Unit 8 Practice Quizzes - Imperfect Competition
If a monopolist sells 100 units for $10 per unit and has an average cost of $8 per unit, what is the firm's total revenue? $1000 None of the above. $800 $200.
$1000
If the total revenue (TR) that a monopolist earns for 50 widgets is $20,000 and the marginal revenue (MR) for selling 51 widgets is $145, what is the average revenue (AR) for 51 widgets? $20,145 $395 $7395 $145
$395
Examine the graph below. The firm's profit is $750. $6000. $1500. $6750.
$750.
If a monopolist sells 100 units for $10 per unit and has an average cost of $8 per unit, what is the firm's total cost? $800 $200 $1000 None of the above.
$800
If reducing the price of a product from $20 to $18 results in an increase in sales from 100 units to 106 units, what is the product's elasticity of demand? 2 6 1 0.6
0.6
Examine the demand curve for a monopolist below. If the monopolist decreases the price of the product from P2 to P1, the area ______________ represents the firm's additional revenue. ABFG DEBC CBF DEBC + ABFG
ABFG
Which of the following characteristics can be used to differentiate products in a specific market? Advertising. Low costs. Barriers to entry. Low prices.
Advertising.
Which of the following would not be an example of product differentiation? All of the above are methods of differentiation. special warranties packaging shelf location
All of the above are methods of differentiation.
Use the graph to answer the question. Which letter represents the profit-maximizing output in a monopoly? B. D. A. C.
B.
LESSON 7.1.4
CALCULATING A MONOPOLIST'S PROFIT AND LOSS
LESSON 7.2.2
CALCULATING DEADWEIGHT LOSS
LESSON 7.1.2
DEFINING MARGINAL REVENUE FOR A FIRM WITH MARKET POWER
LESSON 7.4.1
DEFINING MONOPOLISTIC COMPETITION
LESSON 7.1.1
DEFINING MONOPOLY POWER
LESSON 7.1.3
DETERMINING THE MONOPOLIST'S PROFIT-MAXIMIZING OUTPUT AND PRICE
LESSON 7.2.1
DETERMINING THE SOCIAL COST OF MONOPOLY
Examine the graph below. If the firm decreases the product price from P2 to P1, area ____________ represents the firm's lost revenue. EDCB ABFG 0EFG CBF
EDCB
Which of the following is a serious problem associated with breaking up a monopoly? Price always rises. Economies of scale may be disrupted. Supply is disrupted. Diseconomies of scale may be disrupted.
Economies of scale may be disrupted.
Which of the following statements about elasticity is true? A firm with market power can determine the elasticity of its demand curve. If a firm with market power faces an elastic demand curve, a small reduction in price will result in negative marginal revenue. A firm with market power does not need to be concerned about the elasticity of its demand curve. Elasticity changes as the quantity demanded changes.
Elasticity changes as the quantity demanded changes.
A firm with market power faces a demand curve with constant elasticity. True False
False
A monopolist is constrained by marginal revenue in setting price. True False
False
A monopolist maximizes profit by maximizing price. True False
False
A monopolistically competitive firm is characterized by high barriers to entry. True False
False
For a firm with market power, marginal revenue (MR) equals price. True False
False
For a monopolist, maximizing revenue is the same as maximizing profit. True False
False
In a game of advertising between two monopolistic competitors, the firms choose the most stable outcome because they can enforce the agreement between them. True False
False
Is the following statement true or false? A monopolist will always be able to operate at a profit. True False
False
Marginal revenue is always less than price for a competitive firm. True False
False
Monopolists always require government protection to maintain their monopoly position. True False
False
Monopolists set the price of their products on the demand curve at the output level where the supply curve intersects the marginal revenue curve. True False
False
One of the main characteristics of an oligopoly is firms' complete independence from one another. True False
False
The demand curve facing a monopolist is the same as the one facing every other firm in the industry. True False
False
When regulators consider ways to regulate monopolies, they should choose to set price and output where marginal cost equals demand, thus maximizing social value. True False
False
For a monopolist, which of the following statements about marginal revenue is true? For a monopolist, marginal revenue depends on the elasticity of the demand curve. For a monopolist, marginal revenue equals price. For a monopolist, marginal revenue is not important. For a monopolist, marginal revenue is greater than price.
