31) Which of the following is correct?
A) In the long run, a firm in monopolistic competition earns zero economic profit and its
price is equal to the minimum average total cost.
B) In the long run, a firm in monopolistic competition can earn an economic profit because of
product differentiation.
C) A firm in perfect competition operates at maximum average total cost in the long run.
D) In the long run, a firm in monopolistic competition maximizes its profit at a point where
price is equal to average total cost but the average total cost is not minimized.
E) A firm in monopolistic competition does not have excess capacity in the long run.
31)
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32) A cartel is most likely to occur in
A) perfect competition as firms compete by reducing cost.
B) oligopoly as firms compete to lower price and increase their own profits.
C) monopolistic competition where firms collude to increase profits.
D) monopoly because it faces no competition.
E) oligopoly as firms act together to raise prices and increase profits.
32)
33) When firms in monopolistic competition are making an economic profit, firms will
A) enter the industry, and demand will decrease for the original firms.
B) exit the industry, and demand will increase for the firms that remain.
C) enter the industry and then will exit the industry.
D) enter the industry, and demand will increase for the original firms.
E) exit the industry, and demand will decrease for the firms that remain.
33)
34) Herb’s Inc. has a large share of its market and is tempted to collude with the few firms that are in
its market. Herb’s operates in
A) a perfectly competitive market.
B) collusively protected market.
C) a monopoly market.
D) a monopolistically competitive market.
E) an oligopoly.
34)
35) A cartel is
A) a market structure with a large number of small firms.
B) a market with only two firms.
C) a group of firms acting together to raise price, decrease output, and increase economic
profit.
D) a market structure with a small number of large firms.
E) another name for an oligopoly.
35)
36) For a firm in monopolistic competition, the efficient scale is the amount of output at which
________ is a minimum.
A) marginal cost
B) fixed cost
C) average total cost
D) average variable cost
E) average fixed cost
36)
37) A firm in monopolistic competition ________ influence its price and ________ influence the
market average price.
A) cannot; cannot
B) can; only in the short run can
C) can; cannot
D) cannot; can
E) can; can
37)
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38) At a long-run equilibrium in monopolistic competition, price equals
A) marginal cost but not marginal revenue.
B) average total cost.
C) marginal revenue and marginal cost.
D) marginal revenue but not marginal cost.
E) zero.
38)
39) In monopolistic competition there are ________ barriers to entry, so therefore in the long run,
economic profit ________.
A) no; is substantial
B) many; equals zero
C) no; equals zero
D) many; is substantial
E) many; might be earned depending on the degree of product differentiation
39)
40) The major difference between monopolistic competition and monopoly is
A) monopoly is a price setter and a firm in monopolistic competition is a price taker.
B) how the quantity of output is determined.
C) only a monopoly can earn an economic profit in the long run.
D) only a firm in monopolistic competition can earn an economic profit in the short run.
E) only firms in monopolistic competition are protected by barriers to entry.
40)
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)
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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
50)
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51) The above figure represents the market for cable television in Oakland, Florida. Time Warner
Communications (TWC) is the sole provider of cable television to the residents of this Central
Florida community. If TWC is left unregulated, what is the price of cable television in Oakland?
A) $10 B) $20 C) $50 D) $30 E) $40
51)
52) The above figure represents the market for cable television in Oakland, Florida. Time Warner
Communications (TWC) is the sole provider of cable television to the residents of this Central
Florida community. If TWC is left unregulated, how many households in Oakland are served?
A) 40,000 B) 50,000 C) 10,000 D) 30,000 E) 20,000
52)
53) If a regulatory agency sets the price equal to marginal cost for a natural monopoly, the
A) price is the same as the unregulated monopoly price.
B) firm earns an economic profit, though not the maximum economic profit.
C) firm earns a normal profit.
D) firm earns the maximum economic profit.
E) government might have to provide a subsidy to the firm to keep it in business.
53)
54) Capture theory is
A) a model about perfect competition.
B) a theory that explains behavior of competitive firms.
C) an economic theory of regulation.
D) the theory that regulators capture firms’ attention by dictating a very low price.
E) the same as the public interest theory.
54)
55) A monopoly creates a deadweight loss because the monopoly
A) sets a price that is too low.
B) produces less than the efficient quantity.
C) produces more than the efficient quantity.
D) does not maximize profit.
E) earns a normal profit.
55)
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56) Which of the following explains why the marginal cost pricing rule results in an economic loss
for a natural monopoly?
A) TheATC curve is downward sloping throughout the relevant range, therefore theMC is
lower than theATC.
B) TheMC is constant and equal to price.
C) Because output is determined by settingMCequal to the price, consumer surplus is
maximized.
D) The demand curve is downward sloping, therefore price falls as quantity increases.
E) The firm’sMR is always less than its price.
56)
57) ________ natural monopolies is a commonly used, potential solution to the problems presented
by natural monopolies.
A) Giving incentives to firms to become
B) Breaking up firms that are
C) Regulating
D) Refusing to grant patents to
E) Outlawing price discrimination by
57)
58) With perfect price discrimination, the level of output
A) is the same as the amount produced by any monopoly that price discriminates.
B) equals the amount produced by a single-price monopoly.
C) is the same as the amount produced in a perfectly competitive market.
D) exceeds the efficient quantity.
E) is unknown.
58)
59) Comparing a perfectly competitive market to a single-price monopoly with the same costs, we
see that
A) the monopoly market always is more efficient in the use of resources.
B) the monopoly market achieves efficiency in resource use while perfectly competitive
market does not.
C) both markets are equally efficient in their use of resources.
D) the perfectly competitive market achieves efficiency in resource use while the monopoly
market does not.
E) None of the above answers is correct because comparing a perfectly competitive market to
a monopoly is impossible.
59)
60) When a perfectly competitive industry is taken over by a monopoly, some consumer surplus is
transferred to the monopolist in the form of
A) taxes.
B) marginal cost.
C) deadweight loss.
D) economic profit.
E) average variable cost.
60)
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61) With price discrimination, a monopoly
A) produces less output than if it does not price discriminate.
B) converts consumer surplus into deadweight loss.
C) converts producer surplus into economic profit.
D) can charge a single price to all customers.
E) converts consumer surplus into economic profit.
