Question 1
 
In a decreasing cost industry, an increase in output will lead to
Answer

a.
an upward shift in the ATC curve.
 

b.
an upward shift in the MC curve.
 

c.
a reduction in long-run per-unit costs.
 

d.
an increase in long-run per-unit costs.
 
5 points
Question 2
 
In the above figure, if the firm is producing at Q3 and charging a price of P3, it should
Answer

a.
increase output and decrease price.
 

b.
decrease output and increase price.
 

c.
not change output or price.
 

d.
shut down.
 
5 points
Question 3
 
To be able to engage in profit-maximizing price searching, a monopoly firm must be able to
Answer

a.
prevent the entry of other firms into the market for its product.
 

b.
induce the entry of other firms into the market for its product.
 

c.
avoid earning negative economic profits in the short run.
 

d.
always earn zero economic profits.
 
5 points
Question 4
 
When marginal cost pricing occurs,
Answer

a.
price equals the additional cost society incurs in producing the next unit of an item.
 

b.
the firm can only break even if it does not set price to marginal cost.
 

c.
price equals average variable cost but exceeds average total cost.
 

d.
the firm is at the shutdown point.
 
5 points
Question 5
 
The portion of consumer surplus that no one in society is able to obtain in a situation of monopoly is known as
Answer

a.
a market externality.
 

b.
a market failure.
 

c.
an unrealized loss.
 

d.
a deadweight loss.
 
5 points