For a monopolist, marginal revenue depends on the elasticity of the demand curve.
Which of these statements about the marginal cost (MC) curve and average total cost (ATC) curve is true? For a monopolist, the marginal cost (MC) curve is at a minimum when the sum of average variable cost (AVC) and average fixed cost (AFC) is at a minimum. For a monopolist, the marginal cost (MC) curve and average total cost (ATC) curve are the same. For a monopolist, the marginal cost (MC) curve is at a minimum when the average total cost (ATC) curve is at a maximum. For a monopolist, the average total cost (ATC) curve is decreasing when it is above the marginal cost (MC) curve and is increasing when it is below the marginal cost (MC) curve.
For a monopolist, the average total cost (ATC) curve is decreasing when it is above the marginal cost (MC) curve and is increasing when it is below the marginal cost (MC) curve.
LESSON 7.1.5
GRAPHING THE RELATIONSHIP BETWEEN MARGINAL REVENUE AND ELASTICITY
LESSON 7.3.1
INTRODUCING OLIGOPOLY AND THE PRISONER'S DILEMMA
Which of these statements is true about a firm with market power? If a firm with market power faces an elastic demand curve, a small change in price results in positive marginal revenue. A firm with market power is guaranteed to be profitable. All firms with market power face inelastic demand curves. A firm with market power can sell each unit of output at a different price.
If a firm with market power faces an elastic demand curve, a small change in price results in positive marginal revenue.
Why will U.S. companies not jointly decide to cease advertising? It would be collusive and illegal They do not like each other Market share would fall Advertising is expected by consumers
It would be collusive and illegal
What is the profit maximizing point for both firms in competition and in a monopoly? P = MC P MR>MC MR = MC
MR = MC
Which of the following statements about marginal revenue is true? Marginal revenue (MR) is always less than the price. Marginal revenue (MR) is the same as average revenue. The slope of the marginal revenue (MR) curve is always positive. As the price a monopolist charges per unit decreases, the marginal revenue (MR) increases because of the additional unit sold.
Marginal revenue (MR) is always less than the price.
An outcome of the prisoner's dilemma in which each player does the best that he / she can do, given what the other players are doing is known as a monopoly cooperative oligopoly Nash equilibrium negotiated settlement
Nash equilibrium
Examine the graph below. This monopolist is maximizing profits at Q0 and charging a price of P0. Q1 and charging a price of P1. Q0 and charging a price of P1. Q1 and charging a price of P0.
Q1 and charging a price of P1.
What is the difference between price and average cost? The difference between price and average cost is fixed cost. The difference between price and average cost is the marginal cost. The difference between price and average cost is the profit per unit, or profit margin. The difference between price and average cost is profit.
The difference between price and average cost is the profit per unit, or profit margin.
Which of the following will be true of the monopolistic competitor in the long run? The firm will make an economic product because of the level barriers to entry. The firm will make an economic profit because of the differentiated product. The firm will not make an economic profit because of the advertising. The firm will not make an economic profit because low barriers to entry permit other firms to enter.
The firm will not make an economic profit because low barriers to entry permit other firms to enter.
What would be the result for a firm if its marginal cost curve shifted up within the gap on the marginal revenue curve? The firm would raise output but not price. The firm would decrease output and raise price. The firm would not change either price or output. The firm would raise both price and output.
The firm would not change either price or output.
A monopolist can sell 20 widgets at $25 each. In order to sell 21 widgets, the firm must lower the price to $23. What happens to marginal revenue? The marginal revenue (MR) would be $17. The marginal revenue (MR) would be −$17. The marginal revenue (MR) would remain constant. The marginal revenue (MR) would be $2.
The marginal revenue (MR) would be −$17.
At which level of output would a monopolist produce to maximize profit? The monopolist maximizes profit by producing at the level of output where marginal revenue (MR) is 0. The monopolist maximizes profit by producing at the level of output where marginal revenue (MR) is maximum. The monopolist maximizes profit by producing at the level of output where marginal revenue (MR) equals marginal cost (MC). The monopolist maximizes profit by producing at the level of output where marginal revenue (MR) is constant.
The monopolist maximizes profit by producing at the level of output where marginal revenue (MR) equals marginal cost (MC).
