Chapter 8 test bank PDF

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Chapter 8: Test BankMultiple Choice Questions You are the manager of a firm that produces output in two plants. The demand for your firm's product is P = 78 - 15Q, where Q = Q 1 + Q 2. The marginal cost associated with producing in the two plants are MC 1 = 3Q 1 and MC 2 = 2Q 2. How much output shou...

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Chapter 8: Test Bank Multiple Choice Questions 1. You are the manager of a firm that produces output in two plants. The demand for your firm's product is P = 78 - 15Q, where Q = Q1 + Q2. The marginal cost associated with producing in the two plants are MC1 = 3Q1 and MC2 = 2Q2. How much output should be produced in plant 1 in order to maximize profits? a) 1. b) 2. c) 3. d) 4. Answer: A Difficulty: Hard 2. You are the manager of a firm that produces output in two plants. The demand for your firm's product is P = 78 - 15Q, where Q = Q1 + Q2. The marginal cost associated with producing in the two plants are MC1 = 3Q1 and MC2 = 2Q2. What price should be charged to maximize profits? a) 20.5. b) 40.5. c) 60.5. d) 80.5. Answer: B Difficulty: Hard 3. You are the manager of a firm that produces output in two plants. The demand for your firm's product is P = 78 - 15Q, where Q = Q1 + Q2. The marginal cost associated with producing in the two plants are MC1 = 3Q1 and MC2 = 2Q2. What price should be charged in order to maximize revenues? a) 39. b) 47. c) 52. d) 56. Answer: A Difficulty: Hard 4. Which of the following is true under monopoly? a) profits are always positive. b) P > MC. c) P = MR. d) all of the above are true for monopoly. Answer: B Difficulty: Med

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5. 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 a) 4/5. b) 10. c) 5. d) 45. Answer: C Difficulty: Med 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. Your firm's maximum profits are a) 125. b) 250. c) 100. d) 85. Answer: D Difficulty: Med 7. You are the manager of a monopoly that faces a demand curve described by P = 230 20Q. Your costs are C = 5 + 30Q. The profit-maximizing output for your firm is a) 4. b) 5. c) 6. d) 7. Answer: B Difficulty: Med 8. You are the manager of a monopoly that faces a demand curve described by P = 230 20Q. Your costs are C = 5 + 30Q. The profit-maximizing price is a) 150. b) 90. c) 130. d) 110. Answer: C Difficulty: Med 9. You are the manager of a monopoly that faces a demand curve described by P = 230 20Q. Your costs are C = 5 + 30Q. Your firm's maximum profits are a) 495. b) 475. c) 480. d) 415. Answer: A Difficulty: Med

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10. You are the manager of a firm that produces output in two plants. The demand for your firm's product is P = 120 - 6Q, where Q = Q 1 + Q2. The marginal cost associated with producing in the two plants are MC1 = 2Q1 and MC2 = 4Q2. How much output should be produced in plant 1 in order to maximize profits? a) 3. b) 6. c) 9. d) 12. Answer: B Difficulty: Hard 11. You are the manager of a firm that produces output in two plants. The demand for your firm's product is P = 120 - 6Q, where Q = Q 1 + Q2. The marginal cost associated with producing in the two plants are MC1 = 2Q1 and MC2 = 4Q2. What price should be charged to maximize profits? a) 60. b) 66. c) 70. d) 76. Answer: B Difficulty: Hard 12. You are the manager of a firm that produces output in two plants. The demand for your firm's product is P = 120 - 6Q, where Q = Q 1 + Q2. The marginal cost associated with producing in the two plants are MC1 = 2Q1 and MC2 = 4Q2. What price should be charged in order to maximize revenues? a) 6. b) 2. c) 24. d) 60. Answer: D Difficulty: Hard 13. In a competitive industry with identical firms, long run equilibrium is characterized by a) P = AC. b) P = MC. c) MR = MC. d) All of the above. Answer: D Difficulty: Easy 14. Which of the following is true? a) A monopolist produces on the inelastic portion of its demand. b) A monopolist always earns an economic profit. c) The more inelastic the demand, the closer marginal revenue is to price. d) In the short run a monopoly will shutdown if P < AVC. Answer: D Difficulty: Hard

