AP Econ Unit 4.1 Practice

Which of the following is more likely to occur when there are high barriers to entry in an industry?

• The firm(s) in the industry earn economic profits in the long run.

• The industry will be characterized by diseconomies of scale.

• The firm(s) in the industry are price takers.

• The firm(s) will charge a price on the inelastic portion of the demand curve.

Which of the following is most likely to occur if the firm increases production beyond 10 units?

• The firm would definitely experience a loss.

• The firm would have to lower its price to sell more than 10 units.

• The firm's average cost of production would initially increase.

• The firm's profits would increase.

Which of the following statements relating to a firm in an imperfectly competitive market and a firm in a perfectly competitive market is true?

• Barriers to entry give both imperfectly competitive and perfectly competitive firms market power to raise price.

• Firms in both types of markets will likely advertise the merits of their products to increase sales.

• As their product becomes different from their competitors’ product, both an imperfectly competitive firm and a perfectly competitive firm will face less elastic consumer demand.

• An imperfectly competitive firm must lower its price to increase sales, while a perfectly competitive firm can increase sales by increasing output at the current price.

Which of the following statements relating to a firm in an imperfectly competitive market and a firm in a perfectly competitive market is true?

• Both imperfectly competitive and perfectly competitive firms face no barriers to entry.

• When an imperfectly competitive firm raises the price, it will likely continue to sell some units of output, but when a perfectly competitive firm raises the price, it will sell no output.

• An imperfectly competitive firm and a perfectly competitive firm have a marginal revenue that equals the product price.

• An imperfectly competitive firm does not experience diminishing returns, while a perfectly competitive firm experiences diminishing returns.

If Zeta, a single producer, had exclusive control of a key resource needed to produce good ZZ , a likely result would be which of the following?

• Slight differences in output would lead to good ZZ being in a monopolistically competitive market.

• Zeta must have decreasing returns to scale and operate as a natural monopoly in producing good ZZ.

• Good ZZ would be produced in a perfectly competitive market.

• There would be a barrier to entry, and Zeta would have a monopoly on good ZZ.

If there are many firms in an industry and each firm’s product is indistinguishable from the products of all other firms, the individual firm’s demand curve will be

• downward sloping and different for each firm

• horizontal and identical for every firm

• downward sloping and identical for every firm

• upward sloping and different for each firm

Which of the following is a characteristic of firms in a perfectly competitive industry?

• Earning positive long-run economic profit

• Engaging in collusive behavior

• Producing identical products

• Facing significant barriers to entry

If a perfectly competitive firm is producing where marginal cost is rising and greater than marginal revenue, to maximize profits it should

• decrease the level of production

• increase the level of production

• increase price

• decrease price