AP Econ Unit 4 Exam

Several oil companies from an industry organization that sets the price of a barrel of oil. This is NOT (A) A monopoly. (B) A cartel. (C) Collusion. (D) An oligopoly. (E) Market power.

(A) A monopoly.

An agricultural community has four banana farms, five plum farms, six grape farms, and seven apple farms. Demand is likely the MOST price elastic for which fruit. (A) Apples. (B) Bananas. (C) Plums. (D) Grapes. (E) Not enough information.

(A) Apples.

How are monopolies and oligopolies similar? (A) Both market systems are characterized by high barriers to entry. (B) Both are characterized by markets in which there is no possible substitute. (C) There are no selling costs in either market structure. (D) Both market are defined by having only one company which sets the price. (E) COmpanies are price takers.

(A) Both market systems are characterized by high barriers to entry.

If P=ATC, then (A) Economic profit is zero. (B) Accounting profit is zero. (C) Normal profit is unattainable. (D) Firms are operating inefficiently. (E) All of the above.

(A) Economic profit is zero.

When the government grants a patent to a firm, the market for the patented product becomes a(n) (A) Monopoly. (B) Oligopoly. (C) Cartel. (D) Monopolistic competition. (E) Pure Competition.

(A) Monopoly.

A few laptop manufacturers are competing in a market. The laptops have slightly different styles and similar prices. The laptop manufacturer earn economic profits in the long run. The market is a(n) (A) Oligopoly. (B) Monopoly. (C) Perfect Competition. (D) Monopolistic Competition. (E) None of the above.

(A) Oligopoly.

Which pricing and output choices would a monopolist select? (A) Output should be MR=MC and P>MC. (B) Output should be MR=MC and P=MC. (C) Output should be MR>MC and P>MC. (D) Output should be MR<MC and P>MC. (E) Output should be MR=MC and P<TRC.

(A) Output should be MR=MC and P>MC.

Monopoly deadweight loss is caused by (A) P>MC. (B) P=MC. (C) MC=MB. (D) MC>MB. (E) None of the above.

(A) P>MC.

All of the following are characteristics of an oligopoly EXCEPT (A) Price taking. (B) Collusive behavior. (C) Barriers to entry. (D) Cheating on other firm members to produce more. (E) A few large firms.

(A) Price taking.

A firm with a natural monopoly may be required by law to set prices either on or relatively close to the costs that the firm incurred to make the good or service. This idea is known as (A) The average cost pricing rule. (B) The ability to pay rule. (C) An antitrust law. (D) Law of diminishing marginal returns. (E) Economies of scale.

(A) The average cost pricing rule.

A monopoly refers to (A) The 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 stucture.

(A) The competitive market structure.

Price discrimination might be successful if (A) The firm can prevent resale to other consumers and identify and separate groups of consumers. (B) The firm does not have a monopoly on the pricing power of the good or service. (C) The firm has a monopoly on pricing power but cannot prevent resale to other consumers. (D) The firm does not have economies of scale. (E) The firm is operating within the government regulations.

(A) The firm can prevent resale to other consumers and identify and separate groups of consumers.

A group of truck manufacturers are competing in a market. The trucks they manufacturer are differentiated products. If this market is an oligopoly and NOT a monopolistic competition, (A) Truck manufacturers must consider other firms' responses when making business decisions. (B) The trucks would not be differentiated. (C) There would be many truck manufacturers. (D) Truck manufacturers would have no incentive to collude. (E) Truck manufacturers would have market power.

(A) Truck manufacturers must consider other firms' responses when making business decisions.

The market of smartphones may be considered a monopolistic competition rather than a perfect competition because (A) there is product differentiation. (B) There is no product differentiation. (C) Profits in the long run decreases as more firms enter the market. (D) They are price takers. (E) All of the above.

(A) there is product differentiation.

An auto parts manufacturer decides to produce car doors worth $80,000. It could have produced car windows worth $60,000 instead. Its implicit cost were (A) $20,000. (B) $60,000. (C) $80,000. (D) $0. (E) $140,000.

