Question 1

The primary objective of an imperfectly competitive firm is to:

Accepted Answer

A) charge the highest possible price. 
B) maximize total revenue. 
C) minimize total cost. 
D) maximize profit. 
A) charge the highest possible price. 
B) maximize total revenue. 
C) minimize total cost. 
D) maximize profit.

Question 2

A price setter is a firm that:

Accepted Answer

A) attempts but fails to be perfectly competitive. 
B) has the ability to set price at any level it wishes. 
C) has some degree of control over its price. 
D) faces perfectly inelastic demand. 
A) attempts but fails to be perfectly competitive. 
B) has the ability to set price at any level it wishes. 
C) has some degree of control over its price. 
D) faces perfectly inelastic demand.

Question 3

One problem with antitrust laws is that they:

Accepted Answer

A) are too recent to be understood by most lawyers. 
B) encourage too many mergers. 
C) blunt firms' incentives to cut costs. 
D) may prevent companies from achieving economies of scale. 
A) are too recent to be understood by most lawyers. 
B) encourage too many mergers. 
C) blunt firms' incentives to cut costs. 
D) may prevent companies from achieving economies of scale.

Question 4

All profit-maximizing firms chose the level of output at which:

Accepted Answer

A) MR = MC 
B) P = MC 
C) MR = P 
D) MR < P 
A) MR = MC 
B) P = MC 
C) MR = P 
D) MR < P

Question 5

Relative to a single price monopolist, a price discriminating monopolist generates:

Accepted Answer

A) less total surplus. 
B) more total surplus. 
C) the same amount of total surplus, but more consumer surplus and less producer surplus. 
D) the same amount of total surplus, but less consumer surplus and more producer surplus. 
A) less total surplus. 
B) more total surplus. 
C) the same amount of total surplus, but more consumer surplus and less producer surplus. 
D) the same amount of total surplus, but less consumer surplus and more producer surplus.

Question 6

Suppose Island Bikes, a profit-maximizing firm, is the only bike rental company in a small resort town. The marginal cost to Island Bikes of renting out a bike is $3, and Island Bikes has no fixed costs. Each day Island Bikes has six potential customers, whose reservations prices are listed in the table.  
$$\begin{array} { | c | c | } 
\hline \text { Custamer } & \begin{array} { c } 
\text { Reservetion Price } \
\text { (\$ /Rental) }
\end{array} \
\hline \mathrm { A } & 22 \
\hline \mathrm { B } & 16 \
\hline \mathrm { C } & 12 \
\hline \mathrm { D } & \mathrm { 8 } \
\hline \mathrm { E } & 6 \
\hline \mathrm { F } & 4 \
\hline
\end{array}$$ Suppose Island Bikes knows that customers whose reservation prices are at least $10 always rent bikes before noon, while those whose reservation prices are below $10 never do so. If Island Bikes charges a different price in the morning and in the afternoon, then what will be its daily economic profit?

Accepted Answer

A) $27 
B) $32 
C) $33 
D) $39 
A) $27 
B) $32 
C) $33 
D) $39

Question 7

Once a firm has determined the quantity of output it wishes to sell, the maximum price it can charge for each unit is determined by:

Accepted Answer

A) the average cost of making the product. 
B) the demand curve facing the firm. 
C) the marginal cost of making the product. 
D) the firm's marginal revenue curve. 
A) the average cost of making the product. 
B) the demand curve facing the firm. 
C) the marginal cost of making the product. 
D) the firm's marginal revenue curve.

Question 8

Suppose the accompanying figure illustrates the demand curve facing a monopolist.   If the monopolist decreases its price from $12 to $10, its total revenue will ________.

Accepted Answer

A) increase by $1,000 
B) decrease by $1,000 
C) increase by $600 
D) decrease by $600 
A) increase by $1,000 
B) decrease by $1,000 
C) increase by $600 
D) decrease by $600

Question 9

Which of the following is NOT an example of the hurdle method of price discrimination?

Accepted Answer

A) Offering a mail-in rebate. 
B) Permanently reducing all prices by 10 percent. 
C) Charging less for airline tickets if the trip includes a Saturday night stayover. 
D) Giving a discount on movie tickets to people with a student ID. 
A) Offering a mail-in rebate. 
B) Permanently reducing all prices by 10 percent. 
C) Charging less for airline tickets if the trip includes a Saturday night stayover. 
D) Giving a discount on movie tickets to people with a student ID.

