Question MULTIPLE CHOICE. Choose the one alternative that best

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

1) What is the difference between perfect competition and monopolistic competition?

A) Perfect competition has a large number of small firms while monopolistic competition

does not.

B) In monopolistic competition, firms produce identical goods, while in perfect competition,

firms produce slightly different goods.

C) Perfect competition has no barriers to entry, while monopolistic competition does.

D) In perfect competition, firms produce identical goods, while in monopolistic competition,

firms produce slightly different goods.

E) Perfect competition has barriers to entry while monopolistic competition does not.

1)

2) In a perfectly competitive market, the type of decision a firm has to make is different in the short

run than in the long run. Which of the following is an example of a perfectly competitive firm’s

short-run decision?

A) the profit-maximizing level of output

B) whether or not to change its plant size

C) how much to spend on advertising and sales promotion

D) what price to charge buyers for the product

E) whether or not to enter or exit an industry

2)

3) The firm’s over-riding objective is to

A) maximize economic profit.

B) avoid an economic loss.

C) maximize total revenue.

D) maximize normal profit.

E) earn a normal profit.

3)

4) The price charged by a perfectly competitive firm is

A) higher the more the firm produces.

B) different than the price charged by competing firms.

C) the same as the market price.

D) indeterminate.

E) lower the more the firm produces.

4)

5) A profit-maximizing output for a single-price monopoly is determined by the intersection of the

________ curves and the profit-maximizing price is found on the ________ curve.

A) total revenue and total cost, total revenue

B) marginal cost and marginal revenue; marginal revenue

C) demand and supply; supply

D) marginal cost and marginal revenue; demand

E) marginal cost and average total cost; demand

5)

6) A single-price monopoly has marginal revenue and marginal cost equal to $19 at 15 units of

output where the price on the demand curve is $38. At this output, average total cost is $15.

What is the total profit earned?

A) $225 B) $570 C) $19 D) $285 E) $345

6)

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7) Rate of return regulation is designed to allow a natural monopoly to

A) underestimate its average cost.

B) earn zero normal profit.

C) earn an economic profit.

D) earn a normal profit.

E) compete with any firm entering the market.

7)

8) Which of the following is true about monopolistic competition but false about perfect

competition?

A) Firms can earn an economic profit in the short run.

B) There are a large number of independently acting sellers.

C) There are no barriers to entry.

D) Firms compete on their product’s price as well as its quality and marketing.

E) Firms cannot earn an economic profit in the long run.

8)

9) What does monopolistic competition have in common with monopoly?

A) mutual interdependence

B) the ability to collude with respect to price

C) a large number of firms

D) a downward-sloping demand curve

E) barriers to entry

9)

10) Firms in monopolistic competition have demand curves that are

A) U-shaped.

B) horizontal.

C) downward sloping.

D) vertical.

E) upward sloping.

10)

2

11) Kevin owns a personal training gymnasium in Orlando. The above figure shows the demand

and cost curves for his firm, which competes in a monopolistically competitive market. Kevin

will train how many clients per day?

A) between 2 and 4

B) 6

C) 10

D) 4

E) None of the above answers is correct.

11)

12) Kevin owns a personal training gymnasium in Orlando. The above figure shows the demand

and cost curves for his firm, which competes in a monopolistically competitive market. What

price will Kevin charge per session?

A) $20 B) $80 C) $60 D) $100 E) $40

12)

13) In monopolistic competition, the products of different sellers are

A) similar but slightly different.

B) unique without any close or perfect substitutes.

C) perfect substitutes.

D) identical.

E) either identical or differentiated.

13)

14) When a monopolistically competitive firm’s demand curve shifts leftward, what happens to its

marginal revenue curve?

A) It disappears.

B) Nothing, the marginal revenue curve is unchanged.

C) It shifts leftward.

D) It shifts rightward.

E) None of the above is correct because the effect on the marginal revenue curve depends on

whether the demand was initially elastic or inelastic.

14)

3

15) Firms in an oligopoly

i. are independent of each others’ actions.

ii. can each influence the market price.

iii. charge a price equal to marginal revenue.

A) i only

B) i and iii

C) ii only

D) iii only

E) i, ii, and iii

15)

16) When oligopolies seek to operate as a single-price monopoly, the firms produce at the point

where:

A)MR=MC.

B)P =MR.

C)P <ATC.

D)P =MC.

E)MC=ATC.

16)

17) A cartel is a collusive agreement among a number of firms that is designed to

A) expand output and lower prices but not to a predatory level.

B) expand output and lower prices to a predatory level.

C) restrict output and raise prices.

D) expand output and raise prices.

E) restrict output and lower prices to a predatory level.

17)

18) When oligopolies operate like firms in perfect competition, the firms produce at the point where

the

A) price exceeds the average total cost by the greatest amount.

B) price exceeds the marginal cost by the greatest amount.

C) marginal cost equals the average total cost.

D) price is less than the marginal cost.

E) marginal cost equals the price.

18)

19) If one firm in a duopoly increases its production by one unit beyond the monopoly output, that

firm’s profit ________, the other firm’s profit ________, and thetotalprofit of the duopoly

________.

A) increases; increases; increases

B) increases; decreases; decreases

C) does not change; does not change; does not change

D) increases; does not change; increases

E) increases; decreases; does not change

19)

20) A Nash equilibrium is defined as

A) each player taking the action that is best for all the players.

B) forming a cartel with strong penalties for cheaters.

C) earning zero economic profit in the long run.

D) relying on other game players to realize the benefit of cooperation.

E) each player taking the best possible action given the action of the other player.

20)

4

21) In a prisoners’ dilemma game, in the Nash equilibrium

A) neither player gets his or her best outcome.

B) both players get their best outcome.

C) one player gets his or her best outcome and the other player does not.

D) collusion would not alter the outcome.

E) Either answer A or C might be correct depending on whether the players communicate

with each other or do not communicate with each other.

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