WhizKids and members of the Flashnotes Honor Society Exam 3 Question 1 When the conditions in a competitive price taker market are such that the firms are consistently unable to cover their production costs Answers a the firms will suffer short run economic losses that will be exactly offset by long run economic profits b all firms will go out of business since consumers will not pay prices that enable firms to cover their production costs c some firms will exit from the industry and market price will rise until the remaining firms can earn the normal rate of return d resource prices will increase competition will decline and eventually the firms in the industry will earn monopoly profit Question 2 If an amusement park that is highly profitable during the summer months is unable to cover its variable costs during the winter months it should Answers a raise its prices during the winter months b operate during the summer but shut down during the winter months c operate during all months of the year as long as its profits during the summer exceed its losses during the winter d lower its prices during the summer months Question 3 Question 4 Which of the following conditions must be met if a movie theater is going to gain by charging students a dollar less than other customers Answers a Other customers must enjoy movies more than students b The demand of students must be less elastic than that of other customers c The demand of students must be more elastic than that of other customers d Students must have higher incomes than other customers 10 out of 10 points 10 out of 10 points 10 out of 10 points Which one of the following must occur if a profit maximizing restaurant is going to increase its revenues by charging senior citizens persons age 65 and over lower prices than other customers Answers a 10 out of 10 points The demand of senior citizens for the services of the restaurant must be inelastic b Senior citizens must have higher incomes than other potential customers c Other customers must enjoy food more than senior citizens d Senior citizens must have lower incomes than other potential customers e The demand of senior citizens for the services of the restaurant must be elastic Question 5 10 out of 10 points A firm that uses price discrimination to enhance its net revenues will Answers a charge a lower price to consumers with a more elastic demand for the firm s product b expand output as long as average total costs are declining c charge a higher price to consumers with a more elastic demand for the firm s product d expand output as long as price exceeds average total costs Question 6 Why do airlines generally charge travelers willing to stay over Saturday night lower fares than other customers Answers a 10 out of 10 points It cost less to transport travelers willing to stay over a Saturday night b The Saturday night travelers have lower incomes and therefore the airlines would like to help them c The demand of Saturday night travelers is inelastic and therefore the lower fares generate more revenue for the airlines d The demand of Saturday night travelers is elastic and therefore the lower fares generate more revenue Question 7 The owners of a firm are earning economic profit if Answers a their total revenues exceed the monetary payments to labor and other resources in the long run after all plant size adjustments are made 10 out of 10 points b price exceeds average variable costs at the shutdown point c they are earning a return on their capital that is higher than what can generally be earned in other markets d return on their capital is lower than the opportunity cost of employing that capital in their industry Question 8 When profits occur in a competitive market this indicates that Answers a producers value the goods more than the resources used to produce them b producers value the goods more than consumers value the goods c consumers value the goods more than the resources used to produce them d consumers value the goods less than the resources used to produce them Question 9 If a firm is losing money this implies that Answers a this product cannot be produced profitably in the long run b the firm must go out of business immediately c consumers do not understand the value of the product d the value of the resources used to make the product is being reduced 10 out of 10 points 10 out of 10 points Question 10 If marginal revenue exceeds marginal cost what will a profit maximizing monopolist do to maximize profit Answers a 10 out of 10 points Reduce both output and price b Lower price and increase output c Raise price and decrease output d Hold output constant and raise price Question 11 10 out of 10 points In the short run how will a profit maximizing monopolist react if its marginal cost suddenly increases Answers a It will lower price to expand revenue possibilities b It will reduce output and raise price c It will decrease the size of its production facility to lower marginal cost d It will increase plant size to lower marginal cost e It will maintain the current price if profit is still positive If marginal cost exceeds marginal revenue what will a profit maximizing monopolist do to maximize profit Answers a Raise price and expand output to increase profit b Lower price and expand output to increase profit c Attempt to maintain this position because it is consistent with profit maximization d Restrict output to increase the price even higher Question 12 10 out of 10 points Question 13 A monopolist earning short run economic profit determines that at its present level of output marginal revenue is 23 and marginal cost is 30 Which of the following should the firm do to increase profit Answers a 10 out of 10 points Raise price and raise output b Lower price and lower output c Lower output but leave price unchanged d Lower price and raise output e Raise price and lower output Question 14 10 out of 10 points In order to be successful in a competitive market economy what must an entrepreneur do Answers a Provide buyers at least as much satisfaction per dollar spent as the buyer could get elsewhere b Gain government grants and subsidies c Take resources from other producers thus reallocating wealth but not creating new wealth d Supply consumers with goods and services valued less highly than the resources necessary to produce them Question 15 10 out of 10 points Which of the following is true when an entrepreneur introduces a new and improved product that is highly valued
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