1.

Market structure analysis allows economists to:

A)

predict the behavior of firms.

B)

create the conditions of competition.

C)

eliminate economic profits.

D)

remodel the economy.

2.

The perfectly competitive market structure assumes all of the following, EXCEPT:

A)

ease of entry and exit.

B)

identical products.

C)

a small number of buyers and sellers.

D)

zero economic profit in the long run.

3.

Which of the following is a characteristic of a perfectly competitive firm?

A)

JorDawn cannot tell which farm the peaches came from because they all look alike.

B)

Donelli's Pizza was voted the best pizza in town by readers of the local newspaper.

C)

People who want to open a bank in Kansas must obtain a charter from the Comptroller of the Currency or the state. New banks are not permitted to enter the market if the business of existing banks will be hurt by their entry.

D)

Devin's new business software firm is spending a ton of money on research and development.

4.

Han and Micah have just started their own business: a food truck that sits on city streets and sells specialty Vietnamese food. The start-up costs were low, and there are lots of other Vietnamese food trucks in the city, but Han's cooking is very special. People come from all over the city to buy their food, so they can charge a slightly higher price than their competitors. What type of market structure do they face?

A)

perfect competition

B)

monopolistic competition

C)

oligopoly

D)

monopoly

5.

Kellogg, General Mills, Post, and Quaker Oats dominate the ready-to-eat cereal market. This industry has consistently showed profits in the long run, and is difficult to enter due to brand proliferation. The ready-to-eat cereal industry is an example of what type of market structure?

A)

perfect competition

B)

monopolistic competition

C)

oligopoly

D)

monopoly

6.

In which of the following lists are market structures ordered from the highest number of sellers to the lowest?

A)

perfect competition, monopolistic competition, oligopoly, monopoly

B)

oligopoly, perfect competition, monopoly, monopolistic competition

C)

monopoly, monopolistic competition, perfect competition, oligopoly

D)

monopoly, oligopoly, monopolistic competition, perfect competition

7.

(Figure: Interpreting MC and Price Curves) The profit-maximizing output is _____ units.

A)

12

B)

31

C)

54

D)

57

8.

(Figure: Interpreting MC and Price Curves) The marginal revenue must be:

A)

$54.

B)

$75.

C)

$100.

D)

There is no way to tell from the graph.

9.

(Figure: Interpreting MC and Price Curves) The marginal cost of producing the 57th unit is:

A)

$50.

B)

$73.

C)

$95.

D)

$150.

10.

If the marginal revenue for the next unit being produced is $50, but the marginal cost is $45, the firm should:

A)

hold production constant.

B)

decrease production.

C)

increase production.

D)

consider stopping production before more losses are incurred.

11.

(Figure: Interpreting Cost and Price Curves) Referring to the graph, we can see that in this perfectly competitive industry:

A)

there are no economic profits; the market is saturated.

B)

there are too many firms in the market, so firms are operating at a loss.

C)

there is an incentive for more firms to enter the market.

D)

there is no incentive for more firms to enter the market.

12.

Assume that Bethany optimized today's production with today's sale of 100 bushels of corn. If her total variable cost is $200, and her total fixed cost is $100, and her marginal revenue is $3, then:

A)

she has earned an economic profit.

B)

she has suffered an economic loss.

C)

she has earned a normal profit.

D)

she should have shut down.

13.

Market powermeans the ability to:

A)

earn a normal profit.

B)

earn an economic profit.

C)

have some control over price.

D)

eliminate competition.

14.

A firm that is the only seller of a good with no close substitutes is a(n):

A)

monopolistic competitor.

B)

perfect competitor.

C)

monopolist.

D)

oligopolist.

15.

Which of the following is NOT a characteristic of a monopoly?

A)

The market has just one seller.

B)

There exist significant barriers to entry.

C)

Close substitutes for the monopolist's product are available to buyers.

D)

The monopolist has market power.

16.

A natural monopoly could possibly arise when:

A)

there are large economies of scale relative to the industry's demand.

B)

the government allows unrestricted access to a market.

C)

there are diseconomies of scale in an industry.

D)

companies band together to form a larger company.

17.

(Figure: Monopoly Pricing and Output Decisions) Using the graph, what is the equilibrium price for this monopolist?

A)

$12

B)

$16

C)

$20

D)

$30

18.

(Figure: Monopoly Pricing and Output Decisions) Using the graph, what is the equilibrium output for this monopolist?

A)

5

B)

12

C)

16

D)

20

19.

(Figure: Monopoly Pricing and Output Decisions) Using the graph, which of the following statements is TRUE about this monopolist?

A)

It is operating at a profit.

B)

It is operating at a loss in the short run.

C)

It will shut down.

D)

It is making normal profits.

20.

Which of the following statements is NOT true in determining the equilibrium price and output for a monopolist?

A)

Monopolists use the MR = MC rule to determine optimal price and output levels.

B)

Monopolists do not always make a profit.

C)

Monopolists select the price that is equal to average total cost.

D)

Price is determined from the demand curve.

21.

If a monopoly firm sells more than one unit, then marginal revenue will be:

A)

equal to the price.

B)

less than the price.

C)

greater than the price.

D)

equal to market demand.

22.

Suppose that the only caf in town can sell five fish dinners per night at a price of $10 each. If this monopoly firm wants to sell six fish dinners, it must reduce the price to $9 each. When the firm pursues this strategy to increase sales, the marginal revenue from the sixth dinner sold is:

A)

$54.

