Question 1

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Which of the above diagrams correctly portray a nondiscriminating pure monopolist’s demand (D) and marginal revenue (MR) curves?

Select one:

a. A

b. B

c. C

d. D

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The correct answer is: B

Question 2

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In the short run a pure monopolist:

Select one:

a. always earns an economic profit.

b. always earns a normal profit.

c. always realizes a loss.

d. may realize an economic profit, a normal profit, or a loss.

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The correct answer is: may realize an economic profit, a normal profit, or a loss.

Question 3

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Confronted with the same unit cost data, a monopolistic producer will charge:

Select one:

a. the same price and produce the same output as a competitive firm.

b. a higher price and produce a larger output than a competitive firm.

c. a higher price and produce a smaller output than a competitive firm.

d. a lower price and produce a smaller output than a competitive firm.

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The correct answer is: a higher price and produce a smaller output than a competitive firm.

Question 4

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Economic profit in the long run is:

Select one:

a. possible for both a pure monopoly and a pure competitor.

b. possible for a pure monopoly, but not for a pure competitor.

c. impossible for both a pure monopolist and a pure competitor.

d. only possible when barriers to entry are nonexistent.

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The correct answer is: possible for a pure monopoly, but not for a pure competitor.

Question 5

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Refer to the above diagram for a pure monopolist. If a regulatory commission seeks to achieve the most efficient allocation of resources to this line of production, it will set a price of:

Select one:

a. P₁.

b. P₃.

c. P₂.

d. P₄.

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The correct answer is: P₂.

Question 6

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Large minimum efficient scale of plant combined with limited market demand may lead to:

Select one:

a. natural monopoly.

b. patent monopoly.

c. government franchise monopoly.

d. shared monopoly.

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The correct answer is: natural monopoly.

Question 7

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Patents:

Select one:

a. give firms the exclusive right to produce or control a product for 100 years.

b. discourage research and innovation.

c. are a source of monopoly.

d. are also called trademarks.

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The correct answer is: are also called trademarks.

Question 8

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Refer to the above diagram for a pure monopolist. Suppose a regulatory commission is created to determine a legal price for the monopoly. If the commission seeks to provide the monopolist with a “fair return,” it will set price at:

Select one:

a. P₁.

b. P₃.

c. P₂.

d. P₄.

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The correct answer is: P₁.

Question 9

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Pure monopoly means:

Select one:

a. any market in which the demand curve to the firm is downsloping.

b. a standardized product being produced by many firms.

c. a single firm producing a product for which there are no close substitutes.

d. a large number of firms producing a differentiated product.

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The correct answer is: a single firm producing a product for which there are no close substitutes.

Question 10

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Answer the next question(s) on the basis of the following demand and cost data for a pure monopolist:

Refer to the above data. The profit-maximizing price for the monopolist will be:

Select one:

a. $5.00.

b. $2.90.

c. $3.35.

d. $4.50.

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The correct answer is: $4.50.

Question 11

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Refer to the above diagram. At the profit-maximizing level of output, total revenue will be:

Select one:

a. NM times 0M.

b. 0AJE.

c. 0EGC.

d. 0EHB.

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The correct answer is: 0AJE.

Question 12

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Refer to the above diagram. The quantity difference between areas A and C for the indicated price reduction measures:

Select one:

a. marginal cost.

b. marginal revenue.

c. monopoly price.

d. a welfare or efficiency loss.

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The correct answer is: marginal revenue.

Question 13

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Refer to the above diagram for a natural monopolist. If a regulatory commission set a maximum price of P₁, the monopolist would produce output:

Select one:

a. Q₂ and realize a normal profit.

b. Q₄ and realize a normal profit.

c. Q₃ and realize an economic profit.

d. Q₄ and realize a loss.

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The correct answer is: Q₄ and realize a loss.

Question 14

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Refer to the above diagram. At the profit-maximizing level of output, total cost will be:

Select one:

a. NM times 0M.

b. 0AJE.

c. 0CGC.

d. 0BHE.

