Question 1

Suppose the baseball card industry is monopolistic. We know then that for the monopolist,

Accepted Answer

A)  price elasticity of demand everywhere along its demand curve is infinite 
B)  price elasticity of demand everywhere along the demand curve is zero 
C)  as price increases, marginal revenue decreases 
D)  as price decreases, marginal revenue decreases 
E)  price equals marginal revenue everywhere along its demand curve

Question 2

Sue's bagel shop faces many local competitors and has recently begun an advertising campaign which

Accepted Answer

A)  is likely generic advertising about the benefits of bagel consumption 
B)  demonstrates of her firm's monopoly status 
C)  differentiates her product from that of other firms 
D)  will shift the bagel supply curve inwards (leftward) 
E)  will lower bagel production costs

Question 3

Economies of scale means

Accepted Answer

A)  average total cost rises as firm size and output increase 
B)  average total cost falls as firm size and output increase 
C)  small firms have a cost advantage over large firms 
D)  monopolistically competitive firms charge less than a monopoly 
E)  a monopoly makes more economic profit than a perfectly competitive firm

Question 4

The monopolist, unlike the perfectly competitive firm, continues to earn an economic profit in the long run because

Accepted Answer

A)  it can charge a higher price than its competitors and not lose market share 
B)  it can innovate, using its profit as research investment 
C)  it can out-compete its competitors 
D)  it has considerable market share 
E)  of impossible-to-overcome barriers to entry

Question 5

One reason why firms in monopolistically competitive markets earn zero profit in the long run is because

Accepted Answer

A)  product differentiation disappears 
B)  barriers to entry become prohibitive 
C)  the price elasticity of demand for each firm falls to zero 
D)  so many firms enter the market that each firm's demand curve eventually becomes tangent to the firm's ATC curve 
E)  each firm's ATC curve shifts upward to eventually become tangent to its demand curve

Question 6

We know that in the long run, perfectly competitive firms produce where MR = MC andend up making zero economic profit. The profit-maximizing output level for a monopolist is where

Accepted Answer

A)  price is maximized 
B)  quantity is maximized 
C)  ATC curve is minimized 
D)  maximum efficiency is achieved 
E)  MR = MC

Question 7

According to Alfred Marshall, small firms produce a good more efficiently than a monopoly.

Accepted Answer

A) True 
 B)False

Question 8

Product differentiation

Accepted Answer

A)  refers to the attempt of firms to make their goods look like those of the other firms in the industry 
B)  refers to the attempt of firms to make essentially substitutable goods look different in the minds of the consumers 
C)  refers to the advantage big firms have in research and development 
D)  is a common characteristic of a perfectly competitive market structure 
E)  is only employed in a monopoly market structure

Question 9

Under which of the following conditions could the monopoly price be less than the price that would result in perfect competition? When there are

Accepted Answer

A)  diminishing marginal returns 
B)  substantial economies of scale 
C)  higher unit costs 
D)  increasing costs 
E)  constant returns to scale

Question 10

If a firm is earning a normal profit, but zero economic profit, at the point where MR = MC, the firm should

Accepted Answer

A)  shut down 
B)  increase output and decrease price 
C)  increase output and increase price 
D)  decrease output and increase price 
E)  remain at its current level of output

Question 11

Explicit costs would include

Accepted Answer

A)  the rent paid by a business owner for office space 
B)  the interest loss of the business owner on money withdrawn from his/her savings account and invested in the business 
C)  the loss of rent on a building the business owner owns and uses in his/her business 
D)  the opportunity costs of the business owner's time 
E)  the use of tools owned by the business owner and dedicated to the business

Question 12

Tara runs the only one-hour photo lab for 300 miles around, in an isolated west Texas town. Her lab technician explains to Tara that she is not producing the level of output that would minimize her average total costs. The lab technician tells her that she should lower her price in order to increase her number ofcustomers. Tara rejects her technician's analysis. Why doesn't she take her technician's advice?

Accepted Answer

The answer of Tara runs the only one-hour photo lab...

Question 13

The firm's demand curve in monopolistic competition slopes downward because

Accepted Answer

A)  there are strong barriers to entry in the industry 
B)  of product differentiation among the goods firms produce 
C)  only few firms exist in the industry 
D)  the market demand curve is downward sloping 
E)  the market demand curve is horizontal

Question 14

-Sam's hamburger shop, represented by Exhibit K-1, is a monopolistic competitor

Accepted Answer

A)  making a profit of $100 
B)  producing an economically efficient output level of 50 hamburgers 
C)  in long-run equilibrium at 50 units of output 
D)  taking in $400 of revenue 
E)  who can expect new entrants to the market

Question 15

The monopolist's demand curve is

Accepted Answer

A)  downward sloping and identical to the market demand curve 
B)  downward sloping and identical to the marginal revenue curve 
C)  downward sloping and lies below the marginal revenue curve 
D)  a horizontal line at a price consistent with maximum profit 
E)  a U-shaped curve that lies above the U-shaped ATC curve

Question 16

In the long-run, profits will exist for firms in monopolistically competitive firms but not monopoly.

Accepted Answer

A) True 
 B)False

Question 17

Picture in your mind's eye the graph of a profit-maximizing monopolist. If its cost curves-both ATC and MC-shift upward while its demand curve remains unchanged, the monopolist will

Accepted Answer

A)  decrease price and increase output 
B)  decrease both price and output 
C)  increase price and decrease output 
D)  increase both price and output 
E)  keep both price and output at the same level

Question 18

Suppose your accountant told you that the economic profit you made last year was $50,000. You would be pleased because the $50,000 represents your total revenue minus

Accepted Answer

A)  implicit costs 
B)  monetary costs 
C)  explicit costs 
D)  both implicit costs and explicit costs 
E)  the difference between explicit and implicit costs

Question 19

-The firm in Exhibit K-9 produces in which type of market structure?

Accepted Answer

A)  monopoly 
B)  oligopoly 
C)  perfect competition 
D)  monopolistic competition 
E)  not sufficient information to tell

Question 20

Because its market share is insignificant, a perfectly competitive firm faces an inelastic demand curve.

Accepted Answer

A) True 
 B)False

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

Suppose the baseball card industry is monopolistic. We know then that for the monopolist,

Sue's bagel shop faces many local competitors and has recently begun an advertising campaign which

Economies of scale means

The monopolist, unlike the perfectly competitive firm, continues to earn an economic profit in the long run because

One reason why firms in monopolistically competitive markets earn zero profit in the long run is because

We know that in the long run, perfectly competitive firms produce where MR = MC andend up making zero economic profit. The profit-maximizing output level for a monopolist is where

According to Alfred Marshall, small firms produce a good more efficiently than a monopoly.

Product differentiation

Under which of the following conditions could the monopoly price be less than the price that would result in perfect competition? When there are

If a firm is earning a normal profit, but zero economic profit, at the point where MR = MC, the firm should

Explicit costs would include

The firm's demand curve in monopolistic competition slopes downward because

-Sam's hamburger shop, represented by Exhibit K-1, is a monopolistic competitor

The monopolist's demand curve is

In the long-run, profits will exist for firms in monopolistically competitive firms but not monopoly.

Picture in your mind's eye the graph of a profit-maximizing monopolist. If its cost curves-both ATC and MC-shift upward while its demand curve remains unchanged, the monopolist will

Suppose your accountant told you that the economic profit you made last year was $50,000. You would be pleased because the $50,000 represents your total revenue minus

-The firm in Exhibit K-9 produces in which type of market structure?

Because its market share is insignificant, a perfectly competitive firm faces an inelastic demand curve.