Practise Exam Chapter 12 PDF

Preview

Summary

Practise Exam Chapter 12...

Description

Microeconomics 12e, Ragan - Ch 12 Name___________________________________

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Productive efficiency for an individual firm requires that

1)

A) the firm be on its LRAC curve. B) all resources be fully used. C) the firm be allocatively efficient. D) MC = P for all goods. E) P = ATC for all goods. 2) For an entire economy, allocative efficiency requires that

2)

A) price equals average cost for all goods. B) MC = P for all goods. C) MRP is equated for all factors of production. D) goods are allocated equitably across markets. E) none of the above 3) Consider two firms, A and B, that are producing the same product but with different marginal costs. In this case,

3)

A) neither firm is producing its output at the lowest attainable cost. B) each firm is being wasteful. C) one firm is not maximizing profits. D) some resources must be unemployed. E) a reallocation of output between the firms can lower the industry's total cost 4) If the total output of some industry is allocated among its individual firms in such a way that the total cost of producing the industry's output is minimized, the industry will achieve 1. full employment of resources. 2. productive efficiency. 3. allocative efficiency. A) 1 only B) 2 only C) 3 only D) both 1 and 3 E) both 2 and 3

1

4)

5) All points on a country's production possibilities boundary are

5)

A) Pareto optimal. B) points at which P = MC for all goods. C) allocatively efficient. D) productively efficient. E) not productively efficient. 6) Consider two firms, A and B, that are producing the same product but with different average costs Economists say this situation reflects a problem of

6)

A) productive inefficiency. B) economic inefficiency. C) allocative inefficiency. D) unemployed resources. E) not necessarily any of the above. 7) If an economy is productively inefficient, it could improve its situation by

7)

A) trading some of its resources. B) moving beyond its production possibilities boundary. C) acquiring more resources. D) moving onto its production possibilities boundary. E) moving along its production possibilities boundary. 8) An economy will be allocatively efficient if

8)

A) all firms are breaking even. B) the price equals average cost for all goods. C) the economy's resources are fully employed. D) the average cost of production is the lowest possible for all goods produced. E) price equals marginal cost for all products. 9) An economy will be allocatively efficient if

9)

A) the marginal cost equals price for all goods. B) imperfectly competitive markets are regulated. C) least-cost production techniques are employed by all firms. D) the marginal costs of all firms in an industry are equal. E) the economy's resources are fully employed.

2

10) If all firms are profit maximizers, then the following is assured:

10)

A) that the economy reaches the production possibilities boundary. B) allocative and productive efficiency. C) that firms attain the lowest possible average costs D) allocative efficiency. E) productive efficiency. 11) Allocative efficiency is actively sought

11)

A) by none of the firms in any market. B) only by perfectly-competitive firms. C) by all firms in all markets. D) by profit-maximizing firms in all market structures. E) only by profit- maximizing imperfectly- competitive firms. 12) Productive efficiency (at the level of the firm) is a goal that is sought

12)

A) only by profit- maximizing imperfectly competitive firms. B) by profit-maximizing firms in all market structures. C) by no firms in any market. D) only by perfectly competitive firms. E) only by profit- maximizing firms in an oligopolistic market structure. 13) Allocative efficiency is a property of the behaviour of

13)

A) the overall economy. B) individual firms. C) monopolies. D) perfectly-competitive firms. E) all firms in an industry. 14) Allocative efficiency concerns

14)

A) producing outputs at lowest possible cost. B) encouraging monopoly if it generates innovation. C) discouraging all monopoly firms. D) the allocation of resources such that total economic surplus is maximized. E) the equitable distribution of resources.

3

15) At the level of the industry, the condition for productive efficiency is that

15)

A) MRP = P for all inputs. B) MC = P for all goods. C) goods are allocated equitably. D) there are no idle resources in the industry. E) MC is equal for all firms in the industry. 16) We can safely say that each point on a country's production possibilities boundary (PPB) is

16)

A) Pareto optimal. B) one at which P = MC for all goods. C) allocatively efficient. D) productively efficient. E) not productively efficient. 17) An economy with all industries in a competitive long-run equilibrium is one where A) productive efficiency is achieved. B) allocative efficiency is achieved. C) the economy is on the production possibilities boundary. D) there is no incentive for firms to enter or leave industries. E) all of the above.

