Deck 9: Market Structure: Perfect Competition, Monopoly, and Monopolistic Competition

Question 1

Use the following to answer questions below:


-Refer to the competitive market graph. If market price is equal to $70,

A) the market will be in equilibrium.
B) there will be a shortage of 3 units.
C) there will be a surplus of 3 units.
D) None of the above is correct.

Answer 1

there will be a surplus of 3 units.

Question 2

Use the following to answer questions below:


-Refer to the competitive market graph. If market price is equal to $40,

A) the market will be in equilibrium.
B) there will be a shortage of 6 units.
C) there will be a surplus of 6 units.
D) None of the above is correct.

Answer 2

there will be a shortage of 6 units.

Question 3

Use the following to answer questions below:


-Refer to the competitive market graph. If market price is equal to $60,

A) the market will be in equilibrium.
B) there will be a shortage of 6 units.
C) there will be a surplus of 6 units.
D) None of the above is correct.

Answer 3

the market will be in equilibrium.

Question 4

Use the following to answer questions below


-Refer to the graph of unit cost curves 1. If the market price is 35, then a profit-maximizing competitive firm with these short-run unit cost curves

A) will not produce any output.
B) will produce output and will make economic losses.
C) will produce output and will make an economic profit of zero.
D) will produce output and will make economic profits.

Question 5

Use the following to answer questions below


-Refer to the graph of unit cost curves 1. If the market price is 25, then a profit-maximizing competitive firm with these short-run unit cost curves

A) will not produce any output.
B) will produce output and will make economic losses.
C) will produce output and will make an economic profit of zero.
D) will produce output and will make economic profits.

Question 6

Use the following to answer questions below


-Refer to the graph of unit cost curves 1. If the market price is 40, then a profit-maximizing competitive firm with these short-run unit cost curves

A) will not produce any output.
B) will produce output and will make economic losses.
C) will produce output and will make an economic profit of zero.
D) will produce output and will make economic profits.

Question 7

Use the following to answer questions below


-Refer to the graph of unit cost curves 1. If the market price is 45, then a profit-maximizing competitive firm with these short-run unit cost curves

A) will not produce any output.
B) will produce output and will make economic losses.
C) will produce output and will make an economic profit of zero.
D) will produce output and will make economic profits.

Question 8

Use the following to answer questions below


-Refer to the graph of unit cost curves 2. If the market price is 70, then a profit-maximizing competitive firm with these short-run unit cost curves

A) will earn an economic profit equal to $40.
B) will earn an economic profit equal to $30.
C) will earn an economic profit equal to $210.
D) will earn an economic profit equal to $280.

Question 9

Use the following to answer questions below


-Refer to the graph of demand and marginal revenue. If a profit-maximizing monopolist with a constant unit cost equal to $40 faces the demand curve plotted in the graph, then the monopolist's total revenue

A) will be equal to $120.
B) will be equal to $210.
C) will be equal to $240.
D) None of the above is correct.

Question 10

Use the following to answer questions below


-Refer to the graph of demand and marginal revenue. If a profit-maximizing monopolist with a constant unit cost equal to $20 faces the demand curve plotted in the graph, then the monopolist's total revenue

A) will be equal to $80.
B) will be equal to $160.
C) will be equal to $240.
D) None of the above is correct.

Question 11

Use the following to answer questions below


-Refer to the graph of demand and marginal revenue. If a profit-maximizing monopolist with a constant unit cost equal to $60 faces the demand curve plotted in the graph, then the monopolist's total profit

A) will be equal to $20.
B) will be equal to $40.
C) will be equal to $240.
D) None of the above is correct.

Question 12

Use the following to answer questions below


-Refer to the graph of demand and marginal revenue. If a profit-maximizing monopolist with a constant unit cost equal to $40 faces the demand curve plotted in the graph, then the monopolist's total profit

A) will be equal to $90.
B) will be equal to $70.
C) will be equal to $30.
D) None of the above is correct.

Question 13

Use the following to answer questions below:


-Refer to the monopoly market graph. The monopolist can maximize profit by producing

A) 4 units of output.
B) 5 units of output.
C) 6 units of output.
D) None of the above is correct.

Question 14

Use the following to answer questions below:


-A perfectly competitive firm is selling 150 units of output per week at a price of $10. Average total cost is $11, average variable cost is $8, and marginal cost is $12. From this information, it is clear that the firm

A) can increase its profit by producing more output per week.
B) can increase its profit by producing less output per week.
C) can increase its profit by charging a price above $10.
D) None of the above is correct.

