| 1. |
Which market model has the least number of firms? |
| A. | monopolistic competition |
| B. | pure competition |
| C. | pure monopoly |
| D. | oligopoly |
| Answer» C. pure monopoly | |
| 2. |
If the demand curve facing a firm is perfectly elastic, then: |
| A. | its marginal revenue will equal price. |
| B. | its marginal revenue schedule will decrease at an increasing rate. |
| C. | its marginal revenue schedule decreases twice as fast as the demand curve. |
| D. | it can increase its total revenue by lowering the price of its product. |
| Answer» A. its marginal revenue will equal price. | |
| 3. |
A profit-maximizing firm in the short run will expand output: |
| A. | until marginal cost begins to rise. |
| B. | until total revenue equals total cost. |
| C. | until marginal cost equals average variable cost. |
| D. | as long as marginal revenue is greater than marginal cost. |
| Answer» D. as long as marginal revenue is greater than marginal cost. | |
| 4. |
Price is constant or "given" to the individual firm selling in a purely competitive market because: |
| A. | the firm\s demand curve is downward sloping. |
| B. | there are no good substitutes for the firm\s product. |
| C. | each seller supplies a negligible fraction of total supply. |
| D. | product differentiation is reinforced by extensive advertising. |
| Answer» C. each seller supplies a negligible fraction of total supply. | |
| 5. |
In pure competition, the marginal revenue of a firm always equals: |
| A. | product price. |
| B. | total revenue. |
| C. | average total cost. |
| D. | marginal cost. |
| Answer» A. product price. | |
| 6. |
A firm should always continue to operate at a loss in the short run if: |
| A. | the firm will show a profit. |
| B. | the owner enjoys helping her customers. |
| C. | it can cover its variable costs and some of its fixed costs. |
| D. | the firm cannot produce any other products more profitably. |
| Answer» C. it can cover its variable costs and some of its fixed costs. | |
| 7. |
The purely competitive firm's supply curve: |
| A. | is perfectly inelastic in the short run. |
| B. | is horizontal in the long run. |
| C. | is upward sloping when some inputs are fix |
| Answer» C. is upward sloping when some inputs are fix | |
| 8. |
Which is true of normal profits |
| A. | they are necessary to keep a firm in the industry in the long run. |
| B. | they are zero under pure competition in the long run. |
| C. | they are excluded from a firm\s costs of production. |
| D. | they are greater than the opportunity cost to the firm. |
| Answer» A. they are necessary to keep a firm in the industry in the long run. | |
| 9. |
The representative firm in a purely competitive industry: |
| A. | will always earn a profit in the short run. |
| B. | may earn either an economic profit or a loss in the long run. |
| C. | will always earn an economic profit in the long run. |
| D. | will earn an economic profit of zero in the long run. |
| Answer» D. will earn an economic profit of zero in the long run. | |
| 10. |
Allocative efficiency occurs when the: |
| A. | minimum of average total cost equals average revenue. |
| B. | minimum of average total cost equals marginal revenue. |
| C. | marginal cost equals the marginal benefit to society. |
| D. | marginal revenue equals marginal benefit to society. |
| Answer» C. marginal cost equals the marginal benefit to society. | |
| 11. |
When a purely competitive firm is in long-run equilibrium, price is equal to: |
| A. | marginal cost, but may be greater or less than average cost. |
| B. | minimum average cost, and also to marginal cost. |
| C. | minimum average cost, but may be greater or less than marginal cost. |
| D. | marginal revenue, but may be greater or less than both average and marginal cost. |
| Answer» B. minimum average cost, and also to marginal cost. | |
| 12. |
Under conditions of pure monopoly: |
| A. | there are close substitutes. |
| B. | there is no advertising. |
| C. | the firm is a price taker. |
| D. | entry is blocked. |
| Answer» D. entry is blocked. | |
| 13. |
A monopoly is most likely to emerge and be sustained when: |
| A. | output demand is relatively elastic. |
| B. | firms have u-shaped, average-total-cost curves. |
| C. | fixed capital costs are small relative to total costs. |
| D. | economies of scale are large relative to market demand. |
| Answer» D. economies of scale are large relative to market demand. | |
| 14. |
Which is a barrier to entry? |
| A. | patents |
| B. | revenue maximization |
