Econ Questions

Andrea Nicole Z. Rocafort

1. A market is considered a perfect competition if

(i) Firms have the flexibility to price their own products
(ii) Homogenous products
(iii) Many buyers, many sellers
(iv) Many barriers for entry and exit of firms
a. i and iv
b. ii and iii
c. i, ii, and iii
d. iv only
e. all of the above
2. A ________ is a price taker
a. Monopoly
b. Strategic Market
c. Competitive Market
d. Concentrated Market
e. None of the above
3. The accounting profit is always _______ than the economic profit
a. Lower
b. Higher
c. The same
d. Cannot be determined
e. None of the above
Explanation: The accounting profit is always higher because the economic profit adds the
implicit costs and explicit costs as compared to the accounting profit which just considers the
explicit costs.

Use the following information for questions 4 and 5. As part of an estate settlement, Andrea
received Php 1 million. She decided to use all of the money to purchase a small business in
Quezon City. If Andrea would have invested the money in a risk-free bond fund, she could have
made Php 100 000 per year. She also quit her job to devote all of her time to her new venture.
Her salary at her old job was Php 75 000 per year.

4. At the end of the first year of operating her new business, Andreas accountant reported
an accounting profit of Php 150 000. What was Andreas economic profit?
a. Php 25 000 loss
b. Php 25 000 profit
c. Php 50 000 loss
d. Php 50 000 profit
e. Php 75 000 loss
Explanation: Economic profit = Accounting profit Implicit Cost [150 000 75 000 100 000 =
-25 000]
 5. How large would Andreas accounting profits need to be to allow her to attain zero
economic profit?
a. Php 100 000
b. Php 125 000
c. Php 150 000
d. Php 175 000
e. Php 200 000
Explanation: Economic profit = Accounting profit Implicit cost [0 = Accounting profit 175
000 Accounting profit = Php 175 000]

6. The short-run supply curve for a firm in a perfectly competitive market is

a. Likely to be horizontal
b. Likely to slope downward
c. Likely to slope upward
d. Cannot be determined
e. Its marginal cost curve (above average variable cost)
7. The long-run supply curve for a firm in a perfectly competitive market is
a. Likely to be horizontal
b. Likely to slope downward
c. Likely to slope upward
d. Cannot be determined
e. Its marginal cost curve (above average variable cost)
8. When a perfectly competitive firm makes a decision to shut down, it is most likely that
a. Marginal cost is above average variable cost
b. Marginal cost is above average total cost
c. Marginal cost equals marginal revenue
d. Price is below the minimum of average variable cost
e. Fixed costs exceed variable costs
9. When a firm makes a short-run decision not to produce anything during a specified
period of time because of current market conditions, the firm is said to
a. Shut down
b. Exit
c. Enter
d. Withdraw
e. None of the above
Explanation: A shut down is a short-run decision while an exit is a long-run decision
10. Firms that shut down in the short run still have to pay their
a. Variable costs
b. Fixed costs
c. Total costs
d. All of the above
e. None of the above
Explanation: A shut down requires paying fixed costs (e.g. land, rent, etc) because they still own
it but does not pay for variable costs since they do not produce anything
11. At the profit-maximizing level of output
a. Marginal revenue = Average total cost
 b. Marginal revenue = Average variable cost
c. Marginal revenue = Marginal Cost
d. Average revenue = Average total cost
e. Marginal cost = Average variable cost
12. A firms marginal cost has a minimum value of Php 30; its average variable cost has a
minimum value of Php 45; and its average total cost has a minimum value of Php 60.
Then the firm will shut down if the price of its product falls below
a. Php 30
b. Php 45
c. Php 60
d. Any of the above
e. None of the above
Explanation: A firm will shut down when the price goes below the average variable cost of the
product

Use the figure below for questions 13-16

13. At price of Php 5, the profit can be represented by

a. P5 x Q4
b. P5 x Q3
c. (P5 P4) x Q3
d. P5 x (Q4 Q3)
e. (P5 P3) x Q3
Explanation: Profit = Total Revenue Total Cost [Profit = (P5 x Q3) (P4 x Q3)]

14. Firms would be encouraged to enter this market when prices exceed
a. P1
b. P2
c. P3
d. P4
e. P5
Explanation: Firms will enter the market when Total Revenue is equal or more than Total Cost.
 15. The breakeven point can be found in
a. P1
b. P2
c. P3
d. P4
e. P5
Explanation: The breakeven point is at the intersection of the price, average total cost, and
marginal cost

16. The firm will shut down below the point

a. P1
b. P2
c. P3
d. P4
e. P5
Explanation: Shut down will happen below average variable point

