Firms in Perfectly Competitive Markets, Monopolistic Competition, Oligopoly and Strategic Behavior, and Monopoly
871. Monopolistic competitors and perfect competitors are alike in:
a) facing horizontal demand curves.
b) earning zero economic profit in the short run.
c) earning zero economic profit in the long run.
d) relying on advertising to attract buyers to their products.
2. Monopolistic competition is characterized by which of the following attributes:
- Many sellers
- Product differentiation
- Significant barriers to entry
a) 1 and 3 only
b) 1 and 2 only
c) 2 and 3 only
d) 1, 2, and 3
3. The cold medication industry is likely to be characterized by which market form?
a) oligopoly
b) monopoly
c) perfect competition
d) monopolistic competition
4. Product differentiation in monopolistically competitive markets implies that:
a) firms make economic profits in the long run.
b) firms will produce at the minimum of the average total cost curve in the long run.
c) individual firms face downward-sloping demand curves.
d) firms are certain to earn economic profits in the short run.
e) both a. and d. are true.
5. Monopolistic competition is similar to monopoly in that:
a) firms face perfectly elastic demand curves.
b) firms sell products for which there are no close substitutes.
c) there is relatively free entry and exit.
d) firms have some influence over the product price.
6. To maximize its profit, a monopolistically competitive firm produces the output level at which __________.
a) its price elasticity of demand equals one
b) MR = MC
c) ATC is minimized
d) MR = AVC
7. Refer to Exhibit 14-1. The firm illustrated in Graph A above maximizes profits (minimizes losses) by producing at level of output __________ and charging pri
a) q1; P1
b) q2; P1
c) q1; P2
d) q2; P2
e) None of the above.
8. Refer to Exhibit 14-1. In Graph A, a profit-maximizing (loss-minimizing) firm will experience a __________ at output quantity __________.
a) loss; q1
b) loss; q2
c) profit; q1
d) profit; q2
9. Refer to Exhibit 14-1. In Graph A, the profit-maximizing (loss-minimizing) firm is making a __________, shown by the area __________.
a) loss; P1 X Y W
b) profit; P1 X Y W
c) loss; P2 Z Y W
d) profit; P2 Z Y W
10. Refer to Figure 14-3. A profit-maximizing (or loss-minimizing) firm in this situation:
a) earns a profit of $360 each week.
b) earns a profit of $240 each week.
c) suffers a loss of $360 each week.
d) suffers a loss of $240 each week.
e) will shut down.
11. Refer to Figure 14-3. The firm's total revenue when profits are maximized (or losses are minimized) is equal to:
a) $5,200 per week.
b) $3,740 per week.
c) $3,360 per week.
d) $3,000 per week.
e) $0 per week.
12. Pure monopoly:
a) is characterized by a single supplier.
b) is a market structure in which no close substitute products are available.
c) exists when entry and survival of potential competitors is extremely unlikely.
d) is characterized by all of the above.
13. When a monopolist is able to sell its product at different prices to different customers, it is likely engaging in:
a) quality-adjusted pricing.
b) price discrimination.
c) price differentiation.
d) illegal activities.
e) None of the above.
14. Which of the following firms practices price discrimination?
a) automobile dealerships
b) airlines
c) movie theaters
d) amusement parks
e) all of the above
15. When setting prices, the monopolist may choose to charge alternative customers different prices based on:
a) geographical location.
b) age.
c) income.
d) all of the above.
16. Refer to Figure 16-1. The profit-maximizing firm will produce at what level of output?
a) 0Q1
b) 0Q2
c) 0Q3
d) None of the above.
17. Refer to Figure 16-1. If the firm is profit maximizing, the region bounded by CADE represents:
a) total costs.
b) total losses.
c) total profits.
d) total consumer surplus.
18. Refer to Figure 16-1. The socially efficient level of output equals:
a) 0Q1.
b) 0Q2.
c) 0Q3.
d) none of the above.
19. Refer to Figure 16-1. The welfare loss due to monopoly is indicated in the diagram as area:
a) DGE.
b) DFH.
c) DFQ2Q1.
d) EGQ3Q1.
e) EFG.
