1. Question : (TCO 3) In which market model would there be a unique product for which there are no close substitutes? Student Answer: Monopolistic competition Pure competition Pure monopoly Oligopoly 2. Question : (TCO 3) Local electric or gas utility companies mostly operate in which market model? Student Answer: Monopolistic competition Pure competition Pure monopoly Oligopoly 3. Question : (TCO 3) The production of agricultural products such as wheat or corn would best be described by which market model? Student Answer: Monopolistic competition Pure competition Pure monopoly Oligopoly 4. Question : (TCO 3) In pure competition, the demand for the product of a single firm is perfectly Student Answer: elastic because the firm produces a unique product. inelastic because the firm produces a unique product. elastic because many other firms produce the same product. inelastic because many other firms produce the same product. 5. Question : (TCO 3) A profit-maximizing firm in the short run will expand output Student Answer: until marginal cost begins to rise. until total revenue equals total cost. until marginal cost equals average variable cost. 6. Question : (TCO 3) A firm should always continue to operate at a loss in the short run if Student Answer: the firm will show a profit. the owner enjoys helping her customers. it can cover its variable costs and some of its fixed costs. the firm cannot produce any other products more profitably. 7. Question : (TCO 3) In pure competition, each extra unit of output that a firm sells will yield a marginal revenue that is Student Answer: equal to the price. less than the price. greater than the price. equal to the average cost. 8. Question : (TCO 3) Which phrase would be most characteristic of pure monopoly? Student Answer: Close substitutes Efficient advertiser Price taker Single seller 9. Question : (TCO 3) Barriers to entry Student Answer: usually result in pure competition. can result from government regulation. exist in economic theory but not in the real world. are typically the result of wrongdoing on the part of a firm. 10. Question : (TCO 3) The nondiscriminating pure monopolist must decrease price on all units of a product sold in order to sell more units. This explains why Student Answer: there are barriers to entry in pure monopoly. a monopoly has a perfectly elastic demand curve. marginal revenue is less than average revenue. total revenues are greater than total costs at the profit-maximizing level of output. 11. Question : (TCO 3) Which case below best represents a case of price discrimination? Student Answer: An insurance company offers discounts to safe drivers. A major airline sells tickets to senior citizens at lower prices than to other passengers. A professional baseball team pays two players with identical batting averages different salaries. A utility company charges less for electricity used during “off-peak” hours, when it does not have to operate its less-efficient generating plants. 12. Question : (TCO 3) Monopolistic competition is characterized by firms Student Answer: producing differentiated products. making economic profits in the long run. producing at optimal productive efficiency. producing where price equals marginal cost. 13. Question : (TCO 3) If monopolistically competitive firms in an industry are making an economic profit, then new firms will enter the industry and the product demand facing existing firms will Student Answer: increase. become less elastic. not be affected. decrease. 14. Question : (TCO 3) A unique feature of an oligopolistic industry is Student Answer: low barriers to entry. standardized products. diminishing marginal returns. mutual interdependence. 15. Question : (TCO 3) You are told that the four-firm concentration ratio in an industry is 20. Based on this information you can conclude that Student Answer: each of the top four firms has 20 percent of industry sales. the four largest firms account for a combined 80 percent of the industry sales. the four largest firms account for 20 percent of industry sales. each of the four largest firms accounts for five percent of industry sales. 16. Question : (TCO 3) A major reason that firms form a cartel is to Student Answer: reduce the elasticity of demand for the product. enlarge the market share for each producer. minimize the costs of production. maximize joint profits. 17. Question : (TCO 1) Money is not an economic resource because Student Answer: money, as such, does not produce anything. idle money balances do not earn interest income. it is not scarce. money is not a free gift of nature.18. Question : (TCO 1) Refer to the diagram which is based on the Circular Flow Model in Chapter 2. Arrows (3) and (4) represent Graph Description Student Answer: goods and services, respectively. incomes and consumer expenditures, respectively. resources and goods, respectively. consumer expenditures and income, respectively. 19. Question : (TCO 2) Refer to the diagram. A decrease in demand is depicted by a Graph Description Student Answer: move from Point x to Point y. shift from D1 to D2. shift from D2 to D1. move from Point y to Point x. 20. Question : (TCO 2) Refer to the information and assume the stadium capacity is 5,000. The supply of seats for the gamePrice per Ticket Quantity Demanded $13 1,000 11 2,000 9 3,000 7 4,000 5 5,000 3 6,000 Student Answer: varies inversely with ticket prices. varies directly with ticket prices. is perfectly inelastic. is perfectly elastic. 21. Question : (TCO 2) Which of the following goods will least likely suffer a decline in demand during a recession? Student Answer: Dinner at a nice restaurant iPods Toothpaste Plasma-screen and LCD TVs 22. Question : (TCO 3) In the figure, Curves 1, 2, 3, and 4 represent the Graph Description Student Answer: ATC, MC, AFC, and AVC curves, respectively. MC, AFC, AVC, and ATC curves, respectively. MC, ATC, AVC, and AFC curves, respectively. ATC, AVC, AFC, and MC curves, respectively. 23. Question : (TCO 1) Refer to the diagram. Points A, B, C, D, and E show Graph Description Student Answer: that the opportunity cost of bicycles increases, while that of computers is constant. combinations of bicycles and computers that society can produce by using its resources efficiently. that the opportunity cost of computers increases, while that of bicycles is constant. that society’s demand for computers is greater than its demand for bicycles. 24. Question : (TCO 3) Assume that the owners of the only gambling casino in Wisconsin spend large sums of money lobbying state government officials to protect their gambling monopoly. Economists refer to these expenditures as Student Answer: rent-seeking. price discrimination. X-efficiency. network effects. 25. Question : (TCO 3) a.) What is the relationship between economies of scale and a natural monopoly? b.) Why is the level of output at which marginal revenue equals marginal cost the profit-maximizing output? 26. Question : (TCO 2) What effect should each of the following have upon the demand for portable music players in a competitive market? Explain your reasoning in each case.(a) the development of improved, low-priced devices that compete with music players(b) an increase in population and incomes(c) a substantial increase in the number and quality of music for players(d) consumer expectations of substantial price increases in music players