Structures. Name: Class: Date: Multiple Choice Identify the choice that best completes the statement or answers the question.

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1 Class: Date: Structures Multiple Choice Identify the choice that best completes the statement or answers the question. 1. A market with a large number of sellers a. can only be a perfectly competitive market. b. might be an oligopoly or a perfectly competitive market. c. might be a monopolistically competitive or a perfectly competitive market. d. might be a perfectly competitive, monopolistically competitive, oligopoly, or monopoly market. e. can only be a monopolistically competitive market. 2. One requirement for an industry to be perfectly competitive is that in the industry there a. are a few firms who control the market. b. are many firms for whom the efficient scale of production is small. c. is one firm that sells a product with no close substitutes. d. are many firms selling different products. e. is a barrier to entry that makes the entry of new firms difficult. 3. A market is classified as an oligopoly when a. a few firms compete. b. many firms produce a slightly differentiated product. c. no matter how many firms are in the market, a barrier blocks entry by other new firms. d. many firms produce the same product. e. only one firm sells a product with no close substitutes. 4. In central Florida during the spring, strawberry growers are price takers. The reason these growers are price takers is because there are strawberry growers in this area. a. many b. more than one or two but not many c. one or two d. no e. Both answer C and answer D are correct. 5. The price charged by a perfectly competitive firm is a. the same as the market price. b. different than the price charged by competing firms. c. lower the more the firm produces. d. higher the more the firm produces. e. indeterminate. 6. Elsie is a perfectly competitive dairy farmer. If the market price of milk falls to $1.20 a gallon from $1.40 a gallon, Elsie a. can sell as much milk as she wants at $1.20 a gallon. b. will have to charge some customers $1.40 a gallon to stay in business. c. will produce the same amount of milk at both prices. d. can sell more at the lower price because the quantity demanded is higher at lower prices. e. will be able to charge her initial customers $1.40 a gallon. 1

2 7. Marginal revenue is a. the change in total revenue from producing one additional unit of output. b. another name for total revenue. c. the change in total cost from producing an additional unit of output. d. the economic profit from producing an additional unit of output. e. less than price for a perfectly competitive firm. 8. In the short run, a perfectly competitive firm must decide a. the price to charge for its product, and the level of output that will maximize its economic profits or minimize its economic losses. b. only the level of output that will maximize its economic profits or minimize its economic losses because the price is determined in the market. c. only the price to charge for its product that will to maximize its economic profits or minimize its economic losses because the quantity is determined in the market. d. whether or not it should advertise. e. neither its price nor the quantity it will produce because both are determined in the market. 9. For a syrup producer in central Vermont, profit is maximized at the level of output for which total a. revenue exceeds total cost by the largest amount. b. revenue exceeds total cost by the smallest amount. c. revenue is maximized. d. cost is minimized. e. revenue equals total cost. 10. The above figure illustrates a perfectly competitive firm. Curve C represents the a. MR curve. b. ATC curve. c. MC curve. d. market demand curve. e. AFC curve. 2

3 11. A perfectly competitive firm will shutdown when the price is just below the minimum point on the a. average fixed cost curve. b. average total cost curve. c. marginal cost curve. d. average variable cost curve. e. marginal revenue curve. 12. The market supply in the short run for the perfectly competitive industry is a. the same as each producer's supply. b. the sum of the supply schedules of all firms. c. divided up according to each firm's selling price. d. set at the maximum price a buyer will pay for one unit. e. equal to the average of each firm's supply schedule. 13. If the market price is $50 per unit for a good produced in a perfectly competitive market and the firm's average total cost is $52, then the firm a. has an economic loss of $2 per unit. b. has an economic profit of $2 per unit. c. has a normal profit. d. has a total economic loss of $52. e. More information is needed to determine the firm's economic profit or loss per unit. 14. Computer memory chips are produced on wafers, each wafer having many separate chips that are separated and sold. The above table shows costs for a perfectly competitive producer of computer memory chips. This firm will produce as long as the market price of a wafer is above a. $1,300. b. $1,400. c. $7,900. d. $2,800. e. $9,800. 3