4

17)

Consider three firms, A, B and C, all producing kilos of potatoes (per year) in a perfectly competitive market. The diagrams below show marginal cost curves for each of the three firms.

FIGURE 12 -1 18) Refer to Figure 12 -1. Suppose each of Firms A, B, and C are producing 500 kilos of potatoes. Is this industry productively efficient?

18)

A) It is not possible to say whether this industry is productively efficient because we do not know the market price of the product. B) Yes, because output is equated for all firms. C) No, because the marginal cost curve for each firm has a different slope. D) No, because marginal costs are not equated for all firms. E) No, because each firm could easily produce more than 500 kilos. 19) Refer to Figure 12 -1. Suppose each of Firms A, B, and C are producing 500 kilos of potatoes. Which of the following statements correctly describes the productive efficiency of this industry? A) The total output of 1500 kilos is the productively efficient output for this industry, so no reallocation is necessary. B) It is not possible to say whether this industry is productively efficient because we do not know the market price of the product. C) Productive efficiency would be achieved if Firm B produced all the output, since it has the lowest MC for the production of 500 kilos. D) It is not possible to say whether this industry is productively efficient because we do not know the average costs for each firm. E) It is possible to reduce the total cost of the given output by reallocating production among the three firms.

5

19)

20) Refer to Figure 12 -1. Suppose each of Firms A, B and C are producing 500 kilos of potatoes. Keeping total output unchanged, what level of output should each firm be producing such that the industry is productively efficient?

20)

A) Firm A: 500 kilos, Firm B: 800 kilos, Firm C: 200 kilos B) Firm A: 700 kilos, Firm B: 800 kilos, Firm C: 0 kilos C) Firm A: 200 kilos, Firm B: 500 kilos, Firm C: 800 kilos D) Firm A: 500 kilos, Firm B: 500 kilos, Firm C: 500 kilos E) none of the above 21) Refer to Figure 12 -1. Suppose each of Firms A, B, and C are producing 500 kilos of potatoes. Is this industry allocatively efficient? A) It is not possible to say whether this industry is allocatively efficient because we do not know the average costs for each firm. B) It is not possible to say whether this industry is allocatively efficient because we do not know the market price for kilos of potatoes. C) Yes, because output is equated for all firms. D) No, because the marginal cost curve for each firm has a different slope. E) No, because marginal costs are not equated for all firms, and thus the industry is not even productively efficient, and thus cannot be allocatively efficient.

6

21)

The production possibilities boundary shows possible combinations of guns and butter that can be produced by a country. The lower diagram shows demand and supply for butter.

FIGURE 12 -2 22) Refer to Figure 12 -2. Suppose demand and supply for butter are shown byD and S, respectively. And suppose the economy is at point (a) on the production possibilities boundary. Is this output of guns and butter allocatively efficient? A) Yes, because all points on the production possibilities boundary are allocatively efficient. B) No, because the marginal costs for guns and butter are not equated C) No, because the marginal cost to producers of the butter produced is more than the marginal value to consumers. D) No, because the marginal value to consumers of the butter produced is greater than the marginal cost to producers. E) Yes, because the marginal cost of producing the butter equals the marginal value of consuming the butter.

7

22)

23) Refer to Figure 12 -2. Suppose demand and supply for butter are shown byD and S, respectively. And suppose the economy is at point (a) on the production possibilities boundary. How can this economy move toward allocative efficiency?

