Department of Business
Principles of Microeconomics-EC.210-01
Final Exam-May 2008
Multiple-choice questions (70%), essay and problems (30%) and bonus question (4 points):
Price discrimination is often used by businesses. The opportunity to engage in price discrimination is not readily available to all sellers. Price discrimination is workable when certain conditions are realized. 757n1312h
a. Explain the conditions, which make price discrimination possible.
b. Name three examples that you are aware of for practicing price discrimination. (6 points)
2. The following question are based on the demand and cost data for pure monopolist given in the table
|
Output |
price |
Total cost |
|
0 |
$500 |
$250 |
|
1 |
300 |
260 |
|
2 |
250 |
290 |
|
3 |
200 |
350 |
|
4 |
150 |
500 |
|
5 |
100 |
680 |
a. Refer to the above information. How many units of output will maximize the profit of this monopolist?
c. How much economic profit or loss with this firm realize per unit of output?
Show all of your works please to earn full credits. (8 points)
3. A monopolistic competitive firm is producing 50 units of output in the short run where MC is $3.00, ATC are $5.00, P is $4.50, AVC is $4.00, and MR is $3.00. How much profit is the firm making? What output recommendation would you make for the firm?
(6 points)
What is Hefindahl Hirshman Index and what doe it measured? (2 points)
a. Calculate four-firm concentration ratio and Herfindahl-Hirshman Indix (HHI) for the following fast food industry given percent of their market share: McDonalds, 20%, Burger King 9%, Wendy's 5%, Kentucky Fried Chicken 5%, Taco Bell 4% and Pizza Hut 4% . (4 points )
b. Would the Justice Department approve a merger of Wendy's and Taco Bell? Explain your
reasoning please. (4 points)
Bonus Question: (4 points each)
We need to feed the stomach before we feed the car. Based on our class discussion on current economic issues, comment on this.
You
did a collaborative project with students from
Have a wonderful summer!
1.Pure monopolists may obtain economic profits in the long run because:
A) of advertising. C) of barriers to entry.
B) marginal revenue is constant as sales increase. D) of rising average fixed costs.
2.Which of the following approximates a pure monopoly?
A) the foreign exchange market C) the diamond market
B) the
3.A natural monopoly occurs when:
A) long-run average costs decline continuously through the range of demand.
B) a firm owns or controls some resource essential to production.
C) long-run average costs rise continuously as output is increased.
D) economies of scale are obtained at relatively low levels of output.
4.If a non-discriminating imperfectly competitive firm is selling its 100th unit of output for $35, its marginal revenue:
A) may be either greater or less than $35. C) will be less than $35.
B) will also be $35. D) will be greater than $35.
Answer the next question(s) on the basis of the demand schedule shown below:
Refer to the above data. The marginal revenue obtained from selling the third unit of output is:
A) $6. B) $1. C) $3. D) $5.
6.A monopolistic firm has a sales schedule such that it can sell 10 prefabricated garages per week at $10,000 each, but if it restricts its output to 9 per week it can sell these at $11,000 each. The marginal revenue of the tenth unit of sales per week is:
A) -$1,000. B) $9,000. C) $10,000. D) $1,000.
7. The pure monopolist's demand curve is:
A) identical with the industry demand curve. C) perfectly inelastic.
B) of unit elasticity throughout. D) perfectly elastic.
8.The demand curve faced by a pure monopolist:
A) may be either more or less elastic than that faced by a single purely competitive firm.
B) is less elastic than that faced by a single purely competitive firm.
C) has the same elasticity as that faced by a single purely competitive firm.
D) is more elastic than that faced by a single purely competitive firm.
9.For a pure monopolist marginal revenue is less than price because:
A) the monopolist's demand curve is perfectly elastic.
B) the monopolist's demand curve is perfectly inelastic.
C) when a monopolist lowers price to sell more output, the lower price applies to all units sold.
D) the monopolist's total revenue curve is linear and slopes upward to the right.
Use the following to answer questions 10.:
10.Which of the above diagrams correctly portray a non-discriminating pure monopolist's demand (D) and marginal revenue (MR) curves?
A) A B) B C) C D) D
11.In the long run a pure monopolist will maximize profits by producing that output at which marginal cost is equal to:
A) average total cost. B) marginal revenue. C) average variable cost. D) average cost.
Use the following to answer questions 12-13:
Refer to the above data for a non-discriminating monopolist. This firm will maximize its profit by producing:
A) 3 units. B) 4 units. C) 5 units. D) 6 units.
13.Refer to the above data for a non-discriminating monopolist. At its profit-maximizing output, this firm's total costs will be:
A) $300. B) $248. C) $198. D) $126.
14.If a monopolist's marginal revenue is $3.00 and its marginal cost is $4.50, it will increase its profits by:
A) reducing output and raising price. C) increasing both price and output.
B) reducing both output and price. D) raising price while keeping output
Unchanged
Use the following to answer questions 15:
15. Refer to the above diagram. To maximize profits or minimize losses this firm should produce:
A) E units and charge price C. C) M units and charge price N.
B) E units and charge price A. D) L units and charge price LK.
16.The supply curve for a monopolist is:
A) perfectly elastic.
B) upsloping.
C) that portion of the marginal cost curve lying above minimum average variable cost.
D) nonexistent.
17.Economic profit in the long run is:
A) possible for both a pure monopoly and a pure competitor.
