A. A Accounting Cost plus Implicit Cost. B. Fixed Cost plus Variable Cost

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1 1. When marginal cost equals marginal revenue product A. The firm is producing at a loss B. The firm is at break -even point C. The fmn is making the least profit D. The firm has maximum profit 2. Under a perfectly competitive factor market A. There are many buyers of a productive service so that a single firm purchases only a small portion of the total factor service and in no way influences its market price. B. The firm takes the price of the factor service as given and employs as many units as it needs at that price. C. Both (A) and (B) are correct D. None of these is correct. 3. Marginal factor cost is the A. Extra cost of production incurred by a firm B. Is the addition to total cost by employing an additional unit of a given factor service C. The average factor cost(afc) and the marginal cost (MFC) of the productive service to the firm are equal to the price of the factor service i.e. AFC = MFC + price of the factor service D. All of the above are correct

2 4. Under perfect competition in the factor market, a firm may be at a profit or at loss in the short run. But in the long run it must earn normal profits A. True B. False A. It is illegal price cutting B. Other competitors will be angry C. Total revenue will decline due to its inelastic demand curve D. It is able to sell all it wants at the market price E. It does not maximize profit 8. Which of the following does not represeni the behavior of the monopolist A. Managing the market price of the goods B. Manipulating both the price and quantity of his goods at the same time C. Raising the price at one market, lowering at another market D. Manipulating only quantity, price being a given factor E. Manipulating the quality of his goods 9. Ifa monopoly is attempting to maximize profit, which of the following should it attempt to do? A. Select that output at which ATC is at minimum B. Set price equal to TC C. Maximize revenue D. Minimize revenue E. Equate marginal cost to marginal revenue

3 10. The short run period in production is defmed as a period when A. There is at least one fixed factor B. All costs of production must be covered C. The output cannot be varied D. Current output is not profitable. A. A Accounting Cost plus Implicit Cost B. Fixed Cost plus Variable Cost

4 16. Curve (i) represents A. Total Cost B. Fixed Cost C. Total Variable Cost D. Total Fixed Cost 17. The Cost curve labeled (ii) is known as A. Total Cost B. Total Variable Cost C. Total Fixed Cost D. Average Variable Cost 18. Cost curve labeled (Hi) is termed as A. Fixed Cost B. Average Fixed Cost C. Total Fixed Cost D. None 19. The curve (iii) is shown as parallel to the Output axis because A. The cost changes along with outputs. B. The cost is higher than the curve ii. C. The cost is the same whatever the level of the output. D. When the output is zero, the cost is zero. 20. Which of the following does not characterize monopolistic competition? A. Product differentiation. B. Many producers. C. Absence of advertising. D. Some control over price. E. All of the above characterize monopolistic competition.

5 A. Many sellers. B. Mutual interdependence. D. A homogenous product. 23. The kinked demand curve faced by an oligopolist is based on the assumption that A. Rivals will follow a price increase but not a price cut. E. Rivals will follow a price decrease but not a price increase. A. It does not explain the interdependence of the demand curve. B. It does not explain why costs remain rigid in the face of changing demand.

6 A Each duopolist assumes that his or her rival's price is invariant with respect to his or her own price. B. Each duopolist assumes that his or her rivals' output is invariant with respect to his or her own output. C. Duopolists recognize their mutual interdependence and agree to act in unison. D. Each duopolist assumes that ifhe or she lowers the price, his or her rivals will do the same but that if he or she raises the price. his or her rivals may not follow suit. B. SAC = LAC under perfect competition, but not under monopolistic competition. C. SMC = LMC under perfect competition, but not under monopolistic competition. E. Economic profits are zero under perfect competition, but not under monopolistic competition. 28. In the neighbourhood of the long-run equilibrium ofa monopolistically competitive firm, average cost will be A. Decreasing. B. Constant C. Increasing. D. At a minimum. E. either (a) or (c). 29. The long-run equilibrium price charged by the monopolistic competitor is A Likely to be lower than the perfect competitor's price. S. Likely to equal long-run marginal cost. E. Likely to lie somewhere between the perfect competitor's price and the monopolist's price. 30. The firm under monopolistic competition is likely to produce less and set a higher price than under perfect competition because A. The firm faces decreasing returns to scale. B. The firm faces increasing costs. C. The firm must incur selling expenses, including advertising.

8 OUTPUT TOTAL TOTAL AVERAGE AVERAGE AVERAGE MARGINAL FIXED VARIABLE TOTAL FIXED VARIABLE COST COST COST COST COST COST 0 20, , , ,000 (i) Fill in the blanks above (ii) What is the total cost of the firm? (iii) What is the firm's marginal cost when the output is between 220 and 2807 (iv) (v) At what output is the average total cost a minimum. What is the firm average cost when it produces 200 uoits of output, 440 units of outputs, and 520 units of outputs? (B). Using a suitable diagram, explain the long run cost function of a firm. (B). The total cost function (TC) of Adejugbe and Sons Limited is given as TC = Q3 _ 5.5Q Q and the company total revenue function (TR) is specified as

9 Cj =2Ql C, ~O.25 Q2'

Market Structure: Duopoly and Oligopoly

WSG10 7/7/03 4:24 PM Page 145 10 Market Structure: Duopoly and Oligopoly OVERVIEW An oligopoly is an industry comprising a few firms. A duopoly, which is a special case of oligopoly, is an industry consisting