ECON Module 3 Quiz

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

A pure monopolist: A) will realize an economic profit if price exceeds ATC at the equilibrium output. B) will realize an economic profit if ATC exceeds MR at the equilibrium output. C) will realize an economic loss if MC intersects the downsloping portion of MR. D) always realizes an economic profit.

A

The non-discriminating pure monopolist's demand curve: A) is the industry demand curve. B) shows a direct or positive relationship between price and quantity demanded. C) tends to be inelastic at high prices and elastic at low prices. D) is identical to its marginal revenue curve.

A

Which of the following distinguishes the short run from the long run in pure competition? A) Firms can enter and exit the market in the long run but not in the short run. B) Firms attempt to maximize profits in the long run but not in the short run. C) Firms use the MR = MC rule to maximize profits in the short run but not in the long run. D) The quantity of labor hired can vary in the long run but not in the short run.

A

Which of the following is not a precondition for price discrimination? A) The commodity involved must be a durable good. B) The good or service cannot be resold by original buyers. C) The seller must be able to segment the market, that is, to distinguish buyers with different elasticities of demand. D) The seller must possess some degree of monopoly power.

A

Which of the following statements is incorrect? A) A monopolist's 100 percent market share ensures economic profits. B) The monopolist's marginal revenue is less than price for any given output greater than 1. C) A monopolistic firm produces a product having no close substitutes. D) A pure monopolist's demand curve is the industry demand curve.

A

A purely monopolistic industry: A) has no entry barriers. B) has a downward sloping demand curve. C) produces a product or service for which there are many close substitutes. D) earns only a normal profit in the long run

B

Assume a purely competitive increasing-cost industry is initially in long-run equilibrium and that an increase in consumer demand occurs. After all economic adjustments have been completed, product price will be: A) lower, but total output will be larger than originally. B) higher and total output will be larger than originally. C) lower and total output will be smaller than originally. D) higher, but total output will be smaller than originally.

B

In long-run equilibrium, purely competitive markets: A) minimize total cost. B) maximize the sum of consumer surplus and producer surplus. C) yield economic profits to most sellers. D) inevitably degenerate into monopoly in increasing-cost industries.

B

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

If for a firm P = minimum ATC = MC, then: A) neither allocative efficiency nor productive efficiency is being achieved. B) productive efficiency is being achieved, but allocative efficiency is not. C) both allocative efficiency and productive efficiency are being achieved. D) allocative efficiency is being achieved, but productive efficiency is not.

C

Price discrimination refers to: A) selling a given product for different prices at two different points in time. B) any price above that which is equal to a minimum average total cost. C) the selling of a given product at different prices that do not reflect cost differences. D) the difference between the prices a purely competitive seller and a purely monopolistic seller would charge.

C

Pure monopoly means: A) any market in which the demand curve to the firm is downsloping. B) a standardized product being produced by many firms. C) a single firm producing a product for which there are no close substitutes. D) a large number of firms producing a differentiated product.

C

Refer to the diagrams, which pertain to a purely competitive firm producing output q and the industry in which it operates. In the long run we should expect: A) firms to enter the industry, market supply to rise, and product price to fall. B) firms to leave the industry, market supply to rise, and product price to fall. C) firms to leave the industry, market supply to fall, and product price to rise. D) no change in the number of firms in this industry.

C

Under which of the following situations would a monopolist increase profits by lowering price (and increasing output): A) if it discovered that it was producing where MC = MR B) if it discovered that it was producing where its MC curve intersects its demand curve C) if it discovered that it was producing where MC < MR D) under none of the above circumstances because a monopolist would never lower price

C

If the long-run average total cost curve of an industry is declining at the point where it intersects the industry demand curve, we can expect: A) an overallocation of resources. B) the industry will be purely competitive. C) the industry will be monopolistically competitive. D) the industry will be a natural monopoly.

D

Refer to the above data. The equilibrium level of output will be: A) 4 units. B) 7 units. C) 6 units. D) 5 units.

D

The MR = MC rule: A) applies only to pure competition. B) applies only to pure monopoly. C) does not apply to pure monopoly because price exceeds marginal revenue. D) applies both to pure monopoly and pure competition.

D

The above diagram implies that whenever a firm's demand curve is downsloping: A) price discrimination is not possible. B) monopolists will be more efficient than competitors. C) the demand and marginal revenue curves will coincide. D) marginal revenue is less than price.

D

The dilemma of regulation refers to the idea that: A) the regulated price which achieves allocative efficiency is also likely to result in persistent economic profits. B) the regulated price which results in a "fair return" restricts output by more than would unregulated monopoly. C) regulated pricing always conflicts with the "due process" provision of the Constitution. D) the regulated price which achieves allocative efficiency is also likely to result in losses.

D