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Economics Test I

30 Questions
Economics Quizzes & Trivia

Microeconomics multiple choice quiz.

Questions and Answers
  • 1. 
    Which of the following is correct
    • A. 

      Both purely competitive and monopolistic firms are "price takers."

    • B. 

      Both purely competitive and monopolistic firms are "price makers."

    • C. 

      A purely competitive firm is a "price taker," while a monopolist is a "price maker."

    • D. 

      A purely competitive firm is a "price maker," while a monopolist is a "price taker."

  • 2. 
    Barriers to entering an industry: 
    • A. 

      Are justified because they result in allocative efficiency.

    • B. 

      Are justified because they result in productive efficiency.

    • C. 

      Are the basis for monopoly.

    • D. 

      Apply only to purely monopolistic industries.

  • 3. 
    The nondiscriminating pure monopolist's demand curve
    • A. 

      Is the industry demand curve

    • B. 

      Shows a direct or positive relationship between price and quantity demanded.

    • C. 

      Tends to be inelastic at high prices and elastic at low prices.

    • D. 

      Is identical to its marginal revenue curve.

  • 4. 
    A monopolistic firm has a sales schedule such that it can sell 10 prefabricated garages per week at $10,000 each, but if it restricts its output to 9 per week it can sell these at $11,000 each. The marginal revenue of the tenth unit of sales per week is: 
    • A. 

      -$1,000

    • B. 

      $9,000

    • C. 

      $10,000

    • D. 

      $1,000

  • 5. 
    The pure monopolist's demand curve is: 
    • A. 

      Identical with the industry demand curve

    • B. 

      Of unit elasticity throughout

    • C. 

      Perfectly inelastic

    • D. 

      Perfectly elastic

  • 6. 
    The marginal revenue curve for a monopolist: 
    • A. 

      Is a straight, upward sloping curve.

    • B. 

      Rises at first, reaches a maximum, and then declines.

    • C. 

      Becomes negative when output increases beyond some particular level.

    • D. 

      Is a straight line, parallel to the horizontal axis.

  • 7. 
    When the pure monopolist's demand curve is elastic, marginal revenue: 
    • A. 

      May be either positive or negative.

    • B. 

      Is zero.

    • C. 

      Is negative.

    • D. 

      Is positive.

  • 8. 
    If a pure monopolist is operating in a range of output where demand is elastic:
    • A. 

      It cannot possibly be maximizing profits.

    • B. 

      Marginal revenue will be positive but declining.

    • C. 

      Marginal revenue will be positive and rising.

    • D. 

      Total revenue will be decling.

  • 9. 
    A pure monopolist is selling 6 units at a price of $12. If the marginal revenue of the seventh unit is $5, then:
    • A. 

      Price of the seventh unit is $10.

    • B. 

      Price of the seventh unit is $11.

    • C. 

      Price of the seventh unit is greater than $12.

    • D. 

      Firm's demand curve is perfectly elastic.

  • 10. 
    The MR = MC rule:
    • A. 

      Applies only to pure competition.

    • B. 

      Applies only to pure monopoly.

    • C. 

      Does not apply to pure monopoly because price exceeds marginal revenue.

    • D. 

      Applies both to pure monopoly and pure competition.

  • 11. 
    Refer to the data for a nondiscriminating monopolist. This firm will maximize its profit by producing:  Total                     Marginal      Average           MarginalOutput     Price      Revenue      Total Cost       Cost      1             100        100             100.00            302             90          80               63.00              263             80          60               52.67              324             70          40               49.50              405             60          20               49.60              506             50            0               50.00              527             40         -20               52.29              668             30         -40               55.75              809             20         -60               60.67              10010           10         -80               67.60              130
    • A. 

      3 units.

    • B. 

      4 units.

    • C. 

      5 units.

    • D. 

      6 units.

  • 12. 
    Which of the following statements is incorrect
    • A. 

      A monopolist's 100 percent market share ensures economic profits.

    • B. 

      The monopolist's marginal revenue is less than price for any given output greater than

    • C. 

      A monopolistic firm produces a product having no close substitutes.

    • D. 

      A pure monopolist's demand curve is the industry demand curve.

  • 13. 
          Demand Data                            Cost DataPrice    Qty Demanded           Output       Total Output5.50              3                         3                  5.005.00              4                         4                  6.004.50              5                         5                  6.503.85              6                         6                  7.503.35              7                         7                  9.002.90              8                         8                  11.002.50              9                         9                  14.00Refer to the above data. The profit-maximizing price for the monopolist will be:   
    • A. 

      $5.00

    • B. 

      $2.90

    • C. 

      $3.35

    • D. 

      $3.50

  • 14. 
    In the short run a pure monopolist's profit: 
    • A. 

      Will be maximized where price equals average total cost.

    • B. 

      May be positive, zero, or negative.

    • C. 

      Are always positive.

    • D. 

      . will be zero.

  • 15. 
    Monopolistic competition means:
    • A. 

      A market situation where competition is based entirely on product differentiation and advertising.

    • B. 

      A large number of firms producing a standardized or homogeneous product.

    • C. 

      Many firms producing differentiated products.

