Practice MCQs for Final Assessment_With Solutions
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ECO10004: Economic Principles Semester 1,
2021 Final Assessment: Practice MCQs
1.
Each firm in a perfect competition market: a.
Produces a good that is slightly different from that of the other firms. b.
Has an important influence on the market price of the good or service being produced. c.
Attains economies of scale so that its efficient size is large compared to the market as a whole. d.
Produces a good that is identical to that of the other firms. 2.
Assume the market for organic produce sold at farmers’ markets is perfectly competitive. All else being equal, as more farmers choose to produce and sell organic produce at farmers’ market, what is likely to happen to the equilibrium price of the produce and profits of the organic farmers in the long run? a.
The equilibrium price is likely to increase, and profits are likely to remain unchanged b.
The equilibrium price is likely to remain unchanged, and profits are likely to increase c.
The equilibrium price is likely to decrease, and profits are likely to decrease d.
The equilibrium price is likely to increase, and profits are likely to increase 3.
Which of the following is NOT a characteristic of a perfect competition market? a.
There is a very large number of firms that are small compared to the market b.
All firms sell identical products c.
There are no restrictions to entry by new firms d.
None of above (i.e. All of the above are characteristics of a perfect competition
market) 4.
Both individual buyers and sellers in a perfect competition market a.
Can influence the market price by their own individual actions b.
Can influence the market price by joining with a few of their competitors c.
Have to take the market price as a given d.
Have the market price dictated to them by the government
5.
Which of the following is NOT a reason why a monopolistically competitive firm might be able to maintain economic profits in the long run? a.
Creating value for customers b.
Charging a higher price than competitors to generate more sales revenue c.
Achieving lower average costs of production than competitors d.
None of the above (i.e. All above are valid reasons why a firm in a monopolistic competition market can maintain economic profits in the long run). 6.
Consider a firm in a monopolistic competition market. Which of the following statements is NOT true? a.
The firm’s output is at where marginal cost equals to average total cost so that cost production can be minimised b.
The firm sells at a price which equals its average total cost c.
The firm sells at a price which is greater than its marginal cost d.
None of the above (i.e. All of the above statements are correct). 7.
Under monopolistic competition, the differentiation of products implies that: a.
Individual firms face downward sloping demand curves b.
Both marginal cost and marginal revenue will increase as output increases c.
Individual firms will make economic profits even in the long run d.
Individual firms will produce at minimum average cost in the long run 8.
When a firm faces a downward-sloping demand curve, marginal revenue a.
must exceed price because the price effect outweighs the output effect. b.
is less than price because a firm must lower its price to sell more. c.
equals price because the firm sells a standardised product. d.
must exceed price because the output effect outweighs the price effect. 9.
An oligopoly industry is characterised by all of the following EXCEPT: a.
the existence of entry barriers. b.
the possibility of reaping long-run economic profits. c.
firms pursuing aggressive business strategies, independent of rivals' strategies. d.
production of standardised products.
10. Jake K Carrier and Timothy F Tourister are the only two luggage retailers in the town of Swinville. Each of them is contemplating whether to spend more on advertising to attract new customers. The payoff matrix below summarises all possible outcomes for
Jake K and Timothy F. Timothy F More advertising Leave advertising the same Jake K More advertising Timothy F: $30,000 profit Jake K: $30,000 profit Timothy F: $20,000 Jake
K: $40,000 Leave advertising the same Timothy F: $40,000 Jake K: $20,000 Timothy F: $50,000 Jake
K: $50,000 Which of the following statements is correct? a.
Timothy F has a dominant strategy, that is, to spend more on advertising. Meanwhile, Jake K does not have a dominant strategy b.
Jake K has a dominant strategy, that is, to spend more on advertising. Meanwhile, Timothy F does not have a dominant strategy c.
Both Timothy F and Jake K have a dominant strategy, that is, to spend more on advertising d.
Neither Timothy F nor Jake K has a dominant strategy 11. There is much evidence to suggest that airlines are more likely to match price cuts than price increases. Which of the following best explains this evidence? a.
The law of demand, which states that an increase in price leads to a decrease in
quantity demanded b.
No one airline wants to be the first to renege on a tacit collusive agreement in which all airlines implicitly agree to match price cuts but not price increases c.
An airline fears that if it does not match a price cut, its sale may fall considerably, but it does not match a price increase, it will be able to attract customers away from its rivals d.
Airlines have different costs of production, and therefore it is more difficult to agree on a price increase than on a price decrease 12. The study of how people make decisions in situations in which attaining their goals depends on their interaction with others is called: a.
Game theory b.
