CHOICE. Exam
Name___________________________________
MULTIPLE Choose the one alternative that best completes the statement or answers the question.
1) An ice cream seller raises the price of its ice cream by 12 percent and observes that the quantity
demanded of ice cream just falls by only 7 percent. What can we say about the ice cream
producer?
A) The ice cream seller can not have any impact on the quantity of ice cream sold in the market.
B) The ice cream seller decreases its marginal cost.
C) The ice cream seller has some market power.
D) The ice cream seller increases its total cost.
E) The ice cream seller has some output power.
1)
2) A natural monopoly exists when
A) the government protects the firm by granting an exclusive franchise.
B) production can take place with constant returns to scale.
C) there are no rivals in the market.
D) the average total cost curve is upward sloping.
E) one firm can supply the entire market at a lower cost than two or more firms.
2)
3) The ________ substitutes for a good, the ________ a monopolist has market power to set the
market price of the good.
A) less; more
B) more; same
C) less; less
D) more; less
E) more; more
3)
4) Which one of the following is an example of a possible natural barrier to entry of new firms into an
industry?
A) licensing of professions
B) issuing a patent
C) economies of scale
D) a public franchise
E) all of the above
4)
1
Use the figure below to answer the following question(s).
Figure 12.5
5) Refer to Figure 12.5 At the profit maximum point for a single - price monopoly , output is ________
units per day and the price is $________ per unit.
A) 20; 75
B) 40; 50
C) zero; 0
D) 20; 20
E) 20; 50
5)
6) An activity with the purpose of creating a monopoly is
A) costless.
B) illegal in Canada.
C) called price discrimination.
D) called rent seeking.
E) called legal monopoly.
6)
2
Use the figure below to answer the following question(s).
Figure 12.7
7) Consider the industry demand curve in Figure 12.7. If the industry operates under perfect
competition, which area in the diagram indicates consumer surplus?
A) dih
B) aek
C) dik
D) dhk
E) none of the above
7)
8) Consider the industry demand curve in Figure 12.7. If this is a single - price monopoly, what is the
gain in producer surplus compared to the perfectly competitive case?
A) eabh - bcd
B) eadh
C) abd
D) eabh
E) acd
8)
9) Consider Figure 12.7. If the industry is operated by a perfect price - discriminating monopolist,
what area is producer surplus?
A) khd
B) kea
C) ieac
D) kid
E) ihd
9)
10) Zero economic profit in monopolistically competitive industries can be caused by
A) failure to accept worthwhile risks.
B) barriers to entry.
C) the lack of significant barriers to the entry of rival firms.
D) the fact that they must pay for expensive advertisements on television if their rivals do the
same.
E) the existence of excess capacity.
10)
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11) One factor that distinguishes a monopoly from monopolistic competition is that
A) no barriers to exit exist in the former market structure.
B) substitute goods are not available in the former market structure, but they are available in the
latter market structure.
C) firms are price- takers in the former market structure, but they are price - setters in the latter
market structure
D) no barriers to entry exist in the former market structure.
E) products are more homogenous in the former market structure than in the latter market
structure.
11)
12) A monopolistically competitive firm is able to influence the price of what it sells because of
A) economies of scale.
B) inelastic demand.
C) the fact there are many buyers.
D) barriers to entry.
E) product differentiation.
12)
13) In monopolistic competition, firms
A) face a kinked demand curve.
B) have an element of monopoly power.
C) strategically interact with other firms.
D) can collude.
E) do all of the above.
13)
Use the figure below to answer the following question(s).
Figure 13.1
14) Refer to Figure 13.1. If this firm is in monopolistic competition, it will produce an output level
A) that is lower than 40 units.
B) that is impossible to determine without information concerning the rival firms.
C) of 40 units.
D) of 60 units.
E) of 80 units.
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14)
15) What will happen in the long run if firms monopolistic competition incur losses?
A) Firms will leave the industry until the remaining firms earn normal profit.
B) Firms will leave the industry until the remaining firms earn positive economic profits.
C) Firms will continue producing and endure the lossess.
D) Firms will ask the governmenr for financial aid.
E) The level of investment in this industry will increase to boost the economy.
15)
16) For a monopolistically competitive in firm long - run equilibrium,
A) MC = ATC.
B) MC = AR but ATC > AR.
C) P = MC.
D) AR = ATC but P > MC.
E) none of the above are true.
16)
17) A form of market structure in which a few firms are able to influence market price is
A) perfect competition.
B) oligopoly.
C) monopolistic competition.
D) monopoly.
E) duopoly.
17)
18) The kinked demand curve model
A) assumes that competitors will match price cuts and ignore price increases.
B) suggests that price will remain constant even with fluctuations in demand.
C) suggests how the current price is determined.
D) assumes that marginal revenue sometimes increases with output.
E) is none of the above.
18)
19) According to the kinked demand curve theory of oligopoly, at the quantity corresponding to the
kink, the firm's
A) marginal cost curve is discontinuous.
B) price is indeterminate.
C) marginal revenue curve is discontinuous.
D) average revenue curve is discontinuous.
E) average cost curve is discontinuous.
19)
20) In the dominant firm model of oligopoly, the dominant firm produces the quantity where its
marginal revenue equals
A) average revenue.
B) its average cost.
C) the price of the product.
D) zero.
E) its marginal cost.
20)
5
Use the table below to answer the following question(s).
Table 13.1
Bob
Don't
Confess
B: 20 years
J: 1 year
Don't
B: 1 year
Confess J: 20 years
Joe
Confess
Confess B: 10 years
J: 10 years
B: Go free
J: Go free
21) Refer to Table 13.1. This table includes the sentences that Bob and Joe will receive if convicted.
They have been apprehended by the police under the suspicion of committing armed robbery. The
two are immediately separated and questioned about the case. Which one of the following
observations is correct?
A) Both Bob and Joe would be better off "coming clean" and confessing to their crime.
B) Bob would be smart to confess no matter what Joe does.
C) Joe would be smart not to confess no matter what Bob does.
D) Both Bob and Joe would be better off not confessing if they both do not confess.
E) Both Bob and Joe have a dominant strategy of not confessing.
21)
22) A Nash equilibrium occurs when
A) each player takes the best possible action given the other player's action.
B) each player complies with the collusive agreement.
C) you cooperate until the other player cheats, and then you cheat forever.
D) there is a clear strategy for each player independent of the other player's actions.
E) none of the above.
22)
23) A dominant strategy equilibrium occurs when
A) each player complies with the collusive agreement.
B) you cooperate until the other player cheats, and then you cheat forever.
C) each player takes the best possible action given the other player's action.
D) there is a clear strategy for each player independent of the other player's actions.
E) none of the above.
23)
24) There exists an incentive to cheat on a collusive agreement as long as
A) price exceeds marginal cost.
B) price equals average revenue.
C) price equals marginal cost.
D) price is above minimum average total cost.
E) none of the above.
24)
25) In the game of chicken
A) the best strategy is for only one player to chicken and for the other player to hang tough.
B) no solution can be found.
C) the best strategy for each player is to accept, irrespective of the other player.
D) no dominant strategy can be found.
E) the best strategy for each player is to deny, irrespective of the other player.
25)
6
Use the figure below to answer the following question(s).
Figure 13.1
26) Refer to Figure 13.1. If this firm is in monopolistic competition, then it will charge a price
A) of $30.
B) of $50.
C) of $40.
D) of $20.
E) that is impossible to determine without information concerning the behaviour of the rival
firms.
26)
27) Refer to Figure 13.1. This firm in monopolistic competition will earn
A) zero economic profit.
B) either a zero or a positive profit.
C) negative economic profit.
D) economic profit that is impossible to determine without information concerning the
behaviour of the rival firms.
E) positive economic profit.
27)
28) For a natural monopoly, the average total cost curve
A) increases in the relevant range of output levels.
B) declines in the relevant range of output levels.
C) is less than the marginal cost curve.
D) is constant in the relevant range of output levels.
E) may be either increasing or decreasing in the relevant range of output levels.
28)
29) Barriers to entry characterize markets
A) that set price equal to minimum average variable cost.
B) with many buyers, making it difficult for new firms to enter.
C) that are perfectly competitive.
D) in which economic profit must be zero.
E) that may be dominated by a monopoly.
29)
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