Question 1

As network externalities broaden the use of a product, the:

Accepted Answer

A) need for a single standard becomes more important and eventually one standard wins out. 
B) need for a single standard becomes less important, so many different standards are likely to coexist. 
C) benefits of that product to everyone are diminished. 
D) incentive to replace that product with something new grows stronger. 
A) need for a single standard becomes more important and eventually one standard wins out. 
B) need for a single standard becomes less important, so many different standards are likely to coexist. 
C) benefits of that product to everyone are diminished. 
D) incentive to replace that product with something new grows stronger. A

Question 2

The difference between a perfectly competitive firm and a monopolistically competitive firm is that a monopolistically competitive firm faces a:

Accepted Answer

A) horizontal demand curve and price equals marginal cost in equilibrium. 
B) horizontal demand curve and price exceeds marginal cost in equilibrium. 
C) downward-sloping demand curve and price equals marginal cost in equilibrium. 
D) downward-sloping demand curve and price exceeds marginal cost in equilibrium. 
A) horizontal demand curve and price equals marginal cost in equilibrium. 
B) horizontal demand curve and price exceeds marginal cost in equilibrium. 
C) downward-sloping demand curve and price equals marginal cost in equilibrium. 
D) downward-sloping demand curve and price exceeds marginal cost in equilibrium. D

Question 3

Currently, it is illegal to import prescription drugs into the United States despite the fact that U.S. consumers could buy drugs from Canada at lower prices than those available in the United States. What set of cost curves is most consistent with the price difference between the United States and Canada?

Accepted Answer

A) Producing a drug has a high and constant marginal cost. 
B) Producing a drug has a high fixed cost with a relatively low marginal cost. 
C) Producing a drug has a low fixed cost with a relatively high marginal cost. 
D) Producing a drug has a low fixed cost and a rising marginal cost. 
A) Producing a drug has a high and constant marginal cost. 
B) Producing a drug has a high fixed cost with a relatively low marginal cost. 
C) Producing a drug has a low fixed cost with a relatively high marginal cost. 
D) Producing a drug has a low fixed cost and a rising marginal cost. B

Question 4

If MR = MC, a monopolist should:

Accepted Answer

A) decrease production. 
B) increase production. 
C) maintain the same level of production. 
D) stop producing. 
A) decrease production. 
B) increase production. 
C) maintain the same level of production. 
D) stop producing.

Question 5

A market structure in which one firm makes up the entire market is:

Accepted Answer

A) a monopoly. 
B) perfect competition. 
C) an oligopoly. 
D) monopolistic competition. 
A) a monopoly. 
B) perfect competition. 
C) an oligopoly. 
D) monopolistic competition.

Question 6

Refer to the graph shown. The firm in this monopolistically competitive industry will:

Accepted Answer

A) earn economic profits of $70,000 per year. 
B) earn economic profits of $140,000 per year. 
C) incur economic losses of $140,000 per year. 
D) incur economic losses of $70,000 per year. 
A) earn economic profits of $70,000 per year. 
B) earn economic profits of $140,000 per year. 
C) incur economic losses of $140,000 per year. 
D) incur economic losses of $70,000 per year.

Question 7

Price exceeds marginal cost for a monopolistically competitive firm in long-run equilibrium because:

Accepted Answer

A) economic profits are positive. 
B) economic profits are negative. 
C) demand is perfectly elastic. 
D) demand is not perfectly elastic. 
A) economic profits are positive. 
B) economic profits are negative. 
C) demand is perfectly elastic. 
D) demand is not perfectly elastic.

Question 8

Refer to the graph shown. If hamburgers are produced by a perfectly competitive industry with a market demand D, in long-run equilibrium the price will be:

Accepted Answer

A) $6, and 100 will be sold. 
B) $4, and 200 will be sold. 
C) $5, and 150 will be sold. 
D) $4, and 100 will be sold. 
A) $6, and 100 will be sold. 
B) $4, and 200 will be sold. 
C) $5, and 150 will be sold. 
D) $4, and 100 will be sold.

Question 9

Refer to the graph shown. If the firm maximizes profit, the marginal cost of its product will be:

Accepted Answer

A) $10. 
B) $8. 
C) $6. 
D) $4. 
A) $10. 
B) $8. 
C) $6. 
D) $4.

Question 10

A monopolistically competitive industry has:

Accepted Answer

A) a few firms producing identical products. 
B) many firms producing differentiated products. 
C) many firms producing identical products. 
D) a few firms producing differentiated products. 
A) a few firms producing identical products. 
B) many firms producing differentiated products. 
C) many firms producing identical products. 
D) a few firms producing differentiated products.

Question 11

A monopolistically competitive industry has many firms that sell differentiated products.