Question 10

Suppose the accompanying table describes the relationship between price and quantity demanded for a monopolist.  
$$\begin{array} { | c | c | } 
\hline \text { Quntity } & \text { Price } \
\hline 1 & \$ 10 \
\hline 2 & \$ 9 \
\hline 3 & \$ 8 \
\hline 4 & \$ 7 \
\hline 5 & \$ 6 \
\hline 6 & \$ 5 \
\hline 7 & \$ 4 \
\hline 8 & \$ 3 \
\hline
\end{array}$$ If the marginal cost of producing each unit of output is $5, then this monopolist maximizes its profit by charging ________ per unit.

Accepted Answer

A) $3 
B) $5 
C) $6 
D) $8 
A) $3 
B) $5 
C) $6 
D) $8

Question 11

Suppose the accompanying figure shows the demand curve, marginal revenue curve and marginal cost curve for a monopolist.   The socially optimal level of output is ________ units per day.

Accepted Answer

A) F 
B) G 
C) H 
D) I 
A) F 
B) G 
C) H 
D) I

Question 12

Industries in which firms have high fixed costs and low marginal costs are likely to have a:

Accepted Answer

A) large number of small firms. 
B) small number of large firms. 
C) large number of large firms. 
D) small number of small firms. 
A) large number of small firms. 
B) small number of large firms. 
C) large number of large firms. 
D) small number of small firms.

Question 13

The accompanying figure shows the demand curve, marginal revenue curve, marginal cost curve and average total cost curve for a monopolist.   The socially optimal level of output is:

Accepted Answer

A) 4 units per day. 
B) 5 units per day. 
C) 8 units per day. 
D) 10 units per day. 
A) 4 units per day. 
B) 5 units per day. 
C) 8 units per day. 
D) 10 units per day.

Question 14

Consider an industry with two firms producing similar products. Each firm's total cost (in dollars)is given below. Acme Manufacturing: TC = 100 + 3Q
Generic Industries: TC = 500 + 3Q
Suppose that Acme and Generic face the same demand curve. If each firm produces its profit-maximizing level of output and earns a positive economic profit, then which of the following statements is true?

Accepted Answer

A) Acme will produce more output than Generic. 
B) Generic will produce more output than Acme. 
C) Acme and Generic will produce the same quantity and will have the same profits. 
D) Acme and Generic will produce the same quantity, but Acme will have higher profits. 
A) Acme will produce more output than Generic. 
B) Generic will produce more output than Acme. 
C) Acme and Generic will produce the same quantity and will have the same profits. 
D) Acme and Generic will produce the same quantity, but Acme will have higher profits.

Question 15

Relative to a monopoly charging a single price to all consumers, perfect price discrimination ________ producer surplus and ________ consumer surplus.

Accepted Answer

A) increases; decreases 
B) increases; increases 
C) decreases; decreases 
D) decreases; increases. 
A) increases; decreases 
B) increases; increases 
C) decreases; decreases 
D) decreases; increases.

Question 16

Consider a monopolist who charges a single price to all of its customers. If this monopolist starts price discriminating, its output will ________ and its profit will ________.

Accepted Answer

A) fall; rise 
B) fall; fall 
C) rise; fall 
D) rise; rise 
A) fall; rise 
B) fall; fall 
C) rise; fall 
D) rise; rise

Question 17

Both a perfectly competitive firm and a monopolist find that:

Accepted Answer

A) price and marginal revenue are the same. 
B) they can sell as many units of output as they want at the market price. 
C) it is best to expand production until the benefit and the cost of the last unit produced are equal. 
D) price is less than marginal revenue. 
A) price and marginal revenue are the same. 
B) they can sell as many units of output as they want at the market price. 
C) it is best to expand production until the benefit and the cost of the last unit produced are equal. 
D) price is less than marginal revenue.