23)

A) expand the production possibilities boundary outward. B) increase the supply of butter. C) produce less butter, more guns. D) increase the demand for butter. E) produce more butter, less guns. 24) Refer to Figure 12 -2. Suppose this economy is allocatively efficient at Q1 units of butter. Now suppose there is an increase in demand for butter from D to D1. After this shift in demand,

24)

A) the supply curve will shift up to S1 and allocative efficiency will be maintained. B) the marginal value to consumers of butter is greater than the marginal cost to producers; the price of butter (relative to the price of guns) rises; the economy moves to output Q2 of butter and point (c) on the PPB. C) the marginal value to consumers of butter is less than the marginal cost to producers; the price of butter (relative to the price of guns) rises; the economy moves to output Q2 of butter and point (c) on the PPB. D) the increase in the price of butter (relative to the price of guns) will cause the demand curve to shift back down to D and allocative efficiency will be maintained. E) the price of guns (relative to the price of butter) rises and the economy moves to point (a) on the PPB. 25) The Canadian economy is achieving allocative efficiency if

25)

A) marginal cost equals price in all industries. B) price equals average cost in all industries. C) marginal cost is equalized across industries. D) the of marginal product is equal for all factors of production. E) there are no idle resources in the economy. 26) An important defence of oligopoly as a market structure is that A) it is the most efficient available alternative when the minimum efficient scale is large B) it generates less unused capacity than monopolistic competition. C) it is more productively efficient than monopoly. D) it results in lower prices than perfect competition. E) it involves less allocative inefficiency than monopoly.

8

26)

27) The larger the minimum efficient scale of firms, ceteris paribus, the

27)

A) greater the number of firms comprising an industry. B) lower the advantages of large-scale production. C) more likely a concentrated market will improve productive efficiency. D) more likely a concentrated market will improve allocative efficiency. E) greater the tendency toward monopoly inefficiency. 28) Traditionally, monopoly has been regarded as an undesirable market structure because

28)

A) of its ability to minimize costs through large output. B) it is allocatively inefficient. C) it allows producers to earn large profits. D) it is usually characterized by wastefully confrontational labour relations E) of its innovative tendencies. 29) Monopoly is allocatively inefficient because

29)

A) the price exceeds the marginal cost of the last unit produced. B) lower costs could be achieved. C) the firm has no incentive to maximize profits. D) the opportunity cost exceeds the marginal cost of the last unit produced. E) the marginal cost exceeds the average cost for the last unit produced 30) In the absence of market failures, allocative efficiency is achieved only under perfect competition because only this market structure results in

30)

A) complete freedom of entry and exit. B) zero long-run profits. C) maximization of profits through competition. D) P = MC . E) productive efficiency. 31) If a perfectly competitive industry was suddenly monopolized without any change in cost conditions, A) price would decrease and quantity produced would increase. B) both price and quantity produced would increase. C) there would be no change in either price or quantity produced. D) both price and quantity produced would decrease. E) price would increase and quantity produced would decrease.

9

31)

32) In principle, a comparison of the long-run equilibrium of competitive and monopoly industries leads to the following conclusion:

32)

A) the competitive industry is consistent with allocative efficiency whereas the monopoly is not. B) both the competitive industry and the monopoly will allocate resources efficiently. C) both the competitive industry and the monopoly will allocate resources inefficiently. D) the competitive industry will achieve productive efficiency but the monopoly will not. E) neither industry is capable of allocative efficiency.

FIGURE 12 -4 33) Refer to Figure 12 -4. If the diagram depicts a perfectly competitive industry, the equilibrium price and quantity is A) P2 and q1 .

B) P2 and q 2.

C) P1 and q 2 .

D) P3 and q 1.

E) P1 and q1.

34) Refer to Figure 12 -4. If the diagram depicts the market situation for a monopoly, the equilibrium price and quantity are A) P2 and q2 .

B) P1 and q 2.

C) P3 and q 1 .

10

D) P2 and q 1.

33)

E) P1 and q1.

34)

35) When comparing a perfectly competitive firm and a monopolist, a major difference is that

35)

A) the perfect competitor achieves productive efficiency, but the monopolist does not. B) the monopolist achieves allocative efficiency but the perfect competitor does not. C) the monopolist produces where MR = MC, but the perfect competitor does not. D) the perfect competitor produces where P = MC, but the monopolist does not. E) none of the above 36) Choose the statement that best compares the long-run equilibrium of a competitive industry and that in a monopolized industry.

