Deck 9: Perfect Competition and Monopoly

Question 1

According to the standard model of perfect competition, a firm in long-run competitive equilibrium will product at the output level where:

A) P = MC = ATC
B) P = MC > ATC
C) P = AVC
D) P = AFC
E) All of the above.

Answer 1

P = MC = ATC

Question 2

According to the standard model of perfect competition, a firm will always shut down if:

A) P < ATC
B) P < MC
C) P < AVC
D) P < AFC
E) None of the above.

Answer 2

P < AVC

Question 3

According to the standard model of perfect competition, a firm should shut down if:

A) It incurs an economic loss.
B) It incurs an accounting loss.
C) Its economic loss is greater than its total fixed cost.
D) Its average fixed cost is greater than its average variable cost.
E) None of the above.

Answer 3

Its economic loss is greater than its total fixed cost.

Question 4

According to the standard model of perfect competition, a profit-maximizing firm will produce where:

A) TR > TC.
B) P = MC.
C) P = MR.
D) P = ATC.
E) A perfectly competitive firm cannot maximize its profits because it is a price taker.

Question 5

-Consider Figure 9.1. The short-run profit-maximizing output level is:

A) 0A
B) 0B
C) 0C
D) 0D
E) None of the above.

Question 6

A perfectly-competitive, profit-maximizing firm's total cost equation is TC = 1,500 + 5Q + 0.0025Q². The market-clearing price is $25. The firm's profit-maximizing level of output is:

A) 500 units.
B) 633 units.
C) 1,500 units.
D) 3,500 units.
E) 4,000 units.

Question 7

A perfectly-competitive, profit-maximizing firm's total cost equation is TC = 1,500 + 5Q + 0.0025Q². The market-clearing price is $25. The firm's profit is:

A) $27, 370.
B) $33,333.
C) $38,500.
D) $42, 875.
E) None of the above.

Question 8

Game theory is of limited usefulness in explaining:

A) Pure competition and monopoly.
B) Oligopoly.
C) Monopolistic competition.
D) All of the above.
E) None of the above.

Question 9

Game theory cannot be used to enhance our understanding of:

A) Monopolistic competition because there are a large number of firms producing a differentiated product.
B) Perfectly competition because the actions of an individual buyers and sellers have no effect on market price and output.
C) Contestable monopolies.
D) Oligopolists producing an identical product.
E) None of the above.

Question 10

At a Cournot-Nash equilibrium, industry profits are:

A) Less than a monopoly.
B) More than a monopoly.
C) Less than perfect competition.
D) More than perfect competition.
E) Answers a and d.

Question 11

According to the Cournot model:

A) As the number of equally-sized firms producing a homogeneous product increases, the output of each individual firm declines.
B) As the number of equally-sized firms producing a homogeneous product increases, industry output declines.
C) As the number of equally-sized firms producing a homogeneous product increases, the market price of the product approaches the marginal cost of
production.
D) All of the above are correct.
E) None of the above are correct.

Question 12

Which of the following expression gives an estimate of allocative inefficiency in an industry consisting of T Cournot competitors as a percentage of allocative inefficiency under monopoly?

A) 4(T + 1)/T
B) 4/(T + 1)
C) T/4(T + 1)²
D) 4T/(T + 1)
E) 4/(T + 1)²

Question 13

Suppose that there are 4 firms in an industry producing an identical product are Cournot competitors. If the industry is in Cournot-Nash equilibrium, allocative inefficiency as a percentage of allocative inefficiency under monopoly is:

A) 8 percent.
B) 16 percent.
C) 24 percent.
D) 32 percent.
E) 40 percent.

Question 14

Suppose that there are 9 firms in an industry producing an identical product are Cournot competitors. If the industry is in Cournot-Nash equilibrium, allocative inefficiency as a percentage of allocative inefficiency under monopoly is:

A) 2 percent.
B) 3 percent.
C) 4 percent.
D) 8 percent.
E) 12 percent.

Question 15

The demand for the output of a multi-firm industry is Q_T = 50 !2.5P. The total cost of production of an individual profit-maximizing firm in this industry is TC₁= 4Q₁. The reaction function of firm 1 is:

A) Q₁ = 50 !2.5Q_{T !1}.
B) Q₁ = 50 !0.5Q_{T !1}
C) Q₁ = 16 !0.4Q_{T !1}
D) Q₁ = 20 !0.5Q_{T !1}
E) None of the above.

Question 16

The demand for the output of a multi-firm industry is Q_T = 50 !2.5P. The total cost of production of an individual profit-maximizing firm in this industry is TC₁= 4Q₁. The reaction function of the remaining T !1 firms is:

A) Q_{T !1} = 50 !2.5Q₁.
B) Q_{T !1} = 50 !0.5Q₁
C) Q_{T !1} = 16 !0.4Q₁
D) Q_{T !1} = 20 !0.5Q₁
E) None of the above.

Question 17

The demand for the output of a multi-firm industry is Q_T = 50 !2.5P. The total cost of production of an individual profit-maximizing firm in this industry is TC₁= 4Q₁. If this industry is comprised of 2 firms, the Cournot-Nash equilibrium output for firm 1 is:

A) 2 units.
B) 5 units.
C) 10 units.
D) 13.33 units.
E) None of the above is correct.

