Deck 5: Competition and Monopoly: Virtues and Vices

Question 1

A perfectly competitive firm is a price maker and a monopolist is a price taker.

Answer 1

False

Question 2

A perfectly competitive market is characterized by insignificant barriers to entry or exit, many sellers and buyers, a standardized product produced by firms in the market, and perfect information among sellers and buyers.

Answer 2

True

Question 3

Agricultural and fishing industries provide approximations of perfect competition.

Answer 3

True

Question 4

Marginal revenue represents the increase in total revenue resulting from the sale of another unit of output.

Question 5

The graph of the total revenue schedule of a perfectly competitive firm is a downward-sloping curve because the firm sells additional units of output at a falling price.

Question 6

A perfectly competitive firm maximizes profit per unit by producing and selling that output where marginal revenue equals marginal cost.

Question 7

If price falls below average total cost, a firm will always temporarily shut down until the price rises.

Question 8

If total revenue exceeds total variable cost, a firm should continue to produce in the short run because all of its variable costs and some or all of its fixed costs can be paid out of revenue.

Question 9

The short-run supply curve of a perfectly competitive firm is the segment of its marginal cost curve that lies above the average total cost curve.

Question 10

Because of easy entry into and exit from a market, perfectly competitive firms operate at the lowest possible cost, charge the lowest price that they can without going out of business, and earn no economic profit in the long run.

Question 11

If economic profits are being earned in a perfectly competitive market, new firms will enter the market in the long run. Therefore, the market supply curve will shift leftward and the market price will increase.

Question 12

If economic losses are being earned in a perfectly competitive industry, some firms will exit the market in the long run. Therefore, the market demand curve will shift rightward and the market price will increase.

Question 13

A monopoly is a market structure characterized by a single supplier of a good or service for which there are many substitutes.

Question 14

The development of e-mail and fax machines has reinforced the U.S. Postal Service's monopoly of first-class letter mail.

Question 15

Barriers to entry include patents, copyrights, control over essential inputs, and economies of scale.

Question 16

If government regulators broke up a natural monopoly into several competing firms, average costs of production would decrease.

Question 17

DeBeers, a producer of diamonds, is an example of a perfectly competitive firm.

Question 18

A monopoly will always charge the highest price that consumers will bear and thus realize an economic profit.

Question 19

Similar to a perfectly competitive firm, if a monopolist can charge a price that exceeds average variable cost, it will minimize short-run losses by producing where marginal revenue equals marginal cost rather than shutting down.

Question 20

Low barriers to entry provide a monopoly with the opportunity to realize continuing economic profits in the long run.

Question 21

Given identical cost conditions, a monopolist will charge a higher price and earn higher profits than would occur if the market had been perfectly competitive.

Question 22

Federal law prohibits any carrier, other than the U.S. Postal Service, from delivering first-class letter mail.

Question 23

Because a perfectly competitive firm supplies a negligible share of the market output, it has to take or accept the price that is determined in the market.

Question 24

A perfectly competitive firm differs from a monopoly in that the perfectly competitive firm's demand curve and marginal revenue curve are downward sloping rather than horizontal.

Question 25

Like a perfectly competitive firm, a monopoly will maximize total profits by operating where marginal revenue equals marginal cost, provided that price exceeds average variable cost.

Question 26

From the early 1900's until the end of World War II, Alcoa monopolized the aluminum market in the U.S.

Question 27

Monopolistic competition is closer to perfect competition than it is to monopoly.

Question 28

Perfect competition is quite rare in the United States.

Question 29

All firms in all market structures produce where price equals marginal cost.

Question 30

One can find total profit by taking price minus average total cost (P-ATC) and then multiplying by output.

Question 31

Cable companies and satellite broadcasters have both been able to attract many new customers by offering video, telephone, and high-speed Internet access.

Question 32

Vouchers are based on the idea that parents should be able to choose the private or public schools they wish their children to attend.

Question 33

All of the following are characteristics of a perfectly competitive market except

A) there are no barriers preventing new firms from entering a market
B) each firm produces a standardized product
C) there is a relatively small number of firms in the market
D) each firm is a price taker rather than a price maker

Question 34

At the point of long-run equilibrium for a perfectly competitive firm, price

A) equals minimum average total cost, which allows just a normal profit
B) exceeds minimum average total cost, which allows an economic profit
C) lies below minimum average variable cost and the firm shuts down
D) lies below minimum average total cost and the firm shuts down

Question 35

As a price taker, a perfectly competitive firm

A) can realize only economic profits but not economic losses
B) must increase its price if it desires to sell additional units of output
C) must decrease its price if it desires to sell additional units of output
D) must accept the price that is set by the market

Question 36

In a perfectly competitive market,

A) advertising is widely used to influence demand and price
B) firms are price takers rather than price makers
C) firms produce a small number of differentiated products
D) buyers and sellers have only partial information about market opportunities

Question 37

A firm that faces a horizontal demand curve for its product

A) will always produce that output where average total cost is at a minimum
B) will always produce that output where average total cost is at a maximum
C) is a price maker rather than a price taker
D) is a price taker rather than a price maker

Question 38

A perfectly competitive firm's short-run supply curve is the segment of the marginal cost curve lying

A) below average fixed cost
B) below average total cost
C) above average variable cost
D) above average total cost

Question 39

A perfectly competitive firm will maximize total profit when

A) total revenue is at a maximum
B) total cost is at a minimum
C) total revenue exceeds total cost by the greatest amount
D) average total cost exceeds average variable cost by the greatest amount

Question 40

Because of easy entry into and exit from a market, in long-run equilibrium perfectly competitive firms

A) operate at higher cost levels than necessary
B) charge the highest price than they can because of differentiated products
C) are making losses
D) earn no economic profit

Question 41

A perfectly competitive firm will maximize profits at that output level where marginal revenue equals

A) marginal cost and price exceeds minimum average variable cost
B) marginal cost and minimum average variable cost exceeds price
C) average total cost and price exceeds minimum average variable cost
D) average variable cost and price exceeds minimum average fixed cost

Question 42

Perfect competition is not characterized by

A) sizable barriers preventing new firms from entering the market
B) a large number of sellers and buyers in the market
C) all sellers and buyers being fully aware of market opportunities
D) firms producing a standardized product

Question 43

If a perfectly competitive firm produces that output level where average total cost equals price, the firm realizes

A) economic losses
B) economic profits
C) monopoly profits
D) normal profits

Question 44

In long-run equilibrium, a perfectly competitive firm makes a(n)

A) economic profit
B) accounting profit
C) implicit profit
D) normal profit

Question 45

A perfectly competitive firm has a demand curve that is

A) horizontal
B) vertical
C) downward sloping
D) upward sloping

Question 46

For a perfectly competitive firm, price is always identical to

A) marginal cost
B) marginal revenue
C) total revenue
D) average total cost

Question 47

If marginal cost exceeds marginal revenue for a perfectly competitive firm, it can maximize total profits by

A) increasing price
B) decreasing price
C) increasing output
D) decreasing output

Question 48

If marginal revenue exceeds marginal cost for a perfectly competitive firm, the firm will maximize total profits by

A) increasing price
B) decreasing price
C) increasing output
D) decreasing output

Question 49

If price is below minimum average variable cost, a profit-maximizing perfectly competitive firm will

A) produce output only in the short run
B) produce output only in the long run
C) produce output in the short run and the long run
D) shut down and produce no output

Question 50

If losses are being realized in a perfectly competitive industry, some firms will exit. This will shift the industry

A) demand curve rightward and result in a higher price
B) demand curve rightward and result in a lower price
C) supply curve rightward and result in a lower price
D) supply curve leftward and result in a higher price

Question 51

If economic profits are being realized in a perfectly competitive industry, some firms will enter. This will shift the industry

A) demand curve rightward and result in a higher price
B) demand curve rightward and result in a lower price
C) supply curve rightward and result in a lower price
D) supply curve leftward and result in a higher price

Question 52

Which of these markets best represents a perfectly competitive market?

A) fishing
B) steel
C) jet airplanes
D) automobiles

Question 53

Figure 5.1 Cost and Demand Conditions of a Perfectly Competitive Firm


-Refer to Figure 5.1. The firm will realize economic profits by producing and selling any output

A) less than 15 units
B) greater than 85 units
C) between 15 units and 85 units
D) between 30 units and 75 units

Question 54

Figure 5.1 Cost and Demand Conditions of a Perfectly Competitive Firm


-Refer to Figure 5.1. The firm will realize economic losses by producing and selling any output

A) less than 30 units or more than 75 units
B) between 30 units and 40 units
C) between 30 units and 60 units
D) between 60 units and 75 units

Question 55

Figure 5.1 Cost and Demand Conditions of a Perfectly Competitive Firm


-Refer to Figure 5.1. The firm will maximize total economic profits by producing

A) 40 units
B) 50 units
C) 60 units
D) 75 units

Question 56

Figure 5.1 Cost and Demand Conditions of a Perfectly Competitive Firm


-Refer to Figure 5.1. At the profit-maximizing output, the firm's total fixed costs are

A) $700
B) $900
C) $1,000
D) $1,200

Question 57

Figure 5.1 Cost and Demand Conditions of a Perfectly Competitive Firm


-Refer to Figure 5.1. At the profit-maximizing output, the firm's total revenue equals

A) $2,400
B) $3,000
C) $3,600
D) $4,200

Question 58

Figure 5.1 Cost and Demand Conditions of a Perfectly Competitive Firm


-Refer to Figure 5.1. At the profit-maximizing output, the firm's total costs equal

A) $2,200
B) $2,600
C) $3,000
D) $3,400

Question 59

Figure 5.1 Cost and Demand Conditions of a Perfectly Competitive Firm


-Refer to Figure 5.1. At the profit-maximizing output, the firm's total profits equal