36)

A) Resources will be allocated efficiently in both the competitive and monopolized industries. B) Allocative efficiency will be achieved in the competitive, but not the monopolized industry. C) Allocative efficiency will be achieved in the monopolized, but not the competitive industry. D) It is not possible to make this comparison because firms in a competitive industry operate only in the short run. E) Allocative efficiency is not possible in either industry. 37) In the absence of market failures, allocative efficiency is achieved in a perfectly competitive industry because A) there are barriers to entry. B) firms do not need to maximize profits. C) the industry produces a level of output such that there are increasing returns to scale D) the industry produces a level of output such that the marginal cost to producers equals the marginal benefit to consumers. E) the industry produces a level of output such that the marginal cost of production is minimized.

11

37)

The diagram below shows supply, demand, and quantity exchanged of Monday matinee movie tickets. Assume it is a perfectly competitive market.

FIGURE 12 -3 38) Refer to Figure 12 -3. What is the total revenue received by the sellers of this product at the allocatively efficient level of output? A) $5

B) $125

C) $500

D) $250

E) $375

39) Refer to Figure 12 -3. What is the value of the consumer surplus generated in this market at the allocatively efficient level of output? A) $10

B) $0

C) $250

D) $5

B) $0

C) $10

D) $250

B) $10

C) $5

D) $250

12

40)

E) $125

41) Refer to Figure 12 -3. What is the total economic surplus generated in this market at the allocatively efficient level of output? A) $500

39)

E) $125

40) Refer to Figure 12 -3. What is the value of the producer surplus generated in this market at the free-market equilibrium? A) $5

38)

E) $125

41)

42) Refer to Figure 12 -3. Suppose a disequilibrium price of $7.50 per movie ticket is imposed in this market. The consumer surplus becomes ________ and the producer surplus becomes ________

42)

A) $31.25; $156.25 B) $0; $62.50 C) $2.50; $7.50 D) $62.50; $250 E) $62.50; $125 43) Refer to Figure 12 -3. Suppose a disequilibrium price of $7.50 per movie ticket is imposed on this market. The total economic surplus is now ________, which is ________ than the total economic surplus generated at the allocatively efficient level of output.

43)

A) $187.50; $187.50 less B) $62.50; $125 less C) $125; $125 less D) $125; $250 less E) $187.50; $62.50 less 44) Refer to Figure 12 -3. If a disequilibrium price of $7.50 per movie ticket were imposed on this market, this market would not be allocatively efficient because A) the marginal benefit to consumers of the last movie consumed would be greater than the marginal cost to the seller. B) the marginal cost to the seller of the last movie consumed would be less than the marginal benefit to consumers. C) the sum of consumer and producer surplus would not be maximized. D) all of the above. E) none of the above.

13

44)

FIGURE 12 -4 45) Refer to Figure 12 -4. The area representing consumer surplus in a monopoly equilibrium is outlined by A) P2 P4E.

B) ABE.

C) 0P 4 Eq2.

D) ACE.

E) P3 P4C.

46) Refer to Figure 12 -4. The area representing consumer surplus in a perfectly competitive equilibrium is outlined by A) ACE.

B) ABE.

C) P2P4E.

D) 0 P4 Eq2.

B) P0P3CA.

C) 0P 0 Aq1 .

D) P0AP1.

B) q1CEq 2.

C) P2P3E.

14

D) P2EC P3.

47)

E) P2 P4E.

48) Refer to Figure 12 -4. Comparing the perfectly competitive equilibrium to the monopoly equilibrium, the reduction in consumer surplus due to monopoly is outlined by A) P2 EP4.

46)

E) P3 P4C.

47) Refer to Figure 12 -4. The area representing producer surplus at the monopoly equilibrium is outlined by A) P0 P2BA.

45)

E) BCE.

48)

49) Refer to Figure 12 -4. Comparing the monopoly equilibrium to the perfectly competitive equilibrium, the area representing the gain in producer surplus due to monopoly is outlined by

49)

A) P2 P4E. B) P0 P3CA less ACE C) P1 P3CA less ACE. D) P3 P4 less ABE. E) P2 P3CB less ABE. 50) Refer to Figure 12 -4. Comparing the monopoly equilibrium to the perfectly competitive equilibrium...