question
Perfectly competitive firms respond to changing market conditions by varying their
a.
price
b.
output
c.
market share
d.
information
e.
advertising campaigns
a.
price
b.
output
c.
market share
d.
information
e.
advertising campaigns
answer
B
question
Which of the following is likely to be present in a perfectly competitive market?
a.
patents
b.
government licenses
c.
nonprice competition such as advertising
d.
high capital costs
e.
firms producing identical products
a.
patents
b.
government licenses
c.
nonprice competition such as advertising
d.
high capital costs
e.
firms producing identical products
answer
E
question
Firms in perfect competition have no control over
a.
all of the following
b.
where to operate on their average total cost curves
c.
what price to charge
d.
how many inputs to use
e.
how much to produce
a.
all of the following
b.
where to operate on their average total cost curves
c.
what price to charge
d.
how many inputs to use
e.
how much to produce
answer
C
question
The price charged by a perfectly competitive firm is determined by
a.
each individual firm
b.
a group of firms acting together as a cartel
c.
market demand and market supply
d.
the firm's total costs alone
e.
the firm's average variable cost
a.
each individual firm
b.
a group of firms acting together as a cartel
c.
market demand and market supply
d.
the firm's total costs alone
e.
the firm's average variable cost
answer
C
question
The demand curve for the output of a perfectly competitive firm is
a.
perfectly inelastic
b.
perfectly elastic
c.
unit elastic
d.
downward sloping
e.
Nonlinear
a.
perfectly inelastic
b.
perfectly elastic
c.
unit elastic
d.
downward sloping
e.
Nonlinear
answer
B
question
Suppose the equilibrium price in a perfectly competitive industry is $100 and a firm in the industry charges $112. Which of the following will happen?
a.
The firm will not sell any of its output.
b.
The firm will sell more output than its competitors.
c.
The firm's profits will increase.
d.
The firm's revenue will increase.
e
The firm will gradually take over the entire industry.
a.
The firm will not sell any of its output.
b.
The firm will sell more output than its competitors.
c.
The firm's profits will increase.
d.
The firm's revenue will increase.
e
The firm will gradually take over the entire industry.
answer
A
question
Commodity products are
a.
rare and expensive
b.
patented and licensed
c.
highly differentiated
d.
uniform or standardized
e.
ones without impurities
a.
rare and expensive
b.
patented and licensed
c.
highly differentiated
d.
uniform or standardized
e.
ones without impurities
answer
D
question
Marginal revenue is defined as
a.
total revenue divided by quantity
b.
total revenue minus total cost
c.
the change in total revenue divided by the change in quantity
d.
the change in total revenue divided by quantity
e.
the change in total revenue
a.
total revenue divided by quantity
b.
total revenue minus total cost
c.
the change in total revenue divided by the change in quantity
d.
the change in total revenue divided by quantity
e.
the change in total revenue
answer
C
question
A perfectly competitive firm's profit per unit of output equals
a.
price minus average variable cost
b.
price minus marginal cost
c.
total revenue minus total cost
d.
price times quantity
e.
price minus average total cost
a.
price minus average variable cost
b.
price minus marginal cost
c.
total revenue minus total cost
d.
price times quantity
e.
price minus average total cost
answer
E
question
In the short run, if a firm shuts down, its loss is equal to
a.
$0
b.
its variable costs
c.
its fixed costs
d.
fixed costs minus variable costs
e.
fixed costs minus total revenue
a.
$0
b.
its variable costs
c.
its fixed costs
d.
fixed costs minus variable costs
e.
fixed costs minus total revenue
answer
C
question
In the short run, a perfectly competitive shoe manufacturer will continue to produce at a loss if
a.
it is covering all of its fixed cost
b.
it is covering all of its variable cost plus part of its fixed cost
c.
variable cost is less than fixed cost
d.
fixed cost is zero
e.
fixed cost is minimized
a.
it is covering all of its fixed cost
b.
it is covering all of its variable cost plus part of its fixed cost
c.
variable cost is less than fixed cost
d.
fixed cost is zero
e.
fixed cost is minimized
answer
B
question
In the short run, a firm will produce a positive amount of output as long as
a.