4 15. Bill owns a lawn-care company in Windermere, Florida, whose cost curves are illustrated in the above figure. The market equilibrium price in this perfectly competitive market equals $32 per lawn mowed. Bill's average total cost curve is ATC, so his total cost of production equals a. $0 because Bill shuts down. b. more than $0 and less than $1,200 per week. c. more than $1,200 and less than $1,400 per week. d. more than $1,400 per week and less than $1,800 per week. e. more than $1,800 per week. 16. In the long run, existing firms exit a perfectly competitive market a. only if economic profits are zero. b. if they earn a positive economic profit. c. if normal profits are greater than zero. d. only if they incur an economic loss. e. if they either earn only a normal profit or if they incur an economic loss. 17. In the long run, perfectly competitive firms will exit the market if the price is a. higher than average variable cost. b. equal to average total cost. c. less than average total cost. d. equal to average fixed cost. e. equal to marginal revenue. 18. The cranberry market is perfectly competitive. Reports that consuming cranberries can lead to improved health result in a permanent increase in the demand for cranberries and an immediate upward jump in the price of cranberries. As time passes, the price of cranberries and the initial firms' economic. a. falls; profit will be eliminated b. rises still higher; loss will be eliminated c. rises still higher; profit will not change d. falls; loss will be increased e. falls; profit will not change 4

5 19. If the technology associated with producing fiber-optic cable continues to advance, over time the cost of producing fiber-optic cable will a. decrease, firms that use the new technology will earn an economic profit, and in the long run new firms will enter the market. b. decrease, firms that use the new technology will incur an economic loss, and in the long run some firms will exit the industry. c. increase, firms that use the new technology will earn an economic profit, and in the long run new firms will enter the market. d. increase, firms that use the new technology will incur an economic loss, and in the long run some firms will exit the industry. e. decrease, firms that do not use the new technology will earn an economic profit, and in the long run new firms will enter the market. 20. The above figure shows three possible average total cost curves. If all firms in a perfectly competitive industry each have an average total cost curve identical to ATC0, each produces 20 units, and the market price of the good is $16 per unit, then a. the firms earn an economic profit of $8 per unit. b. firms will enter the industry and the number of firms increases. c. the firms' ATC curves will eventually shift to become the same as ATC1. d. firms will exit the industry and the number of firms decreases. e. Both answer A and answer B are correct. 21. If firms in a perfectly competitive industry are earning an economic profit and new firms enter the industry, then a. consumer surplus decreases. b. the existing firms' economic profit decreases. c. there must be external benefits to consumption of the good. d. the new firms must incur an economic loss. e. Both answer A and answer B are correct. 5

6 22. Which of the following are necessary for an unregulated perfectly competitive market to allocate resources efficiently? i. Firms must produce at a point on their marginal cost curves. ii. There can be no external costs or external benefits. a. i only b. ii only c. both i and ii d. neither i nor ii e. ii definitely and i only if the price is less than the marginal cost. 23. A monopoly a. must determine the price it will charge. b. faces extensive competition from firms making close substitutes. c. cannot price discriminate because such a pricing strategy is illegal in the United States. d. Both answers A and B are correct. e. Both answers B and C are correct. 24. Which of the following is an example of a person or firm that is likely to have been granted a public franchise? a. medical doctor b. taxi cab driver c. the local pizza parlor d. the local telephone company e. the local Honda dealership 25. A price-discriminating monopoly is a firm that a. sells its output at a single price to all of its customers. b. sells different units of a good or service at different prices. c. has control over the resources used to produce the product. d. has a license to sell the product. e. illegally charges different customers different prices for the good it produces. 26. A single-price monopoly a. must practice price discrimination. b. can lower its price for only a few select consumers if it wants to increase its output. c. will set its price equal to a consumer's willingness to pay. d. must lower the price for all customers if it wants to increase its output. e. is able to raise its price as high as it wants and consumers must still buy from it because it is a monopoly. 27. The marginal revenue for a single-price monopoly with a downward-sloping demand curve a. is less than the price. b. is greater than the price. c. is equal to the price. d. might be more than, less than, or equal to the price, depending on whether the slope of the demand curve exceeds 1.0 in magnitude. e. might be more than, less than, or equal to the price, depending on whether the price elasticity of demand exceeds 1.0 in magnitude. 6

