Unit 4- AP Microeconomics
Which of the following is a source of monopoly power?
Barriers to entry
The following questions are based on the following matrix. The payoff matrix below gives the profits associated with the strategic choices of two firms in an oligopolistic industry. The first entry in each cell is the profit to Firm A and the second to Firm B. If each firm simultaneously chooses its pricing strategy without collusion, Firm A's and Firm B's profits would be which of the following?
Firm A's Profit $ 50 Firm B's Profit $ 50
All of the following characterize both perfectly competitive and monopolistically competitive markets EXCEPT:
Firms can affect the selling price of their product
Which of the following statements correctly identifies a difference between perfect competition and monopolistic competition?
In perfect competition the firms all sell products that are exactly the same, but in monopolistic competition each firm sells a slightly differentiated product.
A cartel is difficult to maintain for which of the following reasons?
Individual cartel members are tempted to cheat on the agreement.
Which of the following must be true for a firm that is a natural monopoly?
It can produce and supply its product to an entire market at a lower cost than could a number of smaller firms.
Within the range of market demand, which of the following is consistent with the conditions of a natural monopoly?
Long-run total cost decreases as output increases.
Over the past 5 years, 50 new restaurants have opened and 30 have closed in the city of Zuni. Currently there are 110 restaurants operating in the city. Which of the following best represents the market structure, barriers to entry, and economic profits in the long run?
Market Structure = Monopolistic Competition ; Barriers to Entry = Low ;Long Run Economic Profit = Zero
Which of the following about the relationship between marginal revenue (MR) and price (P) under monopolistic competition and perfect competition is correct?
Monopolistic Competition: MR > P Perfect Competition: MR=P
Collusion, price leadership, and price wars are usually observed in which of the following market structures?
Oligopoly
Game theory is most commonly used for analyzing the pricing behavior of firms in which market structure?
Oligopoly
In which of the following market structures do firms recognize their mutual interdependence?
Oligopoly
For the firm shown in the graph above, which combination of output and price will maximize its profit?
Output: Q1 Price: P4
A single-price monopolist is currently producing in the inelastic portion of its market demand curve. In order to maximize profits, the monopolist should change the price and output in which of the following ways?
Price : Increase Output : Decrease
Which of the following is true of a monopolisti-cally competitive firm in long-run equilibrium?
Price equals average total cost but is greater than marginal cost.
Which of the following is true of both monopolistically competitive and perfectly competitive firms in long-run equilibrium?
Price equals average total cost.
A monopolist introduces a technological innovation that lowers the marginal cost and average cost of production. The price of the good and the level of output are most likely to change in which of the following ways?
Price: Decrease Level of Output: Increase
If the marginal cost curve of a monopolist shifts up, which of the following will occur to the monopolist's price and output?
Price: Increase Output: Decrease
The following questions refer to the diagram below, which shows the cost and revenue conditions of a monopolist. If the monopolist chooses to maximize total revenue rather than total profit, it will choose which combination of price and output?
Price: P3 Output: Q3
Which of the following is true for both a monopolistically competitive firm and a perfectly competitive firm in long-run equilibrium?
Profit equals 0
The following questions refer to the monopoly graph below, where MC = marginal cost, ATC = average total cost, D = demand, and MR = marginal revenue. The profit-maximizing combination of output and price for a single-price monopoly is
Q1 and P4
The following questions refer to the monopoly graph below, where MC = marginal cost, ATC = average total cost, D = demand, and MR = marginal revenue. If the monopolist could engage in perfect price discrimination, the monopolist's total output and the price charged for the last unit of output sold would be
Q2 and P3
The following questions refer to the graph of a monopolist shown below If the monopolist is unregulated, its profit-maximizing price and output level would lead to a deadweight loss equal to the area
RTV
Which of the following is most likely to occur if a single-price monopolist is replaced by a perfectly competitive market?
The deadweight loss will decrease.
Which of the following is true for a monopoly but NOT for a perfectly competitive firm?
The firm faces a downward-sloping demand curve.
Which of the following is true of a monopolistically competitive firm in long-run equilibrium?
The firm is allocatively inefficient, because it produces an output level at which price is greater than marginal cost.
The following questions refer to the graph below. Which of the following is most likely to occur if the firm increases production beyond 10 units?
The firm would have to lower its price to sell more than 10 units.
Evergreen and Nature View are bidding for a landscaping contract. The payoff matrix above shows what each firm's total weekly profits from all its operations will be for each combination of bids. The first entry in each cell shows Evergreen's profit, and the second entry in each cell shows Nature View's profit. A Nash equilibrium results under which of the following conditions
When Evergreen bids high and Nature View bids low
E Soda and R Soda are the only two firms in the soft-drink industry. The companies cannot cooperate. Each firm can follow a high-price strategy or a low-price strategy for pricing its product. In the payoff matrix below, the first entry in each cell shows the profits to E Soda and the second entry shows the profits to R Soda. Given the information in the payoff matrix, it can be concluded that
both firms will choose the low-price strategy
A monopolistically competitive profit-maximizing firm is currently producing and selling 2,000 units of output. At this output level, marginal revenue is $9, average revenue is $10, and the average variable cost is $8. The product price is
$10
If the firm produces 10 units of output, its economic profits will equal
$50
A monopolistically competitive firm's demand curve will be highly elastic if which of the following exists?
A high degree of product substitutability
Assume that Alpha and Beta are the only sellers of a product and they do not cooperate. Each firm has to decide whether to raise the product price. The payoff matrix below gives the profits, in dollars, associated with each pair of pricing strategies. The first entry in each cell shows the profits to Alpha, and the second, the profits to Beta. Assuming both firms know the information in the matrix, which of the following correctly describes the dominant strategy of each firm?
Alpha and Beta do not raise price
The characteristic of oligopolistic firms that makes them different from all other types of firms is that oligopolistic firms
consider each other's decisions
A firm with market power engages in price discrimination to
earn a higher profit
The profit-maximizing firm depicted in the graph above should
exit if conditions do not improve in the long run
The condition for allocative efficiency is violated when
firms are price makers( price searchers)
A single-price monopolist's marginal revenue is
greater than its price
A monopolist is inefficient from society's point of view because
it underproduces output and charges a price above marginal cost
The profit-maximizing output level produced by an unregulated monopoly is
less than the socially optimal level, since price paid by consumers exceeds the firm's MC
The table below shows the profits associated with the strategies of two oligopolistic firms, Lock and Star, that must choose between a high price and a low price for their products. The first entry in each box is the profits received by Lock, and the second entry is the profits received by Star. If Lock chooses to charge the low price, the best course of action for Star would be to charge the
low price and earn a profit of $40
An industry consists of 100 small firms, and the largest firm accounts for only 2 percent of sales. Brand names are considered a signal of quality. The industry described is best classified as
monopolistically competitive
Most economists argue that a monopoly is inefficient because it
produces too little output and sets a price above marginal cost
If SteveR Incorporated is a monopolistic producer of diamonds, the firm's demand curve is down- ward sloping because
the number of diamonds SteveR Incorporated offers for sale affects the price of diamonds
The demand curve for a monopolistically competitive firm is downward sloping because
the products produced by different firms are not identical
