Question 1. Question : (TCO 3) In which market model would there

1. Question : (TCO 3) In which market model would there be a unique product for which there are no close substitutes?

Student Answer: Monopolistic competition

Pure competition

Pure monopoly

Oligopoly

2. Question : (TCO 3) Local electric or gas utility companies mostly operate in which market model?

Student Answer: Monopolistic competition

Pure competition

Pure monopoly

Oligopoly

3. Question : (TCO 3) The production of agricultural products such as wheat or corn would best be described by which market model?

Student Answer: Monopolistic competition

Pure competition

Pure monopoly

Oligopoly

4. Question : (TCO 3) In pure competition, the demand for the product of a single firm is perfectly

Student Answer: elastic because the firm produces a unique product.

inelastic because the firm produces a unique product.

elastic because many other firms produce the same product.

inelastic because many other firms produce the same product.

5. Question : (TCO 3) A profit-maximizing firm in the short run will expand output

Student Answer: until marginal cost begins to rise.

until total revenue equals total cost.

until marginal cost equals average variable cost.

6. Question : (TCO 3) A firm should always continue to operate at a loss in the short run if

Student Answer: the firm will show a profit.

the owner enjoys helping her customers.

it can cover its variable costs and some of its fixed costs.

the firm cannot produce any other products more profitably.

7. Question : (TCO 3) In pure competition, each extra unit of output that a firm sells will yield a marginal revenue that is

Student Answer: equal to the price.

less than the price.

greater than the price.

equal to the average cost.

8. Question : (TCO 3) Which phrase would be most characteristic of pure monopoly?

Student Answer: Close substitutes

Efficient advertiser

Price taker

Single seller

9. Question : (TCO 3) Barriers to entry

Student Answer: usually result in pure competition.

can result from government regulation.

exist in economic theory but not in the real world.

are typically the result of wrongdoing on the part of a firm.

10. Question : (TCO 3) The nondiscriminating pure monopolist must decrease price on all units of a product sold in order to sell more units. This explains why

Student Answer: there are barriers to entry in pure monopoly.

a monopoly has a perfectly elastic demand curve.

marginal revenue is less than average revenue.

total revenues are greater than total costs at the profit-maximizing level of output.

11. Question : (TCO 3) Which case below best represents a case of price discrimination?

Student Answer: An insurance company offers discounts to safe drivers.

A major airline sells tickets to senior citizens at lower prices than to other passengers.
A professional baseball team pays two players with identical batting averages different salaries.
A utility company charges less for electricity used during “off-peak” hours, when it does not have to operate its less-efficient generating plants.

12. Question : (TCO 3) Monopolistic competition is characterized by firms

Student Answer: producing differentiated products.

making economic profits in the long run.

producing at optimal productive efficiency.

producing where price equals marginal cost.

13. Question : (TCO 3) If monopolistically competitive firms in an industry are making an economic profit, then new firms will enter the industry and the product demand facing existing firms will

Student Answer: increase.

become less elastic.

not be affected.

decrease.

14. Question : (TCO 3) A unique feature of an oligopolistic industry is

Student Answer: low barriers to entry.

standardized products.

diminishing marginal returns.

mutual interdependence.

15. Question : (TCO 3) You are told that the four-firm concentration ratio in an industry is 20. Based on this information you can conclude that

Student Answer: each of the top four firms has 20 percent of industry sales.

the four largest firms account for a combined 80 percent of the industry sales.
the four largest firms account for 20 percent of industry sales.

each of the four largest firms accounts for five percent of industry sales.

16. Question : (TCO 3) A major reason that firms form a cartel is to

Student Answer: reduce the elasticity of demand for the product.

enlarge the market share for each producer.

minimize the costs of production.

maximize joint profits.

17. Question : (TCO 1) Money is not an economic resource because

Student Answer: money, as such, does not produce anything.

idle money balances do not earn interest income.

it is not scarce.

money is not a free gift of nature.

18. Question : (TCO 1) Refer to the diagram which is based on the Circular Flow Model in Chapter 2. Arrows (3) and (4) represent

Graph Description

Student Answer: goods and services, respectively.

incomes and consumer expenditures, respectively.

resources and goods, respectively.

consumer expenditures and income, respectively.

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