ECON 160 Final

Most economists are against monopolies because monopolies

• do not maximize profits

• produce too much of a product

• offer consumers more choices than they need

• can never produce the quantity that a perfectly competitive market would
  produce

• offer fewer choices to consumers

Both monopolies and competitive firms

• are price takers

• make long-run economic profits

• are price makers

• try to maximize profits

• face barriers to entry

Which is the best example of economies of scale

• the generation of electricity

• a parking garage

• the pizza business

• a small family farm

• the restaurant industry

If the price and quantity for a normal good, Good A, is $7 and 5 units at the
original equilibrium, what is one possibility for the new equilibrium of Good A if we
see income increase and all other factors stay constant?

• $8 and 4 units

• $6 and 6 units

• $8 and 6 units

• $8 and 0 units

• $6 and 4 units

When two goods are substitutes to each other, the cross-price elasticity will

• begin by being positive but becomes negative over time

• begin by being negative but becomes positive over time.

• be zero

• be positive

• be negative

As we move upward along a demand curve, the price elasticity of demand

• becomes more inelastic

• becomes more inelastic

• becomes more elastic.

• moves closer to zero.

• does not change

In the long run, if a firm is making a loss, it will

• continue to operate no matter what.

• continue to operate if it covers its fixed costs.

• increase production in order to increase profits.

• decrease production in order to increase profits.

• stop producing and exit the market.

Which of the following is a characteristic of a monopoly but not a characteristic of
a competitive market

• A producer uses the marginal revenue (MR) = marginal cost (MC) rule to
  set prices

• A producer can earn long-run economic profits

• A producer can earn long-run accounting profits

• A producer has no market power.

• A producer is a price taker.

A positive externality exists whenever

• here are no internal costs.

• production of a good creates an external cost

• production of a good creates an external benefit.

• production of a good has no social cost.

• production of a good has no social benefit

Government can correct for the externality of a polluting firm by requiring the firm
to

• install pollution abatement equipment

• change its production techniques

• pay a tax on its polluting activity

• pay for its environmental damage

• do any of the above