Which of the statements concerning a monopolist's revenue is not always true? Total revenue increases with each additional unit of output. Marginal revenue is less than price. Average revenue equals price. Increasing sales may decrease marginal revenue.
Total revenue increases with each additional unit of output.
A deadweight loss caused by a monopoly produces results similar to a deadweight loss created by an excise tax. True False
True
A monopolist calculates its profit by multiplying the quantity of output by average revenue minus average cost. True False
True
A monopoly is a single seller of a good or service. True False
True
For a monopolist, profit maximization occurs at the output where marginal revenue is equal to marginal cost. True False
True
For a monopolistically competitive firm, when price equals average total cost, the price must lie above marginal cost. True False
True
For a profit-maximizing monopoly, when total revenue is maximized, marginal revenue is zero. True False
True
If a monopolist firm has an inelastic demand curve, it can increase its price and expect a more than proportionate increase in revenue. True False
True
Monopolies create a social cost because consumers who may be willing to pay for the product up to its marginal cost are not served. True False
True
Product differentiation leads to some degree of market power. True False
True
The main criticism of the kinked-demand curve model is that it does not explain how firms reach the original price / output at the kink. True False
True
LESSON 7.3.2
UNDERSTANDING A CARTEL AS A PRISONER'S DILEMMA
LESSON 7.4.3
UNDERSTANDING MONOPOLISTIC COMPETITION AS A PRISONER'S DILEMMA
LESSON 7.2.3
UNDERSTANDING MONOPOLY REGULATION
LESSON 7.4.2
UNDERSTANDING PRICING AND OUTPUT UNDER MONOPOLISTIC COMPETITION
LESSON 7.3.3
UNDERSTANDING THE KINKED-DEMAND CURVE MODEL
Monopoly pricing blocks some trades from taking place. These trades would have taken place if the industry were perfectly competitive. These unrealized trades are irrelevant to the issue of economic value. not a cost. a deadweight loss to society. a sunk cost.
a deadweight loss to society.
Which of the following is a a good example of a monopoly? a construction firm a soft drink company a fast-food restaurant a local electric power company
a local electric power company
Use the graph to answer the question. If this firm is behaving as a firm with some market power, it is experiencing economic profit. normal profit. a loss. Cannot tell from the information given.
a loss.
Use the graph to answer the question. If the graph is a market for a monopoly, which area represents the consumer surplus? abcdef. cdef. ab. abcdg.
ab.
In an advertising "prisoner's dilemma" game, both firms end up __________________ which turns out to be ________________________ advertising; worse for them both not advertising; worse for them both. not advertising; better for them both advertising; better for them both.
advertising; worse for them both
Market power exists when a firm is all of the above able to influence the market price of its good and service. a price setter. able determine the output level for the entire market.
all of the above
Average cost pricing allows the monopolist to cover per-unit costs. allows the monopolist to make an average profit. sets price equal to average revenue. allows the monopolist to cover marginal costs.
allows the monopolist to cover per-unit costs.
Which of the following effects is not created by a monopoly? the restriction of free trade the creation of deadweight loss an increase in prices an increase in innovation
an increase in innovation
A cartel is different from a monopoly because a cartel doesn't maximize profits. with regard to their cost curves. because a cartel does not have a downward sloping demand curve. because a cartel is made up of multiple firms.
because a cartel is made up of multiple firms.
Product differentiation matters because it is the method by which monopolistically competitive firms can minimize their costs. can identify the elasticity of demand for their product. determine their selling price. can have some control over their share of the market.
can have some control over their share of the market.
When firms have either an explicit or implicit agreement among themselves to restrict the quantity of product and regulate its price, the arrangement is called a a Nash equilibrium. cartel. an oligopoly. a monopoly.
cartel.
Marginal revenue is equal to the change in total revenue - change in quantity sold. change in total revenue ⋅ change in quantity sold. change in total revenue + change in quantity sold. change in total revenue ÷ change in quantity sold.
change in total revenue ÷ change in quantity sold.
The prisoner's dilemma game does not explain _____________________ markets, but is useful in explaining behavior in ________________ markets. oligopoly, competitive oligopoly, monopoly competitive, oligopoly monopoly, competitive
competitive, oligopoly
Examine the graph of a monopolist's market. The __________ curve is always downward sloping because price and quantity are _____________ related. demand; directly supply; inversely demand; inversely supply; constantly
demand; inversely
Examine the graph below. The areas of deadweight loss are c and d. e and f. a, b, c, and d. a and b.
e and f.