Question 15

Use the following to answer questions below:


-A perfectly competitive firm is selling 300 units of output per week at a price of $100. Average total cost is $94, average variable cost is $89, and marginal cost is $97. From this information, it is clear that the firm

A) can increase its profit by producing more output per week.
B) can increase its profit by producing less output per week.
C) can increase its profit by charging a price below $100.
D) None of the above is correct.

Question 16

Use the following to answer questions below:


-A monopolist faces a demand function defined as Q = 40 - 2P. The monopolist's marginal cost is equal to $15 at all levels of output. How many units of output should the firm produce in order to maximize profits?

A) 10
B) 7.5
C) 5
D) None of the above is correct.

Question 17

A monopolist faces a demand function defined as Q = 40 - 2P. The monopolist's marginal cost is equal to $15 at all levels of output. What price should the firm charge in order to maximize profits?

A) $10.00
B) $17.50
C) $20.00
D) None of the above is correct.

Question 18

Use the following to answer questions below:


-Refer to the graph of Market 1. A monopolistically competitive firm with the unit cost curves displayed in the graph would maximize profit by producing

A) 4 units of output.
B) 6 units of output.
C) 6.5 units of output.
D) None of the above is correct.

Question 19

Use the following to answer questions below:


-Refer to the graph of Market 1. A monopolistically competitive firm with the unit cost curves displayed in the graph would maximize profit by

A) charging $2 per output.
B) charging $4 per output.
C) charging $6 per output.
D) None of the above is correct.

Question 20

Use the following to answer questions below:


-Refer to the graph of Market 1. A monopolistically competitive firm that is maximizing profit given the unit cost curves displayed in the graph

A) is in long-run equilibrium.
B) will produce less and charge a lower price in the long run.
C) will produce less and charge a higher price in the long run.
D) will produce more and charge a lower price in the long run.

Question 21

Use the following to answer questions below:


-Refer to the graph of Market 2. A monopolistically competitive firm with the unit cost curves displayed in the graph would maximize profit by producing

A) zero units of output.
B) 3 units of output.
C) between 4 and 5 units of output.
D) None of the above is correct.

Question 22

Use the following to answer questions below:


-Refer to the graph of Market 2. A monopolistically competitive firm with the unit cost curves displayed in the graph would maximize profit by

A) charging $40 per unit of output.
B) charging approximately $62 per unit of output.
C) charging $70 per unit of output.
D) None of the above is correct.

Question 23

Use the following to answer questions below:


-Refer to the graph of Market 2. A monopolistically competitive firm that is maximizing profit given the unit cost curves displayed in the graph

A) is in long-run equilibrium.
B) will produce less and charge a lower price in the long run.
C) will produce less and charge a higher price in the long run.
D) will produce more and charge a lower price in the long run.

Question 24

Use the following to answer questions below:


-Which of the following is a characteristic of both monopolistic competition and monopoly?

A) Firms face significant barriers to entry.
B) A firm's marginal revenue curve is below its demand curve.
C) In the long run, a firm will earn zero economic profit.
D) In the long run, a firm will produce a level of output that corresponds to the minimum point of its average total cost curve.

Question 25

Use the following to answer questions below:


-Which type of market structure does not typically have a negatively sloped market demand curve?

A) Monopoly
B) Perfect competition
C) Oligopoly
D) All of the above typically have negatively sloped market demand curves.

Question 26

Use the following to answer questions below:


-The restaurant industry has a market structure that comes closest to

A) monopolistic competition.
B) oligopoly.
C) perfect competition.
D) monopoly.

Question 27

If the market demand curve for a commodity has a negative slope, then the market structure must be

A) perfect competition.
B) monopoly.
C) imperfectly competitive.
D) The market structure cannot be determined from the information given.

Question 28

If a firm sells its output on a market that is characterized by many sellers and buyers, a homogeneous product, unlimited long-run resource mobility, and perfect knowledge, then the firm is

A) a monopolist.
B) an oligopolist.
C) a perfect competitor.
D) a monopolistic competitor.

Question 29

If a firm sells its output on a market that is characterized by many sellers and buyers, a differentiated product, and unlimited long-run resource mobility, then the firm is

A) a monopolist.
B) an oligopolist.
C) a perfect competitor.
D) a monopolistic competitor.

Question 30

If a firm sells its output on a market that is characterized by many sellers and many buyers and perfect resource mobility, then the firm is

A) a monopolist.
B) an oligopolist.
C) a perfect competitor.
D) a monopolistic competitor.

Question 31

If one perfectly competitive firm increases its level of output, market supply

A) will increase and market price will fall.
B) will increase and market price will rise.
C) and market price will both remain constant.
D) will decrease and market price will rise.