7 28. The relationship between marginal revenue and elasticity is a. when demand is elastic marginal revenue is positive and when demand is inelastic marginal revenue is negative. b. whenever the elasticity is positive, marginal revenue is positive. c. whenever the elasticity is negative, marginal revenue is positive. d. when demand is elastic marginal revenue is negative and when demand is inelastic marginal revenue is positive. e. that total revenue equals zero at the quantity for which the demand is unit elastic. 29. If the single restaurant in an Eastern Kentucky town is currently charging prices on its ham and eggs where the demand is unit elastic, the marginal revenue for ham and eggs is a. negative. b. positive. c. zero. d. maximized. e. undefined. 30. The above table gives the demand schedule for a monopoly. The demand is elastic at all points between a. $6 and $1. b. $5 and $1. c. $3 and $1. d. $6 and $4. e. $4 and $ The above table gives the demand schedule for a monopoly. The demand is inelastic over the entire range between a. $6 and $1. b. $5 and $1. c. $3 and $1. d. $6 and $4. e. $4 and $3. 7

8 32. The above table gives the demand schedule for a single-price monopoly. The marginal revenue first becomes negative when going from a. 1 unit to 2 units. b. 2 units to 3 units. c. 3 units to 4 units. d. 4 units to 5 units. e. None of the above; the total revenue is always positive so the marginal revenue must always be positive. 33. Suppose the Busy Bee Café is the monopoly producer of hamburgers in Hugo, Oklahoma. The above figure represents the demand, marginal revenue, and marginal cost curves for this establishment. If the Busy Bee produces 40 hamburgers per hour, then a. marginal revenue will exceed marginal cost. b. profit will be maximized. c. marginal revenue will be negative. d. marginal revenue will be maximized. e. both the marginal revenue and the price will be negative. 8

9 34. When compared to a perfectly competitive market, a single-price monopoly with the same costs produces output and charges price. a. a larger; a lower b. a smaller; a lower c. the same; a higher d. a smaller; a higher e. a smaller; the same 35. Suppose the grocery store market in Kansas City is perfectly competitive. Then one store buys all the others and becomes a single-price monopoly. The figure above shows the relevant demand and cost curves. When the market is a monopoly, the price of a pound of steak is a. $4. b. $8. c. $12. d. $20. e. $ Suppose the grocery store market in Kansas City is perfectly competitive. Then one store buys all the others and becomes a single-price monopoly. The figure above shows the relevant demand and cost curves. When the market is a monopoly, the quantity of steak is a. 2,000 pounds. b. 3,000 pounds. c. 4,000 pounds. d. 5,000 pounds. e. less than 2,000 pounds. 9

10 37. In the above figure, for a single-price monopoly the deadweight loss is equal to the area a. abp 1. b. acp 2. c. bce. d. bed. e. P 1 bep To be able to price discriminate, a firm must a. lower prices for all customers. b. raise prices for all customers. c. be able to identify and separate different types of buyers. d. sell a product that can be resold. e. Both answers B and C are correct. 39. Monopolies arise when there are a. many substitutes but there are no barriers to entry. b. no close substitutes and there are no barriers to entry. c. no close substitutes and there are barriers to entry. d. many substitutes and there barriers to entry. e. None of the above answers are correct because the existence of a monopoly has nothing to do with the presence or absence of barriers to entry. 40. Which of the following is NOT a characteristic of monopolistic competition? a. few firms compete b. easy entry and exit c. small market share d. differentiated product e. no barriers to entry or exit 10

