Which of the following is not a barrier to entry?
A) economies of scale
B) X-inefficiency
C) patents
D) ownership of essential resources
- If a firm in a purely competitive industry is confronted with an equilibrium price of $5, its marginal revenue:
A) will be less than $5.
B) will be greater than $5.
C) will also be $5.
D) may be either greater or less than $5.
3. Under pure competition in the long run:
A) neither allocative efficiency nor productive efficiency are achieved.
B) allocative efficiency is achieved, but productive efficiency is not.
C) productive efficiency is achieved, but allocative efficiency is not.
D) both allocative efficiency and productive efficiency are achieved.
4. The MR = MC rule applies:
A) to firms in all types of industries.
B) only when the firm is a "price taker."
C) only to monopolies.
D) only to purely competitive firms.
5. An industry comprised of a very large number of sellers producing a standardized product is known as:
A) monopolistic competition.
B) oligopoly.
C) pure monopoly.
D) pure competition.
6.
Total Average FixedAverage VariableAverageMarginal
ProductCost& nbsp;CostTotal CostCost
1 $100.00 $17.00$117.00$17.00
2 50.00&nb sp;16.0066.00 15.00
3 33.33 ;15.0048.33 13.00
4 25.00& nbsp;14.2539.25 12.00
5 20.00&n bsp;14.0034.00 13.00
6 16.67 ;14.0030.67 14.00
7 14.29& nbsp;15.7130.00 26.00
8 12.50 ;17.5030.00 30.00
9 11.11&n bsp;19.4430.55 35.00
1010.00&n bsp;21.6031.60 41.00
119.09 24.00&nbs p;33.09 48.00
12&nb sp;8.33 26.67&n bsp;35.00 56.00
Refer to the above data. If the market price for the firm's product is $12, the competitive firm will produce:
A) 4 units at a loss of $109.
B) 4 units at an economic profit of $31.75.
C) 8 units at a loss of $48.80.
D) zero units at a loss of $100.
7.
Total Average FixedAverage VariableAverageMarginal
ProductCost& nbsp;CostTotal CostCost
1 $100.00 $17.00$117.00$17.00
2 50.00&nb sp;16.0066.00 15.00
3 33.33 ;15.0048.33 13.00
4 25.00& nbsp;14.2539.25 12.00
5 20.00&n bsp;14.0034.00 13.00
6 16.67 ;14.0030.67 14.00
7 14.29& nbsp;15.7130.00 26.00
8 12.50 ;17.5030.00 30.00
9 11.11&n bsp;19.4430.55 35.00
1010.00&n bsp;21.6031.60 41.00
119.09 24.00&nbs p;33.09 48.00
12&nb sp;8.33 26.67&n bsp;35.00 56.00
Refer to the above data. If the market price for the firm's product is $32, the competitive firm will produce:
A) 8 units at an economic profit of $16.
B) 5 units at a loss of $10.
C) 8 units at a loss equal to the firm's total fixed cost.
D) 7 units at an economic profit of $41.50.
8. In the short run a purely competitive seller will shut down if:
A) it cannot produce at an economic profit.
B) price is less than average variable cost at all outputs.
C) price is less than average fixed cost at all outputs.
D) there is no point at which marginal revenue and marginal cost are equal.
9. What do economies of scale, the ownership of essential raw materials, and patents have in common?
A) They must all be present before price discrimination can be practiced.
B) They are all barriers to entry.
C) They all help explain why a monopolist's demand and marginal revenue curves coincide.
D) They all help explain why the long-run average cost curve is U-shaped.
10. If a monopolist's marginal revenue is $3.00 and its marginal cost is $4.50, it will increase its profits by:
A) reducing output and raising price.
B) reducing both output and price.
C) increasing both price and output.
D) raising price while keeping output unchanged.
11. Which of the following conditions is not required for price discrimination?
A) Buyer with different elasticities must be physically separate from each other.
B) The good or service cannot be resold by original buyers.
C) The seller must be able to segment the market, that is, to distinguish buyers with different elasticities of demand.
D) The seller must possess some degree of monopoly power.
12. Nonprice competition refers to:
A) competition between products of different industries, for example, competition between aluminum and steel in the manufacture of automobile parts.
B) price increases by a firm that are ignored by its rivals.
C) advertising, product promotion, and differentiation
D) reductions in production costs that are not reflected in price reductions.
13. no graph provided hence Q 13 and 14 not answered.
Refer to the above diagram for a purely competitive producer. The firm will produce at a loss at all prices:
A) above P4.
B) between P2 and P3.
C) above P1.
D) above P3.
14. Refer to the above diagram for a purely competitive producer. The lowest price at which the firm should produce (as opposed to shutting down) is:
A) P1.
B) P2.
C) P3.
D) P4.
15. Which of the following approximates a pure monopoly?
A) the foreign exchange market
B) the diamond market
C) the Kansas City wheat market
D) the soft drink market
16. Pure monopolists may obtain economic profits in the long run because:
A) marginal revenue is constant as sales increase.