Question 32

Which of the following markets comes close to satisfying the assumptions of a perfectly competitive market structure?

A) The stock market
B) The market for agricultural commodities such as wheat or corn
C) The market for petroleum and natural gas
D) All of the above come close to satisfying the assumptions of perfect competition.

Question 33

The market demand curve for a perfectly competitive industry is QD = 12 - 2P. The market supply curve is QS = 3 + P. The market will be in equilibrium if

A) P = 6 and Q = 9.
B) P = 5 and Q = 2.
C) P = 4 and Q = 4.
D) P = 3 and Q = 6.

Question 34

Which of the following is not a barrier to entry that typically results in monopoly?

A) The firm controls the entire supply of a raw material.
B) Production of the industry's product is subject to economies of scale over a broad range of output.
C) Production of the industry's product requires a large initial capital investment.
D) The firm holds an exclusive government franchise.

Question 35

In the short run, a monopolist will shut down if it is producing a level of output where marginal revenue is equal to short-run marginal cost and price is

A) greater than average total cost.
B) less than average total cost.
C) greater than average variable cost.
D) less than average variable cost.

Question 36

The value of the U.S. dollar on the foreign exchange market will tend to

A) increase if there is an increase in the demand for U.S. exports by foreign countries.
B) decrease if there is an increase in the demand for foreign imports by the United States.
C) decrease if monetary authorities intervene on the foreign exchange market by selling U.S. dollars for foreign currencies.
D) All of the above are correct.

Question 37

A monopolized market is in long-run equilibrium when

A) zero economic profit is earned by the monopolist.
B) production takes place where price is equal to long-run marginal cost and long-run average cost.
C) production takes place where long-run marginal cost is equal to marginal revenue and price is not below long-run average cost.
D) All of the above are correct.

Question 38

Which of the following types of firms is most likely to be a monopolistic competitor?

A) A local telephone company
B) An automobile manufacturer
C) A restaurant
D) All of the above are likely to be monopolistic competitors.

Question 39

Which of the following is a differentiated product?

A) A hamburger
B) A shirt
C) An automobile
D) All of the above are differentiated products.

Question 40

The demand curve faced by a monopolistically competitive firm is

A) perfectly elastic.
B) elastic.
C) unit elastic.
D) inelastic.

Question 41

Product variation refers to

A) an activity undertaken by a firm to increase demand.
B) a problem with quality control that tends to decrease demand.
C) an activity undertaken by a firm to make demand more price inelastic.
D) None of the above is correct.

Question 42

Which of the following industries is most likely to be monopolistically competitive?

A) The automobile industry
B) The steel industry
C) The car repair industry
D) The electrical generating industry

Question 43

Assume that a profit-maximizing perfectly competitive firm currently charges the price of $10. The firm also incurs the average total cost of $8, the average variable cost of $7. From this information, we can conclude that the marginal cost of the firm is

A) $10
B) $8
C) $7
D) None of the above

Question 44

Figure 1


-Refer to the Figure 1. It represents the market demand for

A) a perfect competitor.
B) monopolist.
C) both, the perfect competitor and the monopolist.
D) neither the perfect competitor, nor the monopolist.

Question 45

Figure 2


-Refer to the Figure 2 which represents the market demand for a monopolist. The monopolist can maximize profit by charging approximately

A) $1.50 per unit.
B) $2.90 per unit.
C) $3.80 per unit.
D) $5.90 per unit.

Question 46

-Refer to the monopoly market graph. If the monopolist is maximizing profit, then profit is approximately equal to

A) $0.
B) $10.
C) $20.
D) $30.

Question 47

A natural monopoly refers to a monopoly that is defended from direct competition by

A) economies of scale over a broad range of output.
B) a government franchise, patent or a copyright.
C) control over a vital resource.
D) All of the above.

Question 48

When a perfectly competitive industry is not in the long-run equilibrium, all firms in the industry

A) earn zero economic profits.
B) earn positive economic profits.
C) earn negative economic profits.
D) may earn negative or positive economic profits

Question 49

The market demand curve for a perfectly competitive industry is QD = 20 - 2P. The market supply curve is QS = 10 + 3P. The market will be in equilibrium if

A) P = 2 and Q = 16.
B) P = 4 and Q = 21.
C) P = 5 and Q = 10.
D) P = 5 and Q = 20.

Question 50

The market demand curve for a perfectly competitive industry is QD = 15 - P. The market supply curve is QS = 5 + P. The market will be in equilibrium if

A) P = 2 and Q = 16.
B) P = 4 and Q = 21.
C) P = 5 and Q = 10.
D) P = 5 and Q = 20.

