1. Which of the following is likely to be present in a perfectly competitive market?

a.

Patents

b.

Government licenses

c.

Nonprice competition such as advertising

d.

High capital costs

e.

Firms producing identical products

A firm in a perfectly competitive market:

a.

can raise the price of its product and sell more output.

b.

has to lower the price of its product to sell more output.

c.

can increase its supply to lower the market price.

d.

can decrease its supply to increase the market price.

e.

has to accept the market price for its product.

Which of the following best approximates a perfectly competitive market structure?

a.

Automobile manufacturing

b.

The insurance market

c.

Foreign exchange markets

d.

The airlines industry

e.

Manufacture of stereo equipment

4.Perfectly competitive firms are price takers because:

a.

each firm is too small compared to the market to be able to affect price.

b.

one firm determines the market price and all other firms accept this price.

c.

firms charge the price that government determines.

d.

firms must accept any price that consumers offer them.

e.

firms earn high profits by charging different prices to different groups of consumers.

The demand curve for the output of a perfectly competitive firm is _____.

a.

perfectly inelastic

b.

perfectly elastic

c.

unit elastic

d.

downward sloping

e.

nonlinear

6.The demand curve facing a perfectly competitive firm is:

a.

vertical at the equilibrium quantity.

b.

upward sloping.

c.

a straight line through the origin.

d.

a horizontal straight line at the market price.

e.

downward sloping.

7.Economists assume that firms seek to:

a.

maximize accounting profit.

b.

maximize economic profit.

c.

maximize total revenue.

d.

earn normal profit.

e.

maximize cost.

8.Marginal revenue is defined as:

a.

total revenue divided by quantity.

b.

total revenue minus total cost.

c.

the change in total revenue divided by the change in quantity.

d.

the change in total revenue divided by quantity.

e.

the change in total revenue divided by the change in per unit price.

9.The slope of the total revenue curve for a perfectly competitive firm equals:

a.

marginal revenue.

b.

economic profit.

c.

accounting profit.

d.

average revenue.

e.

normal profit.

10._____ is the change in total cost from producing one more unit of the output.

a.

Marginal cost

b.

Variable cost

c.

Opportunity cost

d.

Average cost

e.

Fixed cost

11.For perfectly competitive firms, which of the following correctly shows the relationship among market price (P), average revenue (AR), and marginal revenue (MR)?

a.

Price = Average revenue (AR) = Marginal revenue (MR)

b.

Price > Average revenue (AR) = Marginal revenue (MR)

c.

Price = Average revenue AR > Marginal revenue (MR)

d.

Price = Average revenue (AR) < Marginal revenue (MR)

e.

Price < Average revenue (AR) = Marginal revenue (MR)

12.For a perfectly competitive firm, ____.

a.

price equals marginal revenue at all output levels

b.

price equals marginal revenue only at the profit-maximizing quantity

c.

price exceeds marginal revenue at all output levels

d.

price is less than marginal revenue only at the profit-maximizing quantity

e.

price is less than marginal revenue at all output levels

13.The figure given below shows the demand and the cost curves of a perfectly competitive firm. The market price equals_____.

a.

$28

b.

$12

c.

$40

d.

$20

e.

$24

14.The figure given below shows the demand and the cost curves of a perfectly competitive firm. Total revenue at the profit-maximizing output equals _____.

a.

$2,400

b.

$4,000

c.

$5,200

d.

$5,600

e.

$6,000

15.In the short run, if a firm shuts down, its loss is equal to:

a.

zero.

b.

its variable cost.

c.

its fixed cost.

d.

its fixed cost minus its variable cost.

e.

its fixed cost minus total revenue.

16.For a perfectly competitive firm operating at the profit-maximizing output level in the short run, _____.

a.

marginal revenue equals total revenue

b.

marginal cost equals price

c.

marginal cost equals average total cost

d.

marginal cost equals average variable cost

e.

average fixed cost equals price

17.The long-run supply curve for a constant-cost perfectly competitive industry is _____.

a.

a ray from the origin at a 45-degree angle

b.

perfectly inelastic

c.

relatively inelastic

d.

perfectly elastic

e.

downward sloping

18.The long-run market supply curve for an increasing-cost, perfectly competitive industry _____.

a.

is horizontal

b.

slopes upward

c.

is backward bending

d.

slopes downward

e.

is vertical

19.The term productive efficiency refers to:

a.

the short-run equilibrium for a competitive firm.

b.

the production of all goods and services that consumers want.

c.

the production of a good at the lowest long-run average cost.

d.

the equality between average total and average variable cost.

e.

satisfying the condition of equality between marginal cost and marginal revenue.

