Chapter 9

question

These are characteristics of a competitive industry, except:
a) Many substitutes
b) No barriers to entry
c) Homogenous product
d) Little or no information on rivals' products

answer

d) Little or no information on rivals' products

question

Which of the products below is towards the spectrum of perfectly competitive industry?
a) Nike shoes
b) Eggs
c) Purdue Chicken
d) Restaurants

answer

b) Eggs

question

A monopoly firm is a ______________ and faces a __________ sloping demand curve.
a) Price taker; horizontal
b) Price searcher; horizontal
c) Price searcher; downward
d) Price taker; downward

answer

c) Price searcher; downward

question

In a perfectly competitive market industry, firm's prices are equal to
a) Average revenue
b) Marginal revenue
c) Both a and b
d) None of the above

answer

c) Both a and b

question

Profits of a monopoly are driven to zero
a) In the long-run as all assets are mobile in the long-run
b) Immediately in the short-run as assets move from low-valued uses to high-valued uses instantly
c) In the long run because the demand curve becomes more inelastic
d) In the short run because the demand curve becomes more elastic

answer

a) In the long-run as all assets are mobile in the long-run

question

How does Ebay differ from an economist's view of a perfect competitive market?
a) Ebay has few buyers whereas perfect competitive industry assumes many buyers
b) Ebay has few sellers whereas perfect competitive industry assumes many sellers
c) There is limited information in ebay whereas perfect competitive industry assumes full information for both buyers and sellers
d) There is no difference between these two markets.

answer

c) There is limited information in ebay whereas perfect competitive industry assumes full information for both buyers and sellers

question

A monopolist maximizes profit by producing
a) At MR= rising MC
b) At MR>MC
c) At P=MR
d) At MC=0

answer

a) At MR= rising MC

question

Lipitor, with few substitutes, should have an own-price elasticity of demand that is:
a) Relative elastic
b) Relatively inelastic
c) Perfectly inelastic
d) Perfectly elastic

answer

b) Relatively inelastic

question

The owner of an Oakley store has a more__________ demand curve and the owner of a chicken farm has a more__________ demand curve.
a) inelastic; inelastic
b) elastic; inelastic
c) inelastic; elastic
d) elastic; elastic

answer

c) inelastic; elastic

question

Monopoly firms have a downward sloping curve in the short-run because
a) They have no close substitutes
b) There are no barriers to entry
c) They have no cost advantage over their rivals
d) None of the above

answer

a) They have no close substitutes

question

A firm sees its marginal revenue increase by $20 and marginal cost increase by $15 when it produces its 1000th product. This implies
a) the production of the 1000th unit of output increases the firm's profit by $5.
b) The firm is past its profit maximizing output
c) We cannot say much on the profitability of the firm
d) Producing the 1000th item will in fact decrease the overall firm's profits.

answer

a) the production of the 1000th unit of output increases the firm's profit by $5.

question

Which of the following cannot be classified as a market structure?
a) Oligopoly
b) Monopolistic Competition
c) Mergers
d) Perfect Competition

answer

c) Mergers

question

In the long-run, a perfectly competitive firm will achieve
a) Average rate of return
b) Above average profits
c) Losses
d) zero economic Profits

answer

d) zero economic profits

question

The short run supply curve for a perfect competitive firm is
a) Marginal cost curve
b) Average revenue curve
c) Marginal revenue curve
d) Marginal cost curve above its average variable cost curve

answer

d) Marginal cost curve above its average variable cost curve

question

A perfectly competitive firm has
a) A perfectly elastic demand curve
b) A perfectly elastic supply curve
c) A downward sloping demand curve
d) A downward sloping supply curve

answer

a) A perfectly elastic demand curve

question

A perfectly competitive industry has
a) A perfectly elastic demand curve
b) A perfectly elastic supply curve
c) A downward sloping demand curve
d) A downward sloping supply curve

answer

c) A downward sloping demand curve

question

If a firm in a perfectly competitive industry is experiencing average revenues greater than average costs, in the long-run
a) Some firms will leave the industry and price will rise
b) Some firms will enter the industry and price will rise
c) Some firms will leave the industry and price will fall
d) Some firms will enter the industry and price will fall

answer

d) Some firms will enter the industry and price will fall

question

A sudden rise in the market demand in a competitive industry leads to
a) A market equilibrium price higher than the original equilibrium in the short-run
b) A market equilibrium price equal to the original equilibrium in the long-run
c) Both a and b
d) None of the above

answer

c) Both a and b

question

A market tends to be monopolistic if
a) The good has too many substitutes
b) The good has very few substitutes
c) The good has too many complements
d) The good has very few complements

