AP Microeconomics Unit 4 multiple choice refresh

12. A monopolistically competitive industry combines elements of both competition and monopoly. It is correct to say that the competitive element results from: A. a relatively large number of firms and the monopolistic element from product differentiation. B. product differentiation and the monopolistic element from high entry barriers. C. a perfectly elastic demand curve and the monopolistic element from low entry barriers. D. a highly inelastic demand curve and the monopolistic element from advertising and product promotion.

A. a relatively large number of firms and the monopolistic element from product differentiation.

23. In the long-run, a profit-maximizing monopolistically competitive firm sets it price: A. above marginal cost. B. below marginal cost. C. equal to marginal revenue. D. equal to marginal cost.

A. above marginal cost.

31. Excess capacity refers to the: A. amount by which actual production falls short of the minimum ATC output. B. fact that entry barriers artificially reduce the number of firms in an industry. C. differential between price and marginal costs which characterizes monopolistically competitive firms. D. fact that most monopolistically competitive firms encounter diseconomies of scale.

A. amount by which actual production falls short of the minimum ATC output.

13. The nondiscriminating monopolist's demand curve: A. is less elastic than a purely competitive firm's demand curve. B. is perfectly elastic. C. coincides with its marginal revenue curve. D. is perfectly inelastic.

A. is less elastic than a purely competitive firm's demand curve.

9. A natural monopoly occurs when: A. long-run average costs decline continuously through the range of demand. B. a firm owns or controls some resource essential to production. C. long-run average costs rise continuously as output is increased. D. economies of scale are obtained at relatively low levels of output.

A. long-run average costs decline continuously through the range of demand.

10. Large minimum efficient scale of plant combined with limited market demand may lead to: A. natural monopoly. B. patent monopoly. C. government franchise monopoly. D. shared monopoly.

A. natural monopoly.

7. Which of the following is not a barrier to entry? A. patents B. X-inefficiency C. economies of scale D. ownership of essential resources

B. X-inefficiency

49. When a monopolistically competitive firm is in long-run equilibrium: A. production takes place where ATC is minimized. B. marginal revenue equals marginal cost and price equals average total cost. C. normal profit is zero and price equals marginal cost. D. economic profit is zero and price equals marginal cost.

B. marginal revenue equals marginal cost and price equals average total cost.

18. Refer to the above diagram. The quantitative difference between areas A and C for reducing the price from P1 to P2 measures: A. marginal cost. B. marginal revenue. C. monopoly price. D. a welfare or efficiency loss.

B. marginal revenue.

29. Which of the following is correct for a monopolistically competitive firm in long-run equilibrium? A. MC = ATC B. MC exceeds MR C. P exceeds minimum ATC D. P = MC

C. P exceeds minimum ATC

21. The price elasticity of a monopolistically competitive firm's demand curve varies: A. inversely with the number of competitors and the degree of product differentiation. B. directly with the number of competitors and the degree of product differentiation. C. directly with the number of competitors, but inversely with the degree of product differentiation. D. inversely with the number of competitors, but directly with the degree of product differentiation.

C. directly with the number of competitors, but inversely with the degree of product differentiation.

2. Monopolistic competition is characterized by a: A. few dominant firms and low entry barriers. B. large number of firms and substantial entry barriers. C. large number of firms and low entry barriers. D. few dominant firms and substantial entry barriers.

C. large number of firms and low entry barriers.

1. Monopolistic competition means: A. a market situation where competition is based entirely on product differentiation and advertising. B. a large number of firms producing a standardized or homogeneous product. C. many firms producing differentiated products. D. a few firms producing a standardized or homogeneous product.

C. many firms producing differentiated products.

24. In the short-run, the price charged by a monopolistically competitive firm attempting to maximize profits: A. must be less than ATC. B. must be more than ATC. C. may be either equal to ATC, less than ATC, or more than ATC. D. must be equal to ATC.

C. may be either equal to ATC, less than ATC, or more than ATC.

10. A monopolistically competitive industry combines elements of both competition and monopoly. The monopoly element results from: A. the likelihood of collusion. B. high entry barriers. C. product differentiation. D. mutual interdependence in decision making.

C. product differentiation.

15. For an imperfectly competitive firm: A. total revenue is a straight, upsloping line because a firm's sales are independent of product price. B. the marginal revenue curve lies above the demand curve because any reduction in price applies to all units sold. C. the marginal revenue curve lies below the demand curve because any reduction in price applies to all units sold. D. the marginal revenue curve lies below the demand curve because any reduction in price applies only to the extra unit sold.

C. the marginal revenue curve lies below the demand curve because any reduction in price applies to all units sold.

14. If a nondiscriminating imperfectly competitive firm is selling its 100th unit of output for $35, its marginal revenue: A. may be either greater or less than $35. B. will also be $35. C. will be less than $35. D. will be greater than $35.

C. will be less than $35.

4. Monopolistic competition resembles pure competition because: A. both industries emphasize nonprice competition. B. in both instances firms will operate at the minimum point on their long-run average total cost curves. C. both industries entail the production of differentiated products. D. barriers to entry are either weak or nonexistent.

D. barriers to entry are either weak or nonexistent.

30. In the long-run, economic theory predicts that a monopolistically competitive firm will: A. earn an economic profit. B. realize all economies of scale. C. equate price and marginal cost. D. have excess production capacity.

D. have excess production capacity.

25. In the long-run, the price charged by the monopolistically competitive firm attempting to maximize profits: A. must be less than ATC. B. must be more than ATC. C. may be either equal to ATC, less than ATC, or more than ATC. D. will be equal to ATC.

D. will be equal to ATC.