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The correct answer is: 0BHE.

Question 15

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Pure monopolists may obtain economic profits in the long run because:

Select one:

a. of advertising.

b. marginal revenue is constant as sales increase.

c. of barriers to entry.

d. of rising average fixed costs.

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The correct answer is: of barriers to entry.

Question 16

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Oligopolistic firms engage in collusion to:

Select one:

a. minimize unit costs of production.

b. realize allocative efficiency, that is, the P = MC level of output.

c. earn greater profits.

d. increase production.

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The correct answer is: earn greater profits.

Question 17

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Which of the following is a unique feature of oligopoly?

Select one:

a. mutual interdependence

b. advertising expenditures

c. product differentiation

d. nonprice competition

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The correct answer is: mutual interdependence

Question 18

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Which of the following is correct?

Select one:

a. The excess capacity problem diminishes as the monopolistically competitive firm’s demand curve becomes less elastic.

b. The excess capacity problem means that monopolistically competitive firms typically produce at some point on the rising segment of their average total cost curve.

c. The greater the degree of product variation, the lesser is the excess capacity problem.

d. The greater the degree of product variation, the greater is the excess capacity problem.

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The correct answer is: The greater the degree of product variation, the greater is the excess capacity problem.

Question 19

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Refer to the above diagram for a noncollusive oligopolist. Suppose that the firm is initially in equilibrium at point E where the equilibrium price and quantity are P and Q. Which of the following statements is correct?

Select one:

a. Demand curve D₁ assumes that rivals will match any price change initiated by this oligopolist.

b. Demand curves D₁ and D₂ both assume that rivals will ignore any price change initiated by this oligopolist.

c. Demand curves D₁ and D₂ both assume that rivals will match any price change initiated by this oligopolist.

d. Demand curve D₂ assumes that rivals will match any price change initiated by this oligopolist.

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The correct answer is: Demand curve D₁ assumes that rivals will match any price change initiated by this oligopolist.

Question 20

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The Herfindahl Index:

Select one:

a. measures the prices charged by oligopolistic manufacturers.

b. is another name for the four-firm concentration ratio.

c. tells us whether oligopolistic firms are engaging in collusion.

d. gives much greater weight to larger firms than to smaller firms in an industry.

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The correct answer is: gives much greater weight to larger firms than to smaller firms in an industry.

Question 21

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Clear-cut mutual interdependence with respect to the price-output policies exists in:

Select one:

a. pure monopoly.

b. oligopoly.

c. monopolistic competition.

d. pure competition.

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The correct answer is: oligopoly.

Question 22

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Under which of the following market structures will the long-run equilibrium price be equal to marginal cost?

Select one:

a. oligopoly

b. monopolistic competition

c. pure monopoly

d. pure competition

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The correct answer is: pure competition

Question 23

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The monopolistically competitive seller’s demand curve will become more elastic the:

Select one:

a. more significant the barriers to entering the industry.

b. greater the degree of product differentiation.

c. larger the number of competitors.

d. smaller the number of competitors.

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The correct answer is: larger the number of competitors.

Question 24

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Which of the following is not characteristic of monopolistic competition?

Select one:

a. relatively large numbers of sellers

b. production at minimum ATC in the long-run

c. product differentiation

d. relatively easy entry to the industry

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The correct answer is: production at minimum ATC in the long-run

Question 25

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The above diagram portrays:

Select one:

a. pure competition.

b. collusive oligopoly.

c. noncollusive oligopoly.

d. pure monopoly.

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The correct answer is: noncollusive oligopoly.

Question 26

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Which of the following is an illustration of differentiated oligopoly?

Select one:

a. the aluminum industry

b. the steel industry

c. the soft drink industry

d. retail stores in large cities

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The correct answer is: the soft drink industry

Question 27

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Refer to the above diagram. Equilibrium output is:

Select one:

a. j.

b. h.

c. g.

d. f.

