QUIZ 2

(Chapter 7, 21, 13, 14, 15)

40 câu. Mỗi câu 0.25 điểm.

1. Welfare economics is the study of how

a. the allocation of resources affects economic well-being.
b. a price ceiling compares to a price floor.
c. the government helps poor people.
d. a consumer’s optimal choice affects her demand curve.
ANSWER: a

2. Which of the Ten Principles of Economics does welfare economics explain more fully?
a. The cost of something is what you give up to get it.
b. Markets are usually a good way to organize economic activity.
c. Trade can make everyone better off.
d. A country’s standard of living depends on its ability to produce goods and services.
ANSWER: b

3. Suppose Larry, Moe, and Curly are bidding in an auction for a mint-condition video of Charlie
Chaplin's first movie. Each has in mind a maximum amount that he will bid. This maximum is called
a. a resistance price.
b. willingness to pay.
c. consumer surplus.
d. producer surplus.
ANSWER: b

4. Willingness to pay
a. measures the value that a buyer places on a good.
b. is the amount a seller actually receives for a good minus the minimum amount the seller is
willing to accept.
c. is the maximum amount a buyer is willing to pay minus the minimum amount a seller is
willing to accept.
d. is the amount a buyer is willing to pay for a good minus the amount the buyer actually
pays for it.
ANSWER: a

5. A demand curve reflects each of the following except the

 a. willingness to pay of all buyers in the market.
b. value each buyer in the market places on the good.
c. highest price buyers are willing to pay for each quantity.
d. ability of buyers to obtain the quantity they desire.
ANSWER: d

6. Consumer surplus is
a. the amount a buyer is willing to pay for a good minus the amount the buyer actually pays
for it.
b. the amount a buyer is willing to pay for a good minus the cost of producing the good.
c. the amount by which the quantity supplied of a good exceeds the quantity demanded of
the good.
d. a buyer's willingness to pay for a good plus the price of the good.
ANSWER: a

7. On a graph, consumer surplus is represented by the area

a. between the demand and supply curves.
b. below the demand curve and above price.
c. below the price and above the supply curve.
d. below the demand curve and to the right of equilibrium price.
ANSWER: b

8. In a market, the marginal buyer is the buyer

a. whose willingness to pay is higher than that of all other buyers and potential buyers.
b. whose willingness to pay is lower than that of all other buyers and potential buyers.
c. who is willing to buy exactly one unit of the good.
d. who would be the first to leave the market if the price were any higher.
ANSWER: d

9. A seller’s opportunity cost measures the

a. value of everything she must give up to produce a good.
b. amount she is paid for a good minus her cost of providing it.
c. consumer surplus.
d. out of pocket expenses to produce a good but not the value of her time.
ANSWER: a

10. Justin builds fences for a living. Justin’s out-of-pocket expenses (for wood, paint, etc.) plus the
value that he places on his own time amount to his
a. producer surplus.
b. producer deficit.
c. cost of building fences.
 d. profit.
ANSWER: c

11. A supply curve can be used to measure producer surplus because it reflects
a. the actions of sellers.
b. quantity supplied.
c. sellers' costs.
d. the amount that will be purchased by consumers in the market.
ANSWER: c

12. Producer surplus is

a. measured using the demand curve for a good.
b. always a negative number for sellers in a competitive market.
c. the amount a seller is paid minus the cost of production.
d. the opportunity cost of production minus the cost of producing goods that go unsold.
ANSWER: c

13. Caroline sharpens knives in her spare time for extra income. Buyers of her service are willing
to pay $2.95 per knife for as many knives as Caroline is willing to sharpen. On a particular day, she
is willing to sharpen the first knife for $2.00, the second knife for $2.25, the third knife for $2.75,
and the fourth knife for $3.50. Assume Caroline is rational in deciding how many knives to
sharpen. Her producer surplus is
a. $0.95.
b. $1.15.
c. $1.30.
d. $1.85.
ANSWER: d

14. If Martin sells a shirt for $40, and his producer surplus from the sale is $8, his cost must have
been
a. $48.
b. $32.
c. $8.
d. $40.
ANSWER: b

