Transcript Perfect Competition and Monopoly Sample Questions

Market Structure:
Perfect Competition and
Monopoly
Sample Questions
AP Economics
Mr. Bordelon
The marginal revenue received by a firm in a
perfectly competitive market:
a. is greater than the market price.
b. is less than the market price.
c. is equal to its average revenue.
d. increases with the quantity of output sold.
e. decreases with the quantity of output sold.
The marginal revenue received by a firm in a
perfectly competitive market:
a. is greater than the market price.
b. is less than the market price.
c. is equal to its average revenue.
d. increases with the quantity of output sold.
e. decreases with the quantity of output sold.
Which of the following is true?
a. If price falls below average total cost, the firm
will shut down in the short run.
b. Price and marginal revenue are the same in
perfect competition.
c. Economic profit per unit is found by subtracting
AVC from price.
d. Economic profit is always positive in the short
run.
e. Economic profit is the sum of total fixed and
total variable costs.
Which of the following is true?
a. If price falls below average total cost, the firm
will shut down in the short run.
b. Price and marginal revenue are the same in
perfect competition.
c. Economic profit per unit is found by subtracting
AVC from price.
d. Economic profit is always positive in the short
run.
e. Economic profit is the sum of total fixed and
total variable costs.
Output
Total Cost
0
$10
1
60
2
80
3
110
4
170
5
245
The table describes Bart’s perfectly competitive ice creamproducing firm. If the market price is $67.50, how many
units of output will the firm produce?
a. one
b. two
c. three
d. four
e. five
Output
Total Cost
0
$10
1
60
2
80
3
110
4
170
5
245
The table describes Bart’s perfectly competitive ice creamproducing firm. If the market price is $67.50, how many
units of output will the firm produce?
a. one
b. two
c. three
d. four
e. five
To maximize economic profit, this firm should produce quantity
_____ where _____ = _____.
a. q1; MR; MC
b. q2; price; MC
c. q2; MR; TR
d. q1; TR; TC
e. q2; TR; TC
To maximize economic profit, this firm should produce quantity
_____ where _____ = _____.
a. q1; MR; MC
b. q2; price; MC
c. q2; MR; TR
d. q1; TR; TC
e. q2; TR; TC
To the left of point C (e.g., at q1):
a. economic profit is the vertical distance between Curve B and
MC.
b. the firm should increase output to maximize profits.
c. the firm is maximizing profits.
d. the firm should decrease output to maximize profits.
e. the firm should decrease the price to the break-even point.
To the left of point C (e.g., at q1):
a. economic profit is the vertical distance between Curve B and
MC.
b. the firm should increase output to maximize profits.
c. the firm is maximizing profits.
d. the firm should decrease output to maximize profits.
e. the firm should decrease the price to the break-even point.
If a perfectly competitive firm is producing a quantity that
generates P < MC, then profit:
a. is maximized.
b. can be increased by decreasing the price.
c. can be increased by increasing production.
d. can be increased by decreasing production.
e. is negative and less than total fixed cost.
If a perfectly competitive firm is producing a quantity that
generates P < MC, then profit:
a. is maximized.
b. can be increased by decreasing the price.
c. can be increased by increasing production.
d. can be increased by decreasing production.
e. is negative and less than total fixed cost.
If price is currently between average variable cost and average
total cost, then in the short run a perfectly competitive firm
should:
a. shut down.
b. continue to produce to minimize losses.
c. raise price.
d. increase production to increase profit.
e. reduce production to increase profit.
If price is currently between average variable cost and average
total cost, then in the short run a perfectly competitive firm
should:
a. shut down.
b. continue to produce to minimize losses.
c. raise price.
d. increase production to increase profit.
e. reduce production to increase profit.
During the summer, Alex runs a lawn-mowing service, and lawnmowing is a perfectly competitive industry. In the short run,
Alex will shut down his lawn-mowing service rather than
continue with it if:
a. the total revenues can’t cover the total fixed costs.
b. the total revenues can’t cover the total variable costs.
c. the total revenues can’t cover the total cost.
d. the price exceeds the average total cost.
e. losses are smaller than the total fixed costs.
During the summer, Alex runs a lawn-mowing service, and lawnmowing is a perfectly competitive industry. In the short run,
Alex will shut down his lawn-mowing service rather than
continue with it if:
a. the total revenues can’t cover the total fixed costs.
b. the total revenues can’t cover the total variable costs.
c. the total revenues can’t cover the total cost.
d. the price exceeds the average total cost.
e. losses are smaller than the total fixed costs.
