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Practice Test 2 ECO2071 Microeconomics Dr. Jones 1 Practice for Test 2 Multiple Choice Identify the choice that best completes the statement or answers the question. Fill in the appropriate box on the answer sheet; do not check or x the box. 1. One difference between a perfectly competitive firm and a monopoly is that a perfectly competitive firm produces where a. marginal cost equals price, while a monopolist produces where price exceeds marginal cost. b. marginal cost equals price, while a monopolist produces where marginal cost exceeds price. c. price exceeds marginal cost, while a monopolist produces where marginal cost equals price. d. marginal cost exceeds price, while a monopolist produces where marginal cost equals price. 2. Which of the following are necessary characteristics of a monopoly? (i) The firm is the sole seller of its product. (ii) The firm's product does not have close substitutes. (iii) The firm generates a large economic profit. (iv) The firm is located in a small geographic market. a. (i) and (ii) only b. (i) and (iii) only c. (i), (ii), and (iii) only d. (i), (ii), (iii), and (iv) 3. Which of the following is an example of a barrier to entry? (i) A key resource is owned by a single firm. (ii) The costs of production make a single producer more efficient than a large number of producers. (iii) The government has given the existing monopolist the exclusive right to produce the good. a. (i) and (ii) only b. (ii) and (iii) only c. (i) only d. (i), (ii), and (iii) 4. Which of the following is a characteristic of a natural monopoly? a. Marginal cost declines over large regions of output. b. Average total cost declines over large regions of output. c. The product sold is a natural resource such as diamonds or water. d. All of the above are correct. 2 Figure 15-1 5. Refer to Figure 15-1 . The shape of the average total cost curve reveals information about the nature of the barrier to entry that might exist in a monopoly market. Which of the following monopoly types best coincides with the figure? a. ownership of a key resource by a single firm b. natural monopoly c. government-created monopoly d. a patent or copyright monopoly 6. Refer to Figure 15-1. Considering the relationship between average total cost and marginal cost, the marginal cost curve for this firm a. must lie entirely above the average total cost curve. b. must lie entirely below the average total cost curve. c. must be upward sloping. d. does not exist. 3 Figure 15-2 7. Refer to Figure 15-2. Which of the following statements is correct? a. Panel C represents the typical demand curve for a perfectly competitive firm, and Panel B represents the typical demand curve for a monopoly.... View Full Document

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