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15. You are the manager of a firm that sells its product in a competitive market at a price of $40. Your firm's cost function is C = 60 + 4Q2. The profit-maximizing output for your firm is a) 4. b) 5. c) 10. d) 15. Answer: B Difficulty: Med 16. You are the manager of a firm that sells its product in a competitive market at a price of $40. Your firm's cost function is C = 60 + 4Q2. Your firm's maximum profits are a) 36. b) 60. c) 40. d) 80. Answer: C Difficulty: Med 17. You are the manager of a monopoly that faces a demand curve described by P = 85 - 5Q. Your costs are C = 20 + 5Q. The profit-maximizing output for your firm is a) 6. b) 5. c) 7. d) 8. Answer: D Difficulty: Med 18. You are the manager of a monopoly that faces a demand curve described by P = 85 - 5Q. Your costs are C = 20 + 5Q. The profit-maximizing price is a) 45. b) 55. c) 60. d) 50. Answer: A Difficulty: Med 19. You are the manager of a monopoly that faces a demand curve described by P = 85 - 5Q. Your costs are C = 20 + 5Q. The revenue maximizing output is a) .85. b) 9. c) 10. d) none of the above. Answer: D Difficulty: Hard

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Michael R. Baye

20. You are the manager of a firm that sells its product in a competitive market at a price of $60. Your firm's cost function is C = 50 + 3Q2. The profit-maximizing output for your firm is a) 10. b) 20. c) 30. d) 40. Answer: A Difficulty: Med 21. You are the manager of a firm that sells its product in a competitive market at a price of $60. Your firm's cost function is C = 50 + 3Q2. Your firm's maximum profits are a) 250. b) 400. c) 450. d) 500. Answer: A Difficulty: Med 22. You are the manager of a monopoly that faces a demand curve described by P = 63 - 5Q. Your costs are C = 10 + 3Q. The profit-maximizing output for your firm is a) 3. b) 4. c) 5. d) 6. Answer: D Difficulty: Med 23. You are the manager of a monopoly that faces a demand curve described by P = 63 - 5Q. Your costs are C = 10 + 3Q. The profit-maximizing price is a) 20. b) 27. c) 33. d) 55. Answer: C Difficulty: Med 24. You are the manager of a monopoly that faces a demand curve described by P = 63 - 5Q. Your costs are C = 10 + 3Q. Your firm's maximum profits are a) 0. b) 66. c) 120. d) 170. Answer: D Difficulty: Med

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25. You are the manager of a monopoly that faces a demand curve described by P = 63 - 5Q. Your costs are C = 10 + 3Q. The revenue maximizing output is a) 10/63. b) 5. c) 6.3. d) none of the above. Answer: C Difficulty: Hard 26. Which of the following is true under monopoly? a) profits are always positive. b) P > minimum of ATC. c) P = MR. d) none of the above are true. Answer: D Difficulty: Med 27. In the long-run, monopolistically competitive firms: a) charge prices equal to marginal cost. b) have excess capacity. c) produce at the minimum of average total cost. d) b. and c. Answer: B Difficulty: Easy 28. If a monopolistically competitive firm's marginal cost increases, then in order to maximize profits the firm will a) reduce output and increase price. b) increase output and decrease price. c) increase both output and price. d) reduce both output and price. Answer: A Difficulty: Med 29. Which of the following market structures would you expect to yield the greatest product variety? a) Monopoly. b) Monopolistic Competition. c) Bertrand Oligopoly. d) Perfect Competition. Answer: B Difficulty: Easy 30. The primary difference between Monopolistic Competition and Perfect Competition is a) the ease of entry and exit into the industry. b) the number of firms in the market. c) all of the above. d) none of the above. Answer: D Difficulty: Easy

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31. Which of the following industries is best characterized as monopolistically competitive? a) toothpaste. b) crude oil. c) agriculture. d) local telephone service. Answer: A Difficulty: Med 32. Which of the following is an example of monopoly? a) Shoe industry in the United States. b) Local utility industry in a small town. c) Newspaper industry in New York City. d) Bread industry in New York City. Answer: B Difficulty: Med 33. Differentiated goods are a feature of: a) a perfectly competitive market. b) a monopolistically competitive market. c) a monopolistic market. d) both b and c. Answer: B Difficulty: Easy 34. Firms have market power in: a) perfectly competitive markets. b) monopolistically competitive markets. c) monopolistic markets. d) both b and c. Answer: D Difficulty: Easy 35. There is no market supply curve in a) a perfectly competitive market. b) a monopolistically competitive market. c) a monopolistic market. d) both b and c. Answer: D Difficulty: Med 36. Suppose that initially the price is $50 in a perfectly competitive market. Firms are making zero economic profits. Then the market demand shrinks permanently and some firms leave the industry and the industry returns back to a long run equilibrium. What will be the new equilibrium price, assuming cost conditions in the industry remain constant? a) $50. b) $45. c) Lower than $50 but exact value cannot be known without more information. d) Larger than $45 but exact value cannot be known without more information. Answer: A Difficulty: Hard