B) of rising average fixed costs.
C) of advertising.
D) of barriers to entry.
17. Pure monopoly means:
A) any market in which the demand curve to the firm is downsloping.
B) a large number of firms producing a differentiated product.
C) a single firm producing a product for which there are no close substitutes.
D) a standardized product being produced by many firms.
18. Because the monopolist's demand curve is downsloping:
A) its supply curve will also be downsloping.
B) the elasticity coefficient will increase as price is lowered.
C) MR will equal price.
D) price must be lowered to sell more output.
19. An industry comprised of a very large number of sellers producing a standardized product is known as:
A) pure monopoly.
B) monopolistic competition.
C) oligopoly.
D) pure competition.
20. The term allocative efficiency refers to:
A) the production of a good at the lowest average total cost.
B) minimization of the AFC in the production of any good.
C) the production of the product-mix most desired by consumers.
D) the level of output that coincides with the intersection of the MC and AVC curves.
21. The demand schedule or curve confronted by the individual purely competitive firm is:
A) perfectly inelastic.
B) relatively inelastic, that is, the elasticity coefficient is less than unity.
C) perfectly elastic.
D) relatively elastic, that is, the elasticity coefficient is greater than unity.
22. If a purely competitive constant-cost industry is realizing economic profits, we can expect industry supply to:
A) increase, output to increase, price to increase, and profits to decrease.
B) decrease, output to decrease, price to increase, and profits to increase.
C) increase, output to increase, price to decrease, and profits to decrease.
D) increase, output to decrease, price to decrease, and profits to decrease.
23. Which of the following statements is correct?
A) Economic profits induce firms to enter an industry; losses encourage firms to leave.
B) Economic profits induce firms to leave an industry; profits encourage firms to leave.
C) Normal profits will cause an industry to expand.
D) Economic profits and losses have no significant impact on the growth or decline of an industry.
24. When a firm is on the inelastic segment of its demand curve, it can:
A) decrease total costs by decreasing price.
B) increase total revenue by more than the increase in total cost by increasing price.
C) increase total revenue by reducing price.
D) increase profits by increasing price.
25. If a purely competitive firm shuts down in the short run:
A) its loss will be zero.
B) it will realize a loss equal to its total costs.
C) it will realize a loss equal to its total variable costs.
D) it will realize a loss equal to its total fixed costs
26. The MR = MC rule applies:
A) only to purely competitive firms.
B) only when the firm is a "price taker."
C) to firms in all types of industries.
D) only to monopolies.
27. In which of the following industry structures is the entry of new firms the most difficult?
A) oligopoly
B) monopolistic competition
C) pure monopoly
D) pure competition
28. In a purely competitive industry:
A) there may be economic profits in the long run, but not in the short run.
B) there may be economic profits in the short run, but not in the long run.
C) economic profits may persist in the long run if consumer demand is strong and stable.
D) there will be no economic profits in either the short run or the long run.
29. A price discriminating pure monopolist will attempt to charge each buyer (or group of buyers):
A) that price which equals the buyer's marginal cost.
B) different prices to compensate for differences in the characteristics of the product.
C) the maximum price each would be willing to pay.
D) the same price if per unit cost is constant for each unit of the product.
30. (Consider This) Children are charged less than adults for admission to professional baseball games but are charged the same prices as adults at the concession stands. This pricing system occurs because:
A) children have an elastic demand for game ticket but an inelastic demand for concession items.
B) children can personally "consume" only a single game ticket, but can personally consume more than one concession item.
C) children have an inelastic demand for game tickets but an elastic demand for concession items.
D) the seller can prevent children from buying game tickets for adults but cannot prevent children from buying concession items for adults.
31. In the short run a pure monopolist:
A) may realize an economic profit, a normal profit, or a loss.
B) always realizes a loss.
C) always earns an economic profit.
D) always earns a normal profit.
32. A natural monopoly occurs when:
A) long-run average costs decline continuously through the range of demand.
B) economies of scale are obtained at relatively low levels of output.
C) long-run average costs rise continuously as output is increased.
D) a firm owns or controls some resource essential to production.
33. Price is constant or given to the individual firm selling in a purely competitive market because:
A) each seller supplies a negligible fraction of total supply.
B) there are no good substitutes for its product.
C) the firm's demand curve is downsloping.
D) of product differentiation reinforced by extensive advertising.
34. A competitive firm in the short run can determine the profit-maximizing (or loss-minimizing) output by equating:
A) price and marginal revenue.
B) price and average total cost.
C) marginal revenue and marginal cost.
D) price and average fixed cost.
35. Suppose you find that the price of your product is less than minimum AVC. You should:
A) close down because, by producing, your losses will exceed your total fixed costs.
B) close down because total revenue exceeds total variable cost.
C) maximize your profits by producing where P = MC.
D) minimize your losses by producing where P = MC.