Fill in the matching part of the test with these numbers, not the words themselves: It's ok to use a word more than once. Some, you won't use at all. 1) advertise 19) monopoly/monopolist(ic) 2) allocation 20) monopolistically competitive 3) barriers to entry 21) mutual interdependence 4) benefits 22) normal 5) better 23) Per Se 6) capital 24) perfect(ly) 7) cheat 25) price 8) collude/collusion 26) productive 9) concentrated 27) profits 10) downward 28) purely competitive 1 1) few 29) rate of return 12) heterogeneous 30) respond 13) homogeneous 31) Rule of Reason 14) horizontal 32) scale 15) labor 33) technological 16) many 34) upward 17) marginal (cost) 35) variety 18) minimum/minimizing 36) worseQuestion 1 For questions 1 - 5, use this graph P1 - - - - I P 2 - - - - - P3 B Q.3 Q1 Q2 A This graph represents a pure . (enter number from word bank)Question 2 In each of the following blanks, fill in a letter from the graph in the previous question. It's demand curve is represented by line # Its average revenue curve is represented by line # Its marginal revenue curve is represented by line # Question 3 This profit maximizing firm will produce: (refer to the graph in question 1) O Q1 units of output. O Q2 units of output. O Q3 units of ouput. O Zero units of output -- it will shut down due to economic losses.Question 4 This profit maximizing firm will charge a price of: (refer to the graph in question 1) O PI O P2 O P3 O There is not enough information to tell. Question 5 This firm is earning: (refer to the graph in question 1) O Economic losses O Normal profits O Economic profits O There is not enough information to tell.Question 6 A firm can maximize profits by: O maximizing the difference between total revenue and total cost. O Producing that quantity for which marginal revenue and marginal costs are equal. O Producing every unit of output, and fraction thereof, for which the incremental revenue exceeds the incremental cost. O All of the above are correct. Question 7 In equilibrium this firm fails to achieve allocationficiency because: (refer to the graph in question 1) O P > MC at equilibrium O P=MC at equilibrium O P MC at equilbrium O This statement is false. This firm does achieve allocation efficiency at equilbrium.Question 8 This firm fails to achieve productive efficiency at equilibrium because: (refer to the graph in question 1) O The firm is producing at the minimum point on its ATC. O The firm is equating MR and MC. O P = MC at equilibrium. O None of these are correct. Question 9 Distributive efficiency is not being achieved at equilibrium because: (refer to the graph in question 1) O This firm is making zero economic profits at equilibrium. O P > MC at equilibrium O The firm is earning economic profits at equilibrium. O The firm is not producing at the minimum point on its ATC curve.Question 10 2 pts Which of the following is not an example of a barrier to entry? O A Consumer barrier -- prevents resources from entering an industry because consumers do not buy the product. O A natural barrier -- where competition within the industry would result in a less efficient outcome. O A legal barrier -- such as a patent, a license or a copyright. O A financial barrier -- such as the huge amount of money required to become an economy of scale in capital intensive industries. Question 11 2 pts If the demand curve for a purely competitive firm's product is horizontal, why then does a monopolist's demand curve slope downward? O Because the monopolist is the entire industry, a change in the price it charges for its produce, unlike the purely competitive firm, has a significant effect on market supply. It must therefore lower the price it charges in order to sell more units of the product. O Unlike the purely competitive firm, the monopolist has no pricing power because of the threat of competition entering the industry. It mus therefor keep its price as low as possible. O Like the purely competitive firm, the monopolist must produce at the minimum point on its average total cost curve, and must there adjust its price in order to sell the quantity that would achieve that goal. O Unlike the purely competitive firm, the monopolist will not produce at the point where marginal revenue is equal to marginal cost. It will charge the highest price possible.Question 12 2 pts Unlike the purely competitive firm, the monopolist's average revenue curve lies below and slants steeper than the demand curve. O True O False Question 13 2 pts In real life, pure monopolies are rare, if they exist at all. Government will begin regulating the dominant firm in the industry well before it becomes the only firm in the industry. O True O False Question 14 2 pts If a monopolist is maximizing its profits, the industry is in equilibrium. O True O FalseQuestion 15 In equilibrium, the monopolist will produce more than the socially efficient quantity of output. O True O False Question 16 Which of the following would not be a natural monopoly? O Baltimore Gas and Electric Company O Potomac Electric Power Company O A private sector firm providing tap water, such as United Water located in Paramus, NJ. O Apple Corp. in the iPad industryQuestion 17 10 pts For the next 5 questions, fill in the blanks with the numbers from the word bank that correspond to the correct word or phrase. The market model called monopolistic competition is much like pure competition in that there are sellers and no (or low) The main difference, however, is that the products that the firms produce are not , as they are in pure competition. As a result, the demand curve for the monopolistically competitive firm is sloping, unlike that for the purely competitive firm where it is elastic. Question 18 16 pts Similar to the monopolistic model, efficiency is not achieved in this market because in equilibrium, is greater than In addition, neither is efficiency achieved because in equilibrium the firm is not ATC. Nevertheless, the product heterogeniety provided by the market model has several benefits. One is that consumers will have a wider of products from which to choose. Also, the drive by firms to differentiate their product might actually result in a product.Question 19 10 pts Another major difference between a pure monopolist and a monopolistically competitive firm is that the monopolistically competitive firm often finds it necessary to in order to differentiate its product from the others in the industry. Therefore, the monopolistically competitive market model (because of the less than perfectly elastic demand curve) looks more like a pure than a firm. In the purely monopolistic market model, however, it is possible for the firm to make economic in equilibrium. But, because of the "easy entry" characteristic, the monopolistically competitive firm will make only profits in equilibrium.Question 20 Consider the delimma faced by two firms in the monopolistically competitive widget industry. Firm B Don't Advertise Advertise A B Advertise 800 500 800 1,300 Firm A C D 1,300 1,000 Don't 500 1,000 Advertise Fill in the blanks below with the letter of the cell (A, B, C, or D) The mutually beneficial cell is The equilibrium cell is Which cell is best for firm A?Question 21 12 pts The term oligopoly means sellers. The main feature that produces this market model are high, or even insurmountable, The characteristic that distinguishes oligopoly from all of the other market models, and thus makes it hard to model, is the concept of This means that each firm must account for how the other firms in the industry will to a particular firm's production or sales strategies. Because there are only a few sellers, oligopolies are often tempted to that is agree to set prices or limit output in order to maximize profits. When there are too many parties to such an agreement, however, the cartel members may be motivated to This would cause the agreement to collapse.Question 22 Consider the situation for a duopolistic flange industry, described by payoff matrix below.* A duopoly isn't a style of streetcorner music, it is an oligopolistic industry consisting of just two firms (a duo!). Firm B High Price Low Price A B High Price 1,000 1,200 1,000 500 Firm A C D Low Price 500 800 1,200 800 Fill in the blanks below with the letter of the cell (A, B, C or D) Which is the mutually beneficial cell? Which is the equilibrium cell? Which cell is best for Firm A?Question 23 The game theory model described by the payoff matrices in questions 20 & 22 is known as a: O Jacob's Ladder O Unresolvable Paradox O Self-fulfilling Prophecy O Prisoner's Dilemma Question 24 The equilibrium outcome of the game in the above question motivates the participants to engage in: O Bribery O False advertising O Collusion O Establishing barriers to entry