Oil producing countries can operate as a cartel in all of the following ways except each country sets its profit maximizing price and quantity. they limit the international oil supply to keep prices elevated. they attempt to punish countries who cheat. make joint decisions.
each country sets its profit maximizing price and quantity.
An oligopoly assumes each firm needs the other to stay in business. each firm will match its competitor's price increases. the firms agree to price cooperatively. each firm will react to its competitor's price decreases.
each firm will react to its competitor's price decreases.
In the long run, a monopolistic competitor will operate at the lowest point on its ATC curve. earn zero economic profit. will sell all its product at the market price. charge a price equal to marginal cost.
earn zero economic profit.
A natural monopoly exists when the monopolist produces a product because it has exclusive ownership of a natural resource. there are few close substitutes for a firm's product. economies of scale are so large that only one firm can survive and achieve low unit cost. the firm has a patent on an essential process.
economies of scale are so large that only one firm can survive and achieve low unit cost.
Use the graph to answer the question. Which area represents the deadweight loss in a monopoly? d g ef f
ef
In a kinked-demand curve model, the demand curve at prices greater than the kink is _______________, but the curve below the kink is______________. elastic; perfectly inelastic elastic; inelastic elastic, elastic, inelastic; elastic
elastic; inelastic
In the market for pants, there are many sellers. These sellers distinguish themselves from one another and thus accept the market price for their similar products. face downward sloping demand curves. face horizontal demand curves. face highly elastic demand and low brand loyalty.
face downward sloping demand curves.
Which of the following is an example of a monopolistically competitive industry? automobiles wheat farming cable TV fast-food hamburger restaurants
fast-food hamburger restaurants
A Nash equilibrium means that in an oligopoly market, firms may not try to maximize profit. firms choose their own best pricing strategy, given the behavior of other firms in the industry. market price will be different for each firm. each firm will try not to observe the pricing strategies of its competitors.
firms choose their own best pricing strategy, given the behavior of other firms in the industry.
A monopolist's price is _______ and output is ______ than perfect competition. less; greater greater; less greater; greater less; less
greater; less
If one company is a single seller of a good and is earning economic profits, what prevents other firms from entering the market and competing with the firm? government protection for the monopolist high barriers to entry economies of scale low barriers to entry
high barriers to entry
Which of the following is not a problem associated with cartels? difficult to regulate higher production costs higher selling prices high incentives to cheat
higher production costs
Cartels are illegal in the U.S. for restraining free trade. easily enforced agreements. ineffective at keeping prices higher than the competitive price. the most efficient type of firm structure.
illegal in the U.S. for restraining free trade.
All of the following are reasons some monopolies are legal in the U.S. except economies of scale. natural barriers to entry. increasing availability of jobs. public safety issues.
increasing availability of jobs.
The following are all examples of rent-seeking practices except bribing public officials. political lobbying. soft money contributions to political candidates. increasing the monthly rental rate for tenants in a building.
increasing the monthly rental rate for tenants in a building.
For natural monopolies, average total cost falls continuously and never begins to increase. Therefore, marginal cost is always equal to average total cost. is unrelated to average total cost. is always greater than average total cost. is always less than average total cost.
is always less than average total cost.
One of the paradoxes of game theory is that the players' "dominant strategy" is not necessarily the most efficient outcome usually is difficult to achieve is seldom regulated by governmental agencies seeks to maximize profits at all times.
is not necessarily the most efficient outcome
For a monopolist, marginal revenue is less than the product's price. more than the product's price. equal to the average price. equal to the product's price.
less than the product's price.
Which of the following would hinder the success of a cartel? none of the above low barriers to entry governmental awareness of the existence of the cartel control of the resources that are necessary to produce
low barriers to entry
Monopolistically competitive markets are like competitive markets in that they have advertising. differentiated products. many sellers. a downward sloping demand curve.
many sellers.
To maximize revenue, a monopolist prices its product at the point where ___________ is equal to zero. marginal cost marginal revenue average cost total revenue
marginal revenue
By following the profit maximizing rule, a monopolist could earn a larger profit by increasing output. will always have an above-zero profit. maximizes its profit (or minimizes its losses). will always have a normal profit.
maximizes its profit (or minimizes its losses).
