ECN 2110 Week 5 Quiz

ECN 2110 Week 5 Quiz | Baker College

Module 5A Quiz

Question 1

If a firm's revenues do not cover its average variable costs, then that firm has reached its

·        price taking point

·        shutdown point

·        marginal point

·        opportunity margin

Question 2

In the _______________, the perfectly competitive firm will seek out _______________.

·        long run; the quantity of output where profits are highest

·        short run; profits by ignoring the concept of total cost analysis

·        short run; the quantity of output where profits are highest

·        long run; methods to reduce production and shut down

Question 3

Under perfect competition, any profit-maximizing producer faces a market price equal to its

·        average costs

·        marginal costs

·        total costs

·        variable costs

Question 4

Given the data provided in the table below, what will the marginal cost equal for production at quantity (Q) level 4?

Q         P          TC      TR      MR     MC     Profit

0          $5        $9                                           

1          $5        $10                                        

2          $5        $12                                        

3          $5        $15                                        

4          $5        $19                                        

5          $5        $24                                        

6          $5        $30                                        

7          $5        $45                                        

·        $5.00

·        $4.00

·        $1.00

·        $3.00

Question 5

What happens in a perfectly competitive industry when economic profit is greater than zero?

·        existing firms may expand their operations

·        firms may move along their LRAC curves to new outputs

·        there may be pressure on the market price to fall

·        new firms may enter the industry and all of the above

Question 6

Which of the following is most unlikely to present a barrier to entry into a market?

·        market forces

·        patent laws

·        technological advantages

·        deregulation

Question 7

Occasionally, ________________ may lead to pure monopoly; in other market conditions, they may limit competition ______________________-.

·        barriers to entry; to a few oligopoly firms

·        barriers to entry; to a natural monopoly

·        deregulation; requiring new patent law

·        deregulation; requiring new copyright law

Question 8

If it was possible for one company to gain ownership control all of the uranium processing plants in the US, then

·        they will strive to reach efficiencies only they know how to make.

·        that firm could set up barriers to entry to discourage competition.

·        that firm could set up barriers to entry to discourage competition.

·        the factors of market demand and supply will set the price.

Question 9

The two primary factors determining monopoly market power are the firm's

·        revenues and size of its customer base

·        revenues and size of its customer base

·        variable cost curve and its fixed cost structure

·        demand curve and level of wealth within its market

Question 10

The figure below shows the demand curve and the long run average cost curve for an electric company.

This market is a natural monopoly because

·        the long run average cost curve is U-shaped

·        when producing large quantities, the long run average cost is greater than demand

·        when producing small quantities, the demand is higher than long run average cost

·        the demand curve intersects the long run average cost curve at a point where the long run average cost curve is downward sloping

Question 11

_________________ occurs when circumstances have allowed several large firms to have all or most of the sales in an industry.

·        Collusion

·        A monopoly

·        An oligopoly

·        A cartel

Question 12

If monopolistic competitors must expect a process of entry and exit like perfectly competitive firms,

·        they will be unable to earn higher-than-normal profits in the short run.

·        they will wish to cooperate to make decisions about what price to charge.

·        they will wish to cooperate to make decisions about what quantity to produce.

·        they will be unable to earn higher-than-normal profits in the long run.

Question 13

If the firm is producing at a quantity of output where marginal revenue exceeds marginal cost, then,

·        the firm's perceived demand will shift to the left.Correct!

·        the firm should keep expanding production.

·        each marginal unit adds profit by bringing in less revenue than its cost.

·        the firm is now earning zero for profit.

Question 14

In a perfectly competitive market, allocative efficiency is achieved because each firm produces at a quantity where price is set

·        equal to marginal cost, in the short run.

·        equal to marginal cost, both in the short run and in the long run.

·        equal to average cost, in the long run.

·        equal to average cost, both in the short run and in the long run.

Question 15

How can parties who find themselves in a prisoner’s dilemma situation avoid the undesired outcome and cooperate with each other?

·        one oligopoly can physically beat up another oligopoly

·        by seeking alternatives to create pressure for members to keep output up and prices up

·        find effective ways to penalize firms who do not cooperate

·        sign legally enforceable contracts setting out their mutual agreement to act like a monopoly

Question 16

The four-firm __________ measures the percentage share of the total sales in the industry that is accounted for by the largest four firms.

·        coordination ratio

·        market share ratio

·        concentration ratio

·        production ratio

Question 17

Government policy-makers often must decide how to balance the potential benefits of _____________ against the potential benefits of _______________.

·        competition; nationalization

·        corporate size; competition

·        corporate size; predatory pricing

·        nationalization; privatization

Question 18

In the 1980s, the FTC followed guidelines stipulating that, should a proposed merger result in an HHI of less than 1,000,

·        the FTC would probably challenge it.

·        the FTC would scrutinize the proposal.Correct!

·        the FTC would probably approve it.

·        the FTC make a case-by-case decision.

Question 19

Which of the following poses a difficult challenge for U.S. competition policy?

·        monopoly

·        monopolistic competition

·        perfect competition

·        natural monopoly

Question 20

The information below sets out the estimated market shares for the cellular phone manufacturing market.

Firm   Market Share

Nokia 36%

Fujitsu           3%

Kyocera        3%

LG      6%

Motorola      16%

Samsung        6%

Sanyo 4%

Siemens         7%

Sony Ericsson          11%

Plus 8 more firms with 1% each

Based on this information, the four-firm concentration ratio is

·        70

·        68

·        65

·        73