MULTIPLE CHOICE: Question 1: Market power is: (a) Enjoyed by all firms at high levels of output (b ) Most common for competitive firms (c) The ability to alter the market price of a good or service (d) A characteristic of all market structures Question 2: If the entire output of a market is produced by a single seller, the firm: (a) Faces perfectly inelastic demand (b ) Can charge any price it wants and not lose customers Is producing a new product (d) Is a monopoly Question 3: Monopolists are price: (a) Makers, as are competitive firms (b ) Takers, but competitive firms are price makers (c) Takers, as are competitive firms (d) Makers, but competitive firms are price takers Question 4: For a monopolist, marginal revenue equals: (a) Price (b) The change in total revenue divided by the change in quantity (c) Price times quantity (d) The change in quantity divided by the change in total revenue Question 5: If a monopolist is producing a level of output where MR exceeds MC, then it should: (a) Raise its price Increase its output Shift its marginal cost curve upward (d) Lower its outputQuestion 6: Which of the following statements is not correct? (a) The monopolist's marginal revenue is less than the price for any output greater than one (b) A monopolist's ability to act as a price setter guarantees economic profits in the short run (c) A monopolist's demand curve is the same as the market demand curve for the product (d) In the long run, a monopolist will experience only positive or zero economic profits Question 7: A barrier to entry is: (a) An obstacle that prevents additional workers from entering an industry, such as a union ( b ) An obstacle that makes it difficult for new firms to enter a market (c) A commitment on the part of big business to allow smaller companies to compete (d) A law established by the government to protect new industries Question 8: Which of the following is likely to occur if a monopoly suddenly loses its ability to deny potential competitors entry into the market? (a) The total market quantity of output produced will fall ( b ) The market price of the product will fall (c ) Profits for the market will increase (d) The industry demand curve for the product will shift Question 9: A firm can take advantage of economies of scale through: (a) Investment decisions to reduce capacity (b) Investment decisions to increase capacity (c) A production decision to increase output (d) A production decision to increase capacity Question 10: Like a competitive industry, a monopoly must: (a) Earn only zero economic profit in the long run ( b ) Practice marginal cost pricing (C ) Deal with the law of demand (d) Confront a demand curve equal to its marginal revenue curve Question 11: There is lack of strong incentives in a monopoly industry, relative to a competitive industry, to: (a) Use minimum average cost pricing (b) Inhibit productivity advances (c) Lower prices and increase output Increase innovationQuestion 12: A monopoly realizes larger profits than a comparable competitive market by: (a) Reducing production and pushing prices up (b ) Setting a higher price at the competitive level of output, thereby increasing total revenue (c) Producing at output levels with more favorable cost structures and charging the competitive market price, thereby increasing profits per unit Producing a greater quantity at the competitive price, thereby increasing profits Question 13: In a contestable market: (a) A few firms collude to achieve monopoly profits b) Many firms compete, which drives prices down to minimum long-run average total cost c) Entry occurs when prices rise above average total costs d) A few firms use predatory prices to achieve market share Question 14: According to the theory of contestable markets, monopoly may not be a problem if: (a) The structure of a market is competitive (b ) Firms can exit from the market Antitrust regulations are enforced d) Potential competition exists Question 15: Sky-High Skywriters charges competitive prices for its skywriting services even though it has no competition. This is most likely because: (a) It cares more about customers' well-being than its own well-being ( b ) There are no economies of scale in this industry (c) It operates in a contestable market (d) It is a natural monopoly Question 16: Market power is the ability of a firm to: (a) Control the price and quantity supplied (b) Advertise Increase the number of substitute goods (d) Act as a price taker Question 17: An industry's market structure refers to: (a) Whether the market is a product market or a resource market ( b ) The number and size of the firms in the industry How much firms spend on advertising e What types of products are produced in that industryQuestion 18: In which of the following market structures are entry barriers the highest? (a) Monopoly ( b ) Monopolistic competition (c) Oligopoly (d) Perfect competition Question 19: When firms are interdependent: (a) Then the market is perfectly competitive (b) They can act independently of one another (c ) One firm can ignore other companies in the market when making decisions (d) The profit of one firm depends on how its rivals respond to its strategic decisions Question 20: The only market structure in which there is significant interdependence among firms with regard to their pricing and output decisions is: (a) Monopoly ( b ) Perfect competition (c) Monopolistic competition (d) Oligopoly Question 21: The concentration ratio measures the: (a) Proportion of total output produced by the largest firms in a specific market (b ) Relative size of a firm compared to other industries (c) Percentage of total profits made by a firm in a specific market (d) Number of plants owned by an oligopoly Question 22: The goal of a company in an oligopoly industry is to: (a) Always follow rivals if they raise price. ( b ) Increase market share and profits. (c) Be the market leader in innovation. (d) Obtain the highest price possible. Question 23: Which of the following industries is likely to have the highest concentration ratio? (a) Corn production ( b ) College education (c) Video game systems (d) Clothing manufacturing Question 24: The concentration ratio for an oligopoly is considered: ) Over 60 percent (b) 100 percent (c) Under 40 percent (d) 90 percentQuestion 25: Market share can be computed by dividing: (a) Price by average total cost (b ) The amount sold by a single firm by the total sold in the market (c) Profit by total cost (d) The amount that a buyer buys by the total amount that is produced in the market Question 26: Suppose the larger firm of a duopoly has sales of $900 million and the smaller firm has sales of $100 million. The market share of the larger firm is: (a) 20 percent (b ) 80 percent 90 percent 10 percent Question 27: Temporary price reductions intended to alter market shares or drive out competition are referred to as: (a) Price leadership (b ) Retaliation Price-fixing Predatory pricing Question 28: Which of the following does not function as a barrier to entry into an oligopoly market? ) The expense involved in nonprice competition ( b ) Predatory pricing (c) Control of distribution outlets (d) Patents Question 29: For an oligopoly, a few firms cannot dominate in the long run unless: (a) A cartel is formed (b) A firm has a high concentration ratio The market is contestable d) Barriers to entry exist Question 30: In the long run, an oligopolist is most likely to: (a) Experience zero economic profits because barriers to entry do not exist in the long run (b) Experience economic profits when sufficient barriers to entry are present (c) Face a straight demand curve 'd) Produce at the most technically efficient output level due to long-run competition