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37. Which of the following statements concerning monopoly is NOT true? a) A market may be monopolistic because there are some legal barriers. b) A monopoly has market power. c) A monopoly is always undesirable. d) There is some deadweight loss in a monopolistic market. Answer: C Difficulty: Med 38. Which of the following features is common to both perfectly competitive markets and monopolistically competitive markets? a) Firms produce homogeneous goods. b) There is free entry. c) Long run profits are zero. d) both b and c. Answer: D Difficulty: Med 39. The source(s) of monopoly power for a monopoly may be: a) economies of scale. b) economies of scope. c) patents. d) all of the above. Answer: D Difficulty: Med 40. Economies of scale exist whenever: a) average total costs decline as output increases. b) average total costs increase as output increases. c) average total costs are stationary as output increases. d) both b and c. Answer: A Difficulty: Easy 41. The number of efficient plants compatible with domestic consumption of the refrigerator industry in Sweden is 0.7. Which of the following implications is (are) correct? a) In the absence of imports, the refrigerator industry in Sweden is monopolistic. b) The refrigerator industry in Sweden is perfectly competitive. c) The refrigerator industry in Sweden is monopolistically competitive. d) None of the above. Answer: A Difficulty: Med 42. A monopoly has two production plants with cost functions C1 = 50 + 0.1 Q12 and C2 = 30 + 0.05 Q22. The demand it faces is Q = 500 - 10 P. What is the condition for profit maximization? a) MC1(Q1) = MC2(Q2) = P(Q1 + Q2). b) MC1(Q1) = MC2(Q2) = MR(Q1 + Q2). c) MC1(Q1 + Q2) = MC2(Q1 + Q2) = P (Q1 + Q2). d) MC1(Q1 + Q2) = MC2(Q1 + Q2) = MR (Q1 + Q2). Answer: B Difficulty: Med

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43. A monopoly has two production plants with cost functions C1 = 50 + 0.1 Q12 and C2 = 30 + 0.05 Q22. The demand it faces is Q = 500 - 10 P. What is the profit maximizing level of output? a) Q1 = 62.5; Q2 = 125. b) Q1 = 125; Q2 = 62.5. c) Q1 = Q2 = 125. d) Q1 = Q2 = 62.5. Answer: A Difficulty: Hard 44. A monopoly has two production plants with cost functions C1 = 50 + 0.1 Q12 and C2 = 30 + 0.05 Q22. The demand it faces is Q = 500 - 10 P. What is the profit maximizing price? a) $12.5 per unit. b) $6.25 per unit. c) $31.25 per unit. d) $18.75 per unit. Answer: C Difficulty: Hard 45. Which of the following is a correct representation of the profit maximization condition for a monopoly? a) P = MR. b) MC = MR. c) P = ATC + MR. d) MR = MC + ATC. Answer: B Difficulty: Easy 46. Let the demand function for a product be Q = 100 - 2P. The inverse demand function of this demand function is: a) Q = 100 + 2P. b) P = 50 - 0.5Q. c) P = 50 + 0.5Q. d) none of the above. Answer: B Difficulty: Med 47. A linear demand function exhibits: a) constant demand elasticity. b) more elastic demand as output increases. c) less elastic demand as output increases. d) insufficient information to determine. Answer: C Difficulty: Easy 48. Which of the following is not a basic feature of a monopolistically competitive industry? a) There are many buyers and sellers in the industry. b) Each firm in the industry produces a differentiated product. c) There is free entry and exit into the industry. d) Each firm owns a patent on its product. Answer: D Difficulty: Med 49. In the long-run, monopolistically competitive firms produce a level of output such that a) P > MC. Managerial Economics and Business Strategy, 5e

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b) P = ATC. c) ATC > minimum of average costs. d) all of the above. Answer: D Difficulty: Med 50. Chris raises cows and produces cheese and milk because he enjoys: a) economies of scale. b) economies of scope. c) cost complementarity. d) none of the above. Answer: B Difficulty: Med 51. What contributes to the existence of multiproduct firms? a) economies of scale. b) economies of scope. c) cost complementarity. d) both b and c. Answer: D Difficulty: Easy 52. Which of the following is (are) basic feature(s) of a perfectly competitive industry? a) Buyers and sellers have perfect information. b) There are no transaction costs. c) There is free entry and exit in the market. d) all of the above. Answer: D Difficulty: Easy 53. In the long-run, perfectly competitive firms produce a level of output such that: a) P = MC. b) P = minimum of AC. c) both a and b. d) none of the above. Answer: C Difficulty: Easy Use the following information to answer questions 54 and 55. A monopoly has produced a product with a patent for the last few years. The patent is going to expire. 54. What will likely happen to the demand for the patent-holder's product when the patent runs out? a) Demand will increase. b) Demand will decline. c) Nothing. d) None of the above. Answer: B Difficulty: Med

