Review Test Ch 9, 10, 11 2

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1 Review Test Ch 9, 10, 11 2 Student: 1. A one-firm industry is known as: A. monopolistic competition. B. oligopoly. C. pure monopoly. D. pure competition. 2. Which of the following is not a basic characteristic of pure competition? A. considerable nonprice competition B. no barriers to the entry or exodus of firms C. a standardized or homogeneous product D. a large number of buyers and sellers In answering the next question(s), assume a graph in which dollars are measured on the vertical axis and output on the horizontal axis. 3. Refer to the above information. For a purely competitive firm, marginal revenue: A. graphs as a straight, upsloping line. B. is a straight line, parallel to the vertical axis. C. is a straight line, parallel to the horizontal axis. D. graphs as a straight, downsloping line. 4. Price is constant or given to the individual firm selling in a purely competitive market because: A. the firm's demand curve is downsloping. B. of product differentiation reinforced by extensive advertising. C. each seller supplies a negligible fraction of total supply. D. there are no good substitutes for its product. 5. The short-run supply curve of a purely competitive producer is based primarily on its: A. AVC curve. B. ATC curve. C. AFC curve. D. MC curve. 6. Refer to the above diagram. To maximize profit or minimize losses this firm will produce: A. K units at price C. B. D units at price J. C. E units at price A. D. E units at price B.

2 7. If a profit-seeking competitive firm is producing its profit-maximizing output and its total fixed costs fall by 25 percent, the firm should: A. use more labor and less capital to produce a larger output. B. not change its output. C. reduce its output. D. increase its output. 8. Refer to the above diagram. At P 2, this firm will: A. produce 44 units and realize an economic profit. B. produce 44 units and earn only a normal profit. C. produce 66 units and earn only a normal profit. D. shut down in the short run. 9. Refer to the above diagram. At P 3, this firm will: A. produce 14 units and realize an economic profit. B. produce 62 units and earn only a normal profit. C. produce 40 units and incur a loss. D. shut down in the short run. 10. The Ajax Manufacturing Company is selling in a purely competitive market. Its output is 100 units which sell at $4 each. At this level of output total cost is $600, total fixed cost is $100, and marginal cost is $4. The firm should: A. reduce output to about 80 units. B. expand its production. C. continue to produce 100 units. D. produce zero units of output. Answer the next question(s) on the basis of the following cost data for a purely competitive seller: 11. Refer to the above data. At 5 units of output average fixed cost, average variable cost, and average total cost are: A. $10, $60, and $70 respectively. B. $50, $40, and $90 respectively. C. $10, $70, and $80 respectively. D. $5, $25, and $30 respectively.

3 12. Refer to the above data. The marginal cost of the fifth unit of output is: A. $80. B. $90. C. $50. D. $ Which of the following statements is correct? A. Economic profits induce firms to enter an industry; losses encourage firms to leave. B. Economic profits induce firms to leave an industry; profits encourage firms to leave. C. Economic profits and losses have no significant impact on the growth or decline of an industry. D. Normal profits will cause an industry to expand. 14. An increasing-cost industry is associated with: A. a perfectly elastic long-run supply curve. B. an upsloping long-run supply curve. C. a perfectly inelastic long-run supply curve. D. an upsloping long-run demand curve. 15. A decreasing-cost industry is one in which: A. contraction of the industry will decrease unit costs. B. input prices fall or technology improves as the industry expands. C. the long-run supply curve is perfectly elastic. D. the long-run supply curve is upsloping. 16. Refer to the above diagram. Line (2) reflects a situation where resource prices A. decline as industry output expands. B. increase as industry output expands. C. rise and then decline as industry output expands. D. remain constant as industry output expands. 17. The term allocative efficiency refers to: A. the level of output that coincides with the intersection of the MC and AVC curves. B. minimization of the AFC in the production of any good. C. the production of the product-mix most desired by consumers. D. the production of a good at the lowest average total cost. 18. If for a firm P = minimum ATC = MC, then: A. neither allocative efficiency nor productive efficiency is being achieved. B. productive efficiency is being achieved, but allocative efficiency is not. C. both allocative efficiency and productive efficiency are being achieved. D. allocative efficiency is being achieved, but productive efficiency is not. 19. Marginal cost is a measure of the alternative goods which society forgoes in using resources to produce an additional unit of some specific product. 20. Oligopoly firms may produce either standardized or differentiated products.