Question 18

Suppose the accompanying table describes the demand for a good produced by monopolist. $$\begin{array} { | c | c | } 
\hline \text { Price } & \text { Quantity  } \
\hline \$ 10 & 1 \
\hline \$ 9 & 2 \
\hline \$ 8 & 3 \
\hline \$ 7 & 4 \
\hline \$ 6 & 5 \
\hline \$ 5 & 6 \
\hline \$ 4 & 7 \
\hline
\end{array}$$  
Based on the data in the table, we know the firm should:

Accepted Answer

A) be able earn an economic profit. 
B) produce more than 7 units. 
C) not produce the seventh unit. 
D) not produce the fifth unit. 
A) be able earn an economic profit. 
B) produce more than 7 units. 
C) not produce the seventh unit. 
D) not produce the fifth unit.

Question 19

De Beers accounts for approximately 80% of diamond sales worldwide. The source of its market power is:

Accepted Answer

A) its exclusive ownership of South African diamond mines. 
B) its patent on diamond production. 
C) the perfectly inelastic demand for diamonds. 
D) the engagement customs of couples in Western cultures. 
A) its exclusive ownership of South African diamond mines. 
B) its patent on diamond production. 
C) the perfectly inelastic demand for diamonds. 
D) the engagement customs of couples in Western cultures.

Question 20

Which of the following firms is most likely to be a pure monopolist?

Accepted Answer

A) A clothing retailer with the best location in a mall 
B) A grocery store in a large city 
C) The most popular hot dog vendor on a city street corner 
D) The only gas station in a small, isolated town 
A) A clothing retailer with the best location in a mall 
B) A grocery store in a large city 
C) The most popular hot dog vendor on a city street corner 
D) The only gas station in a small, isolated town

Exam 8: Monopoly, Oligopoly, and Monopolistic Competition

The primary objective of an imperfectly competitive firm is to:

A price setter is a firm that:

One problem with antitrust laws is that they:

All profit-maximizing firms chose the level of output at which:

Relative to a single price monopolist, a price discriminating monopolist generates:

Once a firm has determined the quantity of output it wishes to sell, the maximum price it can charge for each unit is determined by:

Suppose the accompanying figure illustrates the demand curve facing a monopolist. If the monopolist decreases its price from $12 to $10, its total revenue will ________.

Which of the following is NOT an example of the hurdle method of price discrimination?

Suppose the accompanying figure shows the demand curve, marginal revenue curve and marginal cost curve for a monopolist. The socially optimal level of output is ________ units per day.

Industries in which firms have high fixed costs and low marginal costs are likely to have a:

The accompanying figure shows the demand curve, marginal revenue curve, marginal cost curve and average total cost curve for a monopolist. The socially optimal level of output is:

Relative to a monopoly charging a single price to all consumers, perfect price discrimination ________ producer surplus and ________ consumer surplus.

Consider a monopolist who charges a single price to all of its customers. If this monopolist starts price discriminating, its output will ________ and its profit will ________.

Both a perfectly competitive firm and a monopolist find that:

Suppose the accompanying table describes the demand for a good produced by monopolist. Price Quantity \ 10 1 \ 9 2 \ 8 3 \ 7 4 \ 6 5 \ 5 6 \ 4 7 Based on the data in the table, we know the firm should:

De Beers accounts for approximately 80% of diamond sales worldwide. The source of its market power is:

Which of the following firms is most likely to be a pure monopolist?

Thinking Like an Economist

Comparative Advantage

Supply and Demand

Elasticity

Demand

Perfectly Competitive Supply

Efficiency, Exchange, and the Invisible Hand in Action

Games and Strategic Behavior

An Introduction to Behavioral Economics

Externalities, Property Rights, and the Environment

The Economics of Information

Labor Markets, Poverty, and Income Distribution

Public Goods and Tax Policy

International Trade and Trade Policy

Macroeconomics: The Birds Eye View of the Economy

Measuring Economic Activity: GDP and Unemployment

Measuring the Price Level and Inflation

Economic Growth, Productivity, and Living Standards

The Labor Market: Workers, Wages, and Unemployment

Saving and Capital Formation

Money Prices and the Federal Reserve

Financial Markets and International Capital Flows

Short-Term Economic Fluctuations: An Introduction

Spending and Output in the Short Run

Stabilizing the Economy: The Role of the Fed

Aggregate Demand, Aggregate Supply, and Inflation

Exchange Rates and the Open Economy

Filters

Relative to a monopoly charging a single price to all consumers, perfect price discrimination producer surplus and consumer surplus.

Consider a monopolist who charges a single price to all of its customers. If this monopolist starts price discriminating, its output will and its profit will .