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1. A firm is a natural monopoly if it exhibits the following as its output increases: a. decreasing marginal revenue b. increasing marginal cost c. decreasing average revenue d. decreasing average total cost 2. Which of the following is a characteristic of a monopoly? a. rising average total costs b. one buyer c. rising fixed costs d. a product without close substitutes 3. Most markets are not monopolies in the real world because a. firms usually face downward-sloping demand curves. b. supply curves slope upward. c. firms usually equate price with marginal cost. d. there are reasonable substitutes for most goods. 4. Explicit costs a. require an outlay of money by the firm. b. include all of the firm's opportunity costs. c. include the value of the business owner’s time. d. both b and c are correct. 5. Which of the following is an example of an implicit cost? a. salaries paid to owners who work for the firm b. interest on money borrowed to finance equipment purchases c. cash payments for raw materials d. foregone rent on office space owned and used by the firm 6. Which of the following statements is correct? a. Assuming that explicit costs are positive, economic profit is greater than accounting profit. b. Assuming that implicit costs are positive, accounting profit is greater than economic profit. c. Assuming that explicit costs are positive, accounting profit is equal to economic profit. d. Assuming that implicit costs are positive, economic profit is positive. 7. Which of the following is not a characteristic of a competitive market? a. Buyers and sellers are price takers. b. Each firm sells a virtually identical product. c. Entry is limited. d. Each firm chooses an output level that maximizes profits. 8. When buyers in a competitive market take the selling price as given, they are said to be a. market entrants. b. monopolists. c. free riders. d. price takers. 9. When a competitive firm doubles the quantity of output it sells, its a. total revenue doubles. b. average revenue doubles. c. marginal revenue doubles. d. profits must increase. 1. Patent and copyright laws are major sources of a. natural monopolies.

b. government-created monopolies.

c. resource monopolies.

d. antitrust regulation.

2. Which of the following is a characteristic of a monopoly? a. low fixed costs as a portion of total costs

b. free entry and exit

c. barriers to entry

d. declining marginal cost

3. The simplest way for a monopoly to arise is for a single firm to a. decrease its price below its competitors’ prices. b. decrease production to increase demand for its product. c. make pricing decisions jointly with other firms.

d. own a key resource.

4. Explicit costs a. do not require an outlay of money by the firm. b. enter into the accountant's measurement of a firm's profit. c. enter into the economist's measurement of a firm's profit. d. both b and c are correct.

5. Foregone investment opportunities are an example of a. an explicit cost.

b. an implicit cost.

c. revenues.

d. profits.

6. The difference between accounting profit and economic profit is a. explicit costs.

b. implicit costs.

c. total revenue.

d. marginal product.

7. Which of the following is a characteristic of a competitive market? a. There are many buyers but few sellers. b. Firms sell differentiated products. c. There are many barriers to entry. d. Buyers and sellers are price takers.

8. When firms are said to be price takers, it implies that if a firm raises its price, a. buyers will go elsewhere. b. buyers will pay the higher price in the short run. c. competitors will also raise their prices. d. firms in the industry will exercise market power.

9. If a firm in a competitive market doubles its number of units sold, total revenue for the firm will a. more than double.

b. double.

c. increase but by less than double. d. may increase or decrease depending on the price elasticity of demand.

Question 1. The graph shows the cost structure of a monopolistic firm. Use the graph to answer the following questions. a. What is the profit-maximizing output and price level of monopolist? (4 points) b. Calculate the economic profit. (4 points) Show it on the graph. (2 points) c. Calculate the deadweight loss from monopoly. (4 points) Explain in words what this means. (3 points) d. Find the price and quantity that would maximize social welfare. (4 points) Question 2.

The graph above shows the cost structure of a perfectly competitive firm. Use the graph above to answer the following questions. a. At which price the firm will earn zero economic profit? (3 points) b. What is the shut-down price? (3 points) c. Above what price the firm will earn positive economic profit? (3 points) d. At what price range the firm will incur a loss? (3 points) Why would it continue the production? Explain. (3 points) e. Show the supply curve of the firm on the graph. (3 points) Explain. (3 points)

Question 3. The market for calculators in the city of Lefke is competitive and has the following demand schedule: Price Quantity demanded

$3 1050

4 950

5.7 852

6 750

7 650

8 550

9 450

10 350

11 250

Each producer in the market has fixed costs of $16 and average variable costs as follows: Q 0 2 4 6 8 10 12

AVC $1 2 3 4 5 6

VC

TC

MC

ATC

a. Compute each producer’s variable cost, total cost, marginal cost and average total cost (14 points). b. On the same diagram draw the average variable cost, the marginal cost and the average variable cost curves (label them AVC, MC and ATC respectively) (3x4 points). c. Show the supply curve of the firm on the above graph. (3 points) d. What is the shut-down price? (5 points) How much is the amount of loss at that price? (5 points) e. The price for calculator is now $9. How many calculators are sold in the market? (3 points) How many calculators does each firm produce? (3 points) How many producers are there? (3 points) How much profit does each firm earn? (5 points) f. Is the situation described in part (e) a long-run equilibrium? Why or why not? (2+3 points) g. Suppose that in the long run there is free entry and exit. How much profit does each firm earn in the long-run equilibrium? (3 points) What are the market price and the number of calculators each firm produce? (2x3 points) How many calculators are sold in the market? (3 points) How many producers are there? (3 points) Question 4. TRISTAR is the only firm in the country of Ectenia which produces films. Based on market research, the TRISTAR obtains the following information about the demand and production costs: Demand: P=50-Q Marginal Revenue: MR=50-2Q Total cost: TC=3+10Q+0.5Q2 Marginal Cost: MC=10+Q a. Find the price and quantity that maximizes the company’s profit. (4x2 points) What is the monopolist’s profit? (5 points) b. Find the price and quantity that would maximize social welfare. (4x2 points) c. Calculate the deadweight loss from monopoly. (5 points)

Question 5. Minnie’s Mineral Springs, a single-price monopoly, faces the market demand schedule and total costs as below. Calculate the missing costs and revenues, and fill the tables below. P Q TR MR Q TC ATC MC demande produce d d 10 0 0 2 8 2 2 6 6 4 4 14 4 6 6 26 2 8 8 42 0 10 10 62 a. Draw MC, ATC, demand and MR curves on the same graph and show the supply curve of the monopolist. b. What are Minnie’s profit-maximizing output and price level? c. If it was a perfectly competitive market, how much output would be produced, what would be the price and the corresponding economic profit? Question 6. An industry currently has 100 firms, each of which has fixed costs of $16 and average variable costs as follows: Q Average variable cost 1 $1 2 2 3 3 4 4 5 5 6 6 a. Compute a firm’s marginal cost and average total cost for each quantity. b. The equilibrium price is currently $10. How much does each firm produce? What is the total quantity supplied in the market. c. In the long run, firms can enter and exit the market, and all entrants have the same cost as above. As this market makes the transition to the long run equilibrium, will the price rise or fall? Will the quantity demanded rise or fall? Will the quantity supplied by each firm rise or fall? Explain your answers. d. Graph the long run supply curve for this market....