(B) $60,000.

Economies of scale refers to (A) An increase in ATC as quantity increases. (B) A decrease in ATC as quantity increases. (C) A decrease in ATC as quantity decreases. (D) A firm maximizing profit through dominance of the market. (E) Sensitivity to the determinants of supply and demand and price level.

(B) A decrease in ATC as quantity increases.

When a steel manufacturer is buying all of the iron ore produced by many mines, it is likely (A) A price taker. (B) A monopsony. (C) Not insulated from supply and demand Fluctuations. (D) At a negotiating disadvantage to suppliers. (E) Engaged in perfect competition.

(B) A monopsony.

A price increase in product B resulted in a price increase of product C. Product is most likely a(n) (A) Inferior good. (B) Complimentary good. (C) Normal good. (D) Substitute good. (E) Factor of production.

(B) Complimentary good.

A tax software firm has 40 percent market share. Its main competitor has 30 percent market share. If the first firm wants to gain market share, it should (A) invest in software patents to create stronger barriers to entry. (B) Consider how the other tax software company will respond to its business decisions. (C) Attempt to become a price maker rather than a price taker. (D) Reduce prices to attract customers from the other tax software company. (E) Buy out the other tax software company.

(B) Consider how the other tax software company will respond to its business decisions.

Which of the following is a trait of monopolistic competition? (A) Companies are price takers. (B) Demand is highly elastic to price changes. (C) Companies cannot make excess profit in the short run. (D) There is only one company that operates in the market. (E) There are numerous options for price differntiation.

(B) Demand is highly elastic to price changes.

If a cartel comes into existence, the most likely outcome would be that (A) Economic profits will be balanced among all cartel members. (B) Each cartel member would attempt to cheat by producing more. (C) There is allocative efficiency. (D) Prices will be established through the market forces of supply and demand. (E) Advertising will push consumers to one firm or the other.

(B) Each cartel member would attempt to cheat by producing more.

Suppose an ice cream producer buys a competing ice cream producer. This is an example of (A) Vertical integration. (B) Horizontal integration. (C) A monopoly. (D) An oligopoly. (E) A corporation.

(B) Horizontal integration.

Four cable companies have 90 percent market shares. These firms may be (A) Price takers. (B) In collusion. (C) In perfect competition. (D) Unconcerned with other cable companies' pricing strategies. (E) Earning a normal profit in the long run.

(B) In collusion.

A monopolistic competition refers to (A) Extensive economies of scale and higher cost-efficiency when there is only one firm for the entire demand of a product. (B) Many small firms offering a differentiated product with easy entry into the market. (C) A market structure with a small number of interdependent large firms producing a standardized product. (D) The most competitive market structure. (E) The least competitive market structure.

(B) Many small firms offering a differentiated product with easy entry into the market.

Which market structure has ease of entry and exit in the long run? (A) Perfect competition and monopoly. (B) Perfect competition and monopolistic competition. (C) Monopolistic competition and oligopoly. (D) Oligopoly and natural monopoly. (E) All market structures.

(B) Perfect competition and monopolistic competition.

Many farms are selling peanuts. The peanuts are not differentiated and the peanut farms are not earning an economic profit. Demand for a peanut farm is likely (A) Elastic. (B) Perfectly elastic. (C) Inelastic. (D) Perfectly inelastic. (E) Downward sloping.

(B) Perfectly elastic.

A movie studio charges $8 to watch one of its films over the Internet in the United States, and $12 to watch the film from Australia. This is an example of (A) Collusion. (B) Price discrimination. (C) Economies of scale. (D) A cartel. (E) Game theory.

(B) Price discrimination.

An airline may identify a specific group of people and charge them a different rate. This know as (A) A monopolistic competition. (B) Price discrimination. (C) Diseconomies of scale. (D) Constant returns to scale. (E) Illegal by current federal laws.

(B) Price discrimination.

