Econ 1.13 20.04

Over a given period, the price of a commodity falls by 5.0%, and the quantity demanded rises by 7.5%. The price elasticity of demand for the commodity is best described as:

• A. perfectly elastic.
• B. elastic.
• C. inelastic.

A market structure characterized by homogeneous/standardized product differentiation is best described as:

• A. perfect competition and oligopoly.
• B. monopolistic competition.
• C. monopoly.

Q. Normal profit is best described as:

• A. zero economic profit.
• B. total revenue minus all explicit costs.
• C. the sum of accounting profit plus economic profit.

Q. Upsilon Natural Gas, Inc. is a monopoly enjoying very high barriers to entry. Its marginal cost is $40 and its average cost is $70. A recent market study has determined the price elasticity of demand is 1.5. The company will most likely set its price at:

• A. $40 .
• B. $70 .
• C. $120 .

If the prices of substitute resources decrease, the demand for a given resource will most likely:

• A. remain unchanged.
• B. decrease.
• C. increase.

None

• A. 13.0.
• B. 3.5.
• C. 9.3.

None

• A. $6.00, all firms should exit the market in the long run.
• B. $4.50, all firms should continue to operate in the short run, but exit the market in the long run if these conditions are expected to persist.
• C. $3.00, Firm X should continue to operate in the short run, but Firms Y and Z should shut down production.

Q. A firm is operating beyond minimum efficient scale in a perfectly competitive industry. To maintain long-term viability the most likely course of action for the firm is to:

• A. operate at the current level of production.
• B. increase its level of production to gain economies of scale.
• C. decrease its level of production to the minimum point on the long-run average total cost curve.

Q. Oligopolistic pricing strategy most likely results in a demand curve that is:

• A. kinked.
• B. vertical.
• C. horizontal.

Q. A profit maximum is least likely to occur when:

• A. average total cost is minimized.
• B. marginal revenue equals marginal cost.
• C. the difference between total revenue and total cost is maximized.