15. Ronnie operates a lawn-care service. On each day, the cost of mowing the first lawn is $15, the
cost of mowing the second lawn is $25, and the cost of mowing the third lawn is $40. His
producer surplus on the first three lawns of the day is $100. If Ronnie charges all customers the
same price for lawn mowing, that price is
a. $20.
 b. $60.
c. $80.
d. $180.
ANSWER: b

16. A seller is willing to sell a product only if the seller receives a price that is at least as great as
the
a. seller’s producer surplus.
b. seller’s cost of production.
c. seller’s profit.
d. average willingness to pay of buyers of the product.
ANSWER: b

17. Which tools allow economists to determine if the allocation of resources determined by free
markets is desirable?
a. profits and costs to firms
b. consumer and producer surplus
c. the equilibrium price and quantity
d. incomes of and prices paid by buyers
ANSWER: b

18. Total surplus is

a. the total cost to sellers of providing the good minus the total value of the good to
buyers.
b. the total value of the good to buyers minus the cost to sellers of providing the good.
c. the difference between consumer surplus and sellers’ cost.
d. always smaller than producer surplus.
ANSWER: b

19. Total surplus is represented by the area

a. under the demand curve and above the price.
b. above the supply curve and up to the price.
c. under the supply curve and up to the price.
d. between the demand and supply curves up to the point of equilibrium.
ANSWER: d

20. Which of the following is correct?

a. Consumer surplus refers to a situation in which there are more buyers than sellers in
a market.
 b. Producer surplus refers to a situation in which there are more sellers than buyers in a
market.
c. Total surplus is measured as the area below the demand curve and above the supply
curve, up to the equilibrium quantity.
d. All of the above are correct.
ANSWER: c

21. How are the following three questions related: 1) Do all demand curves slope downward? 2)
How do wages affect labor supply? 3) How do interest rates affect household saving?
a. They all relate to macroeconomics.
b. They all relate to monetary economics.
c. They all relate to the theory of consumer choice.
d. They are not related to each other in any way.
ANSWER: c

22. Which of the following statements is correct?

a. The theory of consumer choice provides a more complete understanding of supply,
just as the theory of the competitive firm provides a more complete understanding of
demand.
b. The theory of consumer choice provides a more complete understanding of demand,
just as the theory of the competitive firm provides a more complete understanding of
supply.
c. Monetary theory provides a more complete understanding of demand, just as the
theory of the competitive firm provides a more complete understanding of supply.
d. The theory of public choice provides a more complete understanding of supply, just
as the theory of the competitive firm provides a more complete understanding of
demand.
ANSWER: b

23. When a consumer spends less time enjoying leisure and more time working, she has
a. lower income and therefore cannot afford more consumption.
b. lower income and therefore can afford more consumption.
c. higher income and therefore cannot afford more consumption.
d. higher income and therefore can afford more consumption.
ANSWER: d

24. A budget constraint illustrates the

a. prices that a consumer chooses to pay for products he consumes.
b. purchases made by consumers.
c. consumption bundles that a consumer can afford.
 d. consumption bundles that give a consumer equal satisfaction.
ANSWER: c

25. Budget constraints exist for consumers because

a. their utility from consuming goods eventually reaches a maximum level.
b. even with unlimited incomes they have to pay for each good they consume.
c. they have to pay for goods, and they have limited incomes.
d. prices and incomes are inversely related.
ANSWER: c

26. Karen, Tara, and Chelsea each buy ice cream and paperback novels to enjoy on hot
summer days. Ice cream costs $5 per gallon, and paperback novels cost $8 each. Karen has a
budget of $80, Tara has a budget of $60, and Chelsea has a budget of $40 to spend on ice
cream and paperback novels. Who can afford to purchase 8 gallons of ice cream and 5
paperback novels?
a. Karen, Tara, and Chelsea
b. Karen only
c. Tara and Chelsea but not Karen
d. none of the women
ANSWER: B

27. Jack and Diane each buy pizza and paperback novels. Pizza costs $3 per slice, and
paperback novels cost $5 each. Jack has a budget of $30, and Diane has a budget of $15 to
spend on pizza and paperback novels. Which consumer(s) can afford to purchase 5 slices of
pizza and 3 paperback novels?
a. Jack only
b. Diane only
c. both Jack and Diane
d. neither Jack nor Diane
ANSWER: a

