AP Microeconomics - Study Guide Test 6

A monopolist's demand curve is necessarily (a) the same as the market demand curve (b) the same as the marginal revenue curve (c) upward sloping (d) perfectly elastic (e) perfectly inelastic

(a)

Assume that a profit-maximizing monopoly is charging a single price. If the monopoly can price discriminate and charge each consumer what he or she is willing to pay, which of the following will occur? (a) The quantity of output produced will increase. (b) Total cost will decrease. (c) Economic profit will decrease. (d) Consumer surplus will increase. (e) Demand will decrease.

(a)

For an unregulated monopolist, the profit-maximizing quantity will always be (a) in the elastic region of the demand curve (b) where marginal revenue equals price (c) where price equals average total cost (d) where price equals marginal cost (e) where the marginal cost curve intersects the demand curve

(a)

A collusive agreement to fix prices among firms in an oligopolistic industry is most likely to be broken under which of the following conditions? (a) It is easy for new firms to enter into the industry. (b) All of the firms have identical costs. (c) The number of firms is few. (d) Firms' sales are widely spread. (e) The market demand is stable.

(a)

In a market with two firms, a firm that has a dominant strategy will do which of the following? (a) Maintain that strategy independent of the strategies chosen by its competitor. (b) Adjust its strategies based on the strategies chosen by its competitor. (c) MAke the first move, and wait to see whether its competitor responds to the move. (d) Keep its competitor guessing about its next move. (e) Collude with its competitor to reduce uncertainty,

(a)

The cartel model of oligopoly predicts that (a) all the firms in the industry act in unison to set a monopoly price (b) each producer acts independently of others (c) firms follow the low-price firm in the industry (d) differences in cost of production discourage individual firms from cheating (e) the markup on original cost should be the same for all firms

(a)

There are four firms in an oligopolistic industry. The four firms agree to collude and act like a monopoly. If one of the firms violates the agreement and charges a lower price or sells a larger quantity than what was agreed to, what will happen in the short run? (a) The firm that cheats will earn higher profits, and industry profits will be lower. (b) The firm that cheats will earn higher profits, and industry profits will be higher. (c) The firm that cheats will earn lower profits, and industry profits will be lower. (d) The firm that cheats will earn lower profits, and industry profits will be higher. (e) The firms that do not cheat will earn higher profits.

(a)

Which of the following is more likely to occur when there are high barriers to entry in an industry? (a) The firm(s) in the industry earn economic profit in the long run. (b) The industry will be characterized by diseconomies of scale. (c) The firm(s) in the industry are price takers. (d) The firm(s) in the industry will charge a price equal to average total cost. (e) The firm(s) will charge a price on the inelastic portion of the demand curve.

(a)

A cartel is difficult to maintain for which of the following reasons? (a) Consumers substitute away from the good when the price increases. (b) Individual cartel members are tempted to cheat on the agreement. (c) Although the total gain to cartel members is positive, all members lose when everyone sticks to the agreement. (d) Some firms will reduce output in an effort to lower costs of production. (e) Oligopolists behavior is generally predictable.

(b)

A monopoly is producing the allocatively efficient output if, for the last unit produce, (a) price equals minimum average total cost (b) price equals marginal cost (c) marginal cost equals variable cost (d) marginal cost equals average variable cost (e) marginal revenue equals average variable cost

(b)

Which of the following areas shows the consumer surplus? (a) AP0E (b) AP1B (c) AFE (d) BJE (e) P0FE

(b)

At the current quantity that a firm is selling, the firm has marginal revenue of $750 and a marginal cost of $800. Which of the following is true? (a) The firm is maximizing profit. (b) The firm's profits would increase if the firm increased the quantity sold. (c) The firm's profits would increase if the firm decreased the quantity sold. (d) The firm earns a negative economic profit. (e) The firm earns zero accounting profit.

(c)

If the only two firms in an industry successfully collude to maximize their joint profit, the price for the product will be (a) equal to marginal cost of production (b) equal to the average total cost of production (c) above the marginal cost of production. (d) above the monopoly price (e) below the average variable cost of production

(c)

In the diagram above, the deadweight loss from a profit-maximizing monopolist is represented by area (a) FGK (b) FHI (c) IJK (d) GHIK (e) 0HIQ

(c)

The firm shown in the diagram above qualifies as a natural monopoly because (a) the demand curve is downward sloping (b) the demand curve lies above the marginal revenue curve (c) the average total cost is decreasing in the relevant range of market demand (d) the firm can maximize profit with any output level it chooses

(c)

Which of the following is true if a monopolist's marginal revenue is negative at the current level of output? (a) Demand for its production is unit elastic. (b) Demand for its product is price elastic. (c) Demand for its product is price inelastic. (d) Marginal cost is equal to price. (e) Marginal revenue is equal to price.

(c)

As the quantity of a good increases, which of the following is true in the elastic region of a monopolist's demand curve? (a) Marginal revenue and total revenue are negative. (b) Marginal revenue is decreasing, and total revenue is positive. (c) Marginal revenue is decreasing, and total revenue is negative. (d) Marginal revenue is positive, and total revenue is increasing. (e) Marginal revenue is negative, and average revenue is decreasing.

(d)

Assume that a monopolist is producing in the inelastic portion of its demand curve. Which of the following will occur if the monopolist decreases its price? (a) Marginal revenue will decrease, but profits will increase. (b) Marginal revenue will increase, but profits will decrease. (c) Total revenue will decrease, but profits will increase. (d) Both total revenue and profits will decrease. (e) Both total revenue and profits will increase.

(d)

Compared with a perfectly competitive market, a single-price monopoly with the same market demand and cost curves will (a) increase output and price (b) increase output and decrease price (c) decrease output and price (d) decrease output and increase price (e) produce the same level of output and increase price

(d)

Monopolies are inefficient compared to perfectly competitive firms because monopolies (a) produce output with average total cost exceeding average revenue (b) produce more output than is social desirable (c) charge a price less than marginal revenue (d) charge a price greater than marginal cost (e) charge a price less than average total cost

(d)