Question 18

The demand for the output of a multi-firm industry is Q_T = 50 !2.5P. The total cost of production of an individual profit-maximizing firm in this industry is TC₁= 4Q₁. If this industry is comprised of 2 firms, firm 1's profit is about:

A) $52.
B) $66.
C) $73.
D) $85.
E) None of the above is correct.

Question 19

The demand for the output of a multi-firm industry is Q_T = 50 !2.5P. The total cost of production of an individual profit-maximizing firm in this industry is TC₁= 4Q₁. If this industry is comprised of 4 firms, the Cournot-Nash equilibrium output for firm 1 is:

A) 2 units.
B) 5 units.
C) 10 units.
D) 13.33 units.
E) None of the above is correct.

Question 20

The demand for the output of a multi-firm industry is Q_T = 50 !2.5P. The total cost of production of an individual profit-maximizing firm in this industry is TC₁= 4Q₁. If this industry is comprised of 4 firms, firm 1's profit is about:

A) $60.
B) $80.
C) $100.
D) $120.
E) None of the above is correct.

Question 21

The demand for the output of a multi-firm industry is Q_T = 50 !2.5P. The total cost of production of an individual profit-maximizing firm in this industry is TC₁= 4Q₁. If this industry is comprised of 20 firms, the Cournot-Nash equilibrium output for firm 1 is:

A) 2 units.
B) 5 units.
C) 10 units.
D) 13.33 units.
E) None of the above is correct.

Question 22

The demand for the output of a multi-firm industry is Q_T = 50 !2.5P. The total cost of production of an individual profit-maximizing firm in this industry is TC₁= 4Q₁. If this industry is comprised of 20 firms, firm 1's profit is about:

A) $29.
B) $31.
C) $43.
D) $51.
E) None of the above is correct.

Question 23

The demand for the output of a multi-firm industry is Q_T = 10 !P. The total cost of production of an individual profit-maximizing firm in this industry is TC₁= 2Q₁. The reaction function of firm 1 is:

A) Q₁ = 5 !2Q_{T !1}.
B) Q₁ = 4 !0.5Q_{T !1}
C) Q₁ = 5 !0.25Q_{T !1}
D) Q₁ = 4 !5Q_{T !1}
E) None of the above.

Question 24

The demand for the output of a multi-firm industry is Q_T = 10 !P. The total cost of production of an individual profit-maximizing firm in this industry is TC₁= 2Q₁. The reaction function of the remaining T !1 firms is:

A) Q_{T !1} = 4 !5Q₁.
B) Q_{T !1} = 5 !0.25Q₁
C) Q_{T !1} = 4 !0.5Q₁
D) Q_{T !1} = 5 !2Q₁
E) None of the above.

Question 25

The demand for the output of a multi-firm industry is Q_T = 50 !2.5P. The total cost of production of an individual profit-maximizing firm in this industry is TC₁= 4Q₁. If this industry is comprised of 3 firms, the Cournot-Nash equilibrium output for firm 1 is:

A) 2 units.
B) 3 units.
C) 4 units.
D) 5 units.
E) None of the above is correct.

Question 26

The demand for the output of a multi-firm industry is Q_T = 50 !2.5P. The total cost of production of an individual profit-maximizing firm in this industry is TC₁= 4Q₁. If this industry is comprised of 3 firms, firm 1's profit is about:

A) $2.
B) $3.
C) $6.
D) $8.
E) $10.

Question 27

The demand for the output of a multi-firm industry is Q_T = 50 !2.5P. The total cost of production of an individual profit-maximizing firm in this industry is TC₁= 4Q₁. If this industry is comprised of 7 firms, the Cournot-Nash equilibrium output for firm 1 is:

A) 1 unit.
B) 2 units.
C) 3 units.
D) 5 units.
E) 7 units.

Question 28

The demand for the output of a multi-firm industry is Q_T = 50 !2.5P. The total cost of production of an individual profit-maximizing firm in this industry is TC₁= 4Q₁. If this industry is comprised of 7 firms, firm 1's profit is about:

A) $2.
B) $3.
C) $6.
D) $8.
E) $10.

Question 29

The demand for the output of a multi-firm industry is Q_T = 50 !2.5P. The total cost of production of an individual profit-maximizing firm in this industry is TC₁= 4Q₁. If this industry is comprised of 19 firms, the Cournot-Nash equilibrium output for firm 1 is:

A) 0.2 units.
B) 0.4 units.
C) 0.6 units.
D) 0.8 units.
E) 1 unit.

Question 30

The demand for the output of a multi-firm industry is Q_T = 50 !2.5P. The total cost of production of an individual profit-maximizing firm in this industry is TC₁= 4Q₁. If this industry is comprised of 19 firms, firm 1's profit is about:

A) $2.
B) $3.
C) $6.
D) $8.
E) $10.

Question 31

According to the standard model of monopoly, a profit-maximizing firm will produce at the output level where:

A) TR > TC.
B) P = MC.
C) MR = MC.
D) P = ATC.
E) A perfectly competitive firm cannot maximize its profits because it is a price taker.

Question 32

-Consider Figure 9.2, which depicts a profit-maximizing monopolist. The profit- maximizing level of output is:

A) 0F.
B) 0G.
C) 0H.
D) 0I.
E) 0J.

Question 33

-Consider Figure 9.2, which depicts a profit-maximizing monopolist. The profit- maximizing price is:

A) 0A.
B) 0B.
C) 0C.
D) 0D.
E) 0E.