AGB144 Exam 3 QUESTIONS AND ANSWERS
Game theory:
a. is the analysis of how people (or firms) behave in strategic situations
b. is best suited for analyzing purely competitive markets
c. reveals that mergers between rival firms are self defeating
d. reveals that price fixing among firms reduces profits - ANSWER a. is the analysis of
how people (or firms) behave in strategic situations
Refer to the above diagram for a monopolistically competitive firm in short-run
equilibrium. This firm will realize an economic:
a. loss at $320
b. profit of $480
c. profit of $280
d. profit of $600 - ANSWER b. profit of $480
Long-run equilibrium for a monopolistically competitive firm where economic profits are
zero results from:
a. rising marginal costs.
b. a perfectly elastic product demand curve
c. relatively easy entry
d. product differentiation and development - ANSWER c. relatively easy entry
Refer to the above diagram for a monopolistically competitive firm in short-run
equilibrium. The profit-maximizing price for this firm will be:
a. $19
b. $16
c. $13
d. $10 - ANSWER b. $16
Which of the following statements is correct?
,a. Purely competitive firms, monopolistically competitive firms, and pure monopolies
all earn zero economic profits in the long run.
b. Purely competitive firms, monopolistically competitive firms, and pure monopolies
all earn positive economic profits in the long run
c. In the long run purely competitive firms and monopolistically competitive firms
earn zero economic profits, while pure monopolies may or may not earn economic
profits
d. Monopolistically competitive firms earn zero economic profits in both the short
run and the long run. - ANSWER c. In the long run purely competitive firms and
monopolistically competitive firms earn zero economic profits, while pure monopolies
may or may not earn economic profits
When a monopolistically competitive firm is in long-run equilibrium:
a. P=MC=ATC
b. MR=MC and minimum ATC > P
c. MR > MC and P = minimum ATC
d. MR = MC and P < minimum ATC - ANSWER a. P=MC=ATC
Monopolistic competition is characterized by a:
a. few dominant firms and low entry barriers
b. large number of firms and substantial entry barriers
c. few dominant firms and substantial entry barriers
d. large number of firms and low entry barriers - ANSWER d. large number of firms
and low entry barriers
Nonprice competition refers to:
a. advertising, product promotion, and changes in the real or perceived characteristics
of a product
b. price increases by a firm that are ignored by its rivals
c. competition between products of different industries, for example, competition
between aluminum and steel in the manufacture of auto parts - ANSWER a.
advertising, product promotion, and changes in the real or perceived characteristics
of a product
Refer to the above diagram for a monopolistically competitive firm in short-run
equilibrium. The profit-maximizing output for this firm will be:
, a. 100
b. 160
c. 180
d. 210 - ANSWER b. 160
The monopolistically competitive seller maximizes profit by producing at the point
where:
a. total revenue is at a maximum
b. average costs are at a minimum
c. marginal revenue equals marginal cost
d. price equals marginal revenue - ANSWER c. marginal revenue equals marginal cost
Differences in production efficiencies among nations in producing a particular good
result from:
a. different endowments of fertile soil
b. different amounts of skilled labor
c. different levels of technological knowledge
d. all of the above - ANSWER d. all of the above
Countries engaged in international trade specialize in production based on:
a. relative levels of GDP
b. comparative advantage
c. relative exchange rates
d. relative inflation rates - ANSWER b. comparative advantage
The primary gain from international trade is:
a. increased employment gain from international trade is:
b. more goods that would be attainable through domestic production alone c. tariff
revenue
d. increased employment in the domestic import sector - ANSWER b. more goods than
would be attainable through domestic
Suppose the domestic price (no-international-trade price) of copper is $1.20 a pound in
the United States while the world price is $1.00 a pound. Assuming no transportation
costs, the United States will:
Game theory:
a. is the analysis of how people (or firms) behave in strategic situations
b. is best suited for analyzing purely competitive markets
c. reveals that mergers between rival firms are self defeating
d. reveals that price fixing among firms reduces profits - ANSWER a. is the analysis of
how people (or firms) behave in strategic situations
Refer to the above diagram for a monopolistically competitive firm in short-run
equilibrium. This firm will realize an economic:
a. loss at $320
b. profit of $480
c. profit of $280
d. profit of $600 - ANSWER b. profit of $480
Long-run equilibrium for a monopolistically competitive firm where economic profits are
zero results from:
a. rising marginal costs.
b. a perfectly elastic product demand curve
c. relatively easy entry
d. product differentiation and development - ANSWER c. relatively easy entry
Refer to the above diagram for a monopolistically competitive firm in short-run
equilibrium. The profit-maximizing price for this firm will be:
a. $19
b. $16
c. $13
d. $10 - ANSWER b. $16
Which of the following statements is correct?
,a. Purely competitive firms, monopolistically competitive firms, and pure monopolies
all earn zero economic profits in the long run.
b. Purely competitive firms, monopolistically competitive firms, and pure monopolies
all earn positive economic profits in the long run
c. In the long run purely competitive firms and monopolistically competitive firms
earn zero economic profits, while pure monopolies may or may not earn economic
profits
d. Monopolistically competitive firms earn zero economic profits in both the short
run and the long run. - ANSWER c. In the long run purely competitive firms and
monopolistically competitive firms earn zero economic profits, while pure monopolies
may or may not earn economic profits
When a monopolistically competitive firm is in long-run equilibrium:
a. P=MC=ATC
b. MR=MC and minimum ATC > P
c. MR > MC and P = minimum ATC
d. MR = MC and P < minimum ATC - ANSWER a. P=MC=ATC
Monopolistic competition is characterized by a:
a. few dominant firms and low entry barriers
b. large number of firms and substantial entry barriers
c. few dominant firms and substantial entry barriers
d. large number of firms and low entry barriers - ANSWER d. large number of firms
and low entry barriers
Nonprice competition refers to:
a. advertising, product promotion, and changes in the real or perceived characteristics
of a product
b. price increases by a firm that are ignored by its rivals
c. competition between products of different industries, for example, competition
between aluminum and steel in the manufacture of auto parts - ANSWER a.
advertising, product promotion, and changes in the real or perceived characteristics
of a product
Refer to the above diagram for a monopolistically competitive firm in short-run
equilibrium. The profit-maximizing output for this firm will be:
, a. 100
b. 160
c. 180
d. 210 - ANSWER b. 160
The monopolistically competitive seller maximizes profit by producing at the point
where:
a. total revenue is at a maximum
b. average costs are at a minimum
c. marginal revenue equals marginal cost
d. price equals marginal revenue - ANSWER c. marginal revenue equals marginal cost
Differences in production efficiencies among nations in producing a particular good
result from:
a. different endowments of fertile soil
b. different amounts of skilled labor
c. different levels of technological knowledge
d. all of the above - ANSWER d. all of the above
Countries engaged in international trade specialize in production based on:
a. relative levels of GDP
b. comparative advantage
c. relative exchange rates
d. relative inflation rates - ANSWER b. comparative advantage
The primary gain from international trade is:
a. increased employment gain from international trade is:
b. more goods that would be attainable through domestic production alone c. tariff
revenue
d. increased employment in the domestic import sector - ANSWER b. more goods than
would be attainable through domestic
Suppose the domestic price (no-international-trade price) of copper is $1.20 a pound in
the United States while the world price is $1.00 a pound. Assuming no transportation
costs, the United States will:
