# Economics Test I

30 Questions  I  By Lynz143
Microeconomics multiple choice quiz.

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## 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.
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