question
If the entry or exit of firms does not affect the resource prices in an industry, we refer to it as a
answer
fixed-price industry.
price-controlled industry.
constant-cost industry.
price-taking industry.
C
price-controlled industry.
constant-cost industry.
price-taking industry.
C
question
Long-run competitive equilibrium
answer
is realized only in constant-cost industries.
will never change once it is realized.
is not economically efficient.
results in zero economic profits.
D
will never change once it is realized.
is not economically efficient.
results in zero economic profits.
D
question
In pure competition, if the market price of the product is higher than the minimum average total cost of the firms, then
answer
some firms will exit the industry and the industry supply will decrease.
other firms will enter the industry and the industry supply will increase.
some firms will exit the industry and the industry supply will increase.
other firms will enter the industry and the industry supply will decrease.
B
other firms will enter the industry and the industry supply will increase.
some firms will exit the industry and the industry supply will increase.
other firms will enter the industry and the industry supply will decrease.
B
question
Suppose the market for corn is a purely competitive, constant-cost industry that is in long-run equilibrium. Now assume that an increase in consumer demand occurs. After all resulting adjustments have been completed, the new equilibrium price will be
answer
the same as the initial equilibrium price, but the new industry output will be greater than the original output.
greater than the initial price, and the new industry output will be greater than the original output.
less than the initial price, but the new industry output will be greater than the original output.
the same as the initial equilibrium price, and the industry output will remain unchanged.
A
greater than the initial price, and the new industry output will be greater than the original output.
less than the initial price, but the new industry output will be greater than the original output.
the same as the initial equilibrium price, and the industry output will remain unchanged.
A
question
Assume a purely competitive increasing-cost industry is in long-run equilibrium. If a decline in demand occurs, firms will
answer
leave the industry, price will fall, and quantity produced will rise.
enter the industry and price and quantity will both rise.
leave the industry and price and quantity will both rise.
leave the industry, price will fall, and quantity produced will fall.
D
enter the industry and price and quantity will both rise.
leave the industry and price and quantity will both rise.
leave the industry, price will fall, and quantity produced will fall.
D
question
In a decreasing-cost industry,
answer
there will be no firm entry because the increased supply will reduce the long-run equilibrium price.
the law of demand does not apply.
greater demand leads to higher long-run equilibrium prices.
lower demand leads to higher long-run equilibrium prices.
D
the law of demand does not apply.
greater demand leads to higher long-run equilibrium prices.
lower demand leads to higher long-run equilibrium prices.
D
question
Refer to the accompanying graphs for a competitive market in the short run. Which of the following statements is true?
answer
The representative firm will increase production.
The representative firm is experiencing economic losses.
The representative firm is breaking even.
The representative firm is making economic profits.
B
The representative firm is experiencing economic losses.
The representative firm is breaking even.
The representative firm is making economic profits.
B
question
The long-run supply curve would be perfectly elastic when
answer
an increase in demand does not cause a change in product price.
an increase in demand causes an increase in product price.
a decrease in demand causes an increase in short-run supply.
a decrease in demand causes an increase in product price.
A
an increase in demand causes an increase in product price.
a decrease in demand causes an increase in short-run supply.
a decrease in demand causes an increase in product price.
A
question
What happens in a decreasing-cost industry when some firms leave and the industry's output contracts?
answer
The average cost will increase.
The average cost will decrease.
The total cost will decrease.
The product price will decrease.
A
The average cost will decrease.
The total cost will decrease.
The product price will decrease.
A
question
The provided graph depicts a situation where, if the market demand for the product increases, the prices of the resources used by the firms in the industry would
answer
increase.
decrease.
stay constant.
be set by the government.
A
decrease.
stay constant.
be set by the government.
A
question
Under pure competition, in the long run
answer
neither allocative efficiency nor productive efficiency is achieved.
both allocative efficiency and productive efficiency are achieved.
productive efficiency is achieved, but allocative efficiency is not.
allocative efficiency is achieved, but productive efficiency is not.
B
both allocative efficiency and productive efficiency are achieved.
productive efficiency is achieved, but allocative efficiency is not.
allocative efficiency is achieved, but productive efficiency is not.
