AP ECON UNIT 4 TEST
In Market A , the market structure is that of a monopoly . In Market B , the market structure is that of a perfectly competitive market . Information about preferences by relevant actors is provided in the following table . Which of the following would MOST likely be the price of the product for each of these markets ?
. The price will be $ 200 for A and $ 50 for B because firms are price setters in monopolies and price takers in a perfectly competitive market .
An auto parts manufacturer decides to produce car doors worth $ 80,000 . It could have produced car windows worth $ 60,000 instead . Its implicit costs were
60,000
What is the soda manufacturer's economic profit if it has a monopoly ?
600
Which choice results in the lowest profit for Betty's and Joey's ?
Joey's buys ads and Betty's buys ads .
Which pricing and output choices would a monopolist select ?
Output should be MR = MC and P > MC .
Monopoly deadweight loss is caused by
P > MC
Economies of scale refers to
a decrease in ATC as quantity increases
Which of the following is a trait of monopolistic competition ?
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
an oligopoly
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
an oligopsony
An agricultural community has four banana farms , five plum farms , six grape farms , and seven apple farms . Demand . likely the MOST price elastic for which fruit ?
apples
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 ?
because there is only one company in the market , but the company achieved this through regular market means
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 ?
because this allows them to increase the price that consumers have to pay
Which of the following is considered to be a trait of a monopoly ?
downward - sloping demand
If a cartel comes into existence , the most likely outcome would be that
each cartel member would attempt to cheat by producing more .
If P=ATC , then
economic profit is zero
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
establish a monopoly through majority control of a factor of production
A water company has 100 percent market share in a city . To make the water market most efficient , the government should
grant the water company a natural monopoly
Suppose an ice cream producer buys a competing ice cream producer . This is an example of
horizontal integration
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 ?
imperfect competition
Four cable companies have 90 percent market share . These firms may be
in collusion
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 profit , an individual oil producer should
increase quantity supplied for its oil
For the firm in this graph , marginal revenue is
increasing rapidly , then decreasing , then negative
Implicit costs are
indirect costs or opportunity costs
Why is the demand for fruit less price elastic than the demand for a boat ?
Fruit takes up less of a consumer's budget
An auto parts manufacturer has fixed costs of $ 40,000 . It can shut down or produce tires at a loss of $ 10,000 . If it decides to produce tires , its economic profit is
$ 30,000
How are monopolies and oligopolies similar ?
Both are examples of ineffective market structures .
How are monopolies and oligopolies similar ?
Both market systems are characterized by high barriers to entry
Which is the dominant strategy for Joey's ?
Buy ads no matter what happens .
How does an oligopoly compare to monopolistic competition ?
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 the soda price and quantity shifted from point A to point B , this would indicate
Cother soda manufacturers entered the market
Using the table , which decision would result in the best outcome for firm A ?
Firm A lowers prices and Firm B raises prices .
Which outcome would be best for both firms ?
Firm A raises prices and Firm B raises prices .
All of the following are part of a monopolistic competition market structure EXCEPT
Deconomic profits in the long run
Which of the following is a trait of a monopolistic competition ?
Demand is highly elastic to price changes .
If Firm A and Firm B are in a prisoner's dilemma situation , the Nash equilibrium is
Firm A defects and Firm B defects
The government is needed to step in and regulate an electric natural monopoly . Which of the following actions will ensure allocative efficiency ?
Regulate the natural monopoly to the point where P = MC
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 monopolistic market
Several oil companies form an industry organization that sets the price of a barrel of oil . This is NOT
a monopoly
When a steel manufacturer is buying all of the iron ore produced by many mines , it is likely
a monopsony
All of the following are long - run production decisions EXCEPT
a school decides to hire more teaching assistants because of an increase in the school population
An oligopoly refers to
a small number of interdependent firms , high barriers to entry , and significant pricing power
If a monopoly and a perfect competition have the same costs , the monopoly will always
charge a higher price than the perfect competition and produce less
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
consider how the other tax software company will respond to its business decisions
The difference between a monopoly and a monopolistic competition is
long - term pricing power
A monopolistic competition refers to
many small firms offering a differentiated product with easy entry into the market
Since the monopolist has many barriers to entry and no competition , he or she has price setting ability . This is also known as
market power
Price leadership fits best with which type of market structure ?
monopolistic competition
Product differentiation is an essential part of which type of market structure
monopolistic competition
When the government grants a patent to a firm , the market for the patented product becomes an
monopoly
The services of natural gas , water , and electricity brought into the household are best consigned to which market structure ?
natural monopoly
In the long run , monopolistically competitive firms break even because of
no entry or exit barriers
A few laptop manufacturers are competing in a market . The laptops have slightly different styles and similar prices . The laptop . manufacturers earn economic profits in the long run . The market
oligopoly
Game theory fits best with which market structure ?
oligopoly
In which type of market would a firm use a payoff matrix to set pricing policy ?
oligopoly
Price leadership fits best with which type of market structure ?
oligopoly
If price equals s marginal revenue , which equals marginal cost , which equals average total cost , all in the long run , which type of market structure would this be ?
perfect competition
No barriers to entry or exit , many firms , and a standardized product are characteristics of which type of market structure ?
perfect competition
Which market structures have ease of entry and exit in the long run ?
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
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
price discrimination
An airline may identify a specific group of people and charge them a different rate . This is known as
price discrimination
A movie theater offers tickets to the general public for $ 10 . Students . can buy tickets for $ 8 . This is an example of
price discrimination .
All of the following are characteristic of an oligopoly EXCEPT
price taking
The graph represents a short - run monopolistic equilibrium . The shaded area represents
profit
An auto manufacturer needs to reduce costs in the short run . It can make any of these decisions EXCEPT
refinance corporate bonds
Many clothing stores are competing for customers in a city by offering unique styles . These clothing stores are likely to
spend much of their revenue on ads
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
the U - shaped average cost curve
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
the average cost pricing rule
Price discrimination might be successful if
the firm can prevent resale to other consumers and identify and separate groups of consumers
Firms engaged in a monopolistically competitive market have some market power because
the firms have differentiated products
A monopoly refers to
the least competitive market structure
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 ,
the orange farms have low pricing power
If the price of cigarettes , a normal good , is in equilibrium , which choice will result in a price increase for cigarettes ?
the price of tobacco to increase
Which areas on the chart reflect the deadweight loss caused by the monopoly ?
the triangle bounded by points A , B , and ( 200 , $ 2 ) AND the triangle bounded by point B , ( $ 2 , 200 ) , and the point where MR = MC
The market for smartphones may be considered a monopolistic competition rather than a perfect competition because
there is product differentiation
A group of truck manufacturers are competing in a market . The trucks they manufacture are differentiated products . If this market is an oligopoly and NOT a monopolistic competition ,
truck manufacturers must consider other firms ' responses when making business decisions
Which of the following BEST reflects an example of an oligopoly ?
when there are a few companies who work together to maintain a higher market price