Question 1

Monopoly is preferred to perfect competition due to its efficiency characteristics.

Accepted Answer

A) True 
 B)False  False

Question 2

In perfect competition, the individual firm's long-run supply curve is the segment of

Accepted Answer

A)   ATC that lies above the demand curve
B)   MC that lies above the AVC curve
C)   TC that lies below the TR curve
D)   MC that lies above the ATC curve
E)   AVC that lies above the MC curve D

Question 3

Sam quits his job as an airline pilot and opens his own pilot training school. He was earning $40,000 as a pilot. He withdraws $10,000 from his savings where he was earning 6 percent interest and uses the money in his new business. He uses a building he owns as a hangar that he could have rented out for $5,000 per year. He rents a computer for $1,200,buys office supplies for $500, rents an airplane for $6,000, pays $1,300 for fuel and maintenance, and hires one worker for $30,000. Sam's total revenue from pilot training classes this year equaled $90,400. Sam's explicit costs this year equal

Accepted Answer

A)   $84,400
B)   $39,000
C)   $55,000
D)   $45,600
E)   $40,000 B

Question 4

In perfect competition, an economic profit can be earned

Accepted Answer

A)   only in the long run
B)   only if the firm is efficient
C)   only in the short run
D)   never
E)   always

Question 5

For the past three years, you have earned economic profits of $5,000 per year by being the only vendor selling bottled tap water at your town's Fourth of July celebration. When you go to city hall to apply for a vending permit for this year's celebration, the city clerk mentions that fifty new firms have received permits to sell tap water this year.
-What can you do to protect your economic profit in the short run?

Accepted Answer

The answer of For the past three years, you have...

Question 6

Schumpeter's hypothesis states that

Accepted Answer

A)   monopolists are always trying to raise prices
B)   competition does not always generate the lowest prices
C)   when government fosters competition, prices fall
D)   price-takers create the highest prices
E)   efficiency is highest under conditions of perfect competition

Question 7

Suppose that the development of a new type of circuit lowers the costs of production in the microcomputer industry, which is perfectly competitive. The long-run effect will likely be

Accepted Answer

A)   lower price and larger output
B)   lower price and smaller output
C)   higher price and larger output
D)   higher price and smaller output
E)   no change in price or output

Question 8

A picture-frame company operates in a monopolistically competitive market. Its short-run equilibrium price is $80 and its ATC is $65. It sells 100 picture frames a week.Ignoring for now its long-run position, in the short run,

Accepted Answer

A)   the firm makes zero economic profit, zero accounting profit, but $1,500 normal profit
B)   other picture-frame companies will leave the market because it knows new firms will enter to drive price and economic profit down
C)   the firm makes an $80,000 accounting profit
D)   the firm makes an economic profit of $1,500
E)   the market demand curve will shift to the left as more firms enter the market

Question 9

A chewing gum monopoly can sell 400,000 packages of gum for $0.10 each. If it wants to sell 500,000 packages, its price must be

Accepted Answer

A)   greater than the $0.10 if it doesn't want to earn less profit
B)   less than the marginal revenue of the 500,000th package
C)   less than $0.10
D)   equal to $0.10
E)   none of the above makes sense

Question 10

Economists may hold many different views about the economy but on this they all agree: That price is always lower in a perfectly competitive market than in a monopoly market.

Accepted Answer

A) True 
 B)False

Question 11

Suppose your accountant told you that the $50,000 you made last year was the total revenue you earned minus both explicit and implicit costs. You would be pleased because that $50,000 represents your

Accepted Answer

A)   economic loss
B)   economic profit
C)   normal profit
D)   money receipts and payments and you came out ahead by $50,000
E)   accounting profit

Question 12

A monopoly's economic profit is protected by the lack of entry of new firms even in the long run.