28. Indifference curves illustrate

a. a firm’s profits.
b. a consumer’s budget.
c. a consumer’s preferences.
d. the prices of two goods.
ANSWER: c
29. If two bundles of goods give a consumer the same satisfaction, the consumer must be
a. on her budget constraint.
b. in a position of equilibrium.
c. indifferent between the bundles.
d. Both a and c are correct.
ANSWER: c

30. Alicia is a vegetarian, so she does not eat beef. That is, beef provides no additional utility to
Alicia. She loves potatoes, however. If we illustrate Alicia’s indifference curves by drawing
beef on the horizontal axis and potatoes on the vertical axis, her indifference curves will
a. slope downward.
b. be vertical straight lines.
c. slope upward.
d. be horizontal straight lines.
ANSWER: d

31. An indifference curve illustrates the

a. prices facing a consumer as she chooses how much of good X and good Y to
consume.
b. income facing a consumer as she chooses how much of good X and good Y to
consume.
c. trade-offs facing a consumer as she chooses how much of good X and good Y to
consume.
d. All of the above are correct.
ANSWER: c

32. The marginal rate of substitution is equal to the

a. slope of the indifference curve.
b. ratio of the prices of the two goods.
c. slope of the budget constraint.
d. All of the above are correct.
ANSWER: a

33. The rate at which a consumer is willing to trade one good for another to maintain the same level of
satisfaction is affected by the
a. prices of the products.
b. amount of each good the consumer is currently consuming.
c. consumer’s income.
d. marginal value product.
ANSWER: b

34. If an indifference curve is bowed in toward the origin, the marginal rate of substitution is
a. not likely to reflect the relative value of goods.
b. likely to be constant for all bundles along the indifference curve.
c. likely to be identical to the price ratio for each bundle along the indifference curve.
d. different for each bundle along the indifference curve.
ANSWER: d

35. The goal of the consumer is to

a. maximize utility.
b. minimize expenses.
c. spend more income in the current time period than in the future.
d. All of the above are the goals of the consumer.
ANSWER: a

36. When a consumer is purchasing the best combination of two goods, X and Y, subject to a budget
constraint, we say that the consumer is at an optimal choice point. A graph of an optimal choice point
shows that it occurs
a. along the highest attainable indifference curve.
b. where the indifference curve is tangent to the budget constraint.
c. where the marginal utility per dollar spent is the same for both X and Y.
d. All of the above are correct.
ANSWER: d

37. When a consumer is purchasing the best combination of two goods, X and Y, subject to a budget
constraint, we say that the consumer is at an optimal choice point. A graph of an optimal choice point
shows that it occurs
a. along the highest indifference curve.
b. along the lowest budget constraint.
c. where the indifference curve is tangent to the budget constraint.
d. All of the above are correct.
ANSWER: c
38. We can use the theory of consumer choice to analyze
a. why most demand curves slope downward.
b. the tradeoff between work and leisure
c. how interest rates affect household saving.
d. All of the above are correct.
ANSWER: d
39. Suppose the price of good X falls and the consumption of good X increases. From this we can
infer that X is a(n)
(i) normal good.

(ii) inferior good.

(iii) Giffen good.

a. (i) only
b. (i) or (ii) only
c. (iii) only
d. (ii) or (iii) only
ANSWER: b

40. Good X is a Giffen good. When the price of X increases, the consumer will consume
a. more X.
b. the same amount of X.
c. less X.
d. more or less X depending on the size of the income effect relative to the size of the
substitution effect.
ANSWER: a

41. Analyzing the behavior of the firm enhances our understanding of

a. what decisions lie behind the market supply curve.
b. how consumers allocate their income to purchase scarce resources.
c. how financial institutions set interest rates.
d. whether resources are allocated fairly
Answer: A

42. Economists normally assume that the goal of a firm is to earn

(i) profits as large as possible, even if it means reducing output.

(ii) profits as large as possible, even if it means incurring a higher total cost.