B
question
Which of the following conditions is true for a purely competitive firm in long-run equilibrium?
answer
P> MC = minimum ATC.
P> MC > minimum ATC.
P = MC = minimum ATC.
P< MC < minimum ATC.
C
P> MC > minimum ATC.
P = MC = minimum ATC.
P< MC < minimum ATC.
C
question
In long-run equilibrium, a purely competitive firm will operate where price is
answer
greater than MR but equal to MC and minimum ATC.
greater than MR and MC, but equal to minimum ATC.
greater than MC and minimum ATC, but equal to MR.
equal to MR, MC, and minimum ATC.
D
greater than MR and MC, but equal to minimum ATC.
greater than MC and minimum ATC, but equal to MR.
equal to MR, MC, and minimum ATC.
D
question
Resources are efficiently allocated when production occurs at that output at which
answer
P equals MR.
P equals AVC.
P exceeds MR.
P equals MC.
D
P equals AVC.
P exceeds MR.
P equals MC.
D
question
The accompanying graph shows the long-run supply and demand curves in a purely competitive market. We know that in this market, the marginal
answer
cost equals marginal benefit at P 1 Q 1.
benefit exceeds marginal cost at the output level of Q 2.
cost exceeds marginal benefit at the output level of Q 2.
benefit equals marginal cost at all points on the supply curve.
B
benefit exceeds marginal cost at the output level of Q 2.
cost exceeds marginal benefit at the output level of Q 2.
benefit equals marginal cost at all points on the supply curve.
B
question
The accompanying graph represents the purely competitive market for a product. When the market is at equilibrium, the total opportunity cost of producing the equilibrium output level would be represented by the area
answer
b + c.
b.
c.
a + b + c.
C
b.
c.
a + b + c.
C
question
Creative destruction is
answer
the process by which large firms buy up small firms.
the process by which new firms and new products replace existing dominant firms and products.
a term coined many years ago by Adam Smith.
applicable to planned economies but not to market economies.
B
the process by which new firms and new products replace existing dominant firms and products.
a term coined many years ago by Adam Smith.
applicable to planned economies but not to market economies.
B
question
Creative destruction is illustrated by which of the following pairs of products?
answer
bicycles and helmets
digital cameras and film
DVD players and DVDs
Netflix and iPads
B
digital cameras and film
DVD players and DVDs
Netflix and iPads
B
question
(Consider This) Which of the following statements is true about U.S. firms?
answer
Over half are bankrupt within the first two years after starting up.
Over half are bankrupt within the first five years after starting up.
Nearly 65 percent last 10 years or more.
The life expectancy of a U.S. firm is approximately 22 years.
B
Over half are bankrupt within the first five years after starting up.
Nearly 65 percent last 10 years or more.
The life expectancy of a U.S. firm is approximately 22 years.
B
question
Productive efficiency refers to
answer
cost minimization, where P = minimum ATC.
production at a level where P = MC.
maximizing profits by producing where MR = MC.
setting TR = TC.
A
production at a level where P = MC.
maximizing profits by producing where MR = MC.
setting TR = TC.
A
question
In the diagram, at output level Q1,
answer
neither productive nor allocative efficiency is achieved.
both productive and allocative efficiency are achieved.
allocative efficiency is achieved, but productive efficiency is not.
productive efficiency is achieved, but allocative efficiency is not.
A
both productive and allocative efficiency are achieved.
allocative efficiency is achieved, but productive efficiency is not.
productive efficiency is achieved, but allocative efficiency is not.
A
question
Allocative efficiency is achieved when the production of a good occurs where
answer
P = minimum ATC.
P = MC.
P = minimum AVC.
total revenue is equal to TFC.
B
P = MC.
P = minimum AVC.
total revenue is equal to TFC.
B
question
One explanation for the existence of an increasing-cost industry is that
answer
increasing marginal returns to labor occur.
firms produce beyond the point of minimum long-run average total costs.
perfectly elastic long-run supply schedules are observed in the industry.
as the industry expands, prices are bid up for some factors of production.
D
firms produce beyond the point of minimum long-run average total costs.
perfectly elastic long-run supply schedules are observed in the industry.
as the industry expands, prices are bid up for some factors of production.