Question 51

An appreciation of the U.S. dollar relative to foreign currencies will make

A) foreign imports more expensive in the United States.
B) U.S. exports more expensive in foreign countries.
C) the demand for U.S. exports increase.
D) All of the above are correct.

Question 52

The market demand curve for a perfectly competitive industry is QD = 25 - P. The market supply curve is QS = 5 + 4P. The market will be in equilibrium if

A) P = 2 and Q = 16.
B) P = 4 and Q = 21.
C) P = 5 and Q = 10.
D) P = 5 and Q = 20.

Question 53

A perfectly competitive firm is selling 150 units of output per week at a price of $20. Average total cost is $18, average variable cost is $16, and marginal cost is $15. From this information, it is clear that the firm

A) can increase its profit by producing more output per week.
B) can increase its profit by producing less output per week.
C) can increase its profit by charging a price above $10.
D) None of the above is correct.

Question 54

A perfectly competitive firm is selling 300 units of output per week at a price of $1,050. Average total cost is $1,010, average variable cost is $990, and marginal cost is $1,100. From this information, it is clear that the firm

A) can increase its profit by producing more output per week.
B) can increase its profit by producing less output per week.
C) can increase its profit by charging a price below $100.
D) None of the above is correct.

Question 55

A monopolist faces a demand function defined as Q = 20 - 2P. The monopolist's marginal cost is equal to $5 at all levels of output. How many units of output should the firm produce to maximize profits?

A) 2
B) 5
C) 10
D) 20

Question 56

A monopolist faces a demand function defined as Q = 80 - 4P. The monopolist's marginal cost is equal to $10 at all levels of output. What price should the firm charge in order to maximize profits?

A) 2
B) 5
C) 10
D) 20

Question 57

Use the following to answer questions below:


-Refer to the graph of demand and marginal revenue. If a profit-maximizing monopolist with a constant unit cost equal to $20 faces the demand curve plotted in the graph, then what will the monopolist's total revenue and the profit be?

A) Total revenue: $80, profit=$40.
B) Total revenue: $160, profit=$80.
C) Total revenue: $160, profit=$120.
D) Total revenue: $240, profit=$160.

Question 58

Use the following to answer questions below:


-Refer to the graph of demand and marginal revenue. If a profit-maximizing monopolist with a constant unit cost equal to $40 faces the demand curve plotted in the graph, then the monopolist's profit

A) will be equal to $80.
B) will be equal to $90.
C) will be equal to $160.
D) Will be equal to $170.

Question 59

Use the following to answer questions below:


-Refer to the graph of demand and marginal revenue. If a profit-maximizing monopolist with a constant unit cost equal to $60 faces the demand curve plotted in the graph, then the monopolist's total revenue

A) will be equal to $80.
B) will be equal to $90.
C) will be equal to $160.
D) Will be equal to $170.

Question 60

If the firm's demand curve for a commodity is horizontal, then the market structure must be

A) perfect competition.
B) monopoly.
C) imperfectly competitive.
D) The market structure cannot be determined from the information given.

Question 61

If the firms in an industry are price takers, then every firm in the industry faces a horizontal demand curve.

Question 62

Monopoly is a market structure in which there is only one buyer of a product for which there are no close substitutes.

Question 63

Oligopoly is a market structure in which there are few sellers of a product and additional sellers cannot easily enter the industry.

Question 64

Under perfect competition, changes in market supply do not affect market price.

Question 65

Commodities that sell for the same price are referred to as heterogeneous.

Question 66

Most commodities are traded on perfectly competitive markets.

Question 67

A perfectly competitive firm's demand curve is above its marginal revenue curve.

Question 68

Every profit-maximizing firm should produce a level of output where marginal revenue is equal to marginal cost.

Question 69

A perfectly competitive firm maximizes profit by producing a level of output where marginal cost is equal to price.

Question 70

The shut-down point of a perfectly competitive firm is at the minimum point on its short-run average variable cost curve.

Question 71

If a perfectly competitive firm is in long-run equilibrium, then it is earning an economic profit of zero.

Question 72

Depreciation of a country's currency tends to make imports more expensive.

Question 73

Appreciation of a country's currency tends to increase the demand for the country's exports.

Question 74

An increase in the U.S. demand for British products would tend to cause an appreciation of the British pound.

Question 75

A monopolist's marginal revenue is below market price.

Question 76

Monopolists always make economic profits.

Question 77

If a monopolist has a linear demand curve, then it has a linear marginal revenue curve.

Question 78

A monopolist will shut down in the short run if price is everywhere less than average total cost.

Question 79

Most markets are either perfectly competitive or monopolized.

Question 80

Monopolistic competition is most common in the manufacturing sector.