(iii) revenues as large as possible, even if it reduces profits.

a. (i) and (ii) only

b. (i) and (iii) only
c. (ii) and (iii) only
d. (i), (ii), and (iii)
ANSWER: a
43. When a firm is making a profit-maximizing production decision, which of the following principles
of economics is likely to be most important to the firm's decision?
a. The cost of something is what you give up to get it.
b. A country's standard of living depends on its ability to produce goods and services.
c. Prices rise when the government prints too much money.
d. Governments can sometimes improve market outcomes.
ANSWER: a

44. Carol Anne makes candles. If she charges $20 for each candle, her total revenue will be
a. $1,000 if she sells 100 candles.
b. $500 if she sells 25 candles.
c. $20 regardless of how many candles she sells.
d. $200 if she sells 5 candles.
ANSWER: b

44. The Three Amigo’s company produced and sold 500 dog beds. The average cost of production per
dog bed was $50. Each dog be sold for a price of $65. The Three Amigo’s total costs are
a. $7,500.
b. $25,000.
c. $32,500.
d. $67,500.
ANSWER: b

45. Trevor’s Tire Company produced and sold 500 tires. The average cost of production per tire was
$50. Each tire sold for a price of $65. Trevor’s Tire Company’s total profits are
a. $7,500.
b. $25,000.
c. $32,500.
d. $67,500.
ANSWER: a

46. Stick Storage manufactures and sells computer flash drives. Last year it sold 2 million flash drives
at a price of $10 each. For last year, the firm's
a. accounting profit was $20 million.
b. economic profit was $20 million.
c. total revenue was $20 million.
d. explicit costs was $20 million.
ANSWER: c

47. The things that must be forgone to acquire a good are called
a. implicit costs.
b. opportunity costs.
 c. explicit costs.
d. accounting costs.
ANSWER: b

48. Jamar used to work as an office manager, earning $40,000 per year. He gave up that job to start a
life-coaching business. In calculating the economic profit of his life-coaching business, the $40,000
income that he gave up is counted as part of the life-coaching business's
a. total revenue.
b. opportunity costs.
c. explicit costs.
d. marginal costs.
ANSWER: b

49. Kelly has decided to start his own business giving sailing lessons. To purchase equipment for the
business, Kelly withdrew $1,000 from his savings account, which was earning 3% interest, and
borrowed an additional $2,000 from the bank at an interest rate of 7%. What is Kelly's annual
opportunity cost of the financial capital that has been invested in the business?
a. $30
b. $140
c. $170
d. $300
ANSWER: c

50. An example of an explicit cost of production would be the

a. cost of forgone labor earnings for an entrepreneur.
b. lost opportunity to invest in capital markets when the money is invested in one's business.
c. lease payments for the land on which a firm’s factory stands.
d. Both a and c are correct.
ANSWER: c

51. Which of these assumptions is often realistic for a firm in the short run?
a. The firm can vary both the size of its factory and the number of workers it employs.
b. The firm can vary the size of its factory but not the number of workers it employs.
c. The firm can vary the number of workers it employs but not the size of its factory.
d. The firm can vary neither the size of its factory nor the number of workers it employs.
ANSWER: c

52. A production function describes

a. how a firm maximizes profits.
b. how a firm turns inputs into output.
c. the minimal cost of producing a given level of output.
d. the relationship between cost and output.
ANSWER: b

53. Kate is a florist. Kate can arrange 20 bouquets per day. She is considering hiring her husband
William to work for her. Together Kate and William can arrange 35 bouquets per day. What is
William’s marginal product?
a. 55 bouquets
b. 35 bouquets
c. 22.5 bouquets
d. 15 bouquets
ANSWER: d

54. The marginal product of labor is equal to the

a. incremental cost associated with a one unit increase in labor.
b. incremental profit associated with a one unit increase in labor.
c. increase in labor necessary to generate a one unit increase in output.
d. increase in output obtained from a one unit increase in labor.
ANSWER: d

55. Suppose a certain firm is able to produce 165 units of output per day when 15 workers are hired.
The firm is able to produce 181 units of output per day when 16 workers are hired, holding other
inputs fixed. The marginal product of the 16th worker is
a. 10 units of output.
b. 11 units of output.
c. 16 units of output.
d. 181 units of output.
ANSWER: c

56. Which of the following costs do not vary with the amount of output a firm produces?
a. average fixed costs
b. fixed costs and average fixed costs
c. marginal costs and average fixed costs
d. fixed costs
ANSWER: d

57. For a construction company that builds houses, which of the following costs would be a fixed
cost?
a. the $50,000 per year salary paid to a construction foreman
b. the $30,000 per year salary paid to the company's bookkeeper
c. the $10,000 per year premium paid to an insurance company
d. All of the above are correct.
ANSWER: d
58. Suppose Jan started up a small lemonade stand business last month. Variable costs for Jan's
lemonade stand now include the cost of
a. building the lemonade stand.
b. hiring an artist to design a logo for her sign.
c. lemons and sugar.
d. All of the above are correct.
Answer: C