At the profit-maximizing quantity of output in the figure, total
revenue is $____, total cost is $_____, and profit is $_____.
a. 90; 14; 76
b. 90; 70; 20
c. 30; 42; -12
d. 48; 56; -8
e. 70; 70; 0
At the profit-maximizing quantity of output in the figure, total
revenue is $____, total cost is $_____, and profit is $_____.
a. 90; 14; 76
b. 90; 70; 20
c. 30; 42; -12
d. 48; 56; -8
e. 70; 70; 0
If this firm’s MR curve is MR1, the firm will profit-maximize by
producing _____ units of output and its economic profit will be
_____.
a. Q1; positive
b. Q2; negative
c. Q3; positive
d. Q4; negative
e. Q2; zero
If this firm’s MR curve is MR1, the firm will profit-maximize by
producing _____ units of output and its economic profit will be
_____.
a. Q1; positive
b. Q2; negative
c. Q3; positive
d. Q4; negative
e. Q2; zero
If this firm’s MR curve is MR2, the firm will profit-maximize by
producing _____ units of output and its economic profit will be
_____.
a. Q1; positive
b. Q2; negative
c. Q3; positive
d. Q4; negative
e. zero; negative
If this firm’s MR curve is MR2, the firm will profit-maximize by
producing _____ units of output and its economic profit will be
_____.
a. Q1; positive
b. Q2; negative
c. Q3; positive
d. Q4; negative
e. zero; negative
The shut-down point in the short run is:
a. the point at which economic profit is zero.
b. the intersection of the MC and AFC curves.
c. the intersection of the MC and ATC curves.
d. the minimum point of AFC.
e. the minimum point of AVC.
The shut-down point in the short run is:
a. the point at which economic profit is zero.
b. the intersection of the MC and AFC curves.
c. the intersection of the MC and ATC curves.
d. the minimum point of AFC.
e. the minimum point of AVC.
If firms are making positive economic profits in the short run,
then in the long run:
a. the short-run industry supply curve will shift leftward.
b. firms will enter the industry.
c. industry output will rise and price will rise.
d. firms will leave the industry.
e. the price will decrease to where price equals average
variable cost.
If firms are making positive economic profits in the short run,
then in the long run:
a. the short-run industry supply curve will shift leftward.
b. firms will enter the industry.
c. industry output will rise and price will rise.
d. firms will leave the industry.
e. the price will decrease to where price equals average
variable cost.
Suppose that some firms in a perfectly competitive industry are
incurring negative economic profits. In the long run, the:
a. industry supply curve will not shift.
b. industry supply curve will shift to the left.
c. number of firms in the industry will not change.
d. number of firms in the industry will increase.
e. market price will decrease.
Suppose that some firms in a perfectly competitive industry are
incurring negative economic profits. In the long run, the:
a. industry supply curve will not shift.
b. industry supply curve will shift to the left.
c. number of firms in the industry will not change.
d. number of firms in the industry will increase.
e. market price will decrease.
Lilly is the price-taking owner of an apple orchard. Currently the
price of apples is high enough that Lilly is earning positive
economic profits. In the long run, Lilly should expect:
a. lower apple prices due to entry of new firms.
b. higher apple prices due to exit of existing firms.
c. lower apple prices due to exit of existing firms.
d. higher apple prices due to entry of new firms.
e. no change in apple prices.
Lilly is the price-taking owner of an apple orchard. Currently the
price of apples is high enough that Lilly is earning positive
economic profits. In the long run, Lilly should expect:
a. lower apple prices due to entry of new firms.
b. higher apple prices due to exit of existing firms.
c. lower apple prices due to exit of existing firms.
d. higher apple prices due to entry of new firms.
e. no change in apple prices.
In the long run, firms in a competitive industry will:
a. minimize average total cost.
b. earn a positive economic profit.
c. exit the industry if price is greater than average total cost.
d. produce an output level at which price is greater than
average total cost.
e. produce a differentiated product.
In the long run, firms in a competitive industry will:
a. minimize average total cost.
b. earn a positive economic profit.
c. exit the industry if price is greater than average total cost.
d. produce an output level at which price is greater than
average total cost.
e. produce a differentiated product.
