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1) “Between 1997 and 2001, many apple farmers switched from traditional to organic growing methods, increasing production of organically grown apples from 1.2 million boxes per year to more than 3 million boxes.” If the market for organic apples is per fectly competitive, which of the following statements is inconsistent with the state ment above?
a. Organic apple farmers earned short-run economic profits between 1997 and 2001. b. The price of organic apples is likely to rise over time as more and more farmers switch to organic methods of farming. c. The additional supply of organic apples resulted in a lower price for organic apples. d. It is relatively easy to enter the organic apples market.
Table 8-1 shows the short-run cost data of a perfectly competitive firm that produces plastic camera cases. Assume that output can only be increased in batches of 100 units.
2) Refer to Table 8-1. If the market price of each camera case is $8 what is the firm’s total revenue?
a. $2,400 b. $3,200 c. $4000 d. $4,800
3) Refer to Figure 8-2. Suppose the firm is currently producing Q2 units. What happens if it expands output to Q3 units?
a. It will be moving toward its profit-maximizing output. b. It makes less profit. c. It incurs a loss. d. Its profit increases by the size of the vertical distance df.
4) For a perfectly competitive firm, which of the following is not true at profit maximiza tion?
a. Total revenue minus total cost is maximized. b. Marginal revenue equals marginal cost. c. Price equals marginal cost. d. Market price is greater than marginal cost.
5) A firm’s total profit can be calculated as all of the following except
a. marginal profit times quantity sold. b. average profit per unit times quantity sold. c. total revenue minus total cost. d. (price minus average total cost) times quantity sold.
Figure 8-4 shows the cost and demand curves for a profit-maximizing firm in a perfectly competitive market.
6) Refer to Figure 8-4. If the market price is $30, should the firm represented in the diagram continue to stay in business?
a. Yes, because it is covering part of its fixed cost. b. No, it should shut down because it cannot cover its variable cost. c. Yes, because it is making a profit. d. No, it should shut down because it is making a loss.
7) If, for a given output level, a perfectly competitive firm’s price is less than its average variable cost, the firm
a. should increase output. b. should shut down. c. should increase price. d. is earning a profit.
Figure 9-7 shows the cost and demand curves for the Erickson Power Company.
8) Refer to Figure 9-7. The firm would maximize profit by producing
a. Q1 units. b. Q2 units. c. Q3 units. d. Q4 units.
Figure 9-1 above shows the demand and cost curves facing a monopolist.
9) Refer to Figure 9-1. If the firm’s average total cost curve is ATC3 the firm will
a. break even. b. make a profit. c. suffer a loss. d. face competition.
A monopoly producer of a foreign language translation software package faces the demand and cost structure given in Table 9-1.
10) Refer to Table 9-1. What is the marginal revenue from the sale of the third unit?
a. -$5 b. $160 c. $120 d. $80
Figure 9-3 shows the demand and cost curves for a monopolist.
11) Refer to Figure 9-3. What is the monopoly’s profit?
a. $2,700 b. $12,600 c. $10,400 d. $4,200
12) A market economy benefits from market power
a. under no circumstances. b. if the majority of the population are entrepreneurs. c. if firms with market power do research and development with the profits earned. d. if market power gets so bad the government creates public enterprises.
13) Economic efficiency requires that a natural monopoly’s price be
a. equal to the lowest price the firm can charge and still make a normal profit. b. equal to average variable cost (AVC) where the AVC curve intersects the demand curve. c. equal to average total cost (ATC) where the ATC curve intersects the demand curve. d. equal to marginal cost (MC) where the MC curve intersects the demand curve.
14) If a firm faces a downward-sloping demand curve
a. it will always make a profit. b. it can control both price and quantity sold. c. it must reduce its price to sell more output. d. the demand for its product must be inelastic.
15) A monopolistically competitive firm will
a. have some control over its price because its product is differentiated. b. always produce at the minimum efficient scale of production. c. charge the same price as its competitors do. d. produce an output level that is productively and allocatively efficient.