D
question
If there is a decrease in demand for a product in a purely competitive industry, it results in an industry contraction that will end when the product price is
answer
greater than its marginal cost.
equal to its marginal cost.
less than its marginal cost.
greater than its average cost.
B
equal to its marginal cost.
less than its marginal cost.
greater than its average cost.
B
question
The diagram shows the average total cost curve for a purely competitive firm. At the long-run equilibrium level of output, this firm's total cost
answer
is $10.
is $40.
is $400.
cannot be determined from the information provided.
C
is $40.
is $400.
cannot be determined from the information provided.
C
question
Pure monopoly refers to
answer
any market in which the demand curve for the firm is downsloping.
a standardized product being produced by many firms.
a single firm producing a product for which there are no close substitutes.
a large number of firms producing a differentiated product.
C
a standardized product being produced by many firms.
a single firm producing a product for which there are no close substitutes.
a large number of firms producing a differentiated product.
C
question
One defining characteristic of pure monopoly is that
answer
the monopolist is a price taker.
the monopolist uses advertising.
the monopolist produces a product with no close substitutes.
there is relatively easy entry into the industry, but exit is difficult.
C
the monopolist uses advertising.
the monopolist produces a product with no close substitutes.
there is relatively easy entry into the industry, but exit is difficult.
C
question
What do economies of scale, the ownership of essential raw materials, and patents have in common?
answer
They must all be present before price discrimination can be practiced.
They are all barriers to entry.
They all help explain why a monopolist's demand and marginal revenue curves coincide.
They all help explain why the long-run average cost curve is U-shaped.
B
They are all barriers to entry.
They all help explain why a monopolist's demand and marginal revenue curves coincide.
They all help explain why the long-run average cost curve is U-shaped.
B
question
An exclusive legal right as sole producer for 20 years granted to an inventor of a product is called a
answer
copyright.
franchise.
patent.
license.
C
franchise.
patent.
license.
C
question
The marginal revenue obtained from selling the third unit of output is
answer
$9.
$1.
$6.
$8.
C
$1.
$6.
$8.
C
question
Refer to the two diagrams for individual firms. Figure 2 pertains to
answer
a market characterized by government regulation of price and output.
either an imperfectly competitive or a purely competitive seller.
a purely competitive seller.
an imperfectly
competitive seller.
D
either an imperfectly competitive or a purely competitive seller.
a purely competitive seller.
an imperfectly
competitive seller.
D
question
Refer to the diagram. If this somehow was a costless product (that is, the total cost of any level of output was zero), the firm would maximize profits by
answer
selling the product at the highest possible price at which a positive quantity will be demanded.
producing Q 1 units and charging a price of P 1.
producing Q 3 units and charging a price of P 3.
producing Q 2 units and charging a price of P 2.
D
producing Q 1 units and charging a price of P 1.
producing Q 3 units and charging a price of P 3.
producing Q 2 units and charging a price of P 2.
D
question
Because the monopolist's demand curve is downsloping,
answer
MR will equal price.
price must be lowered to sell more output.
the elasticity coefficient will increase as price is lowered.
its supply curve will also be downsloping.
B
price must be lowered to sell more output.
the elasticity coefficient will increase as price is lowered.
its supply curve will also be downsloping.
B
question
Refer to the diagram for a nondiscriminating monopolist. Marginal revenue will be zero at output
answer
q 1.
q 2.
q 3.
q 4.
B
q 2.
q 3.
q 4.
B
question
If a pure monopolist is operating in a range of output where demand is elastic,
answer
it cannot possibly be maximizing profits.
marginal revenue will be positive but declining.
marginal revenue will be positive and rising.
total revenue will be declining.
B
marginal revenue will be positive but declining.
marginal revenue will be positive and rising.
total revenue will be declining.
B
question
Assume that this monopolist faces zero production costs. The profit-maximizing monopolist will set a price of
answer
$10.
$1.
$7.
$5.
D
$1.
$7.
$5.
D
question
One feature of pure monopoly is that the demand curve
answer
is vertical.
is horizontal.
slopes upward.
slopes downward.
D
is horizontal.
slopes upward.
slopes downward.
