(figure models is attached)
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
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
Scenario 11-1
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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