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55. What will happen after the patent expires? a) The incumbent will leave the market. b) The incumbent will retain its status as a monopoly but produce at a lower price. c) Some firms will enter the industry. d) None of the above. Answer: C Difficulty: Med 56. You are a manager in a perfectly competitive market. The price is $14. Your total cost curve is C(Q) = 10 + 4Q + 0.5 Q2. What level of output should you produce in the short-run? a) 5. b) 8. c) 10. d) 15. Answer: C Difficulty: Med 57. 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 price should you charge in the short-run? a) $12. b) $14. c) $16. d) $18. Answer: B Difficulty: Easy 58. 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? a) $20. b) $40. c) $60. d) $80. Answer: B Difficulty: Med 59. 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 will happen in the long-run if there is no change in the demand curve? a) Some firms will leave the market eventually. b) Some firms will enter the market eventually. c) There will be neither entry nor leave. d) None of the above. Answer: B Difficulty: Med

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60. A perfectly competitive firm faces: a) a perfectly elastic demand function. b) a perfectly inelastic demand function. c) a demand function with unitary elasticity. d) none of the above. Answer: A Difficulty: Med 61. A firm has a total cost function of C(Q) = 50 + 10Q1/2. The firm experiences a) economies of scale. b) constant returns to scale. c) diseconomies of scale. d) any of the above. Answer: A Difficulty: Hard 62. A firm can produce two products with the cost function C(Q1, Q2) = 10 + 5 Q1 + 5 Q2 - .2 Q1Q2. The firm enjoys: a) economies of scale in the two products separately. b) economies of scope. c) cost complementarity. d) both a and c. Answer: C Difficulty: Med 63. “Monopolistic competition is literally a kind of competition. Hence, there is no deadweight loss in a monopolistically competitive market." a) The statement is by definition correct but empirically incorrect. b) The statement is correct. c) The statement is incorrect. d) None of the above. Answer: C Difficulty: Med 64. Eric provides cheese (H) and milk (M) to the market with the following total cost function C(H, M) = 10 + 0.4 H2 + 0.2M2. The price of cheese and milk in the market are $2 and $5 respectively. Assume that the cheese and milk markets are perfectly competitive. What output of cheese maximizes profits? a) 2. b) 2.5. c) 5. d) 10. Answer: B Difficulty: Hard

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65. Eric provides cheese (H) and milk (M) to the market with the following total cost function C(H, M) = 10 + 0.4 H2 + 0.2M2. The price of cheese and milk in the market are $2 and $5 respectively. Assume that the cheese and milk markets are perfectly competitive. What output of milk maximizes profits? a) 1.25. b) 12.5. c) 15. d) 20. Answer: B Difficulty: Hard 66. You are a manager for a monopolistically competitive firm. From experience, the profitmaximizing level of output of your firm is 100 units. However, it is expected that prices of other close substitutes will fall in the near future. How should you adjust your level of production in response to this change? a) Produce more than 100 units. b) Produce less than 100 units. c) Produce 100 units. d) Insufficient information to decide. Answer: B Difficulty: Med 67. Which of the following statements is not correct about monopoly? a) A monopolist generally faces a downward sloping demand curve. b) Monopolists always make positive profits in the long-run. c) A monopoly may make negative profits in the short-run. d) There is no close substitute for a monopoly's product. Answer: B Difficulty: Easy Use the following information to answer questions 68 and 69: You are the manager of a firm that produces output in two plants. The demand for your firm's product is P = 20-Q, where Q = Q1 + Q2. The marginal cost associated with producing in the two plants are MC1 = 2 and MC2 = 2Q2. 68. How much output should be produced in plant 1 in order to maximize profits? a) 1. b) 4. c) 8. d) 11. Answer: C Difficulty: Med 69. What is the profit-maximizing price that the firm should charge? a) $8. b) $9. c) $11. d) $12. Answer: C Difficulty: Med

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70. Which of the following is true under monopoly? a) P > ATC b) P > MC c) P = MR d) P = ATC Answer: B Difficulty: Easy 71. You are the manager of a firm that sells its product in a competitive market at a price of $60. Your firm's cost function is C = 33 + 3Q2. The profit-maximizing output for your firm is a) 3 b) 5 c) 6 d) 10 Answer: D Difficulty: easy 72. You are the manager of a monopoly that faces an inverse demand curve described by P = 200 - 15Q. Your costs are C = 15 + 20Q. The profit-maximizing price is a) $20. b) $110. c) $135. d) $290. Answer: B Difficulty: Med 73. Which of the following industries is best characterized as monopolistically competitive? a) cereal. b) crude oil. c) wheat. d) local electricity service. Answer: A Difficulty: Easy 74. Differentiated goods are not a feature of a) a perfectly competitive market. b) a monopolistically competitive market. c) a monopolistic market. d) both a and c. Answer: D Difficulty: Easy 75. One of the sources of monopoly power for a monopoly may be a) diseconomies of scale. b) differentiated products. c) patents. d) free entry and exit. Answer: C Difficulty: Easy

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76. Let the demand function for a product be Q = 50 - 5P. The inverse demand ...