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The correct answer is: g.

Question 28

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Product differentiation is present in:

Select one:

a. purely competitive markets only.

b. monopolistically competitive markets only.

c. oligopolistic markets only.

d. both monopolistically competitive and oligopolistic markets.

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The correct answer is: both monopolistically competitive and oligopolistic markets.

Question 29

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The mutual interdependence that characterizes oligopoly arises because:

Select one:

a. the products of various firms are homogeneous.

b. the products of various firms are differentiated.

c. a small number of firms produce a large proportion of industry output.

d. the demand curves of firms are kinked at the prevailing price.

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The correct answer is: a small number of firms produce a large proportion of industry output.

Question 30

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Oligopoly is difficult to analyze primarily because:

Select one:

a. the number of firms is too large to make collusion understandable.

b. the price and output decisions of any one firm depend on the reactions of its rivals.

c. output may be either homogenous or differentiated.

d. neither allocative nor productive efficiency is achieved.

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The correct answer is: the price and output decisions of any one firm depend on the reactions of its rivals.

Question 31

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Assuming no change in product demand, a pure monopolist:

Select one:

a. can increase price and increase sales simultaneously because it dominates the market.

b. adds an amount to total revenue which is equal to the price of incremental sales.

c. should produce in the range where marginal revenue is negative.

d. must lower price to increase sales.

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The correct answer is: must lower price to increase sales.

Question 32

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Other things equal, in which of the following cases would economic profit be the greatest?

Select one:

a. an unregulated monopolist which is able to engage in price discrimination

b. an unregulated, nondiscriminating monopolist

c. a regulated monopolist charging a price equal to average total cost

d. a regulated monopolist charging a price equal to marginal cost

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The correct answer is: an unregulated monopolist which is able to engage in price discrimination

Question 33

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Which of the following is a characteristic of pure monopoly?

Select one:

a. close substitute products

b. barriers to entry

c. the absence of market power

d. “price taking”

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The correct answer is: barriers to entry

Question 34

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Which of the above diagrams correctly portray a nondiscriminating pure monopolist’s demand (D) and marginal revenue (MR) curves?

Select one:

a. A

b. B

c. C

d. D

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The correct answer is: B

Question 35

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In the short run a pure monopolist:

Select one:

a. always earns an economic profit.

b. always earns a normal profit.

c. always realizes a loss.

d. may realize an economic profit, a normal profit, or a loss.

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The correct answer is: may realize an economic profit, a normal profit, or a loss.

Question 36

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The above diagram implies that whenever a firm’s demand curve is downsloping:

Select one:

a. price discrimination is not possible.

b. monopolists will be more efficient than competitors.

c. the demand and marginal revenue curves will coincide.

d. marginal revenue is less than price.

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The correct answer is: marginal revenue is less than price.

Question 37

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Large minimum efficient scale of plant combined with limited market demand may lead to:

Select one:

a. natural monopoly.

b. patent monopoly.

c. government franchise monopoly.

d. shared monopoly.

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The correct answer is: natural monopoly.

Question 38

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Refer to the above diagram for a natural monopolist. If a regulatory commission were to set a maximum price of P₃, the monopolist would:

Select one:

a. maximize profits.

b. increase output beyond the profit-maximizing level.

c. reduce output below the profit-maximizing level.

d. be unable to make a normal profit.

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The correct answer is: maximize profits.

Question 39

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(Consider This) Children are charged less than adults for admission to professional baseball games but are charged the same prices as adults at the concession stands. This pricing system occurs because:

Select one:

a. children have an elastic demand for game ticket but an inelastic demand for concession items.

b. children have an inelastic demand for game tickets but an elastic demand for concession items.

c. the seller can prevent children from buying game tickets for adults but cannot prevent children from buying concession items for adults.

d. children can personally “consume” only a single game ticket, but can personally consume more than one concession item.

