Question 1

If barriers to entry exist in a market,then:

Accepted Answer

A) the costs of entry and exit are relatively low. 
B) there will be few close substitutes of the product in the market. 
C) firms will be incurring losses in both the short and long runs. 
D) firms will tend to have relatively less monopoly power. 
E) the existing firms will quit the market in the long run due to mounting losses. 
A) the costs of entry and exit are relatively low. 
B) there will be few close substitutes of the product in the market. 
C) firms will be incurring losses in both the short and long runs. 
D) firms will tend to have relatively less monopoly power. 
E) the existing firms will quit the market in the long run due to mounting losses.

Question 2

When the average revenue falls,marginal revenue also falls and is less than the average revenue.

Accepted Answer

A) True 
 B)False

Question 3

A monopolistically competitive firm faces a relatively steeper demand curve than a perfectly competitive firm.

Accepted Answer

A) True 
 B)False

Question 4

Which among the following does not determine the shape of the demand curve under different market structures?

Accepted Answer

A) Number of substitutes in the market 
B) Importance of the good in consumer's budget 
C) Cost structure of the firm 
D) Price-elasticity of demand 
E) The length of time being considered 
A) Number of substitutes in the market 
B) Importance of the good in consumer's budget 
C) Cost structure of the firm 
D) Price-elasticity of demand 
E) The length of time being considered

Question 5

Which of the following is true of marginal cost?

Accepted Answer

A) Marginal cost is the cost per unit of output produced. 
B) Marginal cost is the change in total cost divided by the change in total output. 
C) Marginal cost curve is negatively sloped at the profit-maximizing level of output. 
D) Marginal cost is equal to total cost divided by the quantity of output. 
E) Marginal cost initially increases with an increase in output but subsequently declines. 
A) Marginal cost is the cost per unit of output produced. 
B) Marginal cost is the change in total cost divided by the change in total output. 
C) Marginal cost curve is negatively sloped at the profit-maximizing level of output. 
D) Marginal cost is equal to total cost divided by the quantity of output. 
E) Marginal cost initially increases with an increase in output but subsequently declines.

Question 6

A downward-sloping demand curve is faced by firms:

Accepted Answer

A) under perfect competition 
B) under perfect competition and monopoly 
C) in all market structures except monopoly 
D) in all market structures except monopolistic competition 
E) in all market structures except perfect competition 
A) under perfect competition 
B) under perfect competition and monopoly 
C) in all market structures except monopoly 
D) in all market structures except monopolistic competition 
E) in all market structures except perfect competition

Question 7

Identify the characteristics of a monopoly firm.

Accepted Answer

A) Barred entry and homogeneous product 
B) Unique product and large number of sellers 
C) Standardized product and price taker 
D) Barred entry and price taker 
E) Barred entry and price maker 
A) Barred entry and homogeneous product 
B) Unique product and large number of sellers 
C) Standardized product and price taker 
D) Barred entry and price taker 
E) Barred entry and price maker

Question 8

Steve is about to start up a business in a monopolistically competitive market.Which of the following can he expect?

Accepted Answer

A) He can expect market entry to be difficult as there exist entry barriers. 
B) He can expect to enjoy a huge market power. 
C) He can expect to face a highly inelastic demand curve. 
D) He can expect to find close substitutes of the product he is planning to produce. 
E) He can expect to face an infinitely elastic demand curve. 
A) He can expect market entry to be difficult as there exist entry barriers. 
B) He can expect to enjoy a huge market power. 
C) He can expect to face a highly inelastic demand curve. 
D) He can expect to find close substitutes of the product he is planning to produce. 
E) He can expect to face an infinitely elastic demand curve.

Question 9

The following graph shows the demand and cost curves of an imperfectly competitive firm.MC and ATC represent the marginal cost curve and the average cost curve respectively. Figure 8.1   
-Refer to Figure 8.1.At price P1 the firm sells quantity Q1,and total cost is shown by:

Accepted Answer

A) the rectangle ABCD. 
B) the rectangle ABEF. 
C) the rectangle FECD. 
D) the distance AB. 
E) the distance BC. 
A) the rectangle ABCD. 
B) the rectangle ABEF. 
C) the rectangle FECD. 
D) the distance AB. 
E) the distance BC.

Question 10

A perfectly competitive firm charges a price which is greater than its marginal cost.

Accepted Answer

A) True 
 B)False

Question 11

In contrast to both perfect competition and monopolistic competition,an oligopoly market structure is characterized by:

Accepted Answer

A) price discrimination. 
B) a perfectly inelastic demand curve. 
C) the presence of infinite number of firms. 
D) only differentiated products. 
E) difficulty in the entry of new firms. 
A) price discrimination. 
B) a perfectly inelastic demand curve. 
C) the presence of infinite number of firms. 
D) only differentiated products. 
E) difficulty in the entry of new firms.

Question 12

The firm will always maximize profit where average total costs are minimized.

Accepted Answer

A) True 
 B)False

Question 13

When the average cost curve lies below the average revenue curve at the profit maximizing level of output,it implies that the firm is suffering losses.

Accepted Answer

A) True 
 B)False

Question 14

A perfectly competitive firm cannot affect the market price by raising or reducing its supply.

