Q = 2
b.
Q = 4
c.
Q = 6
d.
Q = 8
137. Refer to Scenario 16-2. If the marginal cost of producing this good is 0, what price would a profit-maximizing
monopolist charge for the product?
a.
P = 0
b.
P = 5
c.
P = 10
d.
P = 20
138. Refer to Scenario 16-2. If the marginal cost of producing this good is 4, what price would a profit-maximizing
monopolist charge for the product?
a.
P = 4
b.
P = 10
c.
P = 12
d.
P = 20
139. Refer to Scenario 16-2. If the marginal cost of producing this good is 0, how much total consumer surplus would
consumers receive in this market?
a.
10
b.
20
c.
50
d.
100
140. Refer to Scenario 16-2. If the marginal cost of producing this good is 4, how much total consumer surplus would
consumers receive in this market?
a.
8
b.
12
c.
32
d.
64
Scenario 16-3
Peter operates an ice cream shop in the center of Fairfield. He sells several unusual flavors of organic, homemade ice
cream so he has a monopoly over his own ice cream, though he competes with many other firms selling ice cream in
Fairfield for the same customers. Peter’s demand and cost values for sales per day are given in the table below. (Everyone
who purchases Peter’s ice cream buys a double scoop cone because it’s so delicious.)
Quantity
Price
MR
MC
ATC
20
$5.60
$5.20
$2.20
$2.05
40
$5.20
$4.40
$2.40
$2.10
60
$4.80
$3.60
$2.60
$2.15
80
$4.40
$2.80
$2.80
$2.20
100
$4.00
$2.00
$3.00
$2.25
120
$3.60
$1.20
$3.20
$2.30
140
$3.20
$0.40
$3.40
$2.35
160
$2.80
-$0.40
$3.60
$2.40
180
$2.40
-$1.20
$3.80
$2.45
141. Refer to Scenario 16–3. How many double scoop ice cream cones should Peter sell per day to maximize his profit?
a.
80
b.
100
c.
120
d.
140
142. Refer to Scenario 16–3. What price should Peter charge per double scoop ice cream cone to maximize his profit?
a.
$5.60
b.
$4.40
c.
$3.20
d.
$2.40
143. Refer to Scenario 16–3. How much profit will Peter earn each day if he chooses the price and quantity that
maximize his profit?
a.
$176
b.
$208
c.
$225
d.
$352
144. Refer to Scenario 16–3. Which of the following statements best describes the long run adjustment in this market?
a.
One or more ice cream shops in Fairfield closes, increasing the demand for Peter’s ice cream. Peter’s profits
increase and he sustains positive profits in the long run.
b.
One or more ice cream shops in Fairfield closes, increasing the demand for Peter’s ice cream. Peter’s profits
increase until he earns zero profit.
c.
One or more new ice cream shops in Fairfield opens and competes with Peter for customers, reducing the
demand for Peter’s ice cream. Peter’s profits decline until he incurs losses and exits the industry.
d.
One or more new ice cream shops in Fairfield opens and competes with Peter for customers, reducing the
demand for Peter’s ice cream. Peter’s profits decline until he earns zero profit.
Figure 16–13
145. Refer to Figure 16-13. Which of the following areas represents the profit for this profit maximizing
monopolistically competitive firm?
a.
BCHG
b.
BCIJ
c.
GHIJ
d.
0BCL
Figure 16–14
146. Refer to Figure 16-14. Which of the following represents the excess capacity of this firm?
a.
BJ
b.
GH
c.
LM
d.
There is no excess capacity.
147. Refer to Figure 16-14. Which of the following best describes the profit-maximizing outcome for the firm depicted
here?
a.
This firm is earning a short run profit, but will earn zero profit in the long run.
b.
This firm is incurring a short run loss, but will earn zero profit in the long run.
c.
This firm is earning zero profit in the short run, but will earn a positive profit in the long run.
d.
This firm is in long run equilibrium and will continue to earn zero profit.
148. Refer to Figure 16-14. If this firm were operating in a perfectly competitive market, it would charge a price equal to
point
a.
I but in a monopolistically competitive market, the profit-maximizing price is C.
b.
G but in a monopolistically competitive market, the profit-maximizing price is C.
c.
C but in a monopolistically competitive market, the profit-maximizing price is G.
d.
G but in a monopolistically competitive market, the profit-maximizing price is J.
149. Refer to Figure 16-14. The deadweight loss from production for this firm is represented by which of the following
areas?
a.
ABC
b.
IJK
c.
BHJ
d.
BCIJ
150. Refer to Figure 16-14. The deadweight loss from production for this firm is represented by which of the following
areas?
a.
ABC
b.
IJK
c.
BHJ
d.
