Suppose that it requires a special license in order to operate a firm in a certain type of industry. In addition, suppose that firms that hold such licenses are able to sell them for a high price. Which of the following statements is true?

Select one:

a.The government that issued the original licenses will be willing to issue more.

b.This is a typical monopolistically competitive market in which there are no economic profits in the long run.

c.Most firms currently in the industry are earning economic profits.

d.There is free entry by new firms into this industry.

Zero economic profit means there is no profit in this business

Select one:

True

False

Why is it impossible for a monopolistically competitive firm to achieve productive efficiency?

Select one:

a.The firm's demand curve is not perfectly elastic.

b.All monopolistically competitive firms are too small.

c.The market demand curve is perfectly elastic.

d.All monopolistically competitive firms make economic profits.

e.The firm's marginal cost curve is upward-sloping.

If external benefits are not integrated into the market, insufficient quantities of a product will be produced.

Select one:

True

False

When is a monopolist's total revenue at a maximum?

Select one:

a.When it is equal to its marginal cost.

b.When its marginal revenue is at a maximum.

c.When its marginal revenue is equal to zero.

d.When it is equal to its average revenue.

e.When its average revenue is equal to its marginal revenue.

Which of the following statements is correct concerning a typical firm operating under conditions of monopolistic competition in the long run?

Select one:

a.The greater the product differentiation the lower will be the amount of excess capacity.

b.It operates on the rising portion of its average cost curve because of excess capacity.

c.Excess capacity is lowered as demand becomes less elastic.

d.None of the choices are correct.

What circumstances will lead a country's terms of trade favourable?

Select one:

a.Lower the prices of exports.

b.Higher the prices of exports.

c.Lower the prices of imports.

d.Lower the price of imports and higher the price of exports

e.Higher the prices of imports.

What does excess capacity mean?

Select one:

a.The situation where a firm's output is below economic capacity.

b.The situation where a firm's output is above economic capacity.

c.The situation where a firm is producing an output below equilibrium.

d.The situation where a firm is producing an output above equilibrium.

What term describes the average price of a country's exports compared with the price of its imports?

Select one:

a.The gains from trade.

b.The terms of trade.

c.The factor endowment.

d.The trade deficit.

Why is it difficult for colluding firms to maintain a cartel?

Select one:

a.Because the large profits made by existing firms result in new firms entering the industry.

b.Because cartels always end up producing too little with the result that at least one member firm will find it profitable to raise its price and the other firms will follow.

c.Because cartels are illegal.

d.Because member firms find the prospect of cheating too attractive to resist.

What effect does a lump-sum profit tax have on a monopolist?

Select one:

a.It causes the price to increase but has no effect on the output.

b.It causes the output to decrease but has no effect on the price.

c.It causes the output to increase but has no effect on the price.

d.It has no effect on either the price or the output.

e.It causes the price to increase and the output to decrease.