answer

b) The good has very few substitutes

question

A monopoly has
a) A perfectly elastic demand curve
b) A perfectly elastic supply curve
c) A downward sloping demand curve
d) A upward sloping demand curve

answer

c) A downward sloping demand curve

question

A monopolist maximizes revenue at
a) At MR= MC
b) At MR>MC
c) At P=MR
d) At MR=0

answer

d) At MR=0

question

As a patent in a the pharmaceutical industry expires, the market for these drugs
a) Can now be categorized as a competitive market
b) Can now be categorized as a monopolistic market
c) Was and is still a monopolistic market
d) Was and is still a competitive market

answer

a) Can now be categorized as a competitive market

question

All these are characteristics of a monopoly except,
a) There is one seller of the product
b) Has few substitutes
c) Controls a large share of the market
d) Controls a small share of the market

answer

d) Controls a small share of the market

question

Mobil Energy Corp has a monopoly on gas sales in Texas. If the price of oil increases, the price of gas will
a) increase.
b) decrease.
c) remains the same.
d) may increase or decrease.

answer

a) increase.

question

If the price of oil increases and the price of gas will increase, the quantity of gas sold will
a) increase.
b) decrease.
c) remains the same.
d) may increase or decrease.

answer

b) decrease.

question

If the price of oil increases and the price of gas will increase, the quantity of gas sold will decrease. The profit of the company will
a) increase.
b) decrease.
c) remains the same.
d) may increase or decrease.

answer

d) may increase or decrease.

question

Each firm in the egg industry (competitive) produces 15 million eggs per year. Each egg has an average cost of $0.02 and they sell an egg for $0.06. The marginal cost of a string is
a) $0.02
b) $0.06
c) $0.04
d) not enough information provided.

answer

b) $0.06

question

Each firm in the egg industry (competitive) produces 15 million eggs per year. Each egg has an average cost of $0.02 and they sell an egg for $0.06. The marginal cost of a string is $0.06. Is the industry in the long run equilibrium?
a) yes, because all firms are producing at P=MR=MC
b) no, because the price is still greater than the minimum average total cost.
c) cannot answer because need information on MR
d) cannot answer unless we see that the market lets some firms enter and/or some firms exit.

answer

b) no, because the price is still greater than the minimum average total cost.

question

A monopolist's profit maximizing price is $15. At MC=MR, the output is 100 units and the MC is $10. At this level of production, average total costs are $12. Monopolist's profits are
a) $300
b) $1500
c) $500
d) None of the above

answer

a) $300

question

In a competitive industry buffeted by demand supply shocks, prices increase and decrease, but economic profits tend to revert to zero. Hence, profits are exhibiting
a) Above-average return
b) Positive earnings
c) Mean reversion
d) None of the above

answer

c) Mean reversion

question

A sudden decrease in the market demand in a competitive industry leads to
a) A market equilibrium price higher than the original equilibrium in the short-run
b) A market equilibrium price equal to the original equilibrium in the long-run
c) Both a and b
d) None of the above

answer

b) A market equilibrium price equal to the original equilibrium in the long-run

question

A sudden decrease in the market demand in a competitive industry leads to
a) Losses in the short-run and average profits in the long-run
b) Above average profits in the short-run and average profits in the long-run
c) New firms being attracted to the industry
d) Demand creating supply

answer

a) Losses in the short-run and average profits in the long-run

question

A sudden increase in the market demand in a competitive industry leads to
a) Losses in the short-run and average profits in the long-run
b) Above average profits in the short-run and average profits in the long-run
c) New firms being attracted to the industry
d) Demand creating supply

answer

c) New firms being attracted to the industry

question

When Clean City banned the air pollution that still plagues Smogville, over time, we would expect that:
e) The residents of Clean City are happy with the decision
f) The residents of Smogville are happy that they did not enact a similar law
g) House prices in Clean City will have risen
h) All of the above

answer

e) The residents of Clean City are happy with the decision

question

A monopolistic firm (price searcher) will set price
a. in the part of the demand curve where demand is elastic.
b. equal to its marginal cost.
c. equal to its average cost
d. in the part of the demand curve where demand is inelastic.

answer

a. in the part of the demand curve where demand is elastic.

question

In the long-run, which of the following outcomes is most likely for a firm?
a. Zero accounting profits but positive economic profits.
b. Zero accounting profits.
c. Positive accounting profits and positive economic profits.
d. Zero economic profits but positive accounting profits.

answer

d. Zero economic profits but positive accounting profits.