Oligopoly c.
Competitive analysis d.
Strategic analysis 13. When economies of scale are present at all relevant levels of output, the market is: a.
A perfect competition market b.
A monopolistic competition market c.
A natural monopoly d.
An oligopoly
14. Encouraging firms to invest in research and development and individuals to engage in creative endeavours such as writing novels is one justification for: a.
Government-created monopolies b.
Resource monopolies c.
Natural monopolies d.
Monopolistic competition 15. Refer to the figure below: Suppose the grocery store market in Brisbane is perfectly competitive. Then one store buys all the others and becomes a single-price monopoly. The figure above shows the relevant demand and cost curves. When the market is perfectly competitive, the price of a kilogram of steak is ____. And when it is a monopoly, the price of a kilogram of steak is ____. a.
$4, $20 b.
$4, $12 c.
$4, $8 d.
$8, $12
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Related Questions
In perfect competition_______.
Select one:
a. demand for the good or service is small relative to the minimum efficient scale of a single producer.
b. the size of demand for the good or service relative to the minimum efficient scale of a single producer does not affect competition.
c. demand for the good or service can be small relative to the minimum efficient scale of a single producer as long as the goods or services are not identical.
d. demand for the good or service is large relative to the minimum efficient scale of a single producer.
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Multiple choice - microeconomics
43) What will entry into a market by new firms do?
A. It will increase the price of the good
B. It will increase profits of existing firms
C. It will increase the costs of existing firms
D. It will increase the supply of the good.
42) What is one consideration that applies to the analysis of a market over the long run but not to the analysis over the short run?
A. changes in firms’ cost structures
B. changes in the numbers of firms in the market
C. changes in the price of the product
D. changes in firms’ profits
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Economics
1. Rob Doe just started a ice cream business within a perfectly competitive market. The new business man was told that he would charge a price that is equal to marginal revenue. The market clearing price for ice cream is $20 dollars per scoop. The total cost for producing ice cream is given by:
Total cost = q2 + 100q + 500 where q is the number of ice cream produced in a typical day.
a. How many ice cream should Rob choose to produce to maximize profit?
b. Calculate Rob's maximum daily profit
c. Graph these results, and label Rob's supply curve
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Multiple choice questions - Microeconomics
37)In a market that allows free entry and exit, when does the process of entry and exit end for the typical firm in the market?
A. when average revenue exceeds marginal cost
B. when total revenue is equal to average total cost
C. when accounting profit is zero
D. when economic profit is zero
36)
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Microeconomics
The table below represents a firm's profit for producing and selling candles. Assume that if a firm would have the same profit at two different levels of output, then the firm would choose the greater level of output. Assume that the only levels of output that the firm can produce are the levels of output given in the table. At what level of output does the firm maximize profits?
Quantity
Total Cost
Marginal Cost
Total Revenue
Marginal Revenue
0
$20
-
$0
-
15
$60
$2.67
$75
$5
30
$110
$3.33
$150
$5
45
$170
$4.00
$225
$5
60
$245
$5.00
$300
$5
75
$340
$6.33
$375
$5
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Explain how a firm in a competitive market identifies the profit-maximizing level of production. When should the firm raise production, and when should the firm lower production?
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George Stigler, "Perfect Competition, Historically Contemplated," Journal of Political Economy,Vol. 55, No. 1, (February 1957), pp. 1-17.
Despite the fact that few firms sell identical products in markets where there are no barriers to entry, economists believe that the model of perfect competition is important because
A.
economists prefer studying theoretical markets instead of actual markets.
B.
all markets eventually become perfectly competitive.
C.
it is a
benchmark—a
market with the maximum possible
competition—that
economists use to evaluate actual markets that are not perfectly competitive.
D.
this is the type of market that our business laws protect and promote.
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Instructions: Upload your answers to this worksheet on SOUL in one single PDF file.
а.
List out the main characteristics of a competitive market
b.
Explain the difference between a firm's revenue and its profit. Which do firms maximize?
с.
Draw MC, AVC and AC curves for a typical firm. Explain how a competitive firm chooses the
level of output that maximizes profit. At that level of output, show on your graph the firm's
total revenue and total cost.
d.
Under what conditions will a firm shut down temporarily? Explain.
е.
Under what conditions will a firm exit a market? Explain.
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Information about Competitive market
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Question 14
Ma owns a pizza shop with AVC = $70 and ATC = $98. It is a competitive market and the market price for pizza is $95. Mr. Ma should
A: exit the market in both the short-run and long-run.
B: continue his business in both the short-run and long-run.