11 41. If substantial barriers to entry exist, then a. firms are free to enter the market. b. the remaining firms are perfectly competitive. c. the market is not monopolistic competition. d. firms take the market price as given. e. the market might be monopolistic competition. 42. Because of the number of firms in monopolistic competition a. each firm has a large market share. b. it is possible for the firms to collude. c. no one firm can dominate the market. d. one firm has the ability to dictate market conditions. e. each firm must carefully monitor what its competitors do. 43. Which of the following markets is characterized by product differentiation? a. cauliflower b. peaches c. plums d. soda e. electricity 44. The Herfindahl-Hirschman Index measures market concentration in an industry by summing the square of the percentage market shares for a. the 4 largest firms. b. the 50 smallest firms. c. the 4 smallest firms. d. the 50 largest firms. e. all firms in the market. 45. To maximize profit, a firm in monopolistic competition will produce the quantity where marginal revenue a. is greater than marginal cost. b. equals zero. c. is less than marginal cost. d. equals marginal cost. e. equals average total cost. 46. Excess capacity exists when a firm produces a. more than the profit-maximizing level of output. b. less than the quantity that minimizes average total cost. c. less than the quantity that minimizes marginal cost. d. more than the quantity that minimizes marginal cost. e. None of the above answers is correct. 47. A firm is spending the profit-maximizing amount on product development when a. people perceive the firm's product to be better than those of its competitors. b. the marginal cost of product development is equal to the marginal revenue from product development. c. the price of the good is higher than its marginal cost. d. the advertising costs are covered. e. the firm's total revenue exceeds its total costs. 11

12 48. The above figure definitely shows a. a long-run equilibrium for a monopolistically competitive firm. b. an industry with few firms. c. a long-run equilibrium for a perfectly competitive firm. d. a long-run equilibrium for a perfectly competitive market. e. a short-run equilibrium for a monopoly. 49. The firm in the above figure has a markup of per meal. a. $0 b. $4 c. $8 d. $10 e. more than $ A firm's markup is a. the difference between average total cost with and without advertising. b. the difference between demand and marginal revenue. c. a signal of product quality. d. the difference between price and marginal cost. e. the result of producing less than the efficient scale. 51. A group of firms that has entered into an agreement to restrict output and increase prices and profits is called a. a compliance. b. a cartel. c. an oligopoly. d. a duopoly. e. a multi-firm monopoly. 12

13 52. The figure above shows the market demand curve and the ATC curve for a firm. If all firms in the market have the same ATC curve, the efficient scale for one firm is units per hour. a. 2,000 b. 4,000 c. 8,000 d. 10,000 e. more than 10, The figure above shows the market demand curve and the ATC curve for a firm. If all firms in the market have the same ATC curve, the figure shows a can profitably operate. a. natural monopoly in which 1 firm b. natural oligopoly in which 2 firms c. natural oligopoly in which 3 firms d. natural oligopoly in which 4 firms e. natural oligopoly in which 5 more firms 54. Which of the following statements is correct? a. A firm in oligopoly will charge a price that is lower than the price charged in perfect competition. b. If firms in oligopoly look only at their own self-interest in deciding the output they should produce, the total market output will exceed that of a monopoly. c. If one oligopolist reduces the price of its product, its demand curve shifts leftward. d. Because many producers join to form a cartel, the market becomes monopolistic competition. e. It is in the self-interest of each firm in an oligopoly to take the actions that maximize all the firms' joint profit. 13

14 55. Which of the following is true? In the above figure, if the market is a. a monopoly, output will be Q 1 and price will be P 3. b. a monopoly, output will be Q 3 and price will be P 3. c. perfect competition, output will be Q 2 and price will be P 2. d. perfect competition, output will be Q 1 and price will be P 1. e. perfect competition, output will be Q 3 and price will be P Boeing and Airbus have entered into a cartel agreement that will enable them to boost their profits. What occurs if Boeing decides to cheat on the agreement? i. Boeing lowers the price of its airplanes. ii. The total industry output increases. iii. The total profits in the airplane industry will decrease. a. i only. b. ii only. c. iii only. d. i and ii. e. i, ii, and iii. 57. The concepts of mutual interdependence and game theory illustrate the fact that firms competing in oligopoly a. consider the actions of the rivals before changing the price of their product. b. ignore the actions of their rivals when considering price changes. c. engage in frequent price changes. d. never change prices. e. will mutually determine the combined best outcome for all players. 58. All games have which features? a. prices, rules, and payoffs b. rules, markets, and prices c. rules, strategies, and payoffs d. rules, strategies, and costs e. equilibrium, prices, and quantities 14