D
question
Assume that a monopolist faces a linear demand curve and that it produces the output quantity where total revenue is maximized. At that output, the price elasticity of demand for the product is
answer
greater or equal to one.
less than one.
equal to one.
impossible to determine.
C
less than one.
equal to one.
impossible to determine.
C
question
Refer to the graph, which shows the revenue curves for a monopolist. The elastic portion of the demand curve ranges from quantity
answer
0 to Q 4.
Q2 to Q 4.
0 to Q 3.
Q 3 to Q 4.
C
Q2 to Q 4.
0 to Q 3.
Q 3 to Q 4.
C
question
Refer to the graph, which shows a linear demand curve for a monopolist. In which range of the demand curve (or output quantity) will the firm operate?
answer
to the right of point W
between V and W
between S and T
between quantities 0 and S
D
between V and W
between S and T
between quantities 0 and S
D
question
A monopolist sells 6 units of a product per day at a unit price of $15. If it lowers the price to $14, its total revenue increases by $22. This implies that its sales quantity increases by
answer
4 units per day.
3 units per day.
2 units per day.
1 unit per day.
C
3 units per day.
2 units per day.
1 unit per day.
C
question
Suppose that a pure monopolist can sell 7 units of output at $9 per unit and 8 units at $8.50 per unit. For the monopolist to profitably produce and sell the eighth unit of output, its marginal cost must be anywhere at or below
answer
$9.
$8.50.
$6.50.
$5.00.
D
$8.50.
$6.50.
$5.00.
D
question
Refer to the data for a nondiscriminating monopolist. At its profit-maximizing output, this firm's total profit will be
answer
$82.
zero.
$54.
$27.
B
zero.
$54.
$27.
B
question
The profit-maximizing level of output will be
answer
4 units.
7 units.
6 units.
5 units.
D
7 units.
6 units.
5 units.
D
question
A pure monopolist
answer
will realize an economic profit if price exceeds ATC at the profit-maximizing/loss-minimizing level of output.
will realize an economic profit if ATC exceeds MR at the profit-maximizing/loss-minimizing level of output.
will realize an economic loss if MC intersects the downsloping portion of MR.
always realizes an economic profit.
A
will realize an economic profit if ATC exceeds MR at the profit-maximizing/loss-minimizing level of output.
will realize an economic loss if MC intersects the downsloping portion of MR.
always realizes an economic profit.
A
question
Refer to the diagram for a pure monopolist. Monopoly profit
answer
cannot be determined from the information given.
will be ae per unit sold.
will be bc per unit sold.
will be ac per unit sold.
A
will be ae per unit sold.
will be bc per unit sold.
will be ac per unit sold.
A
question
Assume a pure monopolist is charging price P and selling output Q, as shown on the diagram. On the basis of this information, we can say that
answer
if marginal costs were somehow zero, the firm would be maximizing its profits.
if marginal costs were positive, the firm would increase profits by reducing price and selling more output.
the firm is producing where the price elasticity coefficient is less than one.
the firm is a "price taker."
A
if marginal costs were positive, the firm would increase profits by reducing price and selling more output.
the firm is producing where the price elasticity coefficient is less than one.
the firm is a "price taker."
A
question
Suppose that a monopolist calculates that at its present output level, marginal revenue is $1.00 and marginal cost is $2.00. It could maximize profits or minimize losses by
answer
decreasing price and increasing output.
increasing price and decreasing output.
decreasing price and leaving output unchanged.
decreasing output and leaving price unchanged.
B
increasing price and decreasing output.
decreasing price and leaving output unchanged.
decreasing output and leaving price unchanged.
B
question
Refer to the graph for a profit-maximizing monopolist. At equilibrium, the firm will be earning
answer
positive profits.
negative profits.
zero profits.
profits that cannot be determined from the given graph.
A
negative profits.
zero profits.
profits that cannot be determined from the given graph.
A
question
In response to a cost-reducing technological breakthrough in the production of its product, a profit-maximizing monopolist will normally
answer
increase price and decrease production.
not change its level of output or price.
decrease the price it charges for its product.
increase its output and practice price discrimination.
C
not change its level of output or price.
decrease the price it charges for its product.
increase its output and practice price discrimination.
C
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