20. Refer to Figure 16-3. If the government is able to regulate the monopolist using marginal-cost pricing, what price and output combinations are expected to r
a) P5 and Q2
b) P2 and Q2
c) P3 and Q1
d) P4 and Q3
e) P6 and Q4
21. Refer to Figure 16-3. If the government is able to regulate the monopolist using average-cost pricing, what price and output combinations are expected to re
a) P5 and Q2
b) P2 and Q2
c) P3 and Q1
d) P4 and Q3
e) P6 and Q4
22. The U. S. Postal Service historically has had a monopoly over the market for the delivery of first-class letters in the United States.
a) True
b) False
23. One difficulty associated with average cost pricing regulation of natural monopolies is that firms have little or no incentive to minimize production costs.
a) True
b) False
24. A monopoly firm can sell as much output as it wants at whatever price it sets.
a) True
b) False
25. The monopolist, like the perfect competitor, maximizes profits at the output where marginal revenue equals marginal cost.
a) True
b) False
26. Refer to Exhibit 13-2. Graph A exhibits a price-taking firm:
a) experiencing a loss of $80.
b) making a profit of $80.
c) making a profit of $400.
d) experiencing a loss of $400.
27. Refer to Exhibit 13-2. Graph B exhibits a price-taking firm:
a) which will lose money when the market price equals $4.90.
b) which will make an economic profit when the market price equals $4.90.
c) which will break even when the market price equals $4.90.
d) which will shut down when the market price equals $4.90.
28. Refer to Exhibit 13-2. Graph C exhibits a price-taking firm:
a) experiencing a loss of $120.
b) making a profit of $120.
c) making a profit of $720.
d) experiencing a loss of $600.
e) which is breaking even.
29. Refer to Exhibit 13-2. Total revenue for the firm in Graph C equals:
a) $120.
b) $150.
c) $600.
d) $720.
e) none of the above.
30. Refer to Table 13-1. What is the value of the variable Y shown in the table?
a) $0
b) $12
c) $16
d) $28
e) $40
31. Refer to Table 13-1. What is the value of the variable Z shown in the table?
a) $0
b) -$38
c) -$35
d) -$40
e) $60
32. A profit-maximizing, price-taking firm should cease production whenever:
a) the firm is making a loss.
b) the firm is earning zero economic profit.
c) the price is less than minimum average fixed cost.
d) the price is less than minimum average variable cost.
e) either a. or b. occur.
33. A firm in a perfectly competitive industry will expand output as long as:
a) marginal revenue is less than average revenue.
b) marginal cost is less than marginal revenue.
c) marginal cost is less than average total cost.
d) marginal revenue is less than average total cost.
e) marginal revenue is less than marginal cost.
34. Firms will continue to enter a competitive industry until:
a) the supply curve is vertical.
b) the market price falls below average variable cost.
c) any economic profits have been competed away.
d) all resources are fully employed.
35. In long-run equilibrium under perfect competition:
a) price will equal minimum average fixed cost.
b) firms will earn economic profits due to the existence of barriers to entry.
c) the demand curve facing individual firms will fall to the level tangent to the minimum average total cost curve.
d) firms will produce at the level of output where marginal revenue exceeds marginal cost by the greatest dollar amount.
36. Economic profits in a perfectly competitive industry will encourage entry of new firms, which will shift the market supply curve to the right.
a) True
b) False
37. Firms should shut down in the short run whenever price is less than the average total cost.
a) True
b) False
38. The behavior of an individual perfectly competitive firm has a perceptible influence on the market price.
a) True
b) False
39. A perfectly competitive firm faces a perfectly elastic demand curve.
a) True
b) False
40. An oligopoly is a market:
a) dominated by a few buyers.
b) dominated by one buyer.
c) dominated by a few sellers.
d) with many sellers.
41. Oligopoly firms:
a) usually act as if they were a monopoly producer.
b) generally charge a price for goods and services equal to marginal cost.
c) base their pricing and output decisions on the likely responses of rival firms.
d) are isolated from competition by low barriers to entry.
42. Which of the following is not considered to be an oligopoly industry?
a) oil
b) retail clothing
c) steel
d) commercial airlines
e) automobiles
43. In the kinked demand oligopoly model, if one firm were to increase its price, competitors would be expected to:
a) refrain from raising their prices, hoping to take away part of the firm's market share.
b) follow their lead and raise their prices.
c) decrease their prices in response.
d) get together with the firm and convince it to lower its prices.
44. For a time, either R. J. Reynolds or Phillip Morris raised prices of cigarettes twice a year by about 50 cents per carton. The other firms in the industry r
a) predatory pricing.
b) a price war.
c) price leadership.
d) producer sovereignty.
45. The key characteristic of oligopoly markets is "interdependence among firms." This means that:
a) the demand curve faced by each firm is perfectly elastic.
b) each firm produces a product identical to its rivals.
c) each firm must consider how its decisions will affect its competitors.
d) firms will be able to earn above-normal profits in the long run.
Answers
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