Quiz 3

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Question #1

Suppose the company of DeBeers which supplies diamonds to retailers is making positive profits initially. Its market is a monopoly.
Due to an economic boom, income increases. In the long run, what happens to the P and q?

A P is unchanged; q is unchanged

B P and q both decrease

C P increases; q decreases

D P unclear; q decreases

E P and q both increase

Question #2

For which of the following does the firm produce when MR equals MC?

A Both

B Neither

C Monopoly

D Competitive Market

E None of the above

Question #3

In a monopoly…

A A firm is the only supplier of a good that every single person always wants so the firm always makes very high profits

B A firm has annual profits above $200 million

C The firm and the market are the same thing

D Its profits are not affected by changes in tastes and preferences

E None of the above

Question #4

Again, suppose a competitive firm for organic farming is at a point where profits are zero. Suddenly an economic boom occurs so consumers’ incomes increase.
In the long run, what happens to Q?

A Unclea

B Increases

C Decreases

D Unchanged

E None of the above

Question #5

Suppose a competitive firm for organic farming is at a point where profits are zero. Suddenly an economic boom occurs so consumers’ incomes increase.
In the short run, what happens to the P and q?

A P and q both increase

B P increases; q decreases

C P unclear; q decreases

D P is unchanged; q is unchanged

E P and q both decrease

Question #6

Suppose a firm in a competitive market is earning zero economic profits. As a result, what will it do in the long run?

A It will boost its production

B There is no such thing as economic profit

C It will not leave the market but will temporarily stop production

D It will remain in the market but keep production unchanged

E It will leave the market

Question #7

According to this course, a competitive market is more efficient than a monopoly.

A FALSE

B TRUE

Question #8

Consider the following information for a firm known as “Emma Industries” that has a monopoly over the product known as Fuhrmanns.
q P TR TC Profit MR MC ∆Profit
0 30 5 — — —
1 27 16
2 24 13
3 21 15
4 18 22
5 15 -10
How much will the firm “Emma Industries” produce?

A 0

B 5

C 4

D 3

E 1

Question #9

Suppose we have a market where there are 100 firms and the economic profit to each firm is $10,000. If the market is competitive, what we do know will happen in the long run?

A The quantity produced by each firm will not change

B The market price will increase even further

C The market will transform into a monopoly

D Five firms will exit the market

E There will be more than 100 firms in this market

Question #10

Suppose we have the following information:
P=$22; q=100;
TC=$1,100 for q=0;
AVC=$11.00 for q=100;
MR=$10
What is the profit for q=100?

A $100

B $0

C $50

D -$50

E Not enough information

Question #11

Suppose I believe that video games are very good for your physical health. I then find a huge number of studies that conclude there are many negative effects from gaming. I ignore this information and persist in my belief. Such persistence would be evidence of which cognitive bias?

A Perla bias

B Confirmation bias

C Overconfidence bias

D Availability bias

E Framing bias

Question #12

According to a recent survey in an Econ 1 class at LAVC, 11 out of 14 students rated murder as a more frequent cause of death than stomach cancer. However, stomach cancer in fact kills 5 times more people than homicide. What likely explains why these students considered murder to be more frequent?

A Overconfidence bias

B Confirmation bias

C Framing bias

D Availability bias

E None of the above

Question #13

Consider the debate of whether to legalize marijuana. Suppose a study is undertaken and finds the CPED of marijuana and alcohol is 0.1. Alcohol is considered to be far worse in its effects than marijuana (alcohol leads to drunk driving, wife beating, etc.). So, this study’s finding would be…

A Evidence against legalizing marijuana

B Evidence for legalizing marijuana

C A total waste of people’s time

D Not evidence for either side

E None of the above

Question #14

Consider the market for new cars. During the Great Recession, demand for this product fell by a lot. From this information, we can infer which of the following about this good’s Income Elasticity of Demand?

A It equals zero

B There is no such thing as the Income Elasticity of Demand

C It is between -0.1 and 0.1

D It is greater than zero

E It is less than zero

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