P > AVC at some output level
b.
P > MC at some output level
c.
P < AVC at some output level
d.
AVC < ATC at some output level
e.
FC > TR at some output level
a.
P > AVC at some output level
b.
P > MC at some output level
c.
P < AVC at some output level
d.
AVC < ATC at some output level
e.
FC > TR at some output level
answer
A
question
A perfectly competitive firm will produce at an economic loss (negative profit) in the short run rather than discontinue production if there is a quantity at which
a.
price exceeds average variable cost
b.
price exceeds average fixed cost
c.
price exceeds average total cost
d.
price exceeds marginal revenue
e.
price equals marginal cost
a.
price exceeds average variable cost
b.
price exceeds average fixed cost
c.
price exceeds average total cost
d.
price exceeds marginal revenue
e.
price equals marginal cost
answer
A
question
The price that represents the shutdown point for a perfectly competitive firm is the
a.
highest point on the marginal cost curve
b.
lowest point on the marginal cost curve
c.
highest point on the average variable cost curve
d.
lowest point on the average variable cost curve
e.
lowest point on the average total cost curve
a.
highest point on the marginal cost curve
b.
lowest point on the marginal cost curve
c.
highest point on the average variable cost curve
d.
lowest point on the average variable cost curve
e.
lowest point on the average total cost curve
answer
D
question
The perfectly competitive firm's short-run supply curve is the same as the
a.
supply curve of all other firms in the industry
b.
upward-sloping portion of its marginal cost curve
c.
upward-sloping portion of its marginal cost curve at or above minimum average variable cost
d.
upward-sloping portion of its average variable cost curve
e.
market demand curve
a.
supply curve of all other firms in the industry
b.
upward-sloping portion of its marginal cost curve
c.
upward-sloping portion of its marginal cost curve at or above minimum average variable cost
d.
upward-sloping portion of its average variable cost curve
e.
market demand curve
answer
C
question
Which of the characteristics of perfect competition assures that economic profit will be zero in the long run?
a.
Each firm is small relative to the market.
b.
Each firm has access to perfect information.
c.
Goods produced in the market are standardized.
d.
Each firm is a price taker.
e.
There is easy entry and exit in the market.
a.
Each firm is small relative to the market.
b.
Each firm has access to perfect information.
c.
Goods produced in the market are standardized.
d.
Each firm is a price taker.
e.
There is easy entry and exit in the market.
answer
E
question
Firms in perfect competition will leave the industry if they
a.
suffer short-run losses
b.
earn higher revenue
c.
suffer long-run losses
d.
earn a normal profit
e.
earn a zero economic profit
a.
suffer short-run losses
b.
earn higher revenue
c.
suffer long-run losses
d.
earn a normal profit
e.
earn a zero economic profit
answer
C
question
If a perfectly competitive firm is operating in long-run equilibrium and market demand suddenly falls, the short-run result will be
a.
greater economic profit
b.
a normal profit
c.
lower average total cost
d.
lower average variable cost
e.
an economic loss
a.
greater economic profit
b.
a normal profit
c.
lower average total cost
d.
lower average variable cost
e.
an economic loss
answer
E
question
Monopolistically competitive industries consist of
a.
one firm selling several products
b.
one firm selling one product
c.
many firms, all selling identical products
d.
many firms, each selling a slightly different product
e.
many firms, each selling a completely different product
a.
one firm selling several products
b.
one firm selling one product
c.
many firms, all selling identical products
d.
many firms, each selling a slightly different product
e.
many firms, each selling a completely different product
answer
D
question
Collusion among firms to raise price is rare in monopolistically competitive markets because
a.
there are too many firms
b.
there are too few firms
c.
there is only one firm
d.
products are standardized
e.
price leadership is used instead
a.
there are too many firms
b.
there are too few firms
c.
there is only one firm
d.
products are standardized
e.
price leadership is used instead
answer
A
question
A monopolistically competitive firm can raise price somewhat due to
a.
product differentiation
b.
barriers to entry
c.
product similarity
d.
its homogeneous product
e.
high tariffs
a.
product differentiation
b.
barriers to entry
c.
product similarity
d.
its homogeneous product
e.
high tariffs
answer
A
question
When firms in an industry produce differentiated products,
a.
long-run economic profit will always be zero
b.
short-run economic profit will always be positive
c.
the demand curves facing firms will always be perfectly elastic
d.
the demand curves facing firms will always be downward-sloping
e.
new firms will have no incentive to enter the industry in the long run
a.
long-run economic profit will always be zero
b.
short-run economic profit will always be positive
c.
the demand curves facing firms will always be perfectly elastic
d.
the demand curves facing firms will always be downward-sloping
e.
new firms will have no incentive to enter the industry in the long run
answer
D
question
In economics, products are considered "differentiated" only if
a.
they are physically or chemically different
b.
sellers decide that they are different
c.
buyers think that they are different
d.
the government determines that they are different
e.
they are produced by different firms
a.
they are physically or chemically different
b.
sellers decide that they are different
c.
buyers think that they are different
d.
the government determines that they are different
e.
they are produced by different firms
answer
C
question
A monopolistic competitor's demand curve is
a.
perfectly elastic
b.
less elastic than a monopolist's but more elastic than a perfect competitor's
c.
as elastic as an oligopolist's
d.
more elastic than a monopolist's but less elastic than a perfect competitor's
e.
perfectly inelastic
a.
perfectly elastic
b.
less elastic than a monopolist's but more elastic than a perfect competitor's
c.
as elastic as an oligopolist's
d.
more elastic than a monopolist's but less elastic than a perfect competitor's
e.
perfectly inelastic
answer
D
question
The demand curve facing a firm will be more elastic,
a.
the fewer the number of competing firms
b.
the more differentiated the product
c.
the more substitutes there are for its product
d.
the greater the firm's ability to control price
e.
the larger the profit the firm can make
a.
the fewer the number of competing firms
b.
the more differentiated the product
c.
the more substitutes there are for its product
d.
the greater the firm's ability to control price
e.
the larger the profit the firm can make
answer
C
question
In the long run, a monopolistically competitive firm will
a.
produce a greater variety of goods than do firms in other market structures
b.
produce a greater output level than would a perfectly competitive firm
c.
produce where price equals average total cost
d.
earn an economic profit
e.
suffer a loss because of its advertising budget
a.
produce a greater variety of goods than do firms in other market structures
b.
produce a greater output level than would a perfectly competitive firm
c.
produce where price equals average total cost
d.
earn an economic profit
e.
suffer a loss because of its advertising budget
answer
A
question
Because of easy entry, monopolistically competitive firms will
a.
produce at the lowest average total cost
b.
charge a price equal to marginal cost
c.
earn no economic profit in the long run
d.
take advantage of all economies of scale
e.
earn no economic profit in the short run
a.
produce at the lowest average total cost
b.
charge a price equal to marginal cost
c.
earn no economic profit in the long run
d.
take advantage of all economies of scale
e.
earn no economic profit in the short run
answer
C
question
Compared to a firm in perfect competition, the monopolistically competitive firm tends to
a.
produce less and charge a higher price
b.
produce less and charge a lower price
c.
produce more and charge a lower price
d.
produce more and charge a higher price
e.
produce the same quantity
a.
produce less and charge a higher price
b.
produce less and charge a lower price
c.
produce more and charge a lower price
d.
produce more and charge a higher price
e.
produce the same quantity
answer
A
question
Which of the following characteristics distinguishes oligopoly from other market structures?
a.
a horizontal demand curve
b.
a downward-sloping demand curve
c.
production of homogeneous outputs
d.
production of differentiated outputs
e.
interdependence among firms in the industry
a.
a horizontal demand curve
b.
