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Question:

Please answer the questions of PART A in the table provided in the answer section. Any answers you indicate or give here in the question section will be disregarded and you will not receive marks for them.

1. When marginal cost curve is below an average cost curve, average cost is:

Select one:

a. Decreasing with output.

b. Not varying with output.

c. Increasing with output.

d. None of the statements associated with this question are correct.

2. Joe likes to sleep late in the mornings and play tennis in the afternoons. The opportunity cost of Joe attending his morning class for one hour is:

Select one:

a. An hour of tennis given up.

b. Nothing because he is paying for his class.

c. Both the tennis given up and the sleep given up.

d. An hour of sleep given up.

3. For the cost function C(Q) = 100 + 2Q + 3Q2, the average fixed cost of producing 2 units of output is:

Select one:

a. 50.

b. 2.

c. 3.

d. 100.

4. ________ are likely a fixed cost of a firm.

Select one:

a. Wages paid to employees

b. Travel expenses to meet with clients

c. Lease payments for office space

d. The payments for supplies

5. Economies of scale exist whenever long-run average costs:

Select one:

a. Remain constant as output is increased.

b. Increase as output is increased.

c. None of the other statements are correct.

d. Decrease as output is increased.

6. You are the manager of a firm that sells its product in a competitive market at a price of £50. Your firm's cost function is C = 40 + 5Q2. The profit-maximizing output for your firm is:

Select one:

a. 45.

b. 5.

c. 10.

d. 4/5.

7. The Taste Freeze Ice Cream Company is a perfectly competitive firm producing where P = MC. The current market price of an ice cream sandwich is £5.00. The firm sells 200 ice cream sandwiches. Its AVC is £3.00 and its AFC is £3.00. What should Taste Freeze do?

Select one:

a. Increase production so that AFC will decrease.

b. Shut down and produce zero sandwiches because price is less than ATC.

c. Continue to produce because price exceeds AVC.

d. Decrease production so that AVC will decrease.

8. You are a manager in a perfectly competitive market. The price in your market is £14. Your total cost curve is C(Q) = 10 + 4Q + 0.5 Q2. What level of profits will you make in the short-run?

Select one:

a. 40.

b. 80.

c. 60.

d. 20.

9. In a perfectly competitive market:

Select one:

a. No single buyer or seller can significantly affect the market price.

b. There is a cartel.

c. There are a few buyers.

d. There is a single seller.

10. A firm in a perfectly competitive industry produces its profit?maximizing quantity, 40 units. Market price is £3, fixed costs are £45, and variable costs are £60. The firm?s economic profit is

Select one:

a. £60.

b. £15.

c. £35.

d. £30.

11. Which of the following features is common to both perfectly competitive markets and monopolistically competitive markets?

Select one:

a. There is free entry and long run profits are zero.

b. There is free entry.

c. Long run profits are zero.

d. Firms produce homogeneous goods.

12. For a monopolist to sell more units of output:

Select one:

a. The other competing firms must sell fewer units.

b. Demand must become more elastic.

c. It must decrease the price.

d. It must increase the price.

13. XYZ Computer Company has a monopoly on the sale of a specialized color printer. If it sells two of these printers, its total revenue is £1,000 and if it sells three, its total revenue is £1,300. The marginal revenue of the third colour printer sold is

Select one:

a. £1,300.

b. £150.

c. £300.

d. £100.

14. The Specialty Cake Store, a monopolistically competitive firm, is producing 200 decorated cakes per day and selling each cake at a price of £12. At that production level ATC is £20, AVC is £15, AFC is £5, and both MR and MC are £8. This firm should:

Select one:

a. Continue to produce 200 cakes, as price is greater than AFC .

b. Produce zero cakes and pay fixed costs.

c. Increase output to the point where price equals marginal cost.

d. Decrease output to the point where marginal cost equals average cost.

15. A monopolist is currently producing output that maximizes its profits. In addition, if P > ATC > MC, then it is:

Select one:

a. Earning positive economic profits.

b. Covering total variable costs but not total fixed costs.

c. Breaking even.

d. Covering total fixed costs but not total variable costs.

16. Differentiated goods are a feature of a:

Select one:

a. Monopoly market.

b. Monopolistically competitive market.

c. Perfectly competitive market.

d. Monopolistically competitive market and monopoly market.

17. Public goods represent a market failure because

Select one:

a. positive externalities are created through their production.

b. there is incomplete information regarding their quality.

c. they are provided by firms with market power.

d. by their very nature they are nonexcludable and nonrival which makes it difficult for the private sector to supply them profitably.

18. If you cannot prevent at a low cost another person from enjoying the benefits of a good that you produced, the good is

Select one:

a. rival in consumption.

b. excludable.

c. nonexcludable.

d. nonrival in consumption.

19. Because people enjoy the benefits of public goods whether they pay for them or not, people are usually unwilling to pay for them. This is known as the ________ problem.

Select one:

a. nonexcludable

b. drop?in?the?bucket

c. nonrival

d. free-rider

20. A ________ prevents new firms from entering and competing in a monopolistic industry.

Select one:

a. market power sharing agreement

b. cartel agreement

c. collusive agreement

d. barrier to entry

Consider the following information for a simultaneous move game: If you advertise and your rival advertises, you each will earn £5 million in profits. If neither of you advertise, you will each earn £10 million in profits. However, if one of you advertises and the other does not, the firm that advertises will earn £15 million and the non advertising firm will earn £1 million.

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