Deck 9: Imperfect Competition and Monopoly

Question 1

In the situation of imperfect competition, the relation between market price P and marginal revenue MR for each supplying firm is that:

A)P is less than MR at all or most output levels.
B)P is greater than MR at all or most output levels.
C)P is the same as MR at all output levels.
D)P is either less than MR at particular output levels or the same as MR.
E)none of the above, since P is not related to MR.

Answer 1

P is greater than MR at all or most output levels.

Question 2

Imperfect competition prevails in an industry when what condition exists:

A)individual sellers cannot affect price.
B)individual sellers can affect price.
C)price is set by the consumer.
D)price is set by the government.
E)none of the above are correct.

Answer 2

individual sellers can affect price.

Question 3

Which of the following eliminates the possibility of perfect competition in a market?

A)The industry faces a downward sloping demand curve.
B)Individual firms face downward sloping demand curves.
C)Firms face decreasing returns to scale.
D)Firms display constant returns to scale.
E)The market lacks product differentiation.

Answer 3

Individual firms face downward sloping demand curves.

Question 4

A monopoly exists when:

A)a single seller has complete control over the industry.
B)a single seller has no control over the industry.
C)many sellers are in control of the industry.
D)no one controls the industry.
E)none of the above.

Question 5

Use the following to answer questions :
Table 9-1
Consider the demand curve given in Table 9-1.If the imperfectly competitive firm is able to produce at any output level, then the price and quantity which maximize total revenue are:

A)P = 5; q = 8
B)P = 4; q = 12.
C)P = 3; q = 17.
D)P = 2; q = 22.
E)P = 1; q = 27.

Question 6

A natural monopoly is:

A)a market in which the industry's output can be efficiently produced only by a single firm.
B)a market in which the industry's output is produced by a single firm.
C)a market where many sellers can produce the output.
D)not a real option.
E)none of the above.

Question 7

If a firm finds out that its marginal revenue is greater than its marginal cost, it should:

A)increase production and sales.
B)decrease production and sales.
C)encourage the entry of other firms into the market.
D)keep raising its selling price till marginal revenue equals marginal cost.
E)change nothing because profits are maximized.

Question 8

Which of the following statements concerning the monopolist with the cost and demand curves shown in the figure below is true?

A)At output B, the firm is minimizing losses in the short run; in the long run it should shut down.
B)At output C, P = MC, and the firm is maximizing profits.
C)At output A, the firm is maximizing profits; however, in the long run the firm should go out of business.
D)At output B, the firm should shut down in the short run.
E)None of the above are true.

Question 9

If you are the only mechanic in town which of the following is true about your demand curve?

A)You don't have one, it is all about supply.
B)it will be a downward sloping curve.
C)it will be a straight line.
D)it will be an upward sloping curve.
E)None of the above.

Question 10

A monopoly finds that, at its present level of output and sales, marginal revenue equals $5 and marginal cost is $4.10.Which of the following will maximize profits?

A)Leave price and output unchanged.
B)Increase price and leave output unchanged.
C)Increase price and decrease output.
D)Decrease price and increase output.
E)Decrease price and leave output unchanged.

Question 11

Use the following to answer questions :
Table 9-1
Suppose an imperfect competitor faces the demand curve defined in Table 9-1, and its MC is constant at $2.00.If the firm is able to produce at any output level, then it maximizes profits at:

A)P = 5; q = 8
B)P = 4; q = 12.
C)P = 3; q = 17.
D)P = 2; q = 22.
E)none of the above if fixed costs are less than $1.00.

Question 12

To maximize profits or minimize losses (if the firm produces), a firm must be sure it is producing at an output where:

A)total revenue is greater than average cost.
B)total revenue is equal to average cost.
C)marginal revenue is greater than marginal cost.
D)marginal revenue is equal to marginal cost.
E)none of the above is correct.

Question 13

If a monopoly is attempting to maximize profits, which of the following, if any, should it attempt to do?

A)Maximize revenues.
B)Maximize profit per unit.
C)Select that output at which average total cost is at a minimum.
D)Select that output at which average fixed cost is at a minimum.
E)None of the above.