a downward-sloping demand curve
c.
production of homogeneous outputs
d.
production of differentiated outputs
e.
interdependence among firms in the industry
answer
E
question
Oligopolistic industries consist of
a.
a few independent firms
b.
a few interdependent firms
c.
many interdependent firms
d.
many independent firms
e.
a small monopoly
a.
a few independent firms
b.
a few interdependent firms
c.
many interdependent firms
d.
many independent firms
e.
a small monopoly
answer
B
question
The defining characteristic of oligopoly is that each firm
a.
produces the same output as its rivals
b.
acts independently of its rivals
c.
is mutually interdependent
d.
is atomistic
e.
advertises how its products are different from its rivals' products
a.
produces the same output as its rivals
b.
acts independently of its rivals
c.
is mutually interdependent
d.
is atomistic
e.
advertises how its products are different from its rivals' products
answer
C
question
Collusion occurs when
a.
a firm chooses a level of output to maximize its own profit
b.
firms get together to maximize joint profits
c.
firms refuse to follow their price leaders
d.
firms petition their U.S. senators for favors
e.
two firms' price and output decisions come into conflict
a.
a firm chooses a level of output to maximize its own profit
b.
firms get together to maximize joint profits
c.
firms refuse to follow their price leaders
d.
firms petition their U.S. senators for favors
e.
two firms' price and output decisions come into conflict
answer
B
question
If all six suppliers of cement to Metropolis all agree to establishe a price of $45 per ton, this would be
a.
a legal contract
b.
price discrimination
c.
cost-plus pricing
d.
a cartel
e.
beneficial to consumers
a.
a legal contract
b.
price discrimination
c.
cost-plus pricing
d.
a cartel
e.
beneficial to consumers
answer
D
question
During certain periods in the past few decades, if one of the three major breakfast cereal producers in the United States announced a price increase, the other two announced a similar price increase. This is a good example of
a.
monopolistic competition
b.
a cartel
c.
a pure monopoly
d.
the kinked demand curve model of oligopoly
e.
the price leadership model of oligopoly
a.
monopolistic competition
b.
a cartel
c.
a pure monopoly
d.
the kinked demand curve model of oligopoly
e.
the price leadership model of oligopoly
answer
E
question
Game theory focuses on
a.
strategic behavior among interdependent firms
b.
professional athletic events
c.
competition between the players in board games
d.
competition between those in the political arena and those in the market place
e.
the interaction between firms in a competitive industry and those in a non-competitive industry
a.
strategic behavior among interdependent firms
b.
professional athletic events
c.
competition between the players in board games
d.
competition between those in the political arena and those in the market place
e.
the interaction between firms in a competitive industry and those in a non-competitive industry
answer
A
question
A monopolist is
a.
one of a large number of small firms that produce a homogeneous good
b.
one of a small number of large firms that produce a differentiated good
c.
a single seller of a product with many close substitutes
d.
one of a small number of large firms that produce a homogeneous good
e.
a single seller of a product with no close substitutes
a.
one of a large number of small firms that produce a homogeneous good
b.
one of a small number of large firms that produce a differentiated good
c.
a single seller of a product with many close substitutes
d.
one of a small number of large firms that produce a homogeneous good
e.
a single seller of a product with no close substitutes
answer
E
question
Patent laws
a.
reduce incentive to innovate by restricting market entry
b.
reduce incentive to innovate by making it difficult to use the patented innovation
c.
increase incentive to innovate by restricting entry into a market
d.
don't have economic impacts
e.
give a firm the right to provide a wide variety of goods or services
a.
reduce incentive to innovate by restricting market entry
b.
reduce incentive to innovate by making it difficult to use the patented innovation
c.
increase incentive to innovate by restricting entry into a market
d.
don't have economic impacts
e.
give a firm the right to provide a wide variety of goods or services
answer
C
question
A natural monopoly results when a firm has
a.
a license
b.
a patent
c.
official approval to produce a product
d.