Many clothing stores are competing for customers in a city by offering unique styles. These clothing stores are likely too\ (A) Open for business or shut down infrequently. (B) Spend much of their revenue on ads. (C) Consider other clothing stores' strategic plans before making business decisions. (D) Be unable to raise prices without losing all of their customers. (E) Have detailed information about clothing buyers and other clothing stores.

(B) Spend much of their revenue on ads.

Firms engaged in a monopolistically competitive market have some market power because (A) The firm has few competitors. (B) The firm has differentiated products. (C) The government restricts the use of patents for the firms through antitrust legislation. (D) Advertising allows the firms to set any price they wish. (E) None of the above.

(B) The firm has differentiated products.

Many small farms are producing oranges. There is little differentiation among the oranges, and farms enter and exit the orange industry on a regular basis. As a result, (A) The market is not very competitive. (B) The orange farms have low pricing power. (C) The orange farms have high pricing power. (D) The orange farms have established an oligopoly. (E) The orange farms have larger economies of scale.

(B) The orange farms have low pricing power.

All of the following are long-run production decisions EXCEPT (A) An auto-repair shop decides to increase the size of its garage. (B)A school decides to hire more teaching assistants because of an increase in the schools population. (C) A firm increases the number of its plants. (D) A school decides to add more classrooms and a new performing arts center. (E) A firm decides to close 5 percent of its plants.

(B)A school decides to hire more teaching assistants because of an increase in the schools population.

An auto parts manufacturer has fixed costs of $40,000. It can shut down or produce tires asa loss of $10,000. If it decides to produce tires, its economic profit is (A) -$10,000. (B) $40,000. (C) $30,000. (D) $50,000. (E) -$30,000.

(C) $30,000.

An oligopoly refers to (A) A single firm offering the product and achieving economies of scale. (B) The market structure where a firm has the most pricing power. (C) A small number of interdependent firms, high barriers to entry, and significant pricing powers. (D) Many small firms offering a differentiated product with easy entry into the market. (E) The market structure where a firm has the least pricing power.

(C) A small number of interdependent firms, high barriers to entry, and significant pricing powers.

Many small potato farms are growing potatoes. Three large French fry manufacturers are buying all of the potatoes. The potato market is best described as (A) Perfect competition. (B) An oligopoly. (C) An oligopsony. (D) A monopsony. (E) Monopolistic competition.

(C) An oligopsony.

Companies A, B, C, and D are the only companies in the electricity supply market. Why do they have an incentive to form a cartel? (A) Because this allows them to cooperate in market conditions. (B) Because this allows them to provide less quality to consumers. (C) Because this allows them to increase the price that consumers have to pay. (D) Because it allows the consumers to increase the deadweight cost of the market. (E) Because it allows the consumers to decrease the deadweight cost of the market.

(C) Because this allows them to increase the price that consumers have to pay.

How are monopolies and oligopolies similar? (A) Companies are price takers in both market structures. (B) Companies have perfectly differentiated products in both market structures. (C) Both are examples of ineffective market structures. (D) Both are characterized by a perfectly inelastic demand curve. (E) Both earn no economic profit in the long run.

(C) Both are examples of ineffective market structures.

If a monopoly and a perfect competition have the same costs, the monopoly will always (A) Charge a lesser price than the perfect competition. (B) Produce the same quantity as the perfect competition. (C) Charge a higher price than the perfect competition and produce less. (D) Charge a higher price than the perfect competition and produce more. (E) None of the above.

(C) Charge a higher price than the perfect competition and produce less.

Which of the following is considered to be a trait of a monopoly? (A) No legal barriers to entry. (B) Higher number of substitute goods. (C) Downward-sloping demand. (D) No deliberate actions or attempts to control the market price. (E) High number of competitors.

(C) Downward-sloping demand.

A water company has 100 percent market share in a city. To make the water most efficient, the government should (A) Separate the water company into several firms to end its monopoly. (B) Eliminate price regulations on water to encourage competition. (C) Grant the water company a natural monopoly. (D) Allow my firm to build water pipes to homes. (E) Shut down the water company for violating antitrust laws.

(C) Grant the water company a natural monopoly.