B) possible for a pure monopoly, but not for a pure competitor.
C) impossible for both a pure monopolist and a pure competitor.
D) only possible when barriers to entry are nonexistent.
Use the following to answer questions 18.
Refer to the above diagrams. Diagram (A) represents:
A) equilibrium price and quantity in a purely competitive industry.
B) the pure monopoly model.
C) an industry in which there is productive efficiency but not allocative efficiency.
D) a single firm operating in a purely competitive industry.
19.X-inefficiency refers to a situation in which a firm:
A) is not as technologically progressive as it might be.
B) encounters diseconomies of scale.
C) fails to realize all existing economies of scale.
D) fails to achieve the minimum average total costs attainable at each level of output
20.Price discrimination refers to:
A) selling a given product for different prices at two different points in time.
B) any price above that which is equal to a minimum average total cost.
C) the selling of a given product at different prices that do not reflect cost differences.
D) the difference between the prices a purely competitive seller and a purely monopolistic seller would charge.
21.Monopolistic competition is characterized by a:
A) few dominant firms and low entry barriers.
B) large number of firms and substantial entry barriers.
C) large number of firms and low entry barriers.
D) few dominant firms and substantial entry barriers.
22.Which of the following is not a basic characteristic of monopolistic competition?
A) the use of trademarks and brand names C) product differentiation
B) recognized mutual interdependence D) a relatively large number of sellers
23.A monopolistically competitive firm has a:
A) highly elastic demand curve. C) perfectly inelastic demand curve.
B) highly inelastic demand curve. D) perfectly elastic demand curve.
24.A monopolistically competitive firm's marginal revenue curve:
A) is downsloping and coincides with the demand curve.
B) coincides with the demand curve and is parallel to the horizontal axis.
C) is downsloping and lies below the demand curve.
D) does not exist because the firm is a "price maker."
Use the following to answer questions 25-26:
Refer to the above diagram for a monopolistically competitive firm in short-run equilibrium. This firm's profit-maximizing price will be:
A) $10. B) $13. C) $16. D) $19.
Refer to the above diagram for a monopolistically competitive firm in short-run equilibrium. The profit-maximizing output for this firm will be:
A) 210. B) 180. C) 160. D) 100.
27.Which of the following is not characteristic of long-run equilibrium under monopolistic competition?
A) price equals minimum average total cost C) price is equal to average total cost
B) marginal cost equals marginal revenue D) price exceeds marginal cost
Use the following to answer questions 28:
28. Refer to the above diagram for a monopolistically competitive firm. Long-run equilibrium price will be:
A) above A. B) EF. C) A. D) B.
29.The economic inefficiencies of monopolistic competition may be offset by the fact that:
A) advertising expenditures shift the average cost curve upward.
B) available capacity is fully utilized.
C) resources are optimally allocated to the production of the product.
D) consumers have a number of variations of the product from which to choose.
30.The term oligopoly indicates:
A) a one-firm industry.
B) many producers of a differentiated product.
C) a few firms producing either a differentiated or a homogeneous product.
D) an industry whose four-firm concentration ratio is low.
31.The automobile, household appliance, and automobile tire industries are all illustrations of:
A) homogeneous oligopoly. C) pure monopoly.
B) monopolistic competition. D) differentiated oligopoly.
32.The copper, aluminum, cement, and industrial alcohol industries are examples of:
A) interproduct competition. C) monopolistic competition.
B) homogeneous oligopoly. D) differentiated oligopoly.
33.Mutual interdependence means that each oligopolistic firm:
A) faces a perfectly elastic demand for its product.
B) must consider the reactions of its rivals when it determines its price policy.
C) produces a product identical to those of its rivals.
D) produces a product similar but not identical to the products of its rivals.
34.An industry having a four-firm concentration ratio of 85 percent:
A) approximates pure competition. C) is a pure monopoly.
B) is monopolistically competitive. D) is an oligopoly.
35.Suppose that total sales in an industry in a particular year are $600 million and sales by the top four sellers are $200 million, $150 million, $100 million, and $50 million, respectively. We can conclude that:
A) price leadership exists in this industry.
B) the concentration ratio is more than 80 percent.
C) this industry is a differentiated oligopoly.
D) the firms in this industry face a kinked demand curve.
36.Concentration ratios:
A) may overstate the degree of competition because they ignore imported products.
B) may overstate the degree of competition because interindustry competition is ignored.
C) may understate the degree of competition because they ignore imported products.
D) provide detailed insights as to the price and output behavior of firms which comprise the various industries.
37.Assume six firms comprising an industry have market shares of 30, 30, 10, 10, 10, and 10 percent. The Herfindahl Index for this industry is:
A) 2,525. B) 1,600. C) 2,200. D) 80.
Use the following to answer questions 38-39:
38.The industry characterized by the above information is:
A) an oligopoly. C) a purely competitive industry.
B) a monopolistically competitive industry. D) a pure monopoly.
The four-firm concentration ratio for the above industry is:
A) 100 percent.
B) indeterminate, since we don't know which four firms are included.
C) 80 percent.
D) 20 percent.
40. Advertising can enhance economic efficiency when it:
A) increases brand loyalty.
B) expands sales such that firms achieve substantial economies of scale.
C) keeps new firms from entering profitable industries.
D) is undertaken by pure competitors.
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