decreasing average costs over the range of market demand
e.
exclusive use of a natural resource
a.
a license
b.
a patent
c.
official approval to produce a product
d.
decreasing average costs over the range of market demand
e.
exclusive use of a natural resource
answer
D
question
The demand curve a monopolist uses in making an output decision is
a.
the same as the demand curve facing a perfectly competitive firm
b.
vertical because there are no close substitutes for its product
c.
horizontal because there are no close substitutes for its product
d.
the same as the market demand curve
e.
perfectly inelastic
a.
the same as the demand curve facing a perfectly competitive firm
b.
vertical because there are no close substitutes for its product
c.
horizontal because there are no close substitutes for its product
d.
the same as the market demand curve
e.
perfectly inelastic
answer
D
question
Which of the following is true of marginal revenue for a monopolist that charges a single price?
a.
P = MR because there are no close substitutes for the monopolist's product.
b.
P > MR because the monopolist must decrease price on all units sold in order to sell an additional unit.
c.
P < MR because the monopolist must decrease price on all units sold in order to sell an additional unit.
d.
MR is negative at higher prices.
e.
P = MR only at the profit-maximizing quantity.
a.
P = MR because there are no close substitutes for the monopolist's product.
b.
P > MR because the monopolist must decrease price on all units sold in order to sell an additional unit.
c.
P < MR because the monopolist must decrease price on all units sold in order to sell an additional unit.
d.
MR is negative at higher prices.
e.
P = MR only at the profit-maximizing quantity.
answer
B
question
A profit-maximizing monopolist never produces along the __________ portion of the demand curve because marginal revenue is __________ there.
a.
elastic; positive
b.
elastic; negative
c.
inelastic; negative
d.
inelastic; positive
e.
inelastic; zero
a.
elastic; positive
b.
elastic; negative
c.
inelastic; negative
d.
inelastic; positive
e.
inelastic; zero
answer
C
question
Negative marginal revenue means that
a.
the firm is maximizing its economic profit
b.
the firm is maximizing its total revenue
c.
total revenue is increasing at an increasing rate as output increases
d.
total revenue is increasing at a decreasing rate as output increases
e.
total revenue is decreasing as output increases
a.
the firm is maximizing its economic profit
b.
the firm is maximizing its total revenue
c.
total revenue is increasing at an increasing rate as output increases
d.
total revenue is increasing at a decreasing rate as output increases
e.
total revenue is decreasing as output increases
answer
E
question
Which of the following is true at the profit-maximizing quantity for both a perfectly competitive firm and a monopoly?
a.
Price equals marginal cost.
b.
Price is greater than marginal cost.
c.
Marginal revenue equals marginal cost.
d.
Marginal revenue is less than marginal cost.
e.
Marginal revenue is greater than average revenue.
a.
Price equals marginal cost.
b.
Price is greater than marginal cost.
c.
Marginal revenue equals marginal cost.
d.
Marginal revenue is less than marginal cost.
e.
Marginal revenue is greater than average revenue.
answer
C
question
For a monopolist that does not price discriminate, economic profit is maximized in the short run at a price of $140. Marginal revenue at that output level is
a.
equal to $140
b.
greater than $140
c.
less than $140
d.
less than marginal cost
e.
greater than average revenue
a.
equal to $140
b.
greater than $140
c.
less than $140
d.
less than marginal cost
e.
greater than average revenue
answer
C
question
One likely result of monopoly power is
a.
a wide variety of substitute products from which consumers can choose
b.
an elimination of barriers to industry entry
c.
a decline in government regulation
d.
a higher price than would exist in a competitive industry
e.
an improvement in allocative efficiency
a.
a wide variety of substitute products from which consumers can choose
b.
an elimination of barriers to industry entry
c.
a decline in government regulation
d.
a higher price than would exist in a competitive industry
e.
an improvement in allocative efficiency
answer
D
question
Barriers to entry
a.
prevent monopolies from earning profit in the long run
b.
prevent monopolies from earning profit in the short run
c.