4 21. Patents: A. give firms the exclusive right to produce or control a product for 100 years. B. discourage research and innovation. C. are a source of monopoly. D. are also called trademarks. 22. Large minimum efficient scale of plant combined with limited market demand may lead to: A. natural monopoly. B. patent monopoly. C. government franchise monopoly. D. shared monopoly. 23. When a firm is on the inelastic segment of its demand curve, it can: A. increase total revenue by reducing price. B. decrease total costs by decreasing price. C. increase profits by increasing price. D. increase total revenue by more than the increase in total cost by increasing price. 24. Refer to the above diagram. The quantity difference between areas A and C for the indicated price reduction measures: A. marginal cost. B. marginal revenue. C. monopoly price. D. a welfare or efficiency loss. 25. Refer to the above two diagrams for individual firms. Figure 2 pertains to: A. a market characterized by government regulation of price and output. B. either an imperfectly competitive or a purely competitive seller. C. a purely competitive seller. D. an imperfectly competitive seller.

5 26. Assume a pure monopolist is currently operating at a price-quantity combination on the inelastic segment of its demand curve. If the monopolist is seeking maximum profits, it should: A. retain its current price-quantity combination. B. increase both price and quantity sold. C. charge a lower price. D. charge a higher price. Answer the next question(s) on the basis of the following demand and cost data for a pure monopolist: 27. Refer to the above data. The profit-maximizing level of output will be: A. 4 units. B. 7 units. C. 6 units. D. 5 units. 28. Refer to the above data. The profit-maximizing monopolist will realize a: A. profit of $8.50. B. profit of $7.50. C. profit of $16. D. loss of $ Refer to the above diagram. At the profit-maximizing level of output, total cost will be: A. NM times 0M. B. 0AJE. C. 0CGC. D. 0BHE.

6 30. Refer to the above diagrams. If $4 is Firm B's profit-maximizing price, its: A. ATC must be $4. B. MC must be $4. C. MR must be $4. D. MC must be zero. 31. In which one of the following market models is X-inefficiency most likely to be the greatest? A. pure competition B. oligopoly C. monopolistic competition D. pure monopoly 32. Price discrimination is: A. always legal. B. always illegal. C. only illegal if it hurts consumers more than non-discrimination. D. only illegal if used to lessen or eliminate competition. Answer the next question(s) on the basis of the following information for a pure monopolist: 33. If the above profit-maximizing monopolist is able to price discriminate, charging each customer the price associated with each given level of output, how many units will the firm produce? A. 2 B. 3 C. 4 D Refer to the figure above. Suppose the graphs represent the demand for use of a local golf course for which there is no significant competition (it has a local monopoly); P denotes the price of a round of golf; Q is the quantity of rounds "sold" each day. If the left graph represents the demand during weekdays, and the right graph the weekend demand, this profit-maximizing golf course will earn how much economic profit over the course of a full seven-day week? A. $4,200 B. $3,700 C. $3,400 D. $2,700

7 35. Refer to the above diagram for a pure monopolist. If the monopolist is unregulated, it will maximize profits by charging: A. a price above P 3 and selling a quantity less than Q 3. B. price P 3 and producing output Q 3. C. price P 2 and producing output Q 2. D. price P 1 and producing output Q If a regulatory commission imposes upon a nondiscriminating natural monopoly a price that is equal to marginal cost and below average total cost at the resulting output, then: A. the firm will realize an economic profit. B. the firm will earn only a normal profit. C. allocative efficiency will be worsened. D. the firm must be subsidized or it will go bankrupt. 37. (Consider This) Children are charged less than adults for admission to professional baseball games but are charged the same prices as adults at the concession stands. This pricing system occurs because: A. children have an elastic demand for game ticket but an inelastic demand for concession items. B. children have an inelastic demand for game tickets but an elastic demand for concession items. C the seller can prevent children from buying game tickets for adults but cannot prevent children from. buying concession items for adults. D.children can personally "consume" only a single game ticket, but can personally consume more than one concession item. 38. (Last Word) DeBeers Consolidated Mines markets about: A. 55 percent of the world's rough-cut diamonds. B. 80 percent of the world's rough-cut diamonds. C. 45 percent of the world's rough-cut diamonds. D. 33 percent of the world's rough-cut diamonds. 39. If the XYZ Company can sell 4 units per week at $10 per unit and 5 units per week at $9 per unit, the marginal revenue of the fifth unit is $5.

