Quiz #5, March 30, 2017
1. Which of the following statements is (are) TRUE of price-taking firms?
I.
II.
III.
IV.
ΔTR/ΔQ = P = MR
Price takers must lower their price to sell additional units of output because demand curves slope downward.
If a price taker decides to increase output, the market price will decrease.
Examples of price takers include McDonald's, Burger King, Wendy's, and SONIC Drive-in.
A) II and III
B) I, II, III, and IV
C) I
D) II and IV
Use the following to answer question 2.
Figure 8.7
2. (Figure 8.7) If the market price is $6, this perfectly competitive firm will earn profits of:
A) $27.
B) $54.
C) $18.
D) $78.
3. Bubba Golf, a manufacturer of golf clubs, can sell 3 drivers at $600 each. To sell 4 drivers,
Bubba Golf must lower the price to $580 each. The marginal revenue of the fourth club is:
A) $20.
B) $60.
C) $580.
D) $520.
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4. In a perfectly competitive industry, the equilibrium price is $56 and the minimum average
total cost of the industry's firms is $40. If this is a constant-cost industry, we can expect
that in the long run, firms will _____ the market, shifting the industry's short-run supply
curve _____.
A) enter; outward until the minimum average total cost rises to $56.
B) enter; outward until the new equilibrium price is $40.
C) enter; inward until firms are making positive profit.
D) exit; inward until firms are breaking even.
Use the following to answer question 5.
Figure 9.3
5. (Figure 9.3) The profit-maximizing quantity and price are _____ and _____, respectively.
A) 6 units; $6
B) 10 units; $8
C) 14 units; $4
D) 6 units; $12
6. A monopoly market is characterized by the inverse demand curve P = 1,200 – 40Q and a
constant marginal cost of $200. If the marginal cost of production rises to $400, the profitmaximizing output level _____ units and the price rises by _____.
A) decreases by 6; $100
C) increases by 4; $200
B) decreases by 2.5; $100
D) decreases by 8; $200
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Use the following to answer question 7.
Figure 8.16
7. (Figure 8.16) Which panel shows a representative firm (operating in a perfectly competitive
industry) in a long-run equilibrium?
A) panel a
B) panel b
C) panel c
D) panel d
8. Which of the following are sources of market power?
I.
II.
government-issued patents and copyrights
a Minnesota law requiring all new funeral homes to have an embalming room, which costs upward of $30,000,
whether or not it is functional or will be used
III. a Portland, Oregon, law that makes it a crime for limousine companies to charge less than $50 per ride
A) I, II, and III
B) I
C) II
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D) III
Use the following to answer question 9.
Figure 9.7
9. (Figure 9.7) The levels of consumer surplus under monopoly and perfect competition are
_____ and _____, respectively.
A) $600; $2,000
B) $200; $400
C) $800; $3,200
D) $400; $1,600
10. Suppose a firm's inverse demand curve is given by P = 160 – 4Q. Which of the following
statements is (are) TRUE?
I.
II.
III.
IV.
The firm's marginal revenue curve is given by MR = 160 – 8Q.
The firm's marginal revenue cannot be negative.
The firm's marginal revenue curve is given by MR = 40 – 0.50Q.
When Q = 10, MR = $80.
A) I and II
B) I and IV
C) II and III
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D) III
Answer Key - S17-5
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
C
A
D
B
D
B
B
A
D
B
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