If a monopoly discovers that the demand for its output has become more elastic at the original output level, then it will respond by A) producing more and setting a higher price. B) setting a lower price. C) setting a higher price. D) producing more while leaving price unchanged. ANSWER B
Date: September 9th, 2020
Even though fixed costs do not affect the output decision, an increase in fixed costs results in a wider range of prices for which the firm operates at a loss. Indicate whether the statement is true or false ANSWER True . An increase in fixed costs will shift AC upward but leave AVC unchanged. […]
Date: September 9th, 2020
If a firm traded on the New York Stock Exchange posts an accounting profit of $10 million, then the firm is making a positive economic profit A) only if the Securities and Exchange Commission (SEC) approves the accounting report. B) only if the firm’s opportunity cost is less than $10 million. C) only if the […]
Date: September 9th, 2020
Suppose there are 20 competitive firms in a market. The supply curve of each firm is q = 2p. The market demand is Q = 200 – 2p. What is the residual demand curve facing a typical firm? What will be an ideal response? ANSWER The residual demand curve is equal to the market […]
Date: September 9th, 2020
If a profit-maximizing firm finds that, at its current level of production, MR < MC, it will A) decrease output. B) increase output. C) shut down. D) operate at a loss. ANSWER A
Date: September 9th, 2020
If a firm sets marginal revenue equal to marginal cost, it will make an economic profit. Indicate whether the statement is true or false ANSWER False. When a firm sets MR=MC it maximizes profits but the profit-maximizing level of output might still be negative (the smallest loss possible).
Date: September 9th, 2020
Suppose a monopolist has TC = 40 + 10Q + Q2, and the demand curve it faces is p = 130 – 2Q. What is the Lerner index of this profit-maximizing monopolist? A) 0.222 B) 0.35 C) 0.444 D) 0.50 ANSWER C
Date: September 9th, 2020
If a firm goes out of business because of negative economic profits, its books A) might indicate a positive accounting profit. B) might indicate that opportunity costs were zero. C) might indicate that taxes are too high. D) might suggest a mistaken value of explicit costs. ANSWER A
Date: September 9th, 2020
If a competitive firm maximizes short-run profits by producing some quantity of output, which of the following must be TRUE at that level of output? A) p > MC B) MR > MC C) p ¥ AVC D) All of the above. ANSWER C
Date: September 9th, 2020
The more elastic the demand curve, a monopoly A) will have a larger Lerner Index. B) will face a lower marginal cost. C) will earn more profit. D) will lose more sales as it raises its price. ANSWER D
Date: September 9th, 2020