allow monopolies to earn profit in the long run
d.
prevent government from regulating a monopoly
e.
prevent a natural monopoly from raising its price
a.
prevent monopolies from earning profit in the long run
b.
prevent monopolies from earning profit in the short run
c.
allow monopolies to earn profit in the long run
d.
prevent government from regulating a monopoly
e.
prevent a natural monopoly from raising its price
answer
C
question
The main reason a monopolist can earn long-run economic profit, whereas a perfectly competitive firm cannot, is that
a.
monopolists operate under economies of scale
b.
perfectly competitive firms have opportunity costs
c.
demand for the monopolist's output is inelastic
d.
demand for the monopolist's output is elastic
e.
there are no barriers to entry in perfect competition
a.
monopolists operate under economies of scale
b.
perfectly competitive firms have opportunity costs
c.
demand for the monopolist's output is inelastic
d.
demand for the monopolist's output is elastic
e.
there are no barriers to entry in perfect competition
answer
E
question
An important difference between a perfectly competitive firm and a monopolist is that
a.
the perfectly competitive firm tends to be larger
b.
only the monopolist attempts to maximize profit
c.
only the perfectly competitive firm maximizes profit
d.
the perfectly competitive firm faces a horizontal demand curve and the monopolist faces a downward-sloping demand curve
a.
the perfectly competitive firm tends to be larger
b.
only the monopolist attempts to maximize profit
c.
only the perfectly competitive firm maximizes profit
d.
the perfectly competitive firm faces a horizontal demand curve and the monopolist faces a downward-sloping demand curve
answer
D
question
When compared to firms in perfect competition, monopolists tend to charge __________ prices and offer __________ quantities of output.
a.
lower; lower
b.
higher; lower
c.
lower; higher
d.
higher; higher
e.
higher; the same
a.
lower; lower
b.
higher; lower
c.
lower; higher
d.
higher; higher
e.
higher; the same
answer
B
question
If a perfectly competitive industry is monopolized, consumer surplus
a.
can be expected to decrease
b.
will usually remain constant
c.
can be expected to increase
d.
drops from a high value to zero
e.
increases from zero to a high value
a.
can be expected to decrease
b.
will usually remain constant
c.
can be expected to increase
d.
drops from a high value to zero
e.
increases from zero to a high value
answer
A
question
The welfare loss of monopoly is also called
a.
converted consumer surplus
b.
deadweight loss
c.
economic profit under monopoly
d.
producer surplus
e.
contestable profit
a.
converted consumer surplus
b.
deadweight loss
c.
economic profit under monopoly
d.
producer surplus
e.
contestable profit
answer
B
question
The practice of charging different prices to different consumers of the same product is called
a.
monopolistic pricing
b.
unit pricing
c.
price discrimination
d.
elasticity pricing
e.
marginal cost pricing
a.
monopolistic pricing
b.
unit pricing
c.
price discrimination
d.
elasticity pricing
e.
marginal cost pricing
answer
C
question
Suppose that a price-discriminating monopolist divides its market into two segments. If the firm sells its product for a price of $42 in the market segment where demand is inelastic, the price in the market segment that has elastic demand will be
a.
$42
b.
greater than $42
c.
less than $42
d.
less than marginal revenue in that market segment
e.
equal to marginal revenue in that market segment
a.
$42
b.
greater than $42
c.
less than $42
d.
less than marginal revenue in that market segment
e.
equal to marginal revenue in that market segment
answer
C
question
Suppose that a price-discriminating monopolist divides its market into two segments. The firm will charge the lower price in the market segment where consumers
a.
have relatively less elastic demand
b.
have relatively more elastic demand
c.
attach a higher marginal value to each unit of the good
d.
have perfectly inelastic demand
e.
attach higher average value to units of the good
a.
have relatively less elastic demand
b.
have relatively more elastic demand
c.
attach a higher marginal value to each unit of the good
d.
have perfectly inelastic demand
e.
attach higher average value to units of the good
answer
B
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