C: continue his business in the short-run but exit in the long-run if the situation continues.
D: shut down his business in the short-run but continue in the long-run if the situation continues.
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Your friend, who has not taken any courses in economics, just inherited a company in another state. In three weeks, they will begin running a company about which they know nothing (not even the company's product or service). Explain various markets and how they work to your friend so your friend will be able to run the company.
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A competitive market system is efficient.
Discuss and explain this statement in detail.
Your answer may include diagrams.
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Q. Suppose the book-printing industry is competitive and begins in long-run equilibrium.
a. Draw a diagram describing the typical firm in the industry.
b. Hi-Tech Printing Company invents a new process that sharply reduces the cost of printing
books. What happens to Hi-Tech’s profits and the price of books in the short run when
Hi-Tech’s patent prevents other firms from using new technology?
c. What happens in the long run when the patent expires and other firms are free to use the technology?
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Economics
A firm’s supply curve is key to economic reasoning. Derive the supply curve of an individual firm in the short and in the long run. To that end, start arguing which assumptions on marginal returns imply a first decreasing and then increasing average variable cost curve, and then make use of shut down conditions. Explain in detail and use appropriate diagrams.
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MICROECONOMICS
See the graph below, Label and Describe in terms of :
A. Name of Market Structure
B. Ability to control prices
C. Spending on advertising and marketing
D. Pure profit, Normal profit or losses.
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Economic research suggests that US environmental regulations have _____.
Select one:
a. Made US firms less competitive against their global competitors.
b. Had no discernable effect on US competitiveness.
c. Made US firms more competitive against their global competitors.
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Question 1 A profit-maximizing firm in a competitive market is currently producing 100 units of output. It has average revenue of $10, average total cost of $8, and fixed costs of $200. Is the efficient scale of the firm more than, less than, or exactly 100 units?
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In perfect competition market the goods which are sold are ___________ in nature
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Question 3 The market for fertilizer is perfectly competitive. Firms in the market are producing output but are currently incurring economic losses. a. How does the price of fertilizer compare to the average total cost, the average variable cost, and the marginal cost of producing fertilizer? b. Draw two graphs, side by side, illustrating the present situation for the typical firm and for the market. [Upload a picture] c. Assuming there is no change in either demand or the firms’ cost curves, explain what will happen in the long run to the price of fertilizer, marginal cost, average total cost, the quantity supplied by each firm, and the total quantity supplied to the market.
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Choose a description that is the least appropriate description of a perfectly competitive market.
(1) Economies of scale prevails for some range of quantities of output.
(2) All the relevant information about the market is known very well by market participants.
(3) Differentiated products are sold by sellers.
(4) The sales volume of one seller is very small relative to the size of the market.
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Q6
Perfect competition refers to a market structure where...
a.
Each firm has zero market power and cannot affect the price.
b.
Firms behave strategically.
c.
Firms can set the price of their product.
d.
All firms are earning profits.
e.
Firms cooperate with each other.
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(1) Use the graph to answer the question below. The quantity is measured in thousands of units.
What will this firm decide to do in the long run?
A-It will stay in the market because the price is above its AVC at its profit-maximizing output.
B-It will leave the market because the price is below its ATC at its profit-maximizing output.
C-It will increase its price to point B to earn normal profit.
D-It will increase its output until its profit-maximizing output level is equal to B.
E-Insufficient data to determine.
(2) A dairy farmer is operating in a perfectly competitive market. The market price for milk is between the farmer's average variable cost and average total cost at the profit-maximizing level of output. What will the farmer do?
A-Produce more milk. B-Produce less milk. C-Shut down in the short run. D-Operate in the short run and leave the industry in the long run. E-Insufficient information to determine
(3) A firm operating in a perfectly competitive market cannot…
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Name:
1. Perfect Competition:
What are the key features of a perfectly competitive market?
b. Will a perfectly competitive firm automatically close its doors if it is not making a profit? Why or why
not? Make sure to discuss the different time frames.
a.
C. Suppose that you are the manager of a company that vaccinates human beings for biological diseases.
Your company uses two inputs to produce vaccinations: physicians and laboratories. However, this is a
short-run analysis where physicians are variable but laboratories are fixed. Suppose that each physician
costs $500 per day (for an annual salary of about $175,000) and the daily cost for the laboratory is
$1,500 (for rental cost of about $547,500 per year). In the short run, your company has 1 laboratory.
The following table presents potential daily production levels with requisite input combinations.
Physicians Laboratories
Vaccinations (Q) TC| TFC | TVC
MC ATC AFC AVC…
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The following statements are true in a perfect market except which one?