20.To achieve allocative efficiency, firms:

a.

strive to minimize their fixed costs.

b.

strive to maximize their profits.

c.

produce at their minimum long-run average cost.

d.

produce at their minimum long-run marginal cost.

e.

produce the output consumers value most.

21.The combination of producer and consumer surplus shows the:

a.

gains from voluntary exchange.

b.

maximum price that sellers can charge.

c.

maximum price that buyers are willing to pay for a good.

d.

minimum price below which sellers will not sell.

e.

minimum price buyers are willing to pay for a good.

22.Which of the following is true of social welfare?

a.

It is a government program through which society takes care of low-income people.

b.

It refers to the overall well-being of people in an economy.

c.

It is measured in terms of spending on social welfare programs.

d.

It applies to sociology, not economics.

e.

It solely depends on the income earned by people.

23.Identify a distinguishing feature of monopoly.

a.

There are no barriers to entry in a monopolized market.

b.

A monopolist is a price taker.

c.

There are no close substitutes for a monopolist's product.

d.

There are many firms in a monopolized industry.

e.

A monopolist faces a horizontal demand curve.

24.A monopolist's demand curve is:

a.

its marginal cost curve.

b.

its marginal revenue curve.

c.

identical to its market demand curve.

d.

the same as the demand curve faced by a firm in perfect competition.

e.

the same as its average cost curve.

25.According to the information provided in the table below, total revenue from selling 5 units is:

Table 9.1

Price ($)

Quantity Demanded

50

2

40

3

30

4

20

5

10

6

a.

$20.

b.

$140.

c.

$100.

d.

$10.

e.

$5.

26.According to the information provided in the table below, marginal revenue from the third unit of output is:

Table 9.1

Price ($)

Quantity Demanded

50

2

40

3

30

4

20

5

10

6

a.

$20.

b.

$120.

c.

$100.

d.

$40.

e.

$0.

27.The figure below shows the cost and revenue curves faced by a monopolist. At the profit-maximizing output level for the monopolist, _____.

a.

marginal revenue is zero

b.

marginal revenue is equal to marginal cost

c.

marginal cost is less than marginal revenue

d.

marginal cost is equal to average total cost

e.

price is equal to marginal cost

28.The figure below shows the cost and revenue curves faced by a monopolist. The profit-maximizing output and price for the monopolist are:

a.

117 units and $14, respectively.

b.

150 units and $22, respectively.

c.

150 units and $14, respectively.

d.

117 units and $22, respectively.

e.

117 units and $24, respectively.

29.The figure below shows a non-discriminating monopolist. The total revenue earned by the monopolist at the profit-maximizing output is _____.

a.

$2,574

b.

$2,808

c.

$2,100

d.

$1,638

e.

$3,300

30.The figure below shows the total cost and total revenue curves for a monopolist. The profit-maximizing output for the monopolist is:

a.

1 unit

b.

2 units

c.

3 units

d.

4 units

e.

5 units

31.A monopolist is likely to overcome a short-run economic loss in the long run by:

a.

allowing other firms to enter the market.

b.

employing lesser number of inputs.

c.

increasing the price of its output.

d.

advertising for its product.

e.

reducing its total output.

32.The figure below shows the cost and revenue curves for a monopolist. The deadweight loss arising under the monopoly is represented by the area:

a.

ecf.

b.

eda.

c.

dabc.

d.

dafc.

e.

abf.

33.The practice of charging different prices to different consumers for the same product is called:

a.

arbitration.

b.

unit pricing.

c.

price discrimination.

d.

predatory pricing.

e.

marginal cost pricing.

34.A monopolist that engages in perfect price discrimination:

a.

divides all buyers into two mutually exclusive groups.

b.

refuses to sell its output to consumers of rival brands.

c.

charges the same price for every unit sold.

d.

charges a different price for every unit sold.

e.

charges a high price to bulk consumers of its product.

