Pre-Test Meeting 5

The government imposes a $1,000 per year license

fee on all pizza restaurants. As a result, which cost

curves shift?

• average total cost and marginal cost

• average total cost and average fixed cost

• average variable cost and marginal cost

• average variable cost and marginal cost1

A firm is producing 20 units with an average

total cost of $25 and a marginal cost of $15. If

it increases production to 21 units, which of the

following must occur?

• Marginal cost will decrease

• Average total cost will decrease

• Marginal cost will increase

• Average total cost will increase

If Boeing produces 9 jets per month, its long-run

total cost is $9 million per month. If it produces

10 jets per month, its long-run total cost is

$11 million per month. Boeing exhibits

• rising marginal cost

• economies of scale

• falling marginal cost

• diseconomies of scale

In the long-run equilibrium of a competitive market

with identical firms, what are the relationships among

price P, marginal cost MC, and average total cost ATC?

• P > MC and P > ATC

• P > MC and P =ATC

• P =MC and P > ATC

• P =MC and P =ATC

In the short-run equilibrium of a competitive market

with identical firms, if new firms are getting ready

to enter, what are the relationships among price P,

marginal cost MC, and average total cost ATC?

• P > MC and P > ATC

• P > MC and P =ATC

• P =MC and P > ATC

• P =MC and P =ATC

A competitive firm’s short-run supply curve is its

_________ cost curve above its _________ cost

curve.

• average-total-; marginal-

• average-variable-; marginal-

• marginal-; average-total-

• marginal-; average-variable-

A perfectly competitive firm

• chooses its price to maximize profits.

• picks the price that yields the largest

  market share.

• sets its price to undercut other firms selling

  similar products.

• takes its price as given by market

  conditions.

If regulators impose marginal-cost pricing on a

natural monopoly, a possible problem is that

• consumers will buy more of the good than is

  efficient

• consumers will buy less of the good than is

  efficient

• the firm will lose money and exit the market

• the firm will make excessive profits

Price discrimination by a monopolist refers to

charging different prices based on

• the consumer’s willingness to pay

• the consumer’s racial or ethnic group

• the cost of producing the good for a particular

  consumer

• whether the consumer is likely to become a

  repeat buyer

The deadweight loss from monopoly arises because

• the monopoly firm makes higher profits than a

  competitive firm would

• some potential consumers who forgo buying the

  good value it more than its marginal cost

• consumers who buy the good have to pay more

  than marginal cost, reducing their consumer

  surplus

• the monopoly firm chooses a quantity that fails

  to equate price and average revenue