BCIJ
151. In which of the following markets is economic profit driven to zero in the long run?
a.
oligopoly
b.
monopoly
c.
monopolistic competition
d.
cartels
152. Which of the following conditions is characteristic of a monopolistically competitive firm in long-run equilibrium?
a.
P > demand and P = MR
b.
ATC > demand and MR = MC
c.
P > MC and demand = ATC
d.
P < ATC and demand > MR
153. Which of the following conditions is characteristic of a monopolistically competitive firm in long-run equilibrium?
a.
P > MR and P = MC
b.
ATC = demand and MR = MC
c.
P < MC and demand = ATC
d.
P > ATC and demand > MR
154. A monopolistically competitive firm
a.
charges a price that is equal to marginal cost.
b.
experiences a zero profit in the long run.
c.
produces at the efficient scale in the long run.
d.
All of the above are correct.
155. In a monopolistically competitive market,
a.
entry by new firms is impeded by barriers to entry; thus, the number of firms in the market is never ideal.
b.
entry by new firms is impeded by barriers to entry, but the number of firms in the market is nevertheless
always ideal.
c.
free entry ensures that the number of firms in the market is ideal.
d.
there may be too few or too many firms in the market, despite free entry.
156. In which of the following market structures does free entry and exit play an important role in the long-run
equilibrium outcome?
(i)
perfect competition
(ii)
monopolistic competition
(iii)
monopoly
a.
(i) only
b.
(i) and (ii) only
c.
(ii) and (iii) only
d.
(i), (ii), and (iii)
157. If firms in a monopolistically competitive market are earning positive profits, then
a.
firms will likely be subject to regulation.
b.
barriers to entry will be strengthened.
c.
some firms will exit the market.
d.
new firms will enter the market.
158. If firms in a monopolistically competitive market are earning economic profits, which of the following scenarios
would best describe the change existing firms would face as the market adjusts to the long-run equilibrium?
a.
an increase in demand for each firm
b.
a decrease in demand for each firm
c.
a downward shift in the marginal cost curve for each firm
d.
an upward shift in the marginal cost curve for each firm
159. If firms in a monopolistically competitive market are incurring economic losses, which of the following statements
describes the changes that occur as the market adjusts to the long-run equilibrium?
a.
Each existing firm’s demand curve shifts to the right.
b.
More firms exit the market.
c.
Each firm eliminates its excess capacity.
d.
Both a and b are correct.
160. In monopolistically competitive markets, positive economic profits
a.
suggest that some existing firms will exit the market.
b.
suggest that new firms will enter the market.
c.
are sustained through government-imposed barriers to entry.
d.
are never possible.
161. In monopolistically competitive markets, economic losses
a.
suggest that some existing firms will exit the market.
b.
suggest that new firms will enter the market.
c.
are minimized through government-imposed barriers to entry.
d.
are never possible.
162. As new firms enter a monopolistically competitive market, profits of existing firms
a.
rise, and product diversity in the market increases.
b.
rise, and product diversity in the market decreases.
c.
decline, and product diversity in the market increases.
d.
decline, and product diversity in the market decreases.
163. As firms exit a monopolistically competitive market, profits of remaining firms
a.
decline, and product diversity in the market decreases.
b.
decline, and product diversity in the market increases.
c.
rise, and product diversity in the market decreases.
d.
rise, and product diversity in the market increases.
164. The free entry and exit of firms in a monopolistically competitive market guarantees that
a.
both economic profits and economic losses can persist in the long run.
b.
both economic profits and economic losses disappear in the long run.
c.
economic profits, but not economic losses, can persist in the long run.
d.
economic losses, but not economic profits, can persist in the long run.
165. In monopolistically competitive markets, free entry and exit suggests that
a.
the market structure will eventually be characterized by perfect competition in the long run.
b.
all firms earn zero economic profits in the long run.
c.
some firms will be able to earn economic profits in the long run.
d.
some firms will be forced to incur economic losses in the long run.
166. When a profit-maximizing firm in a monopolistically competitive market is producing the long-run equilibrium
quantity,
a.
its average revenue will equal its marginal cost.
b.
its marginal revenue will exceed its marginal cost.
c.
it will be earning positive economic profits.
d.
its demand curve will be tangent to its average total cost curve.
167. When a firm’s demand curve is tangent to its average total cost curve, the
a.
firm’s economic profit is zero.
b.
firm must be earning economic profits.
c.
firm must be incurring economic losses.
d.
firm must be operating at its efficient scale.
168. When a profit-maximizing firm in a monopolistically competitive market is in long-run equilibrium,
a.
the demand curve will be perfectly elastic.
b.
price exceeds marginal cost.
c.
marginal cost must be falling.
d.
marginal revenue exceeds marginal cost.
169. A profit-maximizing firm operating in a monopolistically competitive market that is in a long-run equilibrium has
a.
minimized average total cost.
b.
chosen to produce where demand is unitary elastic.
c.
produced the efficient scale of output.
d.
chosen a quantity of output where average revenue equals average total cost.