question

For a competitive firm (price-taker),
a. If it increased price, total revenues would rise.
b. If it increased price, total revenues would rise, but profits could fall.
c. If it increased price, both total revenues and profits would rise.
d. If it increased price, all revenues would disappear.

answer

d. If it increased price, all revenues would disappear.

question

The rent in the two neighbor towns Cleansville and Grimyville is $10,000 and $8,000
respectively. The price difference is only explained by the high air pollution in
Grimyville due to the presence of steel factories. Later, the Clean Air Act is instituted in
Grimyville which forces the steel factories to stop polluting the air. The following are
possible long term outcomes. (Ignore the effect of inflation)
i- Rent will go down in Cleansville
ii- Rent will increase in Grimmyville
iii- Rent will remain the same in Cleansville
iv- Rent will remain the same in Grimmyville
v- Rent will be equal in both towns.
a. i, ii, v
b. ii, iii, v
c. i, iv,v
d. iii, iv

answer

a. i, ii, v

question

In the long run, which of the following outcomes is most likely for a firm?
a) zero accounting profits but positive economic profits
b) zero accounting profits
c) positive accounting profits and positive economic profits
d) zero economic profits but positive accounting profits

answer

d) zero economic profits but positive accounting profits

question

At the individual firm level, which of the following types of firms faces a downward-sloping demand curve?
a) both a perfectly competitive firm and a monopoly firm
b) neither a perfectly competitive firm nor a monopoly firm
c) a perfectly competitive but not a monopoly firm
d) a monopoly firm but not a perfectly competitive firm

answer

d) a monopoly firm but not a perfectly competitive firm

question

Which of the following types of firms are guaranteed to make positive economic profit?
a) both a perfectly competitive firm and a monopoly firm
b) neither a perfectly competitive firm nor a monopoly firm
c) a perfectly competitive but not a monopoly firm
d) a monopoly firm but not a perfectly competitive firm

answer

b) neither a perfectly competitive firm nor a monopoly firm

question

What is the main difference between a competitive firm and a monopoly firm?
a) the number of customers served by the firm
b) monopoly firms are more efficient and therefore have lower costs
c) monopoly firms can generally earn positive profits over a longer period of time
d) monopoly firms enjoy government protection from competition

answer

c) monopoly firms can generally earn positive profits over a longer period of time

question

Which of the following products is closest to operating in a perfectly competitive industry?
a) nike shoes
b) cotton
c) perdue chicken
d) restaurants

answer

b) cotton

question

A firm in a perfectly competitive market (a price taker) faces what type of demand curve?
a) unit elastic
b) perfectly inelastic
c) perfectly elastic
d) none of the above

answer

c) perfectly elastic

question

A competitive firm's profit-maximizing price is $15. At MC=MR, the output is 100 units. At this level of production, average total costs are $12. The firm's profits are
a) $300 in the short run and long run
b) $300 in the short run and zero in the long run
c) $500 in the short run and long run
d) $500 in the short run and zero in the long run

answer

b) $300 in the short run and zero in the long run

question

What would happen to revenues if a firm in a . perfectly competitive industry raised price?
a) they would increase
b) they would increase but profit would decrease
c) they would increase along with profit
d) they would fall to zero

answer

d) they would fall to zero

question

If a firm in a perfectly competitive industry is experiencing average revenues grater then average costs, in the long run
a) some firms will leave the industry and price will rise
b) some firms will enter the industry and price will rise
c) some firms will leave the industry and price will fall
d) some firms will enter the industry and price will fall

answer

d) some firms will enter the industry and price will fall

question

A sudden decrease in the market demand in a competitive industry leads to
a) losses in the short run and average profits in the long run
b) above-average profits in the short run and average profits in the long run
c) new firms being attracted to the industry
d) demand creating supply

answer

a) losses in the short run and average profits in the long run

question

Pat is the owner of United Local Supply, which makes zero economic profit. Pat is
a. on the brink of going out of business.
b. incurring short-run losses.
c. making a return equal to his or her opportunity cost.
d. trading off the short-run for the long-run.

answer

c. making a return equal to his or her opportunity cost.

question

Which of the following characteristics is most consistent with a perfectly competitive market?
a. Firms earn positive economic b. There are just a few sellers in the market.
c. Firms are able to enter and exit d. All of the above

answer

c. Firms are able to enter and exit

question

If firms in a competitive industry begin to earn profit in the short run, new firms will enter. This will shift the industry
a. demand curve to the right, meaning market price will rise.
b. demand curve to the left, meaning market price will fall.
c. supply curve to the right, meaning market price will fall.
d. supply curve to the left, meaning market price will rise.