A) $400
B) $600
C) $800
D) $1,000

Question 60

Figure 5.1 Cost and Demand Conditions of a Perfectly Competitive Firm


-Refer to Figure 5.1. If the firm's price falls to $35, it will

A) produce 50 units and realize a profit
B) produce 50 units and break even
C) produce 45 units and realize a loss
D) shut down

Question 61

Figure 5.1 Cost and Demand Conditions of a Perfectly Competitive Firm


-Refer to Figure 5.1. If the firm's price falls to $20, it will

A) shut down
B) produce 20 units and realize a loss
C) produce 50 units and break even
D) produce 60 units and realize a profit

Question 62

A firm makes a normal profit whenever

A) marginal cost equals marginal revenue
B) average total cost equals average variable cost
C) price equals average total cost
D) total revenue equals total variable cost

Question 63

Barriers to entry in a market include all of the following except

A) a horizontal demand curve
B) exclusive government franchises
C) economies of large-scale production
D) control over essential resources

Question 64

Monopoly power is the ability of a firm to

A) have full information of market opportunities
B) produce the output level where average total cost is a minimum
C) influence price in a market by producing more or less
D) produce and sell the type of product that the consumer wants

Question 65

A firm that has monopoly power is a

A) loss leader
B) price leader
C) price taker
D) price maker

Question 66

The U.S. Postal Service has a legal monopoly created by

A) patents granted to the U.S. Postal Service on mail-delivery technologies
B) copyrights granted to the U.S. Postal Service on federal documents
C) an exclusive franchise on the delivery of small- and medium-sized packages
D) an exclusive franchise on the delivery of first-class letter mail

Question 67

A monopolist's demand curve is

A) the industry's demand curve
B) horizontal because the firm is a price taker
C) horizontal because the firm is a price maker
D) vertical because the firm is a price maker

Question 68

If a monopolist produces at that output level where marginal cost exceeds marginal revenue, to maximize profits the firm should

A) increase output and increase price
B) decrease output and increase price
C) increase output and decrease price
D) decrease output and decrease price

Question 69

If a monopolist produces at that output level where marginal revenue exceeds marginal cost, to maximize profits the firm should

A) increase output and increase price
B) decrease output and increase price
C) increase output and decrease price
D) decrease output and decrease price

Question 70

The total revenue for a perfectly competitive firm is a(n)

A) upward-sloping straight line
B) horizontal line
C) upward-sloping curve that increases at a decreasing rate
D) upward-sloping curve that increases at an increasing rate

Question 71

Which of the following would best be classified as a monopoly?

A) General Motors in the automobile industry
B) Pizza Hut in the pizza industry
C) DeBeers in the diamond industry
D) Bethlehem Steel in the steel industry

Question 72

Given identical cost conditions, a monopolist is likely to charge a

A) higher price and earn higher profits than a competitive industry
B) higher price and earn lower profits than a competitive industry
C) lower price and earn higher profits than a competitive industry
D) lower price and earn lower profits than a competitive industry

Question 73

Figure 5.2 Cost and Demand Conditions of a Monopolist


-Refer to Figure 5.2. The profit-maximizing level of output for the monopoly is

A) zero units-the firm should shut down
B) 40 units
C) 45 units
D) 65 units

Question 74

Figure 5.2 Cost and Demand Conditions of a Monopolist


-Refer to Figure 5.2. The profit-maximizing price for the monopoly is

A) $30
B) $40
C) $60
D) $70

Question 75

Figure 5.2 Cost and Demand Conditions of a Monopolist


-Refer to Figure 5.2. At the profit-maximizing output, the monopolist's total revenue equals

A) $1,600
B) $1,900
C) $2,450
D) $3,150

Question 76

Figure 5.2 Cost and Demand Conditions of a Monopolist


-Refer to Figure 5.2. At the profit-maximizing output, the monopolist's total cost equals

A) $1,800
B) $2,150
C) $2,400
D) $2,650

Question 77

Figure 5.2 Cost and Demand Conditions of a Monopolist


-Refer to Figure 5.2. If the monopoly maximizes profit, total profit will equal

A) $950
B) $1,150
C) $1,350
D) $1,550

Question 78

What currency paper company has operated as a monopoly for more than 100 years due to strong barriers to entry?

A) Kodak
B) Bureau of Engraving and Printing
C) DeBeers
D) Crane

Question 79

Alcoa was able to monopolize the U.S. aluminum industry from the early 1990s to the end of World War II because it

A) advertised heavily for households to use aluminum foil
B) was given the sole right to produce aaluminum by the U.S. government
C) owned most of the bauxite mines in the world
D) also owned powerful banks

Question 80

An auction of the U.S. Postal Service (USPS) to an owner who would operate it for profit would

A) be a form of privatization
B) have no potential buyers
C) be supported by current USPS employees
D) reduce public demands for regulation