1 The ability of a firm to raise its price while still maintaining a certain amount of sales means that the firm

Select one:

a.faces perfectly elastic demand for its product.

b.has market power.

c.produces a complementary good.

d.produces a perfect substitute for the other products in the industry.

3 All of the following could be a barrier to entry except

Select one:

a.low fixed costs.

b.occupational licenses (e.g., teacher certification, lawyers passing the bar exam, etc.).

c.government-granted monopoly rights, as exists for many utility companies in cities.

d.large economies of scale.

4 A firm with market power has a demand curve that slopes downward; this implies that

Select one:

a.marginal revenue is greater than marginal cost.

b.the selling price of the current unit must be set equal to the selling price of the previous unit sold.

c.it must continually lower price on successive units in order to continue selling.

d.price is less than marginal revenue.

5 Firms with market power determine the optimal price and quantity by

Select one:

a.equating

MRwith

MCto find quantity, then setting the price that yields that quantity on the firm demand curve.

b.setting the price equal to the market price, and then equating that price with

MCto find quantity.

c.adding the average fixed cost to the average total cost to find price, and producing the quantity that yields that price on the firm's demand curve.

d.setting quantity at the point of minimum average total cost (

ATC), and setting price equal to that

ATCtimes the concentration ratio.

6 A monopoly is producing a level of output at which price is $320, marginal revenue is $290, average total cost is $300, marginal cost is $290.The firm's current choice of output is

Select one:

a.too low.

b.More information is needed to answer this question.

c.too high.

d.at the optimal level.

7 A monopoly is producing a level of output at which price is $320, marginal revenue is $290, average total cost is $330, marginal cost is $290, and average fixed cost is $25.In the short run, this firm should choose to

Select one:

a.produce but take a loss of $10 per unit (better than shutting down).

b.produce and break even (zero profit).

c.produce, because it would earn $30 profit per unit.

d.shut down.