59. For a large firm that produces and sells automobiles, which of the following costs would be a
variable cost?
a. the $20 million payment that the firm pays each year for accounting services
b. the cost of the steel that is used in producing automobiles
c. the rent that the firm pays for office space in a suburb of St. Louis
d. All of the above are correct.
ANSWER: b

60. Total cost can be divided into two types of costs:

a. fixed costs and variable costs.
b. fixed costs and marginal costs.
c. variable costs and marginal costs.
d. average costs and marginal costs.
ANSWER: a

61. A restaurant that has market power can

a. minimize costs more efficiently than its competitors.
b. influence the market price for the meals it sells.
c. reduce its marketing budget more than its competitors.
d. ignore profit-maximizing strategies when setting the price for its meals.
ANSWER: b

62. Suppose a firm in each of the two markets listed below were to increase its price by 25 percent. In
which pair would the firm in the first market listed experience a dramatic decline in sales, but the firm
in the second market listed would not?
a. restaurants and MP3 players
b. electricity and natural gas
c. corn and satellite radio
d. rice and soybeans
ANSWER: c
63. Which of the following is not a characteristic of a competitive market?
a. Buyers and sellers are price takers.
b. Each firm sells a virtually identical product.
c. Entry is limited.
d. Each firm chooses an output level that maximizes profits.
ANSWER: c

64. A market is competitive if

(i) firms have the flexibility to price their own product.

(ii) each buyer is small compared to the market.

(iii) each seller is small compared to the market.

a. (i) and (ii) only

b. (i) and (iii) only
c. (ii) and (iii) only
d. (i), (ii), and (iii)
ANSWER: c

65. Which of the following industries is least likely to exhibit the characteristic of free entry?
a. bookstores
b. hairstyling salons
c. yoga studios
d. satellite radio
ANSWER: d

66. When buyers in a competitive market take the selling price as given, they are said to be
a. market entrants.
b. monopolists.
c. free riders.
d. price takers.
ANSWER: d

67. Why does a firm in a competitive industry charge the market price?
a. If a firm charges less than the market price, it loses potential revenue.
b. If a firm charges more than the market price, it loses all its customers to other firms.
c. The firm can sell as many units of output as it wants to at the market price.
d. All of the above are correct.
ANSWER: d
68. Suppose a firm in a competitive market reduces its output by 20 percent. As a result, the price of
its output is likely to
a. increase.
b. remain unchanged.
c. decrease by less than 20 percent.
d. decrease by more than 20 percent.
ANSWER: b

69. Firms that operate in perfectly competitive markets try to

a. maximize revenues.
b. maximize profits.
c. equate marginal revenue with average total cost.
d. All of the above are correct.
ANSWER: b

70. Changes in the output of a perfectly competitive firm, without any change in the price of the
product, will change the firm's
a. total revenue.
b. marginal revenue.
c. average revenue.
d. All of the above are correct.
ANSWER: a

71. If a competitive firm is currently producing a level of output at which marginal cost exceeds
marginal revenue, then
a. a one-unit increase in output will increase the firm's profit.
b. a one-unit decrease in output will increase the firm's profit.
c. total revenue exceeds total cost.
d. total cost exceeds total revenue.
ANSWER: b

72. If a competitive firm is currently producing a level of output at which marginal cost exceeds
marginal revenue, then
a. average revenue exceeds marginal cost.
b. the firm is earning a positive profit.
c. decreasing output would increase the firm's profit.
d. All of the above are correct.
ANSWER: c
73. At the profit-maximizing level of output,
a. marginal revenue equals average total cost.
b. marginal revenue equals average variable cost.
c. marginal revenue equals marginal cost.
d. average revenue equals average total cost.
ANSWER: c

74. For a certain firm, the 100th unit of output that the firm produces has a marginal revenue of $11
and a marginal cost of $10. It follows that the
a. production of the 100th unit of output increases the firm's profit by $1.
b. production of the 100th unit of output increases the firm's average total cost by $1.
c. firm's profit-maximizing level of output is less than 100 units.
d. production of the 101st unit of output must increase the firm’s profit by more than $1.
ANSWER: a

