Unit 4 Review - AP Micro

An industry consists of 100 small firms, and the largest firm accounts for only 2 percent of sales. Brand names are considered a signal of quality. The industry described is best classified as

• monopoly

• perfectly competitive

• monopolistically competitive

• oligopolistic

• monopsonistic

Which of the following is true of both monopolistically competitive and perfectly competitive firms in long-run equilibrium

• marginal revenue equals average total cost

• marginal cost equals average total cost

• price equals average total cost

• price is greater than marginal cost

• production occurs at minimum average total cost

If the three largest widget producers control 85 percent of the total widget market, then these producers are operating in

• an oligopoly

• monopolistic competition

• perfect competition

• a monopoly

• a cartel

The price of an airline ticket is typically lower if a traveler buys the ticket several weeks before the flight's departure date rather than on the day of departure. This pricing strategy is based on the assumption that

• travelers are not aware of how airline prices change across time

• travelers do not alternative modes of transportation

• travelers will pay any price to travel as the departure date approaches

• the marginal cost of the last few seats on an airplane is higher than that for the first few seats

• travelers' demand becomes less elastic as the departure date approaches

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) in the industry will charge a price equal to average total cost

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

Which of the following combinations of output, price, and economic profit is consistent for the profit-maximizing monopolist depicted in the graph above?

• Q1 P1 0P1LQ1

• Q1 P4 P1P4IL

• Q1 P4 P2P4IM

• Q2 P3 P2P3NM

• Q3 P1 P1P2ML

Assume that a profit maximizing monopoly is charging a single price. If the monopoly can price discriminate and charge each consumer what he or she is willing to pay, which of the following will occur?

• The quantity of output produced will increase

• Total cost will decrease

• economic profit will decrease

• consumer surplus will increase

• demand will decrease

In long-run equilibrium, at which of the following output levels will a monopolistically competitive firm operate?

• where long-run average total cost is at a minimum

• where price equals marginal revenue

• where price equals average total cost

• where marginal revenue equals average total cost

• where marginal revenue equals average revenue

Which of the following is necessary for a firm to practice price discrimination?

• the government strictly enforces antitrust laws

• the firm is a member of a cartel

• the firm can prevent resale of its goods

• the demand curve for the product is perfectly inelastic

• the demand curve for the product is perfectly elastic

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

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

• Firms in both types of markets will increase price to increase total revenues when their demand is inelastic

• 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

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

• 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