A. Resources are allocated efficiently because of competition
B. Price is equal to marginal costs C. Normal profit made in the long run
D. Firms do not operate at maximum efficiency
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How can a business compete with other businesses that sell the same products?
Lower the price of the competing item.
Produce less of the competing item.
Raise the price of the competing item.
Produce more of the competing item.
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Related Questions
- In perfect competition_______. Select one: a. demand for the good or service is small relative to the minimum efficient scale of a single producer. b. the size of demand for the good or service relative to the minimum efficient scale of a single producer does not affect competition. c. demand for the good or service can be small relative to the minimum efficient scale of a single producer as long as the goods or services are not identical. d. demand for the good or service is large relative to the minimum efficient scale of a single producer.arrow_forwardMultiple choice - microeconomics 43) What will entry into a market by new firms do? A. It will increase the price of the good B. It will increase profits of existing firms C. It will increase the costs of existing firms D. It will increase the supply of the good. 42) What is one consideration that applies to the analysis of a market over the long run but not to the analysis over the short run? A. changes in firms’ cost structures B. changes in the numbers of firms in the market C. changes in the price of the product D. changes in firms’ profitsarrow_forwardEconomics 1. Rob Doe just started a ice cream business within a perfectly competitive market. The new business man was told that he would charge a price that is equal to marginal revenue. The market clearing price for ice cream is $20 dollars per scoop. The total cost for producing ice cream is given by: Total cost = q2 + 100q + 500 where q is the number of ice cream produced in a typical day. a. How many ice cream should Rob choose to produce to maximize profit? b. Calculate Rob's maximum daily profit c. Graph these results, and label Rob's supply curvearrow_forward
- Multiple choice questions - Microeconomics 37)In a market that allows free entry and exit, when does the process of entry and exit end for the typical firm in the market? A. when average revenue exceeds marginal cost B. when total revenue is equal to average total cost C. when accounting profit is zero D. when economic profit is zero 36)arrow_forwardMicroeconomics The table below represents a firm's profit for producing and selling candles. Assume that if a firm would have the same profit at two different levels of output, then the firm would choose the greater level of output. Assume that the only levels of output that the firm can produce are the levels of output given in the table. At what level of output does the firm maximize profits? Quantity Total Cost Marginal Cost Total Revenue Marginal Revenue 0 $20 - $0 - 15 $60 $2.67 $75 $5 30 $110 $3.33 $150 $5 45 $170 $4.00 $225 $5 60 $245 $5.00 $300 $5 75 $340 $6.33 $375 $5arrow_forwardExplain how a firm in a competitive market identifies the profit-maximizing level of production. When should the firm raise production, and when should the firm lower production?arrow_forward
- George Stigler, "Perfect Competition, Historically Contemplated," Journal of Political Economy,Vol. 55, No. 1, (February 1957), pp. 1-17. Despite the fact that few firms sell identical products in markets where there are no barriers to entry, economists believe that the model of perfect competition is important because A. economists prefer studying theoretical markets instead of actual markets. B. all markets eventually become perfectly competitive. C. it is a benchmark—a market with the maximum possible competition—that economists use to evaluate actual markets that are not perfectly competitive. D. this is the type of market that our business laws protect and promote.arrow_forwardInstructions: Upload your answers to this worksheet on SOUL in one single PDF file. а. List out the main characteristics of a competitive market b. Explain the difference between a firm's revenue and its profit. Which do firms maximize? с. Draw MC, AVC and AC curves for a typical firm. Explain how a competitive firm chooses the level of output that maximizes profit. At that level of output, show on your graph the firm's total revenue and total cost. d. Under what conditions will a firm shut down temporarily? Explain. е. Under what conditions will a firm exit a market? Explain.arrow_forwardInformation about Competitive marketarrow_forward
- Question 14 Ma owns a pizza shop with AVC = $70 and ATC = $98. It is a competitive market and the market price for pizza is $95. Mr. Ma should A: exit the market in both the short-run and long-run. B: continue his business in both the short-run and long-run. C: continue his business in the short-run but exit in the long-run if the situation continues. D: shut down his business in the short-run but continue in the long-run if the situation continues.arrow_forwardYour friend, who has not taken any courses in economics, just inherited a company in another state. In three weeks, they will begin running a company about which they know nothing (not even the company's product or service). Explain various markets and how they work to your friend so your friend will be able to run the company.arrow_forwardA competitive market system is efficient. Discuss and explain this statement in detail. Your answer may include diagrams.arrow_forward
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SEE MORE QUESTIONS
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ISBN:9781337617383
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Publisher:Cengage Learning