8 40. Refer to the above diagram for a nondiscriminating monopolist. The profit-maximizing output for this firm is M. 41. A. B. C. D. 42. Economic analysis of a monopolistically competitive industry is more complicated than that of pure competition because: A. of product differentiation and consequent product promotion activities. B. monopolistically competitive firms cannot realize an economic profit in the long run. C. the number of firms in the industry is larger. D. monopolistically competitive producers use strategic pricing strategies to combat rivals. 43. The larger the number of firms and the smaller the degree of product differentiation the: A.greater the divergence between the demand and the marginal revenue curves of the monopolistically competitive firm. B. larger will be the monopolistically competitive firm's fixed costs. C. less elastic is the monopolistically competitive firm's demand curve. D. more elastic is the monopolistically competitive firm's demand curve. 44. In the long-run, the price charged by the monopolistically competitive firm attempting to maximize profits: A. must be less than ATC. B. must be more than ATC. C. may be either equal to ATC, less than ATC, or more than ATC. D. will be equal to ATC. 45. In short-run equilibrium, the monopolistically competitive firm shown above will set its price: A. below ATC. B. above ATC. C. below MC. D. below MR.

9 46. In long-run equilibrium, the firm shown in the diagram above will: A. earn a normal profit. B. go bankrupt. C. incur a loss. D. realize an economic profit. 47. Differentiated oligopoly exists where a small number of firms are: A. producing goods that differ in terms of quality and design. B. setting price and output collusively. C. setting price and output independently. D. producing virtually identical products. 48. Clear-cut mutual interdependence with respect to the price-output policies exists in: A. pure monopoly. B. oligopoly. C. monopolistic competition. D. pure competition. 49. An industry having a four-firm concentration ratio of 85 percent: A. approximates pure competition. B. is monopolistically competitive. C. is a pure monopoly. D. is an oligopoly. 50. If an industry evolves from monopolistic competition to oligopoly, we would expect: A. the four-firm concentration ratio to decrease. B. the four-firm concentration ratio to increase. C. the four-firm concentration ratio to remain the same. D. barriers to entry to weaken. 51. The terms strategic behavior and payoff matrix both relate directly to: A. the perfect competition model. B. the monopolistic competition model. C. game theory. D. the price leadership model.

10 52. Refer to the above diagram where the numerical data show profits in millions of dollars. Beta's profits are shown in the northeast corner and Alpha's profits in the southwest corner of each cell. With independent pricing the outcome of this duopoly game will gravitate to cell: A. A. B. B. C. C. D. D. 53. Refer to the above diagram where the numerical data show profits in millions of dollars. Beta's profits are shown in the northeast corner and Alpha's profits in the southwest corner of each cell. If Alpha and Beta engage in collusion, the outcome of the game will be at cell: A. A. B. B. C. C. D. D. 54. Refer to the above diagram. Equilibrium price is: A. e. B. d. C. c. D. b. 55. If the firms in an oligopolistic industry can establish an effective cartel, the resulting output and price will approximate those of: A. a purely competitive producer. B. a pure monopoly. C. a monopolistically competitive producer. D. an industry with a low four-firm concentration ratio. 56. A one-firm industry is known as: A. monopolistic competition. B. oligopoly. C. pure monopoly. D. pure competition. 57. An industry producing a differentiated product whose four-firm concentration ratio is 18 percent is an example of: A. monopolistic competition. B. oligopoly. C. pure monopoly. D. pure competition. 58. The excess capacity problem associated with monopolistic competition implies that fewer firms could produce the same industry output at a lower total cost.

11 59. The monopolistically competitive seller equates price and marginal cost in maximizing profits. 60. Zippy's and Tony's are rival pizza restaurants in a small town (together they form a local duopoly). Zippy's management determines that if it increases its advertising expenditures, it will increase profits regardless of whether Tony's increases its advertising budget. Based on this information, we can conclude that: A. this is a one-time game. B. Zippy's has a dominant strategy in this advertising game. C. this advertising game will reach a Nash equilibrium. D. Zippy's has first-mover advantages in this advertising game. 61. Repeated games may involve either simultaneous or sequential decision-making.

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