Question 14

Perfect competition differs from imperfect competition in that:

A)it does not maximize profits at the point where marginal revenue equals marginal cost.
B)perfect competition's industry demand curve never slopes down.
C)perfect competition lacks any externalities.
D)perfectly competitive firms cannot affect prices.
E)none of the above accurately describe a difference.

Question 15

If a firm's demand curve is horizontal, then the firm's marginal revenue is:

A)less than the price of the product.
B)equal to the price of the product.
C)greater than the price of the product.
D)greater than, equal to, or less than the price of the product, depending on the particular circumstances.
E)not determinable from the above information.

Question 16

Two possible reasons for the existence of an imperfectly competitive market are:

A)product differentiation and free trade.
B)constant returns to scale and a lack of market regulation.
C)increasing returns to scale and barriers to free entry.
D)a lack of market segmentation and "U" shaped marginal cost curves.
E)none of the above.

Question 17

Imperfect competition does not mean "no competition.Many firms have rivals but are still in an imperfect competition industry.A rival wants to do which of the following:

A)increase profits.
B)increase market share.
C)advertise to shift out their demand curve.
D)all of the above.
E)none of the above.

Question 18

An oligopoly exists when:

A)a few sellers have complete control over the industry.
B)a few sellers have no control over the industry.
C)many sellers are in control of the industry.
D)no one controls the industry.
E)none of the above.

Question 19

If the firm described in the previous question has no fixed costs, its profits are:

A)$48.
B)$54.
C)$24.
D)$4.
E)-$12

Question 20

A perfect competitor's output in the short run is the quantity that:

A)sets MC equal to MR = P.
B)sets AVC = P.
C)minimizes ATC.
D)sets ATC = P.
E)none of the above are correct.

Question 21

Use the following to answer questions :
Figure 9-1
Which of the following points in Figure 9-1 can be used to identify a profit maximizing monopolist's production and the price it charges?

A)Q_l, P_l
B)Q₂, P₂
C)Q₃, P₃
D)Q₂, P₄
E)Q_2, P₃

Question 22

If a monopoly is attempting to maximize profits, which of the following should it attempt to do?

A)Maximize revenues.
B)Maximize profit per unit.
C)Select that output at which average total cost is at a minimum.
D)Set price equal to total cost.
E)None of the above.

Question 23

If the price of a monopoly firm is located on the inelastic portion of its demand curve, to maximize profits it should necessarily:

A)increase output and decrease price.
B)decrease output and increase price.
C)increase output and increase price.
D)not change output or price.
E)do none of the above.

Question 24

Use the following to answer questions :
Figure 9-1
The difference in consumer surplus between a monopoly market and a perfectly competitive one illustrated by Figure 9-1 is represented by area:

A)P₅P₁A.
B)P₂P₃CB.
C)P₃P₄DC.
D)Q₁ABQ₂.
E)None of the above.

Question 25

Falling marginal revenue facing an individual firm is incompatible with:

A)growth of the firm.
B)perfect competition.
C)oligopoly.
D)barriers to entry.
E)none of the above.

Question 26

A firm is maximizing its profits when:

A)average costs are at a minimum.
B)total revenue is at a maximum.
C)marginal revenue exceeds marginal cost by the maximum amount.
D)its profit per unit sold is at a maximum.
E)none of the above are necessarily maximum-profit points.

Question 27

In the short run, under imperfect competition, a firm that wishes to maximize profits or minimize losses should produce that output which:

A)equates marginal cost with marginal revenue.
B)equates marginal cost with price.
C)corresponds to the lowest point on the average variable cost curve.
D)corresponds to the lowest point on the average total cost curve.
E)equates average cost with price.

Question 28

The marginal cost schedule facing an imperfect competitor is constant at $12.The demand curve is given in Table 9-3.The profit maximizing output for this firm is: Table 9-3

A)6 units
B)7 units
C)8 units
D)9 units
E)10 units

Question 29

Which of the following describe the relationship between price elasticity of demand and marginal revenue?

