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Class 3 Test 3

Total questions: 51

Worksheet time: 28mins

Name
Class
Date
1.

What is the goal of every firm, regardless of the market structure?

a)

Maximize profits, minimize costs

b)

Maximize costs, minimize profits

c)
Enhance brand recognition
d)
Increase market share
2.

Where does every firm, regardless of market structure, maximize economic profit?

a)

marginal revenue exceeds marginal cost

b)

marginal revenue is less than marginal cost

c)

marginal revenue equals marginal cost

3.

Why is the goal of every firm not to maximize total revenue or minimize total cost?

a)

Because their goal is to maximize the distance between the two.

b)

Because their goal is to minimize the distance between the two.

c)

Because they don't like money.

d)

Because they only care about profits.

4.

Economic profit (as opposed to accounting profit) is important because:

a)

It includes opportunity cost

b)

It takes tax into account

c)

It includes negative profit

d)

It includes all profit

5.

The key feature of profit when compared to other sources of income:

a)

Profit is the residual

b)

Profit is the requesite

c)

Profit is the income before expenses are deducted

d)

Profit is all the money you have in excess

6.

All of us are ultimately entrepreneur's because:

a)

We all take advantage of price discrepancies between different markets.

b)

We all like to buy high and sell low.

c)

We all control land, labor and capital.

d)

We deal with fixed costs where profit is uncertain.

7.

If there is only one seller of a good, selling a good with no close substitutes, and barriers to entry are so high as to prevent any competition from entering the market,

a)

it is a monopoly

b)

it is competitive

c)

it has little competition

d)

it is an oligopoly

8.

Profit is a signal. Without barriers to entry,

a)

no one will else will enter the market

b)

only some people will enter the market

c)

a lot of people will flood the market

d)

it is easy to be a monopoly

9.

A price taker:

a)

sets the price

b)

are more competitive than price makers

c)

is usually a seller

d)

are less competitive than price makers

10.

One major reason for control over price, like charging $5,000 for a gallon of water in the Sahara, is:

a)
Scarcity of resources
b)
Government regulation on prices
c)
High demand for luxury items
d)
Abundance of resources
11.

In the short run a firm can have a monopoly. In the long run they retain some monopoly power.

a)

They have low barriers to entry

b)

They have high barriers to entry

12.

In some cases, barriers to entry like patent, trademark, and copyrights:

a)

many firms offer a lot of products that are perfect substitutes

b)

many firms offer a lot of products that are similar substitutes

c)

there are little substitutes for it

d)

it creates monopolistic competition

13.

As markets become more competitive,

a)

they have more control over the price

b)

they have less control over the price

c)

barriers to entry incresae

d)

it creates natural monopolies

14.

Economies of scale:

a)

Rise due to legal barriers such as patents, trademarks, and copyrights

b)

Rise due to large firms being able to produce goods and services at a higher price compared to smaller firms

c)

Rise due to large firms being able to produce goods and services at a lower price compared to smaller firms

d)

Rise due to outputs decreasing and cost per unit increasing

15.

Economies of scale:

a)

The ability of large firms to produce goods and services at a lower price compared to smaller firms

b)

The ability of large firms to produce goods and services at a higher price compared to smaller firms

c)

The ability of large firms to increase labor costs and produce more output.

d)

The ability of large firms to produce higher demand by decreasing output cost.

16.

An example of a "natural" monopoly from class was:

a)

The utilities company

b)

Amazon

c)

Google

d)

Microsoft

17.

Control over price:

a)

Causes firms to lose a lot of customers when they increase the price

b)

Causes firms to lose a little customers when they increase the price

c)

Makes them a monopoly

d)

Makes them a big company

18.

Control over price:

a)

Allows firms to engage in price discrimination

b)

Allows firms to charge any price they want

c)

Does not allow firms to take advantage of consumers

d)

Does not allow firms to charge one single price

19.

Total revenue is maximized at price ___ and quantity demanded ___.

(a)  

20.

If the MC of producing the 3rd glass of lemonade is $1,

a)

We would profit

b)

We would lose profit

c)

It would be profit-neutral

21.

We notice that when TR is falling, MR is:

a)

MR increase

b)

MR becomes negative

c)

MR stays positive

d)

MR decreases but stays positive

22.

Is it possible for the firm to be profitable if they are producing more than 500 pizzas?

a)

No, MC > MR, so costs outweigh the revenue generated, thus being unprofitable.

b)

No, MC > MR, so costs outweigh the revenue generated, thus unlikely being unprofitable.

c)

No, MR > MC, so costs outweigh the revenue generated, thus being unprofitable.

d)

No, MR > MC, so costs outweigh the revenue generated, thus unlikely being unprofitable.

23.

Slightly differentiated product:

a)

Allows control over price

b)

Creates many substitutes for consumers

c)

Does not allow control over price

24.

First degree price discrimination:

a)

charge everyone's max willingness to pay

b)

charges different prices based on quantity being bought

c)

charges different prices based on the demographic of consumers

25.

First degree price discrimination:

a)

colleges

b)

airlines

c)

car sales

d)

movie theaters

26.

According to class discussion

a)

first degree price discrimination benefits poor people

b)

first degree price discrimination benefits rich people

c)

first degree price discrimination ultimately has no effect

d)

first degree price discrimination benefits both poor and rich people

27.