A monopolistically competitive firm behaves somewhat like monopoly due to their market power. monopoly because they have the entire market demand curve. perfect competition due to their market power. perfect competition because they produce a homogenous product.
monopoly due to their market power.
Deadweight loss compares monopoly producer surplus to competitive prices. monopoly quantity to competitive price. monopoly surplus to competitive surplus. monopoly profits to competitive profits.
monopoly surplus to competitive surplus.
If firms in a monopolistically competitive market are making short-run economic profits, new firms are likely to enter the market. the firms may be subject to regulations. additional barriers to entry are likely to be erected. some firms may exit the market.
new firms are likely to enter the market.
Product differentiation is a type of nonprice competition. price taking. price competition. collusion.
nonprice competition.
In the kinked-demand curve model, the kink means that other firms in the industry match all price decreases below the kink. other firms in the industry match all price decreases above the kink. other firms in the industry ignore the actions of competitors. other firms in the industry match all price increase above the kink.
other firms in the industry match all price decreases below the kink.
A monopolist is not as good for society as a perfectly competitive firm because the monopolist is inefficient. output is lower and price is higher than under competition. the monopolist doesn't sell the profit maximizing quantity. the monopolist's costs are higher than perfect competition.
output is lower and price is higher than under competition.
Advertising by monopolistically competitive firms assumes that demand for advertising is competitive. demand for substitutes is inelastic. people will pay more for a product they consider superior. consumers listen to commercials.
people will pay more for a product they consider superior.
The economic problem with a monopoly is price and quantity are high. price is low and quantity is high. price and quality are low. price is high and quantity is low.
price is high and quantity is low.
All of the following are examples of how monopolies are created except copyrights. profitability. special licenses. patents.
profitability.
The main problem with monopolies is their ability to manipulate the political system to their favor. force consumers to pay more than they are willing to pay. restrict output to level below the socially efficient level. undercut competitors' pricing.
restrict output to level below the socially efficient level.
All of the following may be methods of regulating a monopoly, except restricting price. requiring the company to become multiple firms. restricting quantity sold. restricting market influence.
restricting quantity sold.
A natural monopoly arises because of the interaction between the __________ of the market and the __________ scale of operation of a single firm. profitability; efficient. size; inefficient. size; efficient. downsizing; efficient.
size; efficient.
Which of the following is probably not a method of product differentiation. brand name loyalty product packaging advertising small number of sellers
small number of sellers
Which of the following markets is least likely to be an oligopoly? the U.S. airline industry the U.S. bread market professional baseball the U.S. soft drink industry
the U.S. bread market
If a regulated monopolist has a loss when the government forces it to price at its marginal cost, the firm should minimize its losses. the firm should exit the industry. the government should subsidize the firm. the government should take over the business.
the government should subsidize the firm.
One method of government regulation of monopolies is to require the firm to price the product at its marginal cost and produce at the competitive output level. The problem with this scheme is some trades will be blocked. the monopolist may have economic losses and exit the industry. the monopolist still causes a deadweight loss. the monopolist will increase its profit.
the monopolist may have economic losses and exit the industry.
In the short run, a monopolistically competitive firm chooses the quantity to produce and the price at which it can sell the product. its price, but competition in the industry determines its output. its production quantity, but market forces determine its price. its price, but production quotas determine output.
the quantity to produce and the price at which it can sell the product.
What do oligopolies and perfectly competitive firms have in common? the number of sellers the rule of profit maximization firm interdependence level of product differentiation
the rule of profit maximization
Governments sometimes force monopolies to set their price at their average cost. The main problem with this regulatory pricing method is that this method increases producer surplus. this method decreases social welfare. monopolists can easily avoid this regulation. there is no incentive for a monopolist to lower its costs.
there is no incentive for a monopolist to lower its costs.
A monopolistically competitive firm will advertise only if it believes that the market is currently inefficient. only if it believes the competitor will not. only if it believes that the competition will advertise. whether or not it believes the competitor will advertise.
whether or not it believes the competitor will advertise.
Game theory assumes that your competitor will react to your actions. is selling at his lowest possible price. makes the same level of profit as you. has the same share of the market as you.
will react to your actions.