A)marginal revenue is positive when demand is elastic.
B)marginal revenue is zero when demand is unit elastic.
C)marginal revenue is negative when demand is inelastic.
D)all of the above.
E)A and C only.

Question 30

In perfect competition, how is the market price related to marginal revenue for each supplying firm?

A)P is the same as MR at all output levels.
B)P is less than MR at all (or most)output levels.
C)P is greater than MR at all (or most)output levels.
D)P is either greater than MR or less than MR at particular output levels, but never the same as MR.
E)None of the above.

Question 31

Imperfect competition can result in all of the following except:

A)less quantity than perfect competition.
B)a higher price than perfect competition.
C)more economic efficiency (i.e.less deadweight loss)than under perfect competition.
D)all of the above.
E)none of the above.

Question 32

Use the following to answer questions :
Table 9-2
The demand curve facing an imperfect competitor is given in Table 9-2.If the firm is able to produce at any output level, then the price and quantity which maximize total revenue are:

A)P = 9; q = 8.
B)P = 8; q = 12.
C)P = 7; q = 16.
D)P = 6; q = 20.
E)P = 5; q = 22.

Question 33

Which of the following are barriers to entry into a market:

A)legal restrictions.
B)high cost of entry.
C)advertising cost.
D)product differentiation.
E)all of the above.

Question 34

A rational firm will only seek to maximize total revenue if:

A)it faces a totally inelastic demand curve.
B)its marginal cost curve falls and then rises.
C)its average costs are falling.
D)it is a perfect monopoly.
E)its variable costs are zero.

Question 35

Network industries most often generate:

A)perfectly competitive markets.
B)negative externalities.
C)product differentiation.
D)natural monopolies.
E)none of the above.

Question 36

Use the following to answer questions :
Figure 9-1
Which of the following points in Figure 9-1 can be used to identify production and price in a perfectly competitive industry?

A)Q₁,P₁.
B)Q₂,P₂.
C)Q₃,P₃.
D)Q₂,P₄.
E)Q₂,P₃.

Question 37

Which of the following can take on a negative value?

A)Marginal Revenue
B)Total Revenue
C)Quantity demanded.
D)Quantity supplied.
E)All of the above.

Question 38

If a firm finds that its marginal revenue exceeds its marginal cost, then the maximum profit rules require the firm to:

A)increase its output in perfect, but not necessarily in imperfect competition.
B)increase its output in imperfect, but not necessarily in perfect competition.
C)increase its output in both perfect and imperfect competition.
D)decrease its output in both perfect and imperfect competition.
E)do none of the above.

Question 39

MR becomes negative when:

A)the demand price becomes negative.
B)the demand elasticity drops from elastic to inelastic.
C)total revenue becomes negative.
D)the loss on previous units is at its maximum.
E)both b and c.

Question 40

Use the following to answer questions :
Table 9-2
The demand curve facing an imperfect competitor is given in Table 9-2.MC is constant at $3.50.If the firm is able to produce at any output level, then it maximizes profits at:

A)P = 9; q = 8.
B)P = 8; q = 12.
C)P = 7; q = 16.
D)P = 6; q = 20.
E)P = 5; q = 22.

Question 41

A natural monopoly features which of the following up to and including quantities that might be demanded at the lowest prices?

A)A declining average cost curve.
B)An increasing marginal cost curve.
C)A U shaped average cost curve.
D)An increasing average cost curve.
E)Both A and B.

Question 42

If a profit-maximizing firm, with an increasing average cost curve, finds that it is producing a level of output at which marginal costs are $100, while marginal revenue is $5, what action should it take?

A)Raise output.
B)Lower prices.
C)Declare bankruptcy.
D)Decrease output.
E)None of the above.

Question 43

Which of the following are major sources of imperfect competition?

A)Government tariffs.
B)Patent laws.
C)Copyright laws.
D)Economies of scale.
E)All of the above.

Question 44

Oligopoly means exactly two sellers.

Question 45

Imperfect competition means that there is only one or two sellers in the market.

Question 46

If marginal revenue becomes negative, this must mean that the firm's total revenue is declining with additional output.

Question 47

Wheat farming in the U.S.can be best described as an oligopoly.

