Microeconomics [Green]

119 A monopoly refers to (A) the least competitive market structure (B) the most competitive market structure (C) a market structure with a small number of interdependent large firms producing a standardized product (D) extensive economies of scale and higher cost-efficiency when there is only one firm for the entire demand of a product (E) the most competitive market structure

(A) Choice (A) is correct. A monopoly is a market structure where one firm is the producer for a good or service with very few substitutes and many barriers to entry. There is virtually no competition in a monopoly market structure.

417 How does a monopsony find the equilibrium number of workers to hire? (A) MRP = MFC (B) MRP < MFC (C) MRC > MFC (D) MC < MB (E) MC = MB

(A) Choice (A) is correct. Equilibrium occurs when MRP = MFC.

129 The difference between a monopoly and a monopolistic competition is (A) differentiated products (B) economies of scale (C) long-term pricing power (D) government regulation (E) the size of the market

(C) Choice (C) is correct. A monopoly can earn an economic profit in the long term because other firms cannot enter the market. In monopolistic competition, firms can easily enter the market so profit will be normal in the long term.

130 Firm X decides to shut down production in the short run where its costs would be (A) AVC only (B) AVC and TFC only (C) TFC only (D) zero (E) none of the above

(C) Choice (C) is correct. If marginal revenue (MR), the same as price, is equal to average variable costs (AVC), then firms could shut down and pay only their total fixed costs (TFC). If firms shut down in the short run, then AVC does not need to be paid, only TFC.

416 The least-cost hiring rule refers to (A) firms that are wage setters (B) a business hiring workers to the point where MRP = MFC (C) the combination of labor and capital helping minimize total costs (D) measuring the cost a business must pay for using one more unit of a factor of production (E) the value that the next unit of a resource brings to the firm

(C) Choice (C) is the best answer because the least-cost rule seeks to find the best combination between resources and capital that would be the cheapest for the firm. Choice (A) is incorrect because it refers to a monopsony and the answer does not fully answer the question. Choice (B) is incorrect because it refers to profit maximizing. Choice (D) is incorrect because it refers to marginal revenue cost. Choice (E) is incorrect because it refers to the marginal revenue product.

134 The services of natural gas, water, and electricity brought into the household are best consigned to which market structure? (A) monopolistic competition (B) oligopoly (C) perfect competition (D) natural monopoly (E) monopoly

(D) Choice (D) is correct. A natural monopoly is a market structure where it is beneficial for one firm to control the production of a good or service. For example, natural gas and the water authority work most efficiently and with the greatest benefit if there is a natural monopoly. It would be too complicated and at a great cost if competitive markets began running separate lines to households for gas and water.

123 If new firms enter the market, what is most likely to occur? (A) Total revenue will decrease (B) Total revenue will increase (C) Market power increases (D) Market power decreases (E) none of the above

(D) If new firms enter a market, the firms already competing in the market will lost market power so Choice (D) is the best answer.