B)

$50.

C)

$9.

D)

$4.

23.

Assume that at a given level of output a monopoly firm has marginal revenue of $9, its ATC is $9, and marginal cost is $7. If this firm were to incrementally increase its output, then:

A)

profit will increase.

B)

price will increase.

C)

profit will decrease.

D)

price will equal marginal revenue.

24.

In a monopoly, the price of the good or service is always:

A)

is always less than average total cost.

B)

equal to marginal revenue.

C)

greater than marginal revenue.

D)

less than marginal revenue.

25.

Perfect price discrimination is also known as:

A)

first-degree price discrimination.

B)

second-degree price discrimination.

C)

third-degree price discrimination.

D)

It is not known by any of these.

26.

Second-degree price discrimination is MOST likely to be used in which of the following industries?

A)

farmers' markets

B)

restaurants

C)

airlines

D)

utilities

27.

The ____ measures industry concentration usingallthe firms in the industry.

A)

Herfindahl-Hirschman Index

B)

Consumer Price Index

C)

Producer Price Index

D)

concentration ratio

28.

A four-firm industry with market shares equal to 40, 30, 20, and 10 would have a HHI of:

A)

100.

B)

1,000.

C)

3,000.

D)

10,000.

29.

The maximum HHI is:

A)

100.

B)

1,000.

C)

10,000.

D)

100,000.

30.

All of the following are characteristics of monopolistic competition, EXCEPT:

A)

free entry and exit.

B)

barriers to entry.

C)

product differentiation.

D)

price maker.

31.

Which of the following characteristics does monopolistic competition NOT have in common with the model of perfect competition?

A)

Products of individual firms are different.

B)

Entry and exit are easy.

C)

Individual firms earn normal profits in the long run.

D)

Each firm has an insignificantly small market share.

32.

A monopolistically competitive firm will produce its product as long as the marginal revenue is:

A)

less than price.

B)

less than marginal cost.

C)

above price.

D)

above marginal costs.

33.

The demand curve faced by a firm in monopolistic competition is:

A)

perfectly elastic.

B)

less elastic than the demand curve for a competitive firm.

C)

less elastic than the demand curve for a monopolist.

D)

perfectly inelastic.

34.

(Figure: Monopolistic Competition) Under monopolistic competition, the price for this good or service in the graph will be:

A)

e.

B)

f.

C)

g.

D)

d.

35.

(Figure: Monopolistic Competition) Under monopolistic competition, economic profit is represented in this graph by rectangle:

A)

feab.

B)

geac.

C)

head.

D)

There is never positive economic profit under monopolistic competition.

36.

Which equation calculates a monopolistically competitive firm's profit?

A)

(P- ATC) Q

B)

(PQ) - ATC

C)

(P-Q) ATC

D)

Q- (P/ATC)

37.

Suppose a firm produces 20 units of output. At that level of output, ATC = 35,P= 50, MR and MC = 30. The firm's economic profit is:

A)

$1,000.

B)

$700.

C)

$600.

D)

$300.

38.

Suppose a firm produces 20 units of output. At that level, ATC is 70,P= 50, MR and MC = 30. The firm is experiencing a loss of:

A)

$400.

B)

$1,000.

C)

$600.

D)

$1,400.

39.

For a monopolistically competitive firm, profit is maximized when:

A)

ATC>P.

B)

MC=P.

C)

MC=MR.

D)

MC>ATC.

40.

The Prisoner's Dilemma:

A)

is a cooperative game.

B)

is an example of how minimizing your losses can lead to an inferior outcome for all players.

C)

is of no use in analyzing economic situations.

D)

explains how maximizing individual situations leads to maximization of social welfare.

41.

In the Prisoner's Dilemma, if the prisoners could collude:

A)

both prisoners would be better off confessing.

B)

the best outcome for both prisoners occurs if one confesses and the other does not.

C)

both prisoners would be better off not confessing.

D)

their prison sentences would be maximized.

42.

The "dilemma" in the Prisoner's Dilemma is that:

A)

one of the players cannot get to the best outcome.

B)

both players would be better off by cooperating, but not cooperating is a dominant strategy.

C)

both players would be better off by not cooperating, but cooperating is a dominant strategy.

D)

the player with first-mover advantage always gets the better outcome.

43.

The only market structure that does NOT have control over its price is:

A)

perfect competition.

B)

monopolistic competition.

C)

oligopoly.

D)

monopoly.

44.

One of the similarities between monopolistic competition and oligopoly is that they both:

A)

have significant barriers to entry.

B)

earn excess profits in the long run.

C)

are examples of imperfect competition.

D)

set price equal to average total cost in the long run.

45.

Product differentiation gives a firm control over prices.

A)

True

B)

False

46.

The demand curve for a monopolistically competitive firm is more elastic than that of a monopoly.

A)

True

B)

False

47.

The monopolistic competitive firm faces a downward-sloping marginal revenue curve.

A)

True

B)

False

48.

Monopolies and monopolistic competitors generally make about the same amount of profit in the short run.

A)

True

B)

False

49.

Monopolistic competitors resemble monopolies in that both produce at a lower quantity than a perfect competitor.

A)

True

B)

False

50.

In the long run, easy entry and exit within a monopolistically competitive market cause firms to earn only normal profits.

A)

True

B)

False