170. In a long-run equilibrium, a firm in a monopolistically competitive market operates
a.
where marginal revenue is zero.
b.
where marginal revenue is negative.
c.
on the rising portion of its average total cost curve.
d.
on the declining portion of its average total cost curve.
171. When a new firm enters a monopolistically competitive market, the individual demand curves faced by all existing
firms in that market will
a.
shift to the left.
b.
shift to the right.
c.
shift in a direction that is unpredictable without further information.
d.
remain unchanged. It is the supply curve that will shift.
172. When a firm exits a monopolistically competitive market, the individual demand curves faced by all remaining firms
in that market will
a.
shift in a direction that is unpredictable without further information.
b.
shift to the right.
c.
shift to the left.
d.
remain unchanged. It is the supply curve that will shift.
173. Long-run profit earned by a monopolistically competitive firm is driven to the competitive level due to a(n)
a.
change in the technology that the firm utilizes.
b.
shift of its demand curve.
c.
shift of its supply curve.
d.
increase in the firm’s average cost of production.
174. Because a monopolistically competitive firm has some market power, in the long-run the price of its product exceeds
its
a.
average revenue.
b.
average total cost.
c.
marginal cost.
d.
None of the above is correct.
175. New firms will likely enter a monopolistically competitive market when price exceeds
a.
marginal revenue.
b.
average revenue.
c.
marginal cost.
d.
average total cost.
176. Which two curves are tangent to each other in a monopolistically competitive market with zero economic profit?
a.
demand and average variable cost
b.
demand and average total cost
c.
marginal revenue and average variable cost
d.
marginal revenue and average total cost
177. In a monopolistically competitive market,
a.
strategic interactions among the firms are very important.
b.
the threat of entry by new firms is not an important consideration.
c.
the attainment of a Nash equilibrium is an important objective.
d.
firms may enter even though they will earn zero economic profit in the long run.
178. Among the following situations, which one is least likely to apply to a monopolistically competitive firm?
a.
profit is positive in the short run
b.
total cost exceeds total revenue in the short run
c.
profit is positive in the long run
d.
total revenue equals total cost in the long run
179. Suppose that monopolistically competitive firms in a certain market are earning positive profits. In the transition
from this initial situation to a long-run equilibrium,
a.
the number of firms in the market decreases.
b.
each existing firm experiences a decrease in demand for its product.
c.
each existing firm experiences a rightward shift of its marginal revenue curve.
d.
each existing firm experiences an upward shift in its average total cost curve.
180. Suppose that monopolistically competitive firms in a certain market are experiencing losses. In the transition from
this initial situation to a long-run equilibrium,
a.
the number of firms in the market decreases.
b.
each existing firm experiences a decrease in demand for its product.
c.
each firm experiences an upward shift of its marginal cost and average total cost curves.
d.
each existing firm’s average total cost falls to bring economic profit back to zero.
181. When a monopolistically competitive firm is in long-run equilibrium,
a.
marginal revenue is equal to marginal cost.
b.
average total cost is minimized.
c.
marginal revenue is tangent to average total cost.
d.
All of the above are correct.
182. When a monopolistically competitive firm is in long-run equilibrium,
a.
price is equal to average total cost.
b.
price is equal to marginal cost.
c.
price is equal to marginal revenue.
d.
the firm operates at its efficient scale.
183. Which of these types of firms can earn a positive economic profit in the long run?
a.
monopolies, but not competitive firms or monopolistically competitive firms
b.
monopolies and monopolistically competitive firms, but not competitive firms
c.
monopolies, monopolistically competitive firms, and competitive firms
d.
No firms earn positive economic profit in the long run. Entry will reduce all firms’ economic profit to zero in
the long run.
184. “In a long-run equilibrium, price is equal to average total cost.” This statement applies to
a.
competitive markets, but not to monopolistically competitive markets or monopolies.
b.
competitive and monopolistically competitive markets, but not to monopolies.
c.
competitive markets, monopolistically competitive markets, and monopolies.
d.
None of the above is correct.
185. Entry and exit drive each firm in a monopolistically competitive market to a point of tangency between its
a.
marginal revenue curve and its total cost curve.
b.
marginal revenue curve and its average total cost curve.
c.
demand curve and its total cost curve.
d.
demand curve and its average total cost curve.
186. Suppose the point of tangency that characterizes long-run equilibrium for a monopolistically competitive firm occurs
at Q1 units of output. This level of output, Q1,
a.
exceeds the level of output at which marginal revenue equals marginal cost.
b.
exceeds the level of output at which marginal cost equals average total cost.
c.
falls short of the level of output at which price equals marginal cost.
d.
exceeds the firm’s efficient scale of output.