15 59. The range of output for a duopoly ranges between the a. perfectly competitive outcome and the monopolistically competitive outcome. b. efficient scale and the perfectly competitive outcome. c. minimum of ATC and the efficient scale. d. monopoly outcome and the perfectly competitive outcome. e. short-run perfectly competitive outcome and the long-run perfectly competitive outcome. 60. Which of the following can be games played by firms in an oligopoly? i. choosing how much to spend on advertising ii. choosing how much to spend on R&D iii. choosing to enter a legal duopoly a. i and ii b. i and iii c. ii and iii d. ii only e. iii only. 15

16 Structures Answer Section MULTIPLE CHOICE 1. ANS: C PTS: 1 DIF: Level 1: Definition TOP: Market types 2. ANS: B PTS: 1 DIF: Level 1: Definition TOP: Perfect competition Definition 3. ANS: A PTS: 1 DIF: Level 1: Definition TOP: Oligopoly Definition 4. ANS: A PTS: 1 DIF: Level 1: Definition TOP: Price takers 5. ANS: A PTS: 1 DIF: Level 2: Using definitions TOP: Price takers 6. ANS: A PTS: 1 DIF: Level 3: Using models TOP: Demand 7. ANS: A PTS: 1 DIF: Level 1: Definition TOP: Marginal revenue 8. ANS: B PTS: 1 DIF: Level 2: Using definitions TOP: Profit maximization 9. ANS: A PTS: 1 DIF: Level 3: Using models TOP: Profit maximization 10. ANS: B PTS: 1 DIF: Level 2: Using definitions TOP: Profit maximization 11. ANS: D PTS: 1 DIF: Level 2: Using definitions TOP: Shut down 12. ANS: B PTS: 1 DIF: Level 1: Definition OBJ: Checkpoint 13.2 TOP: Market supply 13. ANS: A PTS: 1 DIF: Level 3: Using models OBJ: Checkpoint 13.2 TOP: Economic profit 14. ANS: A PTS: 1 DIF: Level 3: Using models OBJ: Checkpoint 13.2 TOP: Shut down 15. ANS: B PTS: 1 DIF: Level 3: Using models OBJ: Checkpoint 13.2 TOP: Economic profit 16. ANS: D PTS: 1 DIF: Level 2: Using definitions OBJ: Checkpoint 13.3 TOP: Long-run equilibrium Exit 17. ANS: C PTS: 1 DIF: Level 2: Using definitions OBJ: Checkpoint 13.3 TOP: Long-run equilibrium Exit 18. ANS: A PTS: 1 DIF: Level 2: Using definitions OBJ: Checkpoint 13.3 TOP: Long-run equilibrium 19. ANS: A PTS: 1 DIF: Level 2: Using definitions OBJ: Checkpoint 13.3 TOP: Technological change 20. ANS: D PTS: 1 DIF: Level 4: Applying models OBJ: Integrative TOP: Integrative 21. ANS: B PTS: 1 DIF: Level 4: Applying models OBJ: Integrative TOP: Integrative 1

