Micro Econ, Quiz 10

1. Which of the following statements is correct? a. Monopolistic competition is similar to monopoly because both market structures are characterized by firms being price makers rather than price takers. b. Monopolistic competition is similar to perfect competition because both market structures are characterized by differentiated products. c. Monopolistic competition is similar to oligopoly because both market structures are characterized by strategic interaction between firms in the market. d. Monopolistic competition is similar to perfect competition because both market structures are characterized by perfectly elastic demand curves for firms.

a)

A firm in a monopolistically competitive market faces a a. downward-sloping demand curve because the firm's product is different from those offered by other firms. b. downward-sloping demand curve because there are only a few firms in the market. c. horizontal demand curve because there are many firms in the market. d. horizontal demand curve because firms can enter the market without restriction.

a)

A perfectly competitive firm produces where a. marginal cost equals price, while a monopolist produces where price exceeds marginal cost. b. marginal cost equals price, while a monopolist produces where marginal cost exceeds price. c. price exceeds marginal cost, while a monopolist produces where marginal cost equals price. d. marginal cost exceeds price, while a monopolist produces where marginal cost equals price.

a)

Because a monopolist must lower its price in order to sell another unit of output, a. marginal revenue is less than price. b. long-term economic profits will be zero. c. total revenue increases as price increases. d. average revenue is less than price.

a)

The profit-maximizing rule for a firm in a monopolistically competitive market is to always select the quantity at which a. marginal revenue is equal to marginal cost. b. average total cost is equal to marginal revenue. c. average total cost is equal to price. d. average revenue exceeds average total cost.

a)

A monopolist produces a. more than the socially efficient quantity of output but at a higher price than in a competitive market. b. less than the socially efficient quantity of output but at a higher price than in a competitive market. c. the socially efficient quantity of output but at a higher price than in a competitive market. d. possibly more or possibly less than the socially efficient quantity of output, but definitely at a higher price than in a competitive market.

b)

A monopolistically competitive industry is characterized by a. many firms, differentiated products, and barriers to entry. b. many firms, differentiated products, and free entry. c. a few firms, identical products, and free entry. d. a few firms, differentiated products, and barriers to entry.

b)

For a monopoly firm, a. price exceeds average revenue. b. price exceeds marginal revenue. c. any price-quantity combination will maximize profits. d. All of the above are correct.

b)

Refer to Figure 1. The deadweight loss caused by a profit-maximizing monopoly amounts to a. $250. b. $500. c. $750. d. $1,000.

b)

Refer to Figure 1. To maximize its profit, a monopolist would choose which of the following outcomes? a. 100 units of output and a price of $20 per unit b. 100 units of output and a price of $40 per unit c. 150 units of output and a price of $30 per unit d. 200 units of output and a price of $40 per unit

b)

Refer to Table 1. What are Sally's fixed costs? a. $0 b. $100 c. $600 d. $745

b)

Refer to Table 1. What is the marginal revenue from selling the 8th pair of shoes? a. $10 b. $20 c. $40 d. $90

b)

Refer to Table 1. What is the total variable cost of production when Sally produces 6 pairs of shoes? a. $100 b. $295 c. $600 d. $620

b)

When a firm's average total cost curve continually declines, the firm is a a. government-created monopoly. b. natural monopoly. c. revenue monopoly. d. All of the above are correct.

b)

Refer to Figure 1. To maximize total surplus, a competitive market would choose which of the following outcomes? a. 100 units of output and a price of $20 per unit b. 150 units of output and a price of $20 per unit c. 150 units of output and a price of $30 per unit d. 200 units of output and a price of $20 per unit

c)

Refer to Table 1. Sally will maximize her profits by selling a. 3 pairs of shoes. b. 4 pairs of shoes. c. 6 pairs of shoes. d. 7 pairs of shoes.

c)

Refer to Table 1. What is the average revenue when Sally sells 7 pairs of shoes? a. $40 b. $90 c. $100 d. $700

c)

Refer to Table 1. What is total profit at the profit-maximizing quantity? a. $100 b. $245 c. $265 d. $395

c)

Which of the following is not correct? a. The demand curve facing a competitive firm is perfectly elastic. b. The demand curve facing a monopolist is the market demand curve. c. A monopolist can charge any price and sell any quantity that it chooses. d. A monopolist can alter the market price by adjusting the quantity that it produces.

c)

Which of the following statements is correct? Monopolies are socially inefficient because (i) They charge a price above marginal cost. (ii) They produce too little output. (iii) They earn profits at the expense of consumers. (iv) They maximize the market's total surplus. a. (iii) only b. (iii) and (iv) only c. (i) and (ii) only d. (i), (ii), (iii), and (iv)

c)

Which of the following statements is not correct? a. Consumers will likely benefit in the form of lower prices from buying a product made by a natural monopoly than if the market were served by several firms. b. Monopolists typically charge higher prices than competitive firms. c. Monopolists typically produce larger quantities of output than competitive firms. d. Consumers may benefit from monopolies if the firms invest their higher profits into something that benefits society such as medical research.

c)

Drug companies are allowed to be monopolists in the drugs they discover in order to a. increase the availability of expensive but useful medications. b. increase the overall welfare of society through better health because drug companies continually produce better medications. c. encourage research. d. All of the above are correct.

d)

In which of the following market structures can a firm earn an positive economic profit in the short run? a. ​Perfect competition b. ​Monopolistic competition c. ​Monopoly d. ​All of these market structures can earn an economic profit in the short run

d)

Refer to Table 1. What is the marginal cost of the 6th pair of shoes? a. $44 b. $46 c. $55 d. $60

d)

Refer to Table 1. What is the total revenue from selling 6 pairs of shoes? a. $100 b. $600 c. $625 d. $660

d)

The fundamental source of monopoly power is a. many buyers and sellers. b. low fixed costs. c. rising average total costs. d. barriers to entry.

d)

Which of the following is an example of a barrier to entry? a. Crystal charges a higher price than her competitors for her hair-styling services. b. Dan charges a lower price than his competitors for his dry-walling services. c. Jackie offers free samples of her loose-meat sandwiches to attract new customers. d. Roseanne obtains a copyright for a short story that she wrote and published.

d)

Which of the following statements is not correct? a. Monopolistic competition is different from monopoly because monopolistic competition is characterized by free entry, whereas monopoly is characterized by barriers to entry. b. Both monopolistic competition and oligopoly fall in between the more extreme market structures of competition and monopoly. c. Monopolistic competition is different from oligopoly because each seller in monopolistic competition is small relative to the market, whereas each seller can affect the actions of other sellers in an oligopoly. d. Both monopolistic competition and perfect competition are characterized by product differentiation.

d)

Which of the following statements is not correct? a. The government may use antitrust laws to prevent a merger if the government believes the merger will reduce competition and increase prices. b. By regulating a natural monopoly where price equals average total cost, the monopoly earns zero profits. c. An advantage of private ownership over public ownership is that private business owners tend to fire inefficient managers. d. The government should always intervene to improve monopoly inefficiency.

d)

Which of the following strategies is not an effective strategy to reduce monopoly inefficiency? a. antitrust laws b. government regulation c. doing nothing d. breaking up a natural monopoly into more than one firm

d)