Question 48

Steel is an oligopolistic industry in the U.S.

Question 49

The marginal principle means:

A)people will maximize their income or profits or satisfactions by counting only marginal benefits of a decision.
B)people will maximize their income or profits or satisfactions by counting the total benefits of a decision.
C)people will maximize their income or profits or satisfactions by counting none of the benefits of a decision.
D)people will maximize their income or profits or satisfactions by counting the negative aspects of a decision.
E)none of the above.

Question 50

If marginal revenue is 0:

A)total revenue is increasing.
B)total revenue is maximized.
C)the demand curve is unit elastic.
D)B and C only.
E)A and C only.

Question 51

The output level that maximizes a firm's profits also maximizes the marginal profit on the last unit produced.

Question 52

A monopolist and a perfect competitor can both sell 10 units of a good they produce for $5 a piece.Which of the following is not true?

A)The perfect competitor can sell unit 11 for $5.
B)The perfect competitor's MR curve is a straight line at $5.
C)The monopolist can sell unit 11 for $5.
D)The monopolist has a decreasing marginal revenue curve.
E)None of the above.

Question 53

Which of the following describe the concept of "loss aversion"?

A)people will resist taking a loss on an item even though it is not costly to hold on to an asset.
B)people will resist taking a loss on an item even though it is costly to hold on to an asset.
C)people will accept taking a loss on an item when it is costly to hold on to an asset.
D)people will accept taking a loss on an item even though it is not costly to hold on to an asset.
E)none of the above.

Question 54

Under conditions of perfect competition, marginal revenue and price are equal for the individual firm.

Question 55

Which of the following might be an industry characterized by a model of an unregulated monopoly?

A)Public utilities.
B)Local telephone carriers.
C)Farming/agriculture.
D)Gasoline distribution (for automobiles).
E)None of the above.

Question 56

Since Microsoft is a monopoly, it can change the price of its operating system.

Question 57

A perfect competitor is distinguished by having no control over price.

Question 58

A profit-maximizing imperfect competitor is at equilibrium when marginal revenue is equal to marginal cost.

Question 59

Oligopolists differ from monopolists in that they:

A)equate marginal revenue with average cost.
B)equate marginal cost with a price read from a demand curve.
C)face a competitor selling a similar product.
D)maximize total revenue.
E)all of the above.

Question 60

At a profit maximizing point:

A)profits are always positive.
B)marginal revenue is 0.
C)marginal cost is 0.
D)total revenue is maximized.
E)none of the above.

Question 61

Personal computers are considered differentiated products.

Question 62

If a firm has zero marginal costs, then its maximum-profit output is where marginal revenue is zero.

Question 63

Microsoft's Windows product generated monopoly power by exploiting network externalities.

Question 64

Regardless of demand, monopoly profits are always positive in the absence of government regulation.

Question 65

If marginal cost is constant, then the profit maximizing monopoly output is indeterminant.

Question 66

The automobile industry in the United States can best be described as an oligopoly.

Question 67

Monopolists tend to charge a higher price than the market will bear.

Question 68

Monopolistic competition is categorized as an industry with few sellers and no competition.

Question 69

The market demand curve and the demand curve facing the firm are the same in all imperfectly competitive markets.

Question 70

An individual perfect competitor faces a horizontal demand curve.

Question 71

Product differentiation is not an example of a barrier to entry.

Question 72

The output level that maximizes a firm's profits also minimizes marginal costs.

Question 73

A firm should decrease its output if marginal cost is greater than marginal revenue.

Question 74

The monopolist sets MR = P above MC.

Question 75

Profits are maximized when the rate of change of total revenue equals the rate of change of total cost.

Question 76

The slope of the total profit curve is always equal to marginal revenue minus marginal cost.

Question 77

If all firms in an industry sell identical products, then it would never pay to advertise.

Question 78

Unlike the curve for a monopolist, the total revenue curve for a single perfect competitor would be a straight line rising to the right from the origin.

Question 79

Intense rivalry between Chrysler, Ford and GM means perfect competition in the U.S.auto industry.

Question 80

Rivalry can exist in an imperfect competition industry