1)A Monopolistically Competitive Firm Is Likely To

1)A monopolistically competitive firm is likely to

a)have zero economic profits in the short run

b)have zero economic profits in the long-run

c)have zero economic profits in the short-run and in the long-run

d)all of the above

2)Which of the following statements is true in the long-run AND in the short-run

a)firms in a perfectly competitive industry operate at the point where MR=MC

b)firms in a perfectly competitive industry operate at the point where price is equal to the minimum level of the AVC

c)firms in a perfectly competitive industry operate where price is equal to the minimum level of the AFC

d)all of the above

3)Which of the following statements is true

a)economic profits are likely to be less than or equal to the accounting profits

b)economic profits are likely to be always equal to the accounting profits

c)economic profits are likely to be greater than or equal to the accounting profits

d)none of the above

4)Which of the following statements about a perfectly competitive industry would be correct in the event of an increasing cost industry?

a)As the industry expands due to an increase in demand, the cost of inputs declines pushing down both, the MC and the ATC of production

b)As an industry expands due to an increase in demand, the costs of inputs increase driving up the MC and the ATC of production

c)As the industry expands due to an increase in demand, the costs of inputs remain unchanged thus leading to no changes in the ATC and MC

d)All of the above

5)Which of the following is NOT a characteristic of a monopolistically competitive industry

a)Homogeneity of the product

b)Large number of sellers

c)Zero economic profits in the long run

d)Product differentiation

6)In which of the following industry types the marginal revenue of the firm is exactly equal to the average revenue of the firm

a)monopoly

b)oligopoly

c)monopolistic competition

d)perfect competition

7)Which of the choices below best fits monopolistically competitive model?

a)Online retail of books

b)Passenger Airline business

c)Apparel industry

d)Public utilities

Answers:

1)B

2)A

3)A

4)B

5)A

6)D

7)C

Additional Sample:

1)Which of the following statements about a monopoly is incorrect?

a)monopolies arise because of existence of barriers to entry/exit

b)monopoly is defined as a single seller of a product for which there exist a number of close substitutes

c)allowing monopolies to price discriminate enhances efficiency in the society as the output level increases and approaches the perfectly competitive outcome

d)none of the above

2)Which of the following statements is incorrect?

a)a profit maximizing monopoly will operate where the marginal revenue is about equal the marginal cost

b)MC curve acts as the supply function of a profit maximizing monopoly

c)A profit maximizing monopoly produces a lower than efficient level of output

d)None of the above

3)Which of the following industrial models best fits the airline sector?

a)Perfect competition

b)Monopoly

c)Monopolistic competition

d)Oligopoly

4)In which of the following industries economic profits must be zero in the long-run

a)Perfect competition

b)Monopoly

c)Oligopoly

d)All of the above

e)None of the above

True/False

5)The Lerner index measures market power by looking at the firm’s ability to gravitate away from the marginal cost pricing

6)Kinked demand model suggests that small fluctuations in costs of production may lead to no changes in the price of the output

7)Perfectly competitive firms should shut-down their operations when the level of revenues falls below the level of fixed costs of production

Answers:

1)B

2)B

3)D

4)A

5)TRUE

6)TRUE

7)FALSE