Accepted Answer

A) True 
 B)False

Question 15

Assume that a firm's marginal revenue curve intersects the rising portion of its marginal cost curve at 500 units of output.At this output level,a profit-maximizing firm's total cost of production is $1,000.If the price of the product is $5 per unit,the total revenue earned by the firm will be:

Accepted Answer

A) $1,500. 
B) $250. 
C) $500. 
D) $2,500. 
E) $1,000. 
A) $1,500. 
B) $250. 
C) $500. 
D) $2,500. 
E) $1,000.

Question 16

Graphically,total cost is equal to the area of the:

Accepted Answer

A) triangle formed under the demand curve. 
B) rectangle formed under the demand curve at a given price and quantity combination. 
C) rectangle formed under the average-total-cost curve at a given ATC and quantity combination. 
D) triangle formed by a line segment between the demand and average-total-cost curves. 
E) triangle formed by a line segment between the horizontal axis and the average-total-cost curves. 
A) triangle formed under the demand curve. 
B) rectangle formed under the demand curve at a given price and quantity combination. 
C) rectangle formed under the average-total-cost curve at a given ATC and quantity combination. 
D) triangle formed by a line segment between the demand and average-total-cost curves. 
E) triangle formed by a line segment between the horizontal axis and the average-total-cost curves.

Question 17

A(n) ____ is a price taker.

Accepted Answer

A) monopolistic firm. 
B) oligopoly firm. 
C) perfectly competitive firm. 
D) monopolistically competitive firm. 
E) duopoly firm. 
A) monopolistic firm. 
B) oligopoly firm. 
C) perfectly competitive firm. 
D) monopolistically competitive firm. 
E) duopoly firm.

Question 18

Each firm under perfect competition charges different prices for their products.

Accepted Answer

A) True 
 B)False

Question 19

The figure given below shows the cost curves of a firm. Figure 8.3   
ATC: Average Total Cost
AVC: Average Variable Cost
MC: Marginal Cost
-In Figure 8.3,what is the total cost of producing 140 units of the output?

Accepted Answer

A) $40 
B) $55 
C) $300 
D) $5,600 
E) $7,700 
A) $40 
B) $55 
C) $300 
D) $5,600 
E) $7,700

Question 20

The following graph shows the demand and cost curves of an imperfectly competitive firm.MC and ATC represent the marginal cost curve and the average cost curve respectively. Figure 8.1  
- In Table 8.1,in order to maximize profits,the firm should increase output until the ____ unit of output.

Accepted Answer

A) fifth 
B) sixth 
C) seventh 
D) eighth 
E) ninth 
A) fifth 
B) sixth 
C) seventh 
D) eighth 
E) ninth

Exam 8: Profit Maximization

If barriers to entry exist in a market,then:

When the average revenue falls,marginal revenue also falls and is less than the average revenue.

A monopolistically competitive firm faces a relatively steeper demand curve than a perfectly competitive firm.

Which among the following does not determine the shape of the demand curve under different market structures?

Which of the following is true of marginal cost?

A downward-sloping demand curve is faced by firms:

Identify the characteristics of a monopoly firm.

Steve is about to start up a business in a monopolistically competitive market.Which of the following can he expect?

The following graph shows the demand and cost curves of an imperfectly competitive firm.MC and ATC represent the marginal cost curve and the average cost curve respectively. Figure 8.1 -Refer to Figure 8.1.At price P1 the firm sells quantity Q1,and total cost is shown by:

A perfectly competitive firm charges a price which is greater than its marginal cost.

In contrast to both perfect competition and monopolistic competition,an oligopoly market structure is characterized by:

The firm will always maximize profit where average total costs are minimized.

When the average cost curve lies below the average revenue curve at the profit maximizing level of output,it implies that the firm is suffering losses.

A perfectly competitive firm cannot affect the market price by raising or reducing its supply.

Assume that a firm's marginal revenue curve intersects the rising portion of its marginal cost curve at 500 units of output.At this output level,a profit-maximizing firm's total cost of production is $1,000.If the price of the product is $5 per unit,the total revenue earned by the firm will be:

Graphically,total cost is equal to the area of the:

A(n) ____ is a price taker.

Each firm under perfect competition charges different prices for their products.

The figure given below shows the cost curves of a firm. Figure 8.3 ATC: Average Total Cost AVC: Average Variable Cost MC: Marginal Cost -In Figure 8.3,what is the total cost of producing 140 units of the output?

The following graph shows the demand and cost curves of an imperfectly competitive firm.MC and ATC represent the marginal cost curve and the average cost curve respectively. Figure 8.1 - In Table 8.1,in order to maximize profits,the firm should increase output until the ____ unit of output.

Economics: The World Around You

Choice, opportunity Costs, and Specialization

Markets, Demand and Supply, and the Price System

The Market System and the Private and Public Sector

Elasticity: Demand and Supply

Consumer Choice

Supply: The Costs of Doing Business

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Antitrust and Regulation

Market Failures, Government Failures, and Rent Seeking

Resource Markets

The Labor Market

Capital Markets

The Land Market and Natural Resources

Aging, Social Security and Health Care

Income Distribution,Poverty and Government Policy

World Trade Equilibrium

International Trade Restrictions

Exchange Rates and Financial Links Between Countries

Filters

The following graph shows the demand and cost curves of an imperfectly competitive firm.MC and ATC represent the marginal cost curve and the average cost curve respectively. Figure 8.1 -Refer to Figure 8.1.At price P₁ the firm sells quantity Q₁,and total cost is shown by: