If a Local California Avocado Stand Operates in a Perfectly Competitive Market, the Owner

Exam 3 Review Leader: Maddie Public Goods Course: Econ 101 Supplemental Instruction Instructor: Kreider Iowa State University Date: 11-12-15 1. If a local California avocado stand operates in a perfectly competitive market, the owner will be a: a. Price-maker b. Price-taker c. Price-discriminator d. Price-maximizer 2. Perfect competition is characterized by: a. Rivalry in advertising b. Fierce quality competition c. The inability of any one firm to influence price d. Widely recognized brands 3. One characteristic of a perfectly competitive market is that there are ______sellers of the good or service. a. One or two b. A few c. Usually around 10 d. Many 4. A perfectly competitive firm maximizes profit by producing the quantity at which: a. TR = TC b. MR = MC c. Q * (P-ATC)=0 d. P > AVC 5. If a perfectly competitive firm sells 10 units of output at a price of $30 per unit, its marginal revenue is: a. $10 b. $30 c. More than $10 d. Less than $30 6. A perfectly competitive firm will continue producing in the short run as long as it can cover its: a. Total cost b. Fixed cost c. Variable cost d. Average total cost 7. Assume that in the short run a perfectly competitive firm does not produce output and has economic losses. This would occur if: a. P = ATC b. P < AVC c. AVC < P 0 d. AVC > P > ATC and FC = 0

1060 Hixson-Lied Student Success Center v 515-294-6624 v [email protected] v http://www.si.iastate.edu Use the following to answer questions 8-9:

8. (Figure: Short-run Costs) At the given price, the most profitable level of output occurs are quantity: a. N b. P c. S d. T 9. (Figure: Short-run Costs) This firms short-run supply curve begins at quantity: a. Q b. R c. S d. T 10. A competitive firm will supply at an output: a. That maximizes sales b. Where marginal cost just exceeds market price c. At the last unit where Price > MC d. Where total costs > price 11. Which is NOT a characteristic of a perfectly competitive market? a. Standardized product b. Free entry c. Brand-name advertising d. Many buyers and sellers 12. Which of these does belong with perfect competition? a. Downward sloping demand curve b. Having a patent c. Zero profits in the long run d. The restaurant industry Use the following to answer questions 13-15:

The market for tomatoes is perfectly competitive, and an individual tomato farmer faces the cost curves shown in the figure. The market price of a bushel of tomatoes is $10. 13. (Figure 3) At the farmer’s profit-maximizing output, total revenue is: a. $90 b. $56 c. $30 d. $48 14. (Figure 3) At the farmer’s profit-maximizing output, total cost is: a. $42 b. $48 c. $56 d. $72 15. (Figure 3) At the farmer’s profit-maximizing output, profit is: a. -$8 b. $0 c. $18 d. -$18 16. The marginal revenue curve is equal to (list all that apply) a. Price b. Quantity c. Demand curve d. Marginal Cost e. Average Revenue f. All of the above g. A and c h. A, c and e 17. What doesn’t remain constant for different individuals of perfectly competitive markets? (circle to all that apply) a. Marginal costs b. Quantity c. Price d. Demand e. Product f. None of the above 18. What are the three steps for finding the maximum profit? (circle all that apply and then put them in order) Order is DAE a. Finding the price b. Finding the average cost c. Finding when to raise prices d. Finding how much to produce e. Finding (P-ATC) x Q and regraphing the information

19. What does (P-ATC) x Q find? a. The total profit for a perfectly competitive firm b. How many we need to sell to make a maximized profit c. The difference between the price and the costs d. The total profit we make when profits are maximized

20. What does the 50 million mean? (List all that apply) a. Quantity produced in individual store b. Quantity of all individual stores in the market combined c. Quantity produced in the market d. Quantity produced in one area of the economy

21. What is predatory pricing? a. Charging too little and losing money b. Price gouging c. Charge too little in efforts to run small businesses out of town by creating barriers to entry d. Jacking up the prices of products to gain a higher profit than other suppliers in the market

22. What is the short-run supply curve for a perfectly competitive market? a. The average variable cost curve b. The segment of the marginal cost curve that lies above average variable costs curve c. The marginal revenue curve d. The segment of the marginal cost curve where price is below the average variable costs curve

23. Farmer Steve will sell 60,000 ears of corn when the market price of corn is at $2. If the market price rises to $3, what is a likely number of ears of corn that Steve will likely produce? a. 30,000 b. 60,000 c. 90,000 d. 10,000 e. Firm would likely shut down 24. Which curve is most similar to the supply curve in a short-run graph for a perfectly competitive market? a. The marginal costs curve b. The demand curve c. The average variable costs curve d. The average costs curve e. The marginal revenue curve 25. What is a pure monopoly? a. A market only has one seller of a good or service with no close substitutes b. It is the same as a natural monopoly c. A monopoly that is a result of economies of scale d. A monopoly where firms are price-makers 26. Which is not a characteristic of economies of scale a. A firm grows large and operates long enough to produces outputs at a lower price in the long run b. A price-taking firm lowers prices below market price to drive competitors out of the market c. The ATC curve of a monopoly is downward sloping d. Develop natural monopolies 27. What is a natural monopoly? a. A pure monopoly b. A monopoly that is created by economies of scale c. A monopoly that takes prices from the market equilibrium d. a and b e. b and c f. all of the above 28. Which is not a barrier to enter a monopoly? a. If there are economies of scale b. A firm controls some scarce input c. Government creates barriers to entry d. The market price rises e. There are superior entrepreneurs in the market 29. In order to increase output in a monopolist economy, ______must decrease. a. Supply b. Marginal revenue c. Price d. Marginal cost 30. If Marginal Cost < Marginal Revenue, then a monopolist firm will… a. Increase output b. Decrease output c. Output will remain the same d. Impossible to know 31. Profits mainly depend on… a. The demand curve b. The marginal revenue curve c. The price d. The marginal cost curve 32. What is not an inefficiency a monopoly creates? a. Less incentive to innovate and cut costs b. The monopolist produces a lower quantity than could be produced by perfectly competitive markets c. Monopoly owners shelter 17.2% of America’s wealth d. The monopolist fail to produce an output that society would have valued by more than it would have cost to produce 33. Monopolies are inefficient from society’s perspective because price is always greater than… a. Marginal revenue b. Demand c. Quantity supplied d. Marginal cost 34. Which of the following is not imperfect competition… a. Oligopolies b. Monopolistic competition c. Monopolies d. All of the above are imperfect competition 35. Which is an example of an oligopoly? a. A farmer who sells eggplant b. Restaurants c. The oil industry d. The drug cartel 36. Which is not true of monopolistic competition? a. There are differentiated products b. Cartels may arise in monopolistic competition c. There is a downward sloping demand curve d. Firms are price makers, seeing as there is only one firm that sells to the industry with no close substitutes 37. Differentiated products… a. Are all sold at the same price b. Imply a demand curve that is horizontal c. Provides an incentive for advertising d. Lessens firms market power 38. Monopolistic firms produce where… a. ATC

P d. MR meets the Demand Curve 39. What is collusion? a. A firm setting prices lower than the market price in an attempt to drive other competitors out of the market b. A firm raising prices far above the market price and exploiting consumers c. A group of firms coming together and setting a quantity to output in attempts to raise price and split the profits d. When a firm must follow the market price 40. True or false, a cartel happens in a monopoly? a. True b. False 41. Which is not true of a cartel? a. “Cheaters” and “free riders” enjoy less economic profit than members of the cartel b. Violates U.S. antitrust laws c. They find profits where MR=MC, using a monopoly’s marginal revenue curve d. Quantity of the market is lower than if the cartel would operate as a perfectly competitive market 42. What is true of oligopolies? a. There are many buyers and sellers b. There are few, large sellers c. There is only one seller d. They use MR=MC to find profit 43. What is the Nash Equilibria? a. A combination of actions such that each player is happy b. Where quantity supplied meets quantity demanded in an oligopoly c. A combination where each player chooses to take their own dominant strategy, which is different from the other d. A combination of actions such that no player regrets his/her action once it is revealed what everyone has chosen to do

44. What is the dominant strategy for Clyde and Bonnie? a. For Clyde it is to confess, for Bonnie it is to remain silent b. For Clyde it is to confess, for Bonnie it is to confess c. For Clyde it is to remain silent, for Bonnie it is to remain silent d. For Clyde it is to remain silent, for Bonnie it is to confess

45. What is the problem with collusion in this case and in cartels? a. It is hard to decide together what to do b. Meeting up for coffee is difficult because both Clyde and Bonnie have class in the morning c. Both Bonnie and Clyde would like to be set free d. It is hard for one to trust the other, so there is a fear that the other may cheat 46. If Bonnie and Clyde were to collude in this case… a. Bonnie and Clyde would both spend 20 years in prison b. Bonnie would spend life in prison and Clyde would be set free c. Clyde would spend life in prison and Bonnie would be set free d. Both would pay a $10 fine 47. What is Nash Equilibrium? a. For both to remain silent b. For Bonnie to remain silent and for Clyde to confess c. For both to confess d. For Clyde to remain silent and for Bonnie to confess 48. How does the prisoner’s dilemma apply to oligopolies? a. Firms must set their own prices competitively with one another without knowledge of what the other will do b. Firms are afraid to set up cartels with one another in fear of “cheaters” c. Firms often engage in collusion d. Firms must act independently even though it is easy to predict what the other firms in the market will do

49. What market does this graph represent? a. Perfect competition b. Monopoly c. Monopolistic competition d. Oligopoly 50. What is the shaded area represent? a. The lost benefit to society b. Deadweight Loss c. Loss of consumer surplus and loss of producer surplus d. a and c e. All of the above 51. How will you do on the test? a. A’s all the way! b. Probably not going to go c. A+++++!!! d.  e. All of the above but B