A group of oil producers have formed a cartel. The cartel is restricting quantity supplied to set a higher price for oil. To maximize its profits, an individual oil producer should (A) raise the price of its oil. (B) Lower the price of its oil. (C) Increase quantity supplied for its oil. (D) Decrease quantity supplied for its oil. (E) Leave the oil price and quantity supplied unchanged.

(C) Increase quantity supplied for its oil.

Implicit costs are (A) Direct, purchased, out-of-pocket costs. (B) Costs that change with the level of output. (C) Indirect costs or opportunity costs. (D) Total variable costs divided by output. (E) None of the above.

(C) Indirect costs or opportunity costs.

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) Long-term pricing power.

Since the monopolist has many barriers to entry and no competition, he or she has price-setting ability. This is also known as (A) Purchasing power. (B) Profit Maximization. (C) Market power. (D) Efficiency. (E) None of the above.

(C) Market power.

Product differentiation is an essential part of which type of market structure? (A) Oligopoly. (B) Monopoly. (C) Monopolistic Competition. (D) Natural Monopoly. (E) Perfect Competition

(C) Monopolistic Competition.

In the long run, monopolistically competitive firms break even because of (A) Government regulation. (B) Price ceilings. (C) No entry or exit barriers. (D) Exit of firms from the market. (E) Non-price competition.

(C) No entry or exit barriers.

A movie theater offers tickets to the general public for $10. Students can buy tickets for $8. This is an example of (A) Deadweight loss. (B) Variable cost. (C) Price discrimination. (D) Market power. (E) Fixed costs.

(C) Price discrimination.

The government is needed to step in and regulate an electric natural monopoly. Which of the following actions will ensure allocative efficiency. (A) Regulate the natural monopoly to the point where P<MC. (B) Regulate the natural monopoly to the point where P>MC. (C) Regulate the natural monopoly to the point where P=MC. (D) Regulate the natural monopoly to the point where P>TFC. (E) None of the above.

(C) Regulate the natural monopoly to the point where P=MC.

If the price of cigarettes, a normal good, is in equilibrium, which choice will result in a price increase for cigarettes? (A) Consumer income to decrease. (B) Consumer expectation to remain the same. (C) The price of tobacco to increase. (D) The government to decrease regulations. (E) The price of tobacco to decrease.

(C) The price of tobacco to increase.

A small town has numerous small restaurants that have almost identical menus. When surveyed about their satisfaction with the culinary options in their town, many of the residents primarily emphasized that they cannot stand so many different ads on their TVs and radios. The restaurants do not work together to keep high prices. What is this MOST likely an example of? (A) A monopoly. (B) A perfectly competitive market. (C) An oligopoly. (D) A monopolistic market. (E) A monopsony.

(D) A monopolistic market.

A company recently found a vaccine, and it now has a patent for it for 10 years. Why is this an example of a natural monopoly? (A) Because the company will allow other companies to produce it as well immediately, making the monopoly legal. (B) Because there is only one company on the market and it achieved this through non-market means. (C) Because the company will be incentivized to provide a very low price. (D) Because there is only one company the market, but the company achieved this through regular market means. (E) Because the company receives financial incentives from the government whenever it gets a patent.

(D) Because there is only one company the market, but the company achieved this through regular market means.

All of the following are part of a monopolistic competition market structure EXCEPT (A) Differentiated products. (B) Deadweight loss. (C) Economic profits in the short run. (D) Economic profits in the long run. (E) Many firms.

(D) Economic profits in the long run.

Suppose you pick up the latest edition of The Economist and read that company Z, a producer of cigarettes, recently purchased 8 out of the 10 biggest farms that produce tobacco. Since you are a very good AP Economics student, you realize immediately that company Z is attempting to (A) Increase profits. (B) Establish an oligopoly through collusive pricing. (C) Maximize profits where marginal revenue equals marginal cost. (D) Establish a monopoly through majority control of a factor of production. (E) None of the above.

(D) Establish a monopoly through majority control of a factor of production.