16) Refer to Table 10-1. The table shows
a. an inelastic segment of the demand curve. b. a demand curve with an elastic segment of the demand curve from $7.50 to $6.50 followed by an inelastic segment. c. an elastic segment of the demand curve. d. a demand curve with an inelastic segment of the demand curve from $7.50 to $6.50 followed by an elastic segment.
Figure 10-3 shows short run cost and demand curves for a monopolistically competitive firm in the market for designer watches.
17) Refer to Figure 10-3. What area represents the total variable cost of production?
a. 0P0aQa b. P0abP1 c. P1bdP3 d. 0P1bQa
Figure 10-7 shows short-run cost and demand curves for a monopolistically competitive firm in the market for designer watches.
18) Refer to Figure 10-7. If the diagram represents a typical firm in the designer watch market, what is likely to happen in the long run?
a. Some firms will exit the market causing demand to increase for firms remaining in the market. b. Inefficient firms will exit the market and new cost efficient firms will enter the market. c. The firms that are making losses will be purchased by their more successful rivals. d. Firms will have to raise their prices to cover costs of production.
19) Suppose in 2006 you purchased a house built in 2000. Which of the following would be included in gross domestic product for 2006?
a. The value of the house in 2006 minus depreciation b. The value of the house in 2000 c. The value of the services of the real estate agent d. The value of the house in 2006
CANOES-R-US makes canoes. It buys the shell of the canoe from another firm for $300 and uses its labor and intermediate goods to make the canoe. It sells the finished canoe to a retail canoe store for $800. The retail canoe store then sells the canoe to a consumer for $1,200.
20) Refer to Scenario 11-1. The value of each canoe in gross domestic product equals
a. $400. b. $800. c. $1,200. d. $500.
21) Suppose Bob works for Mary as a proofreader. Mary and Bob fall deeply in love, marry and have eight children. Bob stops working for Mary in order to care for the children. What will be the effect on GDP?
a. GDP will not change. b. GDP will decrease. c. GDP will increase. d. GDP may increase or may decrease depending on inflation.
22) Disposable personal income equals personal income
a. minus government transfer payments plus personal tax payments. b. plus government transfer payments. c. minus personal tax payments plus government transfer payments. d. minus personal tax payments.
23) The Bureau of Labor Statistics would categorize a retiree who is not working as ________.
a. a discouraged worker b. unemployed c. employed d. out of the labor force
24) Refer to Table 12-1. The labor force participation rate for this simple economy equals
a. (1,000/1,100) x 100. b. (1,100/15,000) x 100. c. (1,100/20,000) x 100. d. (1,000/15,000) x 100.
25) Suppose that at the beginning of a loan contract the real interest rate is 4% and expected inflation is 6%. If actual inflation turns out to be 7% over the loan contract period, then
a. lenders gain 3%. b. borrowers lose 3%. c. borrowers gain 1%. d. lenders gain 1%.
Written Assignment for Unit Three
• Include your name, student number, course number, course title and unit number on each page of your written assignment (this is for your protection in case your materials become separated). • Begin each written assignment by identifying the question number you are answering followed by the actual question itself (in bold type). • Use a standard essay format for responses to all questions (i.e. an introduction, middle paragraphs and conclusion). • Responses must be submitted as a MS Word Document only, typed double-spaced, using a standard font (i.e. Times New Roman) and 12 point type size.
Word count is NOT one of the criteria that is used in assigning points to written assignments. However, students who are successful in earning the maximum number of points tend to submit written assignments that fall in the following ranges:
Undergraduate courses: 350 – 500 words or 1 – 2 pages.
Plagiarism All work must be free of any form of plagiarism. Put written answers into your own words. Do not simply cut and paste your answers from the Internet and do not copy your answers from the textbook. Be sure to refer to the course Syllabus for more details on plagiarism and proper citation styles.
Please answer ONE of the following:
1) How are market price, average revenue, and marginal revenue related for a perfectly competitive firm and why?
2) What happens to a monopoly’s revenue when it sells more units of its product?
3) Explain why OPEC is caught in a prisoners’ dilemma.
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