17. Which of the following statements is correct

a. In competitive markets, firms that raise their prices are typically rewarded with
larger profits
b. In a perfectly competitive market, firms are unable to differentiate their
product from that of other producers
c. Firms in competitive markets are said to be price makers
d. A firm will shut down in the short run if revenue is not sufficient to cover all of its
fixed costs of production
e. None of the above
18. A monopolys marginal cost will
a. Be less than its average fixed cost
b. Be less than the price per unit of its product
c. Exceed its marginal revenue
d. Equal its average total cost
e. None of the above
19. Which of the following scenarios best represents a monopoly situation?
a. Bill and Tom work separately from on another but both sell a very rare form of
the same diamonds. They are the only sellers of this type of diamond in town.
b. Tom owns a fishing shop in Quezon City in which he sells the top-of-the-line
equipment
c. Bill owns the only grocery store in a small community that lies 200 km from
the nearest city
d. Tom owns a vegetable store among the many sellers of vegeables
e. None of the above represents a monopoly
20. The law governing patents and copyrights
a. Can lead to monopolies
b. Are intended to serve private interests, not the public interests
c. Have cost, but no benefits
 d. All of the above
e. None of the above
21. A firm that has a monopoly on water (which is a necessity) can charge a high price for
water
a. Only if the marginal cost of producing water is high
b. Only if the firm is a natural monopoly
c. Even if the demand for water is low
d. Even if there are new entrants to the market
e. Even if the marginal cost of producing water is low
22. When a single firm can supply a product to an entire market at a smaller cost than could
two or more firms, the industry is called a
a. Resource industry
b. Competitive market
c. Exclusive industry
d. Natural monopoly
e. Government monopoly
23. When a firm operates under conditions of monopoly, its price is
a. Not constrained
b. Constrained by marginal demand
c. Constrained by marginal cost
d. Constrained by marginal revenue
e. Constrained only by its social agenda
24. For a profit-maximizing monopolist,
a. P>MR>MC
b. P>MC>MR
c. P=MR>MC
d. P>MR=MC
e. P=MR=MC
Explanation: Monopolists raise the price until the demand slope in the quantity MC=MR
25. Because many good substitutes exist for a competitive firms product, the demand curve
that it faces is
a. Unit elastic
b. Perfectly inelastic
c. Perfectly elastic
d. Inelastic only over a region
e. Cannot be determined
26. Which of the following statements is true for a monopoly firm?
a. A monopoly firm is a price taker and has no supply curve
b. A monopoly firm is a price taker and has an upward-sloping supply curve
c. A monopoly firm is a price maker and has no supply curve
d. A monopoly firm is a price maker and has an upward-sloping supply curve
e. A monopoly firm is a price maker and has a downward-sloping supply curve

27. Monopoly firms exert their market power by charging a price that is
a. Above average revenue
b. Below average total cost
 c. Above marginal cost
d. Below marginal cost
e. Monopoly firms have no market power

The figure below reflects the cost and revenue structure for a monopoly firm. Use this for
questions 28-31.

28. The demand curve for a monopoly firm can be found in

a. Curve A
b. Curve B
c. Curve C
d. Curve D
e. Cannot be determined
29. The marginal revenue curve for a monopoly firm can be found in
a. Curve A
b. Curve B
c. Curve C
d. Curve D
e. Cannot be determined
Explanation: Marginal revenue curve is always below the demand curve
30. A profit-maximizing monopolys total revenue is equal to
a. P3 x Q2
b. P2 x Q4
c. P0 x Q2
d. P1 x Q2
e. P0 x Q1
Explanation: The quantity can be found where MR and MC intersects while the price can be
found on the intersection of the quantity and the demand curve
31. A profit-maximizing monopolys total cost is equal to
 a. P3 x Q2
b. P2 x Q4
c. P0 x Q2
d. P1 x Q2
e. P0 x Q1
Explanation: The quantity can be found where MR and MC intersects while the price can be
found where the quantity and average total cost intersects

32. Regarding price discrimination, monopolists may opt to charge prices depending on the
customers
a. Nationality
b. Income
c. Age
d. Gender
e. All of the above
33. OPEC is an example of a
a. Monopoly
b. Oligopoly
c. Competitive Market
d. Monopolistic Competition
e. None of the above
Explanation: Oligopoly has 1 product and few market
34. Which of the following statements is INCORRECT
a. When a monopoly charges a higher price, fewer of its good are sold
b. For a monopoly, marginal revenue is often greater than the price they charge
for a good
c. For a monopoly, the demand curve is always higher than the marginal revenue
d. By offering lower prices, customers who buy a large quantity, a monopoly is price
discriminating
e. Some companies merge in order to lower costs through efficient joint production
Explanation: For a monopoly, the price is always greater than the marginal revenue
35. Patent and copyright laws are major sources of
a. Natural monopolies
b. Government-created monopolies
c. Resource monopolies
d. Revenue monopoly
e. None of the above