Question 41) If a monopolistically competitive seller’s marginal cost is $3.5

41) If a monopolistically competitive seller’s marginal cost is $3.56, the firm will decrease its output

if

A) its marginal revenue is less than $3.56.

B) its marginal revenue is equal to $3.56.

C) its marginal revenue is more than $3.56.

D) its average total cost is equal to $4.00.

E) Both answers B and D are correct.

41)

42) In monopolistic competition, profit is maximized by producing so that marginal revenue

A) equals price.

B) equals average total cost but not marginal cost.

C) equals marginal cost and which are less than price.

D) equals marginal cost and equals price.

E) is negative.

42)

43) The absence of barriers to entry in monopolistic competition means that in the long run firms

A) earn either an economic profit or zero economic profit.

B) earn zero economic profit.

C) incur an economic loss.

D) earn an economic profit.

E) earn either zero economic profit or suffer an economic loss.

43)

10

44) With an average cost pricing rule, the quantity produced by the natural monopoly is ________

the quantity produced with a marginal cost pricing rule.

A) less than

B) greater than

C) not comparable to

D) equal to

E) greater than in the long run and less than in the short run than

44)

45) Because of the number of firms in monopolistic competition

A) each firm has a large market share.

B) it is possible for the firms to collude.

C) one firm has the ability to dictate market conditions.

D) each firm must carefully monitor what its competitors do.

E) no one firm can dominate the market.

45)

46) If a large number of firms are competing, the market could be

A) monopolistic competition or monopoly.

B) perfect competition or monopoly.

C) oligopoly or monopoly.

D) perfect competition or monopolistic competition.

E) monopolistic competition or oligopoly.

46)

47) With a natural monopoly

A) no regulation is necessary because it is a natural monopoly.

B) regulation takes the form of breaking the company into several competing firms.

C) regulation takes the form of forcing the company out of business.

D) regulation can take the form of average cost pricing to allow coverage of costs.

E) regulation takes the form of forcing competition from new firms.

47)

48) If a natural monopoly is regulated using

A) a total cost pricing rule, the firm will exit the industry.

B) a marginal cost pricing rule, the firm maximizes its profit.

C) an average cost pricing rule, the firm maximizes its profit.

D) a marginal cost pricing rule, the firm incurs an economic loss.

E) an average cost pricing rule, the firm incurs an economic loss.

48)

49) Price cap regulation is defined as regulation that

A) imposes a price ceiling on the regulated firm.

B) is essentially the same as rate of return regulation.

C) uses average cost pricing to ensure costs are covered.

D) uses marginal cost pricing to ensure efficient output.

E) encourages firms to exaggerate costs to increase profits.

49)

50) The process of price cap regulation includes which of the following?

i. a price ceiling.

ii. marginal cost pricing.

iii. average cost pricing

A) i and ii B) i and iii C) ii only D) ii and iii E) i only

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