| C. | profit maximization |
| D. | elastic product demand |
| Answer» A. patents | |
| 15. |
The pure monopolist who is nondiscriminating must decrease price on all units of a product sold in order to sell additional units. This explains why: |
| A. | there are barriers to entry in pure monopoly. |
| B. | a monopoly has a perfectly elastic demand curve. |
| C. | marginal revenue is less than average revenue. |
| D. | total revenues are greater than total costs at the profit maximizing level of output. |
| Answer» C. marginal revenue is less than average revenue. | |
| 16. |
A nondiscriminating monopolist will find that marginal revenue: |
| A. | exceeds average revenue or price. |
| B. | is identical to price. |
| C. | is sometimes greater and sometimes less than price. |
| D. | is less than average revenue or price. |
| Answer» D. is less than average revenue or price. | |
| 17. |
At the profit-maximizing level of output, a monopolist will always operate where: |
| A. | price is greater than marginal cost. |
| B. | price is greater than average revenue. |
| C. | average total cost equals marginal cost. |
| D. | total revenue is greater than total cost. |
| Answer» A. price is greater than marginal cost. | |
| 18. |
In the short run, a monopolist's profits: |
| A. | may be positive, negative, or zero. |
| B. | are positive because of the monopolist\s market power. |
| C. | are positive if the monopolist\s elasticity of demand is less than 1. |
| D. | are positive if the monopolist\s selling price is above average variable cost. |
| Answer» A. may be positive, negative, or zero. | |
| 19. |
Monopolists are said to be allocatively inefficient because: |
| A. | they produce where mr > mc. |
| B. | at the profit-maximizing output price is greater than avc. |
| C. | they produce only the type of product they desire and do not consider the consumer. |
| D. | at the profit-maximizing output the marginal benefit to society of additional output is |
| Answer» D. at the profit-maximizing output the marginal benefit to society of additional output is | |
| 20. |
The economic incentive for price discrimination depends on: |
| A. | prejudices of business managers. |
| B. | differences among sellers\ costs. |
| C. | a desire to evade antitrust legislation. |
| D. | differences among buyers\ demand elasticities. |
| Answer» D. differences among buyers\ demand elasticities. | |
| 21. |
Which would definitely not be an example of price discrimination? |
| A. | a theater charges children less than adults for a movie. |
| B. | universities charge higher tuition for out-of-state residents. |
| C. | a doctor charges for services according to the income of patients. |
| D. | an electric power company charges less for electricity used during off-peak hours when |
| Answer» D. an electric power company charges less for electricity used during off-peak hours when | |
| 22. |
A market is clearly NOT perfectly competitive if which of the following is true in equilibrium |
| A. | price exceeds marginal cost. |
| B. | price exceeds average variable cost. |
| C. | price exceeds average fixed cost. |
| D. | price equals opportunity cost |
| Answer» A. price exceeds marginal cost. | |
| 23. |
If a perfectly competitive industry is in long-run equilibrium, which of the following is most likely to be true |
| A. | some firms can be expected to leave the industry. |
| B. | individual firms are not operating at the minimum points on their average total cost curves. |
| C. | firms are earning a return on investment that is equal to their opportunity costs. |
| D. | some factors are not receiving a return equal to their opportunity costs. |
| Answer» C. firms are earning a return on investment that is equal to their opportunity costs. | |
| 24. |
Which of the following is NOT a characteristic of a competitive market |
| A. | it has many buyers |
| B. | it has many sellers |
| C. | the products traded are identical |
| D. | firms set the price (price makers) |
| Answer» D. firms set the price (price makers) | |
| 25. |
Which of the following statements is true, regarding the revenues of a firm under perfect competition |
| A. | the marginal revenue and the average revenue are equal to the price |
| B. | the marginal revenue is greater than the average revenue |
| C. | the marginal revenue is greater than the total revenue |
| D. | the total revenue is less than the average revenue |
| Answer» A. the marginal revenue and the average revenue are equal to the price | |
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