Accepted Answer

A) True 
 B)False

Question 12

Suppose a monopolist is at the profit-maximizing output level. If the monopolist reduces output:

Accepted Answer

A) both producer surplus and consumer surplus increase. 
B) producer surplus falls but consumer surplus rises. 
C) both producer surplus and consumer surplus decrease. 
D) producer surplus rises but consumer surplus falls. 
A) both producer surplus and consumer surplus increase. 
B) producer surplus falls but consumer surplus rises. 
C) both producer surplus and consumer surplus decrease. 
D) producer surplus rises but consumer surplus falls.

Question 13

You are shown a graph of a monopolist in long-run equilibrium and a graph of a monopolistically competitive firm in short-run equilibrium. How could you tell which is which?

Accepted Answer

A) You probably could not. 
B) In the graph of monopolistic competition, the MR curve could be closer to the demand curve. 
C) In the graph of monopoly, the MR curve would be closer to the demand curve. 
D) In the graph of monopoly, the MC would slope upward. 
A) You probably could not. 
B) In the graph of monopolistic competition, the MR curve could be closer to the demand curve. 
C) In the graph of monopoly, the MR curve would be closer to the demand curve. 
D) In the graph of monopoly, the MC would slope upward.

Question 14

Refer to the graph shown. The welfare loss of monopoly is:

Accepted Answer

A) 1,137.5. 
B) 1,381.25. 
C) 2,112.5. 
D) 2,762.5. 
A) 1,137.5. 
B) 1,381.25. 
C) 2,112.5. 
D) 2,762.5.

Question 15

Refer to the graph shown. If the monopoly firm maximizes profit, it will produce:

Accepted Answer

A) 15 units of output and charge a price of $3.50 per unit. 
B) 15 units of output and charge a price of $2.00 per unit. 
C) 25 units of output and charge a price of $2.50 per unit. 
D) 30 units of output and charge a price of $2.00 per unit. 
A) 15 units of output and charge a price of $3.50 per unit. 
B) 15 units of output and charge a price of $2.00 per unit. 
C) 25 units of output and charge a price of $2.50 per unit. 
D) 30 units of output and charge a price of $2.00 per unit.

Question 16

Refer to the graph shown depicting a monopolistically competitive firm. The demand curve is represented by curve:

Accepted Answer

A) A. 
B) B. 
C) C. 
D) D. 
A) A. 
B) B. 
C) C. 
D) D.

Question 17

Significant barriers to entry exist in a monopolistically competitive industry.

Accepted Answer

A) True 
 B)False

Question 18

In monopolistic competition there:

Accepted Answer

A) are only a few sellers. 
B) is only one seller. 
C) are many sellers. 
D) is only one buyer. 
A) are only a few sellers. 
B) is only one seller. 
C) are many sellers. 
D) is only one buyer.

Question 19

Monopoly is a market structure in which:

Accepted Answer

A) one firm makes up the entire market. 
B) a few firms dominate the market. 
C) many firms produce differentiated products. 
D) many firms produce identical products. 
A) one firm makes up the entire market. 
B) a few firms dominate the market. 
C) many firms produce differentiated products. 
D) many firms produce identical products.

Question 20

Refer to the graph shown. If this monopolist were forced to set price equal to marginal cost, in the long run it probably would:

Accepted Answer

A) charge a price of $2. 
B) charge a price of $3. 
C) charge a price of $12.00. 
D) stop producing. 
A) charge a price of $2. 
B) charge a price of $3. 
C) charge a price of $12.00. 
D) stop producing.

Exam 14: Monopoly and Monopolistic Competition

As network externalities broaden the use of a product, the:

The difference between a perfectly competitive firm and a monopolistically competitive firm is that a monopolistically competitive firm faces a:

If MR = MC, a monopolist should:

A market structure in which one firm makes up the entire market is:

Refer to the graph shown. The firm in this monopolistically competitive industry will:

Price exceeds marginal cost for a monopolistically competitive firm in long-run equilibrium because:

Refer to the graph shown. If hamburgers are produced by a perfectly competitive industry with a market demand D, in long-run equilibrium the price will be:

Refer to the graph shown. If the firm maximizes profit, the marginal cost of its product will be:

A monopolistically competitive industry has:

A monopolistically competitive industry has many firms that sell differentiated products.

Suppose a monopolist is at the profit-maximizing output level. If the monopolist reduces output:

You are shown a graph of a monopolist in long-run equilibrium and a graph of a monopolistically competitive firm in short-run equilibrium. How could you tell which is which?

Refer to the graph shown. The welfare loss of monopoly is:

Refer to the graph shown. If the monopoly firm maximizes profit, it will produce:

Refer to the graph shown depicting a monopolistically competitive firm. The demand curve is represented by curve:

Significant barriers to entry exist in a monopolistically competitive industry.

In monopolistic competition there:

Monopoly is a market structure in which:

Refer to the graph shown. If this monopolist were forced to set price equal to marginal cost, in the long run it probably would:

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