answer

c. supply curve to the right, meaning market price will fall.

question

You have recently been hired to advise the owners of Kenfield Insect Ltd. (KIL), which operates in a perfectly competitive industry. KIL is currently producing at a point where market price equals its marginal cost; KIL's total revenue is less than its total cost but exceeds its total variable cost. What advice should you provide KIL's owners?
a. Shut down immediately because it is incurring a loss.
b. Reduce prices in order to sell more units of output.
c. Raise its price until it breaks even and then begins making profit.
d. Continue production in the short run to minimize losses, but exit the industry in the long run.

answer

d. Continue production in the short run to minimize losses, but exit the industry in the long run.

question

Merrimack Industries sells its output in a perfectly competitive market. Which of the following statements is true about Merrimack?
a. Merrimack faces a downward sloping demand curve.
b. Merrimack will earn zero economic profits in long-run equilibrium.
c. Merrimack would increase its total economic profits by charging a price slightly lower than the market price.
d. The marginal revenue Merrimack receives from selling an additional unit of output will be different from the price at which it sells that unit.

answer

b. Merrimack will earn zero economic profits in long-run equilibrium.

question

Suppose workers prefer a certain amount of autonomy and flexibility in their job responsibilities. Job A and B are identical in all respects except Job A offers some autonomy and flexibility. Which of the following combinations of annual salaries would you predict?
a. A: $40,000 B: $40,000
b. A: $40,000 B: $50,000
c. A: $50,000 B: $40,000
d. A: $50,000 B: $50,000

answer

b. A: $40,000 B: $50,000

question

Which of the following types of firm is most likely to be a monopoly?
a. Local restaurant
b. Local electricity provider
c. Local landscaping services company
d. Local pet sitting company

answer

b. Local electricity provider

question

Charlton Computer Company has a monopoly over the production of a specialized processor. It will be profitable for Charlton to increase production of its specialized processors as long as marginal cost
a. is less than marginal revenue.
b. equals marginal revenue.
c. is greater than marginal revenue.
d. is indifferent.

answer

a. is less than marginal revenue.

question

National Mfg. Co. (NMC) is a monopoly in the market. Suppose it can sell 4 units of its output at $5.00 per unit and 5 units of its output at $4.90 per unit. NMC will produce and sell the fifth unit if its marginal cost is
a. $5.00 or less.
b. $4.90 or less.
c. $4.50 or less.
d. $4.00 or less.

answer

c. $4.50 or less.

question

Which of the following statements is true regarding the difference between monopoly prices and quantities compared to perfectly competitive prices and quantities?
a. Monopoly prices and quantities are both lower than in perfect competition.
b. Monopoly prices and quantities are both higher than in perfect competition.
c. Monopoly prices are lower than prices in perfect competition but quantities are higher than in perfect competition.
d. Monopoly prices are higher than prices in perfect competition but quantities are lower than in perfect competition.

answer

d. Monopoly prices are higher than prices in perfect competition but quantities are lower than in perfect competition.

1 of 58

question

These are characteristics of a competitive industry, except:
a) Many substitutes
b) No barriers to entry
c) Homogenous product
d) Little or no information on rivals' products

answer

d) Little or no information on rivals' products

question

Which of the products below is towards the spectrum of perfectly competitive industry?
a) Nike shoes
b) Eggs
c) Purdue Chicken
d) Restaurants

answer

b) Eggs

question

A monopoly firm is a ______________ and faces a __________ sloping demand curve.
a) Price taker; horizontal
b) Price searcher; horizontal
c) Price searcher; downward
d) Price taker; downward

answer

c) Price searcher; downward

question

In a perfectly competitive market industry, firm's prices are equal to
a) Average revenue
b) Marginal revenue
c) Both a and b
d) None of the above

answer

c) Both a and b

question

answer

a) In the long-run as all assets are mobile in the long-run

question

answer

c) There is limited information in ebay whereas perfect competitive industry assumes full information for both buyers and sellers

question

A monopolist maximizes profit by producing
a) At MR= rising MC
b) At MR>MC
c) At P=MR
d) At MC=0

answer

a) At MR= rising MC

question

Lipitor, with few substitutes, should have an own-price elasticity of demand that is:
a) Relative elastic
b) Relatively inelastic
c) Perfectly inelastic
d) Perfectly elastic

answer

b) Relatively inelastic

question

answer

c) inelastic; elastic

question

answer

a) They have no close substitutes

question

answer

a) the production of the 1000th unit of output increases the firm's profit by $5.

