Question 1

In a competitive industry with identical firms, long-run equilibrium is characterized by

Accepted Answer

A) P > min ATC. 
B) P < AVC. 
C) MR = MC = min ATC. 
D) MR < P.

Question 2

Suppose a monopolist knows the own-price elasticity of demand for its product is -3 and that its marginal cost of production is constant MC(Q) = 10.To maximize its profit, the monopoly price is

Accepted Answer

A) $1.50 per unit. 
B) $6.67 per unit 
C) $10 per unit. 
D) $15 per unit.

Question 3

A firm can produce two products with the cost function C(Q1, Q2) = 10 + 5Q1 + 5Q2 - 0.2Q1Q2.The firm enjoys:

Accepted Answer

A) economies of scale in the two products separately. 
B) economies of scope. 
C) cost complementarity. 
D) economies of scale in the two products separately and cost complementarity.

Question 4

In a competitive industry with identical firms, long run equilibrium is characterized by

Accepted Answer

A) P > AC. 
B) P < MC. 
C) MR = MC. 
D) MR < P.

Question 5

Which of the following features is common to both perfectly competitive markets and monopolistically competitive markets?

Accepted Answer

A) Firms produce homogeneous goods. 
B) There is free entry. 
C) Long run profits are zero. 
D) There is free entry and long run profits are zero.

Question 6

Which of the following is a correct representation of the profit maximization condition for a monopoly?

Accepted Answer

A) P = MR. 
B) MC = MR. 
C) P = ATC + MR. 
D) MR = MC + ATC.

Question 7

Economies of scale exist whenever:

Accepted Answer

A) average total costs decline as output increases. 
B) average total costs increase as output increases. 
C) average total costs are stationary as output increases. 
D) average total costs increase as output increases and average total costs are stationary as output increases.

Question 8

In the long-run, monopolistically competitive firms:

Accepted Answer

A) charge prices equal to marginal cost. 
B) have excess capacity. 
C) produce at the minimum of average total cost. 
D) have excess capacity and produce at the minimum of average total cost.

Question 9

You are the manager of a firm that sells its product in a competitive market at a price of $40.Your firm's cost function is C = 60 + 4Q2.Your firm's maximum profits are

Accepted Answer

A) 36. 
B) 60. 
C) 40. 
D) 80.

Question 10

Firms have market power in:

Accepted Answer

A) perfectly competitive markets. 
B) monopolistically competitive markets. 
C) monopolistic markets. 
D) monopolistically competitive markets and monopolistic markets.

Question 11

The second-order condition for a firm maximizing its profit operating in a monopolistically competitive market is

Accepted Answer

A) - (d2C(Q) / dQ2) 2R (Q) / dQ2) - (d2C(Q) / dQ2) 2R (Q) / dQ2) = (d2C(Q) / dQ2). 
D) (dMR / dQ) > (dMC / dQ).

Question 12

You are the manager of a monopoly that faces a demand curve described by P = 63 - 5Q.Your costs are C = 10 + 3Q.The revenue maximizing output is

Accepted Answer

A) 10/63. 
B) 5. 
C) 6.3. 
D) none of the statements associated with this question are correct.

Question 13

You are the manager of a firm that sells its product in a competitive market at a price of $48.Your firm's cost function is C = 60 + 2Q2.Your firm's maximum profits are

Accepted Answer

A) $192. 
B) $228. 
C) $348. 
D) $576.

Question 14

What is the primary facet of monopolistic competition that does not allow for the presence of long-run profits? If firms are making short-run profits in a monopolistically competitive industry, what will eventually occur that will cause long-run economic profits to be zero?

Accepted Answer

The answer of What is the primary facet of monopolistic...

Question 15

Which of the following statements is not correct about monopoly?

Accepted Answer

A) A monopolist generally faces a downward sloping demand curve. 
B) Monopolists always make positive profits in the long-run. 
C) A monopoly may make negative profits in the short-run. 
D) There is no close substitute for a monopoly's product.

Question 16

Consider a monopoly where the inverse demand for its product is given by P = 50 - 2Q.Total costs for this monopolist are estimated to be C(Q) = 100 + 2Q + Q2.At the profit-maximizing combination of output and price, deadweight loss is

Accepted Answer

A) $32. 
B) $64. 
C) $128. 
D) cannot be determined with the given information.

Question 17

There is a market supply curve in a

Accepted Answer

A) perfectly competitive market. 
B) monopolistically competitive market. 
C) monopolistic market. 
D) perfectly competitive market and monopolistically competitive market.

Question 18

The second-order condition for a monopoly maximizing its profit is

Accepted Answer

A) (d2R (Q) / dQ2) - (d2C(Q) / dQ2) 2R (Q) / dQ2) - (d2C(Q) / dQ2) = 0. 
C) (dMR / dQ) 2R (Q) / dQ2) - (d2C(Q) / dQ2) < 0 or (dMR / dQ) < (dMC / dQ).

Question 19

Which of the following market structures would you expect to yield the greatest product variety?

Accepted Answer

A) Monopoly. 
B) Monopolistic Competition. 
C) Bertrand Oligopoly. 
D) Perfect Competition.

Question 20

A monopoly has two production plants with cost functions C1 = 50 + 0.1 Q12 and C2 = 30 + 0.05 Q22.The demand it faces is Q = 500 - 10 P.What is the profit maximizing price?

Accepted Answer

A) $12.5 per unit. 
B) $6.25 per unit. 
C) $31.25 per unit. 
D) $18.75 per unit.

Exam 8: Managing in Competitive, Monopolistic, and Monopolistically Competitive Markets