35.The term "monopolistic competition":

a.

is an alternate expression for monopoly.

b.

is used to describe perfect competition that has strong entry barriers.

c.

denotes an industry characterized by one seller of many differentiated products.

d.

denotes an industry characterized by many sellers of homogeneous products.

e.

denotes an industry characterized by many sellers of differentiated products.

36.Monopolistically competitive industries consist of:

a.

one firm selling several products.

b.

one firm selling one product.

c.

many firms, all selling identical products.

d.

many firms, each selling a slightly different product.

e.

many firms, each selling a completely different product.

37.Monopolistically competitive firms _____.

a.

are price takers

b.

are price makers

c.

produce homogeneous products

d.

face high barriers to entry

e.

act interdependently

38.Figure 10.1 shows the demand, marginal revenue, and cost curves for a monopolistic competitor. The monopolistic competitor's profit-maximizing level of output is:

a.

75 units.

b.

100 units.

c.

125 units.

d.

150 units.

e.

137.5 units.

39.Figure 10.1 shows the demand, marginal revenue, and cost curves for a monopolistic competitor. The price that the monopolistic competitor will charge at the profit-maximizing level of output is _____.

a.

$2

b.

$4

c.

$8

d.

$9

e.

$10

40.Figure 10.1 shows the demand, marginal revenue, and cost curves for a monopolistic competitor. The monopolistic competitor's total economic profit at the profit-maximizing level of output is:

a.

$0.

b.

$4.

c.

$600.

d.

$6.

e.

$750.

41.Figure 10.3 shows the demand, marginal revenue, and cost curves for a monopolistic competitor. In the short run, the firm will _____.

a.

produce 10 units at a price of $36 per unit

b.

produce 10 units at a price of $24 per unit

c.

produce 10 units at a price of $40 per unit

d.

produce 15 units at a price of $32 per unit

e.

produce 15 units at a price of $24 per unit

42.A cartel is:

a.

a group of oligopolistic firms that engage in collusion.

b.

a group of monopolistically competitive firms that charge the same price.

c.

usually legal in the United States.

d.

an agreement among rival firms to set prices independently.

e.

illegal throughout the world.

43.Game theory focuses on:

a.

strategic behavior among interdependent firms.

b.

professional athletic events.

c.

competition between the players in board games.

d.

competition between those in the political arena and those in the market place.

e.

the interaction between firms in a competitive industry and those in a non-competitive industry.

44.The outcome of a game among oligopolists is dependent upon:

a.

the predicted response of competitors.

b.

the existence of a perfectly inelastic market demand curve.

c.

costs of production being constant.

d.

economies of scale in production.

e.

marginal revenue being equal to marginal cost.

45.The term "strategy" in terms of game theory refers to:

a.

the tendency of firms to earn zero economic profit in the long run.

b.

the tendency of firms in an oligopoly to exit the market in the long run.

c.

each firm's game plan for making decisions.

d.

each firm's decision to charge a higher price than the price charged by the rival firm in an industry.

e.

the tendency for collusive firms to generate normal profits.

46.A payoff matrix is a list that shows:

a.

the price of each good a firm sells.

b.

the rewards and penalties associated with pursuing various strategies.

c.

the cost of production incurred by each firm in an industry.

d.

the quantity of resources owned by each firm in an industry.

e.

the revenue earned by each firm in an industry.

47.The dominant-strategy equilibrium in a game implies that each firm:

a.

ignores the reactions of competitors.

b.

colludes with competitors to maximize industry profits.

c.

ignores the decisions of the other firms.

d.

takes all potential bits of information into consideration before making a decision.

e.

selects the optimal solution to a game.

48.As the price of a resource increases, _____.

a.

the supply of that resource increases in the resource market

b.

the supply of that resource decreases in the resource market

c.

resources shift from lower-paid uses to higher-paid uses

d.

resources shift from higher-paid uses to lower-paid uses

e.

the demand for the final product decreases

50.A temporary price differential in resource markets is:

a.

caused by inherent differences in nonmonetary aspects of a job.

b.

caused by a failure of firms to maximize profits.

c.

eliminated by resources moving from lower-valued to higher-valued uses.

d.

caused by governments increasing the minimum wages of workers.

e.

eliminated when resources earn an excess of their opportunity costs.