Quantity (Megawatts)
Price per Megawatt
Total Cost
1
$550
$1,000
2
500
1,075
3
450
1,200
4
400
1,375
5
350
1,600
6
300
1,875
7
250
2,200
8
200
2,575
Lenoia runs a natural monopoly producing electricity for a small mountain
village. The table shows Lenoia’s demand and total cost of producing electricity.
The price effect of increasing production from 3 to 4 megawatts is:
a. -$150.
b. $500.
c. $450.
d. -$50.
e. -$400.
Quantity (Megawatts)
Price per Megawatt
Total Cost
1
$550
$1,000
2
500
1,075
3
450
1,200
4
400
1,375
5
350
1,600
6
300
1,875
7
250
2,200
8
200
2,575
Lenoia runs a natural monopoly producing electricity for a small mountain
village. The table shows Lenoia’s demand and total cost of producing electricity.
The price effect of increasing production from 3 to 4 megawatts is:
a. -$150.
b. $500.
c. $450.
d. -$50.
e. -$400.
Assume there are no fixed costs and AC = MC. In the figure, at the
profit-maximizing quantity of production for the monopolist, total
revenue is _____, total cost is _____, and profit is _____.
a. $600; $200; $400
b. $1,600; $3,200; $1,600
c. $4,800; $3,200; $1,600
d. $4,800; $1,600; $3,200
e. $1,600; $800; $800
Assume there are no fixed costs and AC = MC. In the figure, at the
profit-maximizing quantity of production for the monopolist, total
revenue is _____, total cost is _____, and profit is _____.
a. $600; $200; $400
b. $1,600; $3,200; $1,600
c. $4,800; $3,200; $1,600
d. $4,800; $1,600; $3,200
e. $1,600; $800; $800
The profit-maximizing firm in this figure will produce _____ units of
output per week.
a. 160
b. 220
c. 250
d. 300
e. 0
The profit-maximizing firm in this figure will produce _____ units of
output per week.
a. 160
b. 220
c. 250
d. 300
e. 0
This profit-maximizing monopoly firm’s cost per unit at its profitmaximizing quantity is:
a. $8.
b. $15.
c. $16.
d. $18.
e. $35.
This profit-maximizing monopoly firm’s cost per unit at its profitmaximizing quantity is:
a. $8.
b. $15.
c. $16.
d. $18.
e. $35.
This profit-maximizing monopoly firm’s price per unit is:
a. $20.
b. $26.
c. $29.
d. $35.
e. $16.
This profit-maximizing monopoly firm’s price per unit is:
a. $20.
b. $26.
c. $29.
d. $35.
e. $16.
This profit-maximizing monopoly firm’s profit per unit is:
a. $5.
b. $13.
c. $14.
d. $20.
e. $2.
This profit-maximizing monopoly firm’s profit per unit is:
a. $5.
b. $13.
c. $14.
d. $20.
e. $2.
A natural monopoly exists when:
a. a few firms collude to make one large firm.
b. economies of scale provide large cost advantages to having one
firm produce the industry’s output.
c. firms naturally maximize profit regardless of market structure.
d. firms enter the industry as a result of profit incentives.
e. government creates a natural barrier to entry for other firms.
A natural monopoly exists when:
a. a few firms collude to make one large firm.
b. economies of scale provide large cost advantages to having one
firm produce the industry’s output.
c. firms naturally maximize profit regardless of market structure.
d. firms enter the industry as a result of profit incentives.
e. government creates a natural barrier to entry for other firms.
In the figure, the natural monopoly:
a. would incur an economic profit if regulated to produce where price is
less than marginal cost.
b. would incur an economic profit if regulated to charge a price equal to
average total cost.
c. creates more consumer surplus if regulated to produce either where
price equals marginal cost or price equals average total cost.
d. creates more consumer surplus if regulated to produce where price is
above the average total cost.
e. eliminates consumer surplus if regulated to produce where price is
above average total cost.
In the figure, the natural monopoly:
a. would incur an economic profit if regulated to produce where price is
less than marginal cost.
b. would incur an economic profit if regulated to charge a price equal to
average total cost.
c. creates more consumer surplus if regulated to produce either where
price equals marginal cost or price equals average total cost.
d. creates more consumer surplus if regulated to produce where price is
above the average total cost.
e. eliminates consumer surplus if regulated to produce where price is
above average total cost.