Why is the demand for fruit less price elastic than the demand for a boat? (A) Consumption of fruit is greater. (B) A boat is an inferior good. (C) There are more suppliers of fruit than boat manufacturers. (D) Fruit takes up less of a consumer's budget. (E) All of the above.

(D) Fruit takes up less of a consumer's budget.

Jet Inc. is a car -making company that operates in a market that has a very inelastic demand curve. Barriers to entering the market are high, and the price is higher than the marginal cost in the long run. Which of the following is this most likely an example of? (A) Monopolistic competition. (B) Perfect competition. (C) Both A and B. (D) Imperfect competition. (E) An atomistic market.

(D) Imperfect competition.

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) Natural monopoly.

Game theory fits best with which market structure? (A) Monopolistic competition. (B) Perfect competition. (C) Monopoly. (D) Oligopoly. (E) Natural Monopoly.

(D) Oligopoly.

Market structure fits best with which market structure? (A) Monopoly. (B) Natural Monopoly. (C) Perfect competition. (D) Oligopoly. (E) Monopolistic competition.

(D) Oligopoly.

A toy manufacturer adds an employee and average cost decreases. It continues to add more employees. At first, average cost decreases even further, but with even more employees average cost begins to rise. This reflects (A) Economies of scale. (B) Diseconomies of scale. (C) Constant economies of scale. (D) The U-shaped average cost curve. (E) New firms entering the market.

(D) The U-shaped average cost curve.

What of the following is a trait of monopolistic competition? (A) A market where all of the products are the same. (B) A market where there is only one producer. (C) Companies in that market do not maintain shared capacity. (D) A market where companies make more than normal profit in the long run. (E) A market where there are few barriers to entry.

(E) A market where there are few barriers to entry.

Several manufacturers of luxury cars work together in order to keep the price of these products high. By doing so the price of the car is far higher had they not worked together. This is an example of (A) Marginal social benefit. (B) A monopoly. (C) A monopsony. (D) Perfect competition. (E) An oiligopoly.

(E) An oiligopoly.

How does an oligopoly compare to monopolistic competition? (A) Companies are price taker in both, but only in oligopolies can a change in the price by one company potentially cause a price war. (B) Companies are price setters in both, and in case one of the companies changes the price, a price war can start in both market structures. (C) Companies are price takers in a monopolistic competition, while they are price setters in an oligopoly. In case one company changes the price, there is no impact in either market structure. (D) Companies are price setters in a monopolistic competition, while they are price takers in an oligopoly. In case one of the companies changes the price in an oligopoly, nothing will occur, but a price war will start in a monopolistic competition. (E) Companies are price setters in both market structures. In case one company changes the price, a price war can start in an oligopoly, while this is not possible in the case of monopolistic competition.

(E) Companies are price setters in both market structures. In case one company changes the price, a price war can start in an oligopoly, while this is not possible in the case of monopolistic competition.

If price equals marginal revenue, which equals marginal cost, which equals average total cost, all in the long run, which type of market structure would this be? (A) Monopolistic competition. (B) Monopoly. (C) Natural monopoly. (D) Oligopoly. (E) Perfect competition.

(E) Perfect competition.

No barriers to entry or exit, any firms, and standardized product are characteristics of which type of market structure? (A) Monopolistic competition. (B) Oligopoly. (C) Natural monopoly. (D) Monopoly. (E) Perfect competition.

(E) Perfect competition.

An auto manufacturer needs to reduce costs in the short run. It can make any of these decisions EXCEPT (A) Lay off 10 percent of the auto workers. (B) Shut down 5 percent of it plants. (C) Order smaller quantities of metal and rubber. (D) Shut down a production line. (E) Refinance corporate bonds.

(E) Refinance corporate bonds.

Which of the following BEST reflects an example of an oligopoly? (A) When there is only one company that is free to set the market price. (B) When there are two to three companies competing against each other, causing a very low price. (C) When a company gets a patent and is legally the only company that can fulfill a certain service. (D) When there are many small companies competing against one another, keeping the price high. (E) When there are a few companies who work together to maintain a higher market price.

(E) When there are a few companies who work together to maintain a higher market price.