17 22. ANS: B PTS: 1 DIF: Level 3: Using models OBJ: Integrative TOP: Integrative 23. ANS: A PTS: 1 DIF: Level 2: Using definitions OBJ: Checkpoint 14.1 TOP: Monopoly 24. ANS: D PTS: 1 DIF: Level 2: Using definitions OBJ: Checkpoint 14.1 TOP: Legal barriers to entry 25. ANS: B PTS: 1 DIF: Level 1: Definition OBJ: Checkpoint 14.1 TOP: Price strategies Price discrimination 26. ANS: D PTS: 1 DIF: Level 2: Using definitions OBJ: Checkpoint 14.2 TOP: Demand 27. ANS: A PTS: 1 DIF: Level 2: Using definitions OBJ: Checkpoint 14.2 TOP: Marginal revenue 28. ANS: A PTS: 1 DIF: Level 2: Using definitions OBJ: Checkpoint 14.2 TOP: Marginal revenue and elasticity 29. ANS: C PTS: 1 DIF: Level 1: Definition OBJ: Checkpoint 14.2 TOP: Marginal revenue and elasticity 30. ANS: D PTS: 1 DIF: Level 4: Applying models OBJ: Checkpoint 14.2 TOP: Marginal revenue and elasticity 31. ANS: C PTS: 1 DIF: Level 4: Applying models OBJ: Checkpoint 14.2 TOP: Marginal revenue and elasticity 32. ANS: D PTS: 1 DIF: Level 3: Using models OBJ: Checkpoint 14.2 TOP: Marginal revenue 33. ANS: C PTS: 1 DIF: Level 3: Using models OBJ: Checkpoint 14.2 TOP: Single-price monopoly Profit maximization 34. ANS: D PTS: 1 DIF: Level 2: Using definitions OBJ: Checkpoint 14.3 TOP: Monopoly and competition compared Output and price 35. ANS: C PTS: 1 DIF: Level 3: Using models OBJ: Checkpoint 14.3 TOP: Monopoly and competition compared Price 36. ANS: A PTS: 1 DIF: Level 3: Using models OBJ: Checkpoint 14.3 TOP: Monopoly and competition compared Output 37. ANS: C PTS: 1 DIF: Level 3: Using models OBJ: Checkpoint 14.3 TOP: Is monopoly efficient? 38. ANS: C PTS: 1 DIF: Level 1: Definition OBJ: Checkpoint 14.4 TOP: Price discrimination 39. ANS: C PTS: 1 DIF: Level 2: Using definitions OBJ: Integrative TOP: Integrative 40. ANS: A PTS: 1 DIF: Level 1: Definition OBJ: Checkpoint 15.1 TOP: Monopolistic competition Definition 41. ANS: C PTS: 1 DIF: Level 2: Using definitions OBJ: Checkpoint 15.1 TOP: Monopolistic competition Definition 42. ANS: C PTS: 1 DIF: Level 2: Using definitions OBJ: Checkpoint 15.1 TOP: Monopolistic competition Definition 43. ANS: D PTS: 1 DIF: Level 2: Using definitions OBJ: Checkpoint 15.1 TOP: Product differentiation 44. ANS: D PTS: 1 DIF: Level 1: Definition OBJ: Checkpoint 15.1 TOP: Herfindahl-Hirschman Index 45. ANS: D PTS: 1 DIF: Level 2: Using definitions OBJ: Checkpoint 15.2 TOP: Monopolistic competition Output and price 2

18 46. ANS: B PTS: 1 DIF: Level 1: Definition OBJ: Checkpoint 15.2 TOP: Monopolistic competition Excess capacity 47. ANS: B PTS: 1 DIF: Level 2: Using definitions OBJ: Checkpoint 15.3 TOP: Innovation and product development 48. ANS: A PTS: 1 DIF: Level 3: Using models OBJ: Integrative TOP: Integrative 49. ANS: B PTS: 1 DIF: Level 3: Using models OBJ: Integrative TOP: Integrative 50. ANS: D PTS: 1 DIF: Level 2: Using definitions OBJ: Integrative TOP: Integrative 51. ANS: B PTS: 1 DIF: Level 1: Definition OBJ: Checkpoint 16.1 TOP: Cartel 52. ANS: A PTS: 1 DIF: Level 3: Using models OBJ: Checkpoint 16.1 TOP: Natural oligopoly 53. ANS: D PTS: 1 DIF: Level 3: Using models OBJ: Checkpoint 16.1 TOP: Natural oligopoly 54. ANS: B PTS: 1 DIF: Level 2: Using definitions OBJ: Checkpoint 16.2 TOP: Duopolist's dilemma 55. ANS: C PTS: 1 DIF: Level 3: Using models OBJ: Checkpoint 16.2 TOP: Competitive outcome 56. ANS: E PTS: 1 DIF: Level 3: Using models OBJ: Checkpoint 16.2 TOP: Range of outcomes 57. ANS: A PTS: 1 DIF: Level 2: Using definitions OBJ: Checkpoint 16.3 TOP: Game theory 58. ANS: C PTS: 1 DIF: Level 1: Definition OBJ: Checkpoint 16.3 TOP: Game theory 59. ANS: D PTS: 1 DIF: Level 3: Using models OBJ: Integrative TOP: Integrative 60. ANS: A PTS: 1 DIF: Level 2: Using definitions OBJ: Integrative TOP: Integrative 3

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