If first degree price discrimination is so profitable (it is), why doesn't every firm do it?

a)

it is easy to get honest answers from people when asking them how much they want to pay

b)

it is hard to get honest answers from people when asking them how much they want to pay

28.

Third degree price discrimination:

a)

charge everyone's max willingness to pay

b)

charges different prices based on quantity being bought

c)

charges different prices based on the demographic of consumers

29.

Publishers typically release new books in hardcover copy first (charging more for hardcover copies) and then later in paperback format (charging less for paperback copies). This is _____ price discrimination.

a)

1st degree

b)

2nd degree

c)

3rd degree

30.

According to class discussion,

a)

inelastic consumers are more likely willing to pay with 3rd degree price discrimination

b)

elastic consumers are more likely willing to pay with 3rd degree price discrimination

31.

Third degree price discrimination:

a)

colleges

b)

airlines

c)

car sales

d)

movie theaters

32.

Irrespective of the method of travel, those who travel for business have relatively inelastic demand for travel.

a)

True

b)

False

33.

With monopolistic competition,

a)
All firms sell identical products with no differentiation.
b)
Firms can easily enter and exit the market without restrictions.
c)
Firms have some market power due to product differentiation.
d)
Firms have no market power due to perfect competition.
34.

Initially, firms in a monopolistically competitive market look like _____, but over time they become more and more like _____.

a)

perfect competition, monopolies

b)

monopolies, perfect competition

c)

oligarchies, monopolies

d)

oligarchies, perfect competiton

35.

With oligopoly,

a)

one firm controls the price of products

b)

a few firms control the price of products

c)

many firms control the price of products

d)

no firms control the price of products

36.

With only a few firms in an industry, we see strategic behavior.

a)

This is the behavior that takes the actions of others into account.

b)

This is the behavior that takes advantage of others.

c)

This is the behavior that takes advantage of economies of scale into account.

d)

This is the behavior that takes the advantage of natural monopolies into account.

37.

Game theory

a)

a set of tools to analyze strategic behavior

b)

a set of tools to analyze the patterns of dynamic systems to better understand and predict their behavior

c)

a set of tools used to inform the design of real-world auctions

d)

a set of tools on how to aggregate individual preferences into a collective decision or ranking

38.

How do we know a market is oligopolistic?

a)

The extent that the top 4 firms dominant a market is > 90%

b)

The extent that the top 4 firms dominant a market is > 80%

c)

The extent that the top 4 firms dominant a market is > 95%

d)

The extent that the top 4 firms dominant a market is > 75%

39.

How do we know a market is oligopolistic?

a)

Herfandel-Hirshman Index (HHI),

b)

Consumer Price Index (CPI)

c)

Gross Domestic Product (GDP)

d)

Producer Price Index (PPI)

40.

The HHI in this industry is (a)   .

41.

Interdependence implies that each firm in an industry:

a)

considers the actions of other firms before deciding on its own output, price, or other strategic actions

b)

considers only their own profits when deciding on its own output, price, or other strategic actions

c)

is reliant on the other firms to be honest and fair

d)

works together to set the best price

42.

A cartel is:

a)

a group of people who do illegal activities together

b)

a group of people who collude together to improve their profits and dominate the market

c)

a group of people who do cartwheels together

43.

The "prisoner's dilemma" game illustrates a case in which:

a)

individuals acting in the best interest of the group choose a course of action that leads to the best outcome for the group as a whole.

b)

individuals acting in their own self-interest choose a course of action that leads to a suboptimal outcome for the group as a whole.

c)

leads to individuals choosing the dominant strategy equilibrium.

d)

leads to individuals choosing the national equilibrium.

44.

No matter what Qatar does, Kuwait should:

a)

Pick high level of oil output because it is the national strategy equilibrium

b)

Pick high level of oil output because it is the dominant strategy equilibrium

c)

Pick low level of oil output because it is the dominant strategy equilibrium

d)

Pick low level of oil output because it is the national strategy equilibrium

45.

Cartels often dissolve because:

a)

behavioral economics

b)

it discourages new entrance into the market

c)

it doesn't result in a division of spoils

d)

there are no hold outs

46.

People who are stuck in a prisoner's dilemma may try to find a way out. In the above graph, Nick could lie and say he was going to steal in order to eliminate boxes _____.

a)

1, 2

b)

1, 3

c)

3, 4

d)

2, 4

47.

Price matching guarantees:

a)

Ensures that customers will receive the lowest possible price

b)

Ensures that customers will receive the highest possible price

c)

Ensures that customers will receive a discount after every purchase

d)

Ensures that customers will leave satisfied every time

48.

Anti-trust, and fears of collusion on behalf of giant firms,

a)

Allow anti-competitive behavior

b)

Stop anti-competitive beahvior

c)

Ensures that no monopolies exist

d)

Ensures that only oligopolies are possible

49.

Why are collusive agreements difficult for even a few firms to maintain?

a)

Dominant Strategy Equilibrium

b)

National Equilibrium

c)

Cheating

d)

Profit is a signal

50.

Predatory pricing:

a)

when we price below cost to increase competition

b)

when we price above cost to increase competition

c)

when we price below cost to drive out all competition

d)

when we price above cost to drive out all competition

51.

Predatory pricing:

a)

Is easy in real life because profit is a signal that decrease new entrants

b)

Is easy in real life because profit is a signal that increases new entrants

c)

Is difficult in real life because profit is a signal that increases new entrants

d)

Is difficult in real life because profit is a signal that decreases new entrants