Chapter7 Multiple Choice

1. AAA company is a taxi monopolist in a small town. The demand for taxi
services is given by Q = 1,500 - P. AAAs costs are given by TC = 100 + Q2 +
5Q3. Its maximum monopoly profit is:
a. $0
b. $5,500
c. $6,600
d. $7,700
e. $9,900

2. Craigs Red Sea Restaurant is the only restaurant in Columbia, South

Carolina, that sells Ethiopian food. The demand for Ethiopian food is given
by Q = 25 - P. Craigs costs are given by TC = 25 + Q + 5Q2. Its maximum
monopoly profit is:
a. -$1
b. $21
c. $22
d. $24
e. $26

3.Joes T-shirts has costs given by TC = $100 + 3Q, where Q is the number of
shirts. If Joe charges $5 each, the percentage markup for 100 shirts is:
a. 20 percent
b. 25 percent
c. 33 percent
d. 50 percent
e. 67 percent

4. To maximize profit, the firm must:

a. mark up average variable costs

b. mark up marginal costs
c. mark up average fixed costs
d. set the markup equal to 1/( + 1)
e. b and d

5.If the profit-maximizing markup price is marginal cost times 2, the

elasticity of demand must be:
a. -0
b. -1/2
c. -1
d. -4/3
e. -2

6.A chemical company can produce Q units of a chemical H, with marginal costs
of MC = 9 + Q, and can distribute the chemical at marketing marginal costs of
MC = 1. The demand for H is given by P = 30 - 1.5Q. If an external market
exists where H can be bought or sold without marketing expenses for $13, how
much H should the firm produce?
a. 0 units
b. 4 units
c. 5 units
d. 7 units
 e. 10 units

7.A producer refuses to sell some of one joint product. MRA is the marginal
revenue for a low-demand good. If the producer were to sell all its
production, what would be true of MRA?
a. MRA = demand for A
b. MRA = 0
c. MRA = marginal cost of A
d. MRA < 0
e. MRA = 1

8.If revenues from selling quantities x and y of jointly produced goods X and
Y were TRX = 100 - xy + 2x and TRY = 500 - xy + 3y, then marginal revenue with
respect to X would be:
a. -2 - y
b. -y
c. -x(2y + 5)
d. -(2y + 5)
e. 2(1 - y)

9.For a producer of joint products X and Y with total revenue and RY, an
isorevenue curve:
a. isolates RX and RY separately
b. shows points where RX = RY
c. shows points where revenue curves are tangent
d. shows points where RX /RY is constant
e. shows points where RX + RY is constant

10.In the model of monopolistic competition, there can be short-run:

a. losses or profits, but there must
equilibrium
b. profits, but there must be losses
c. losses or profits, but there must
equilibrium
d. losses or profits, but there must
losses in long-run equilibrium
e. losses, but there must be profits
be profits in long-run
in long-run equilibrium
be losses in long-run
be neither profits nor
in long-run equilibrium

11.Consider Fred, who is employed by a national tire store and who earns a
commission selling tires. He earns 25 percent of his gross sales revenue as a
bonus. Freds objective is to maximize:
a. total profits for the store
b. total revenues for the store
c. marginal revenue from sales
d. the difference between marginal revenues and marginal cost
for the store
e. the number of customers he waits on per day

12.A supplier of fur coats estimates that the price elasticity of demand for
its coats is -3.75. The firm has determined that an additional $100,000 in
advertising would generate $275,000 in additional revenues. You would advise
the firm to:
a. advertise, since the marginal revenues are greater than the
 cost of advertising
b. spend only $50,000 on advertising, since the marginal
revenue from an additional dollar of advertising is less
than $3.75
c. abandon the advertising plan, since the demand elasticity is
greater than 1 (in absolute value)
d. abandon the advertising plan, since the marginal revenue
from an additional dollar of advertising is less than $3.75
e. advertise, since the fur coats are a luxury item

13.Firms advertise in order to:

a. build brand loyalty
b. appeal to the price-sensitive consumers
c. increase the demand elasticities of their loyal customers
d. shift the market supply curve to the left
e. shift the market demand curve to the left

14.Firms offer promotions in order to:

a. build brand loyalty
b. appeal to the price-sensitive consumers
c. increase the demand elasticities of their loyal customers
d. shift the market supply curve to the left
e. shift the market demand curve to the left

15.A monopsonist faces a market labor supply curve w = 20 + L, where w is the

wage rate and L is the number of workers employed. If the firms labor demand
curve is w = 200 - 4L, what is the optimal wage rate and quantity of labor
employed?
a. w = 50 and L = 30
b. w = 56 and L = 36
c. w = 80 and L = 30
d. w = 104 and L = 32
e. none of the above
Chapter7
Answer Section

MULTIPLE CHOICE

1. ANS: E PTS: 1
2. ANS: A PTS: 1
3. ANS: E PTS: 1
4. ANS: E PTS: 1
5. ANS: E PTS: 1
6. ANS: B PTS: 1
7. ANS: D PTS: 1
8. ANS: E PTS: 1
9. ANS: E PTS: 1
10. ANS: D PTS: 1
11. ANS: B PTS: 1
12. ANS: D PTS: 1
13. ANS: A PTS: 1
14. ANS: B PTS: 1
15. ANS: A PTS: 1