75. If a competitive firm is selling 900 units of its product at a price of $10 per unit and earning a
positive profit, then
a. its total cost is more than $9,000.
b. its marginal revenue is less than $10.
c. its average total cost is less than $10.
d. the firm cannot be a competitive firm because competitive firms cannot earn positive
profits.
ANSWER: c

76. Farmer McDonald sells wheat to a broker in Kansas City, Missouri. Because the market for wheat
is generally considered to be competitive, Mr. McDonald maximizes his profit by choosing
a. to produce the quantity at which average variable cost is minimized.
b. to produce the quantity at which average fixed cost is minimized.
c. the quantity at which market price is equal to Mr. McDonald's marginal cost of
production.
d. the quantity at which market price exceeds Mr. McDonald's marginal cost of production
by the greatest amount.
ANSWER: c

77. When profit-maximizing firms in competitive markets are earning profits,

a. market demand must exceed market supply at the market equilibrium price.
b. market supply must exceed market demand at the market equilibrium price.
c. new firms will enter the market.
d. the most inefficient firms will be encouraged to leave the market.
ANSWER: c
78. Which of the following statements best expresses a firm’s profit-maximizing decision rule?
a. If marginal revenue is greater than marginal cost, the firm should increase its output.
b. If marginal revenue is less than marginal cost, the firm should decrease its output.
c. If marginal revenue equals marginal cost, the firm should continue producing its current
level of output.
d. All of the above are correct.
ANSWER: d

79. The short-run market supply curve in a perfectly competitive industry

a. shows the total quantity supplied by all firms at each possible price.
b. is perfectly inelastic at the market price.
c. is perfectly elastic at the market price.
d. shows the variety of prices that different firms will charge for a given quantity.
ANSWER: a

80. In a market with 1,000 identical firms, the short-run market supply is the
a. marginal cost curve above average variable cost for a typical firm in the market.
b. quantity supplied by the typical firm in the market at each price.
c. sum of the prices charged by each of the 1,000 individual firms at each quantity.
d. sum of the quantities supplied by each of the 1,000 individual firms at each price.
ANSWER: d

81. A monopoly can earn positive profits because it

a. can sell unlimited quantities at any price it chooses.
b. takes the market price as given and can sell unlimited quantities.
c. can set the price it charges for its output but faces a horizontal demand curve.
d. can maintain a price such that total revenues will exceed total costs.
ANSWER: d

82. Microsoft faces very little competition from other firms for its Windows software. Why isn’t the
price of the software $1,000 per copy?
a. because the government would not allow such a high price
b. because stockholders would not allow such a high price
c. because the company would sell so few copies that they would earn higher profits by
selling at a lower price
d. All of the above are correct.
ANSWER: c

83. Which of the following is not a characteristic of a monopoly?

a. the seller has market power
b. one seller
c. free entry and exit
d. a product without close substitutes
ANSWER: c

84. Which of the following are necessary characteristics of a monopoly?

(i) The firm is the sole seller of its product.

(ii) The firm's product does not have close substitutes.

(iii) The firm generates a large economic profit.

(iv) The firm is located in a small geographic market.

a. (i) and (ii) only

b. (i) and (iii) only
c. (i), (ii), and (iii) only
d. (i), (ii), (iii), and (iv)
ANSWER: a

85. Suppose most people regard emeralds, rubies, and sapphires as close substitutes for diamonds.
Then DeBeers, a large diamond company, has
a. less incentive to advertise than it would otherwise have.
b. less market power than it would otherwise have.
c. more control over the price of diamonds than it would otherwise have.
d. higher profits than it would otherwise have.
ANSWER: b

86. Exclusive ownership of a key resource

a. is the most common cause of a monopoly.
b. is a potential but rare cause of a monopoly.
c. explains the monopoly ownership of the US Postal Service.
d. explains why a single firm distributes water to a community.
ANSWER: b

87. Most markets are not monopolies in the real world because
a. firms usually face downward-sloping demand curves.
 b. supply curves slope upward.
c. firms usually equate price with marginal cost.
d. there are reasonable substitutes for most goods.
ANSWER: d

88. Which of the following statements is (are) true of a monopoly?

(i) A monopoly has the ability to set the price of its product at whatever level it desires.
A monopoly's total revenue will always increase when it increases the price of its
(ii) product.