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The correct answer is: the seller can prevent children from buying game tickets for adults but cannot prevent children from buying concession items for adults.

Question 40

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X-inefficiency refers to a situation in which a firm:

Select one:

a. is not as technologically progressive as it might be.

b. encounters diseconomies of scale.

c. fails to realize all existing economies of scale.

d. fails to achieve the minimum average total costs attainable at each level of output.

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The correct answer is: fails to achieve the minimum average total costs attainable at each level of output.

Question 41

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A monopolistically competitive industry combines elements of both competition and monopoly. It is correct to say that the competitive element results from:

Select one:

a. a relatively large number of firms and the monopolistic element from product differentiation.

b. product differentiation and the monopolistic element from high entry barriers.

c. a perfectly elastic demand curve and the monopolistic element from low entry barriers.

d. a highly inelastic demand curve and the monopolistic element from advertising and product promotion.

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The correct answer is: a relatively large number of firms and the monopolistic element from product differentiation.

Question 42

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An important similarity between a monopolistically competitive firm and a purely competitive firm is that:

Select one:

a. both face perfectly elastic demand schedules.

b. economic profit tends toward zero for both.

c. both realize productive efficiency.

d. both realize allocative efficiency.

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The correct answer is: economic profit tends toward zero for both.

Question 43

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For a monopolistically competitive firm in long-run equilibrium:

Select one:

a. price will equal marginal cost.

b. price will equal average total cost.

c. marginal revenue will exceed marginal cost.

d. economic profits will be some positive amount.

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The correct answer is: price will equal average total cost.

Question 44

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Under which of the following market structures will the long-run equilibrium price be equal to marginal cost?

Select one:

a. oligopoly

b. monopolistic competition

c. pure monopoly

d. pure competition

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The correct answer is: pure competition

Question 45

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Nonprice competition refers to:

Select one:

a. competition between products of different industries, for example, competition between aluminum and steel in the manufacture of automobile parts.

b. price increases by a firm that are ignored by its rivals.

c. advertising, product promotion, and changes in the real or perceived characteristics of a product.

d. reductions in production costs that are not reflected in price reductions.

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The correct answer is: advertising, product promotion, and changes in the real or perceived characteristics of a product.

Question 46

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Refer to the above diagram for a monopolistically competitive firm in short-run equilibrium. The profit-maximizing output for this firm will be:

Select one:

a. 100.

b. 160.

c. 180.

d. 210.

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The correct answer is: 160.

Question 47

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Refer to the above diagram for a monopolistically competitive firm in short-run equilibrium. This firm will realize an economic:

Select one:

a. loss of $320.

b. profit of $480.

c. profit of $280.

d. profit of $600.

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The correct answer is: profit of $480.

Question 48

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Select one:

a. Demand curve D₁ assumes that rivals will match any price change initiated by this oligopolist.

b. Demand curves D₁ and D₂ both assume that rivals will ignore any price change initiated by this oligopolist.

c. Demand curves D₁ and D₂ both assume that rivals will match any price change initiated by this oligopolist.

d. Demand curve D₂ assumes that rivals will match any price change initiated by this oligopolist.

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The correct answer is: Demand curve D₁ assumes that rivals will match any price change initiated by this oligopolist.

Question 49

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If an industry evolves from monopolistic competition to oligopoly, we would expect:

Select one:

a. the four-firm concentration ratio to decrease.

b. the four-firm concentration ratio to increase.

c. the four-firm concentration ratio to remain the same.

d. barriers to entry to weaken.

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The correct answer is: the four-firm concentration ratio to increase.

Question 50

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If an oligopoly is faced with a kinked-demand curve that is relatively elastic above, and relatively inelastic below, the going price, then it will:

Select one:

a. increase total revenue by increasing price, but lower total revenue by decreasing price.

b. decrease total revenue by either increasing or decreasing price.

c. increase total revenue by either increasing or decreasing price.

d. increase total revenue by decreasing price, but lower total revenue by increasing price.

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