question

Which of the following cannot be classified as a market structure?
a) Oligopoly
b) Monopolistic Competition
c) Mergers
d) Perfect Competition

answer

c) Mergers

question

In the long-run, a perfectly competitive firm will achieve
a) Average rate of return
b) Above average profits
c) Losses
d) zero economic Profits

answer

d) zero economic profits

question

The short run supply curve for a perfect competitive firm is
a) Marginal cost curve
b) Average revenue curve
c) Marginal revenue curve
d) Marginal cost curve above its average variable cost curve

answer

d) Marginal cost curve above its average variable cost curve

question

A perfectly competitive firm has
a) A perfectly elastic demand curve
b) A perfectly elastic supply curve
c) A downward sloping demand curve
d) A downward sloping supply curve

answer

a) A perfectly elastic demand curve

question

A perfectly competitive industry has
a) A perfectly elastic demand curve
b) A perfectly elastic supply curve
c) A downward sloping demand curve
d) A downward sloping supply curve

answer

c) A downward sloping demand curve

question

answer

d) Some firms will enter the industry and price will fall

question

answer

c) Both a and b

question

A market tends to be monopolistic if
a) The good has too many substitutes
b) The good has very few substitutes
c) The good has too many complements
d) The good has very few complements

answer

b) The good has very few substitutes

question

A monopoly has
a) A perfectly elastic demand curve
b) A perfectly elastic supply curve
c) A downward sloping demand curve
d) A upward sloping demand curve

answer

c) A downward sloping demand curve

question

A monopolist maximizes revenue at
a) At MR= MC
b) At MR>MC
c) At P=MR
d) At MR=0

answer

d) At MR=0

question

answer

a) Can now be categorized as a competitive market

question

All these are characteristics of a monopoly except,
a) There is one seller of the product
b) Has few substitutes
c) Controls a large share of the market
d) Controls a small share of the market

answer

d) Controls a small share of the market

question

Mobil Energy Corp has a monopoly on gas sales in Texas. If the price of oil increases, the price of gas will
a) increase.
b) decrease.
c) remains the same.
d) may increase or decrease.

answer

a) increase.

question

If the price of oil increases and the price of gas will increase, the quantity of gas sold will
a) increase.
b) decrease.
c) remains the same.
d) may increase or decrease.

answer

b) decrease.

question

answer

d) may increase or decrease.

question

answer

b) $0.06

question

answer

b) no, because the price is still greater than the minimum average total cost.

question

answer

a) $300

question

answer

c) Mean reversion

question

answer

b) A market equilibrium price equal to the original equilibrium in the long-run

question

answer

a) Losses in the short-run and average profits in the long-run

question

answer

c) New firms being attracted to the industry

question

answer

e) The residents of Clean City are happy with the decision

question

answer

a. in the part of the demand curve where demand is elastic.

question

answer

d. Zero economic profits but positive accounting profits.

question

answer

d. If it increased price, all revenues would disappear.

question

answer

a. i, ii, v

question

answer

d) zero economic profits but positive accounting profits

question

answer

d) a monopoly firm but not a perfectly competitive firm

question

answer

b) neither a perfectly competitive firm nor a monopoly firm

question

answer

c) monopoly firms can generally earn positive profits over a longer period of time

question

Which of the following products is closest to operating in a perfectly competitive industry?
a) nike shoes
b) cotton
c) perdue chicken
d) restaurants

answer

b) cotton

question

A firm in a perfectly competitive market (a price taker) faces what type of demand curve?
a) unit elastic
b) perfectly inelastic
c) perfectly elastic
d) none of the above

answer

c) perfectly elastic

question

answer

b) $300 in the short run and zero in the long run

question

answer

d) they would fall to zero

question

answer

d) some firms will enter the industry and price will fall

question

answer

a) losses in the short run and average profits in the long run

question

answer

c. making a return equal to his or her opportunity cost.

question

answer

c. Firms are able to enter and exit

question

answer

c. supply curve to the right, meaning market price will fall.

question

answer

d. Continue production in the short run to minimize losses, but exit the industry in the long run.

question

answer

b. Merrimack will earn zero economic profits in long-run equilibrium.

question

answer

b. A: $40,000 B: $50,000

question

Which of the following types of firm is most likely to be a monopoly?
a. Local restaurant
b. Local electricity provider
c. Local landscaping services company
d. Local pet sitting company

answer

b. Local electricity provider

question

answer

a. is less than marginal revenue.

question

answer

c. $4.50 or less.

question

answer

d. Monopoly prices are higher than prices in perfect competition but quantities are lower than in perfect competition.

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Chapter 9

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