Accepted Answer

A) True 
 B)False

Question 13

Perfect competition and monopolistic competition are similar in this one respect:

Accepted Answer

A)   firms make zero economic profit in the long run
B)   firms produce at the lowest point on their ATC curves
C)   there are few firms in each industry
D)   entry is difficult
E)   firms produce differentiated products

Question 14

Let's use the example from the text: The Nick Rudd Ice Company is a monopoly. Its goal, then, is to

Accepted Answer

A)   hire as many workers as possible
B)   maximize profit
C)   produce as much as possible to capture market share
D)   produce where marginal cost equals price
E)   charge the highest price possible

Question 15

A monopolist earns $1,000,000 economic profit in the short run producing 25,000 units of a good. The marginal revenue of the 25,000th unit is $23 and the marginal cost is $30. What should the monopolist do?

Accepted Answer

A)   raise price and produce less than 25,000 units
B)   lower price and produce less than 25,000 units
C)   raise price and produce more than 25,000 units
D)   lower price and produce more than 25,000 units
E)   produce more than 25,000 units at the same price

Question 16

If new firms enter a perfectly competitive industry, the

Accepted Answer

A)   market supply curve will shift to the left, market price will fall, and industry output will increase
B)   market supply will shift to the left, market price will rise, and the industry output will increase
C)   market demand will shift to the right, market price will increase, and market output will increase
D)   market supply will shift to the right, market price will fall, and market output will increase
E)   market supply will shift to the right, market price will increase, and market output will decrease

Question 17

The perfectly competitive firm's long-run supply curve is

Accepted Answer

A)   the same as the industry's supply curve
B)   the average total cost curve
C)   perfectly horizontal
D)   the marginal cost curve above the ATC
E)   the marginal cost curve above the AVC

Question 18

Why does a monopolist's total revenue eventually fall as it produces and sells more output?

Accepted Answer

The answer of Why does a monopolist's total revenue eventually...

Question 19

The rule for profit maximization is the same for a monopolist as for a perfectly competitive firm.

Accepted Answer

A) True 
 B)False

Question 20

If a firm is a price taker, then it can

Accepted Answer

A)   sell below the market price and increase its economic profit
B)   sell all it wants at the market price
C)   sell above the market price and increase its economic profit
D)   supply the entire market
E)   choose its own price

Exam 11: Price and Output in Monopoly, Monopolistic Competition, and Perfect Competition

Monopoly is preferred to perfect competition due to its efficiency characteristics.

In perfect competition, the individual firm's long-run supply curve is the segment of

In perfect competition, an economic profit can be earned

Schumpeter's hypothesis states that

Suppose that the development of a new type of circuit lowers the costs of production in the microcomputer industry, which is perfectly competitive. The long-run effect will likely be

A picture-frame company operates in a monopolistically competitive market. Its short-run equilibrium price is $80 and its ATC is $65. It sells 100 picture frames a week.Ignoring for now its long-run position, in the short run,

A chewing gum monopoly can sell 400,000 packages of gum for $0.10 each. If it wants to sell 500,000 packages, its price must be

Economists may hold many different views about the economy but on this they all agree: That price is always lower in a perfectly competitive market than in a monopoly market.

Suppose your accountant told you that the $50,000 you made last year was the total revenue you earned minus both explicit and implicit costs. You would be pleased because that $50,000 represents your

A monopoly's economic profit is protected by the lack of entry of new firms even in the long run.

Perfect competition and monopolistic competition are similar in this one respect:

Let's use the example from the text: The Nick Rudd Ice Company is a monopoly. Its goal, then, is to

A monopolist earns $1,000,000 economic profit in the short run producing 25,000 units of a good. The marginal revenue of the 25,000th unit is $23 and the marginal cost is $30. What should the monopolist do?

If new firms enter a perfectly competitive industry, the

The perfectly competitive firm's long-run supply curve is

Why does a monopolist's total revenue eventually fall as it produces and sells more output?

The rule for profit maximization is the same for a monopolist as for a perfectly competitive firm.

If a firm is a price taker, then it can