    • D. 

      A few firms producing a standardized or homogeneous product.

  • 16. 
    Which of the following is not characteristic of monopolistic competition? 
    • A. 

      Relatively large numbers of sellers

    • B. 

      Production at minimum ATC in the long-run

    • C. 

      Product differentiation

    • D. 

      Relatively easy entry to the industry

  • 17. 
    A monopolistically competitive industry combines elements of both competition and monopoly. It is correct to say that the competitive element results from: 
    • A. 

      A relatively large number of firms and the monopolistic element from product differentiation.

    • B. 

      Product differentiation and the monopolistic element from high entry barriers.

    • C. 

      A perfectly elastic demand curve and the monopolistic element from low entry barriers.

    • D. 

      A highly inelastic demand curve and the monopolistic element from advertising and product promotion.

  • 18. 
    The price elasticity of a monopolistically competitive firm's demand curve varies: 
    • A. 

      Inversely with the number of competitors and the degree of product differentiation.

    • B. 

      Directly with the number of competitors and the degree of product differentiation.

    • C. 

      Directly with the number of competitors, but inversely with the degree of product differentiation.

    • D. 

      Inversely with the number of competitors, but directly with the degree of product differentiation.

  • 19. 
    In the short run a monopolistically competitive firm's economic profit: 
    • A. 

      Will be maximized where price equals average total cost

    • B. 

      May be positive, zero, or negative.

    • C. 

      Are always positive.

    • D. 

      Will always be zero.

  • 20. 
    Which of the following is not characteristic of long-run equilibrium under monopolistic competition? 
    • A. 

      Price equals minimum average total cost

    • B. 

      Marginal cost equals marginal revenue

    • C. 

      Price is equal to average total cost

    • D. 

      Price exceeds marginal cost

  • 21. 
    In the long run, new firms will enter a monopolistically competitive industry: 
    • A. 

      Provided economies of scale are being realized.

    • B. 

      Even though losses are incurred in the short run

    • C. 

      Until minimum average total cost is achieved.

    • D. 

      Until economic profits are zero

  • 22. 
           Demand Data                    Cost Data(1)          (2)         (3)Price    Price      Qty         Output        Total Cost11.00   10.00        6             6                     61                           9.99      8.85        7              7                    629.00      8.00        8              8                    648.00      7.00        9              9                    677.10      6.10       10            10                   726.00      5.00       11            11                   795.15      4.15       12            12                   86 Refer to the above data. If columns (1) and (3) of the demand data shown above are this firm's demand schedule, the profit-maximizing level of output will be: 
    • A. 

      12 Units

    • B. 

      8 Units

    • C. 

      10 Units

    • D. 

      9 Units

  • 23. 
    An important similarity between a monopolistically competitive firm and a purely competitive firm is that:
    • A. 

      Both face perfectly elastic demand schedules.

    • B. 

      Economic profit tends toward zero for both.

    • C. 

      Both realize productive efficiency

    • D. 

      Both realize allocative efficiency.

  • 24. 
    The economic inefficiencies of monopolistic competition may be offset by the fact that: 
    • A. 

      Advertising expenditures shift the average cost curve upward

    • B. 

      Available capacity is fully utilized.

    • C. 

      Resources are optimally allocated to the production of the product

    • D. 

      Consumers have a number of variations of the product from which to choose.

  • 25. 
    The mutual interdependence that characterizes oligopoly arises because: 
    • A. 

      The products of various firms are homogeneous.

    • B. 

      The products of various firms are differentiated.

    • C. 

      A small number of firms produce a large proportion of industry output.

    • D. 

      The demand curves of firms are kinked at the prevailing price.

  • 26. 
    Prices are likely to be least flexible: 
    • A. 

      In oligopoly.

    • B. 

      In monopolistic competition.

    • C. 

      Where product demand is inelastic.

    • D. 

      In pure competition.

  • 27. 
    An industry having a four-firm concentration ratio of 85 percent: 
    • A. 

      Approximates pure competition.

    • B. 

      Is monopolistically competitive.

    • C. 

      Is a pure monopoly.

    • D. 

      Is an oligopoly.

  • 28. 
    Suppose the Herfindahl Indexes for industries A, B, and C are 1,200, 5,000, and 7,500 respectively. These data imply that: 
    • A. 

      Market power is greatest in industry A.

    • B. 

      Market power is greatest in industry B.

    • C. 

      Market power is greatest in industry C.

    • D. 

      Industry A is more monopolistic than industry C.

  • 29. 
    Oligopolistic firms engage in collusion to: 
    • A. 

      Minimize unit costs of production.

    • B. 

      Realize allocative efficiency, that is, the P = MC level of output.

    • C. 

      Earn greater profits.

    • D. 

      Increase production.

  • 30. 
    A pure monopolist: 
    • A. 

      Will realize an economic profit if price exceeds ATC at the profit-maximizing/loss-minimizing level of output.

    • B. 

      Will realize an economic profit if ATC exceeds MR at the profit-maximizing/loss-minimizing level of output.

    • C. 

      Will realize an economic loss if MC intersects the downsloping portion of MR.

    • D. 

      Always realizes an economic profit.