(iii) The more a monopoly increases output, the higher the profits.

a. (i) only
b. (ii) only
c. (i) and (ii) only
d. (ii) and (iii) only
ANSWER: a

89. When a monopolist decreases the price of its good, consumers

a. continue to buy the same amount.
b. buy more.
c. buy less.
d. may buy more or less, depending on the price elasticity of demand.
ANSWER: b

90. Monopolies use their market power to

a. charge prices that equal minimum average total cost.
b. increase the quantity sold as they increase price.
c. charge a price that is higher than marginal cost.
d. dump excess supplies of their product on the market.
ANSWER: c

91. The profit-maximization problem for a monopolist differs from that of a competitive firm in
which of the following ways?
a. A competitive firm maximizes profit at the point where marginal revenue equals marginal
cost; a monopolist maximizes profit at the point where marginal revenue exceeds marginal
cost.
 b. A competitive firm maximizes profit at the point where average revenue equals marginal
cost; a monopolist maximizes profit at the point where average revenue exceeds marginal
cost.
c. For a competitive firm, marginal revenue at the profit-maximizing level of output is equal
to marginal revenue at all other levels of output; for a monopolist, marginal revenue at the
profit-maximizing level of output is smaller than it is for larger levels of output.
d. For a profit-maximizing competitive firm, thinking at the margin is much more important
than it is for a profit-maximizing monopolist.
ANSWER: b

92. Competitive firms differ from monopolies in which of the following ways?
Competitive firms do not have to worry about the price effect lowering their total
(i) revenue.
Marginal revenue for a competitive firm equals price, while marginal revenue for a
(ii) monopoly is less than the price it is able to charge.
Monopolies must lower their price in order to sell more of their product, while
(iii) competitive firms do not.

a. (i) and (ii) only

b. (ii) and (iii) only
c. (i) and (iii) only
d. (i), (ii), and (iii)
ANSWER: d

93. Which of the following is not a difference between monopolies and perfectly competitive
markets?
a. Monopolies can earn profits in the long run while perfectly competitive firms break even.
b. Monopolies charge a price higher than marginal cost while perfectly competitive firms
charge a price equal to marginal cost.
c. Monopolies choose to produce the quantity at which marginal revenue equals marginal
cost while perfectly competitive firms do not.
d. Monopolies face downward sloping demand curves while perfectly competitive firms face
horizontal demand curves.
ANSWER: c

94. Monopolies are inefficient because they

(i) eliminate barriers to entry.

(ii) price their product at a level where marginal revenue exceeds marginal cost.

(iii) restrict output below the socially efficient level of production.

a. (i) and (ii) only

 b. (ii) and (iii) only
c. (iii) only
d. (i), (ii), and (iii)
ANSWER: c

95. A monopolist produces

a. more than the socially efficient quantity of output but at a higher price than in a
competitive market.
b. less than the socially efficient quantity of output but at a higher price than in a competitive
market.
c. the socially efficient quantity of output but at a higher price than in a competitive market.
d. possibly more or possibly less than the socially efficient quantity of output, but definitely
at a higher price than in a competitive market.
ANSWER: b

96. The deadweight loss associated with a monopoly occurs because the monopolist
a. maximizes profits.
b. produces an output level less than the socially optimal level.
c. produces an output level greater than the socially optimal level.
d. equates marginal revenue with marginal cost.
ANSWER: b

97. Monopolies are socially inefficient because the price they charge is
a. equal to marginal revenue.
b. above marginal cost.
c. equal to demand.
d. above demand.
ANSWER: b

98. Price discrimination is the business practice of

a. bundling related products to increase total sales.
b. selling the same good at different prices to different customers.
c. pricing above marginal cost.
d. hiring marketing experts to increase consumers’ brand loyalty.
ANSWER: b
99. Price discrimination adds to social welfare in the form of
(i) increased total surplus.

(ii) reduced costs of production.

(iii) increased consumer surplus.

a. (i) only
b. (i) and (ii) only
c. (i) and (iii) only
d. (i), (ii), and (iii)
ANSWER: a

100. Antitrust laws allow the government to

a. prevent mergers.
b. break up companies.
c. promote competition.
d. All of the above are correct.
ANSWER: d