Economics Quiz

The firm shown in the diagram above qualifies as a natural monopoly because

• the demand curve is downward sloping

• the demand curve lies above the marginal revenue curve

• the average total cost is decreasing in the relevant range of market demand

• the firm can maximize profit with any output level it chooses

• marginal revenue is positive at the profit-maximizing output level

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.

The firm's profit-maximizing output in the short run is

• zero, because P < AVC

• Q₁, because MR = MC

• Q₂, because P = MC

• Q₃, because MC = ATC

• impossible to determine

Which of the following will the firm do in the long run if market conditions do not change?

• It will increase output to Q₂ and lower price to P₂ to minimize losses.

• It will increase output to Q₃ and raise price to P₄ to earn zero economic profit.

• It will produce Q₁ and set price equal to marginal revenue.

• It will exit the industry.

• It will build a larger plant to achieve decreasing returns to scale.

The profit-maximizing combination of output and price for a single-price monopoly is

• Q1 and P1

• Q1 and P2

• Q1 and P4

• Q2 and P3

• Q3 and P2

In the diagram above, the deadweight loss from a profit-maximizing monopolist is represented by area

• FGK

• FHI

• IJK

• GHIK

• OHIQ

Monopolies are inefficient compared to perfectly competitive firms because monopolies

• produce output with average total cost exceeding average revenue

• produce more output than is social desirable

• charge a price less than marginal revenue

• charge a price greater than marginal cost

• charge a price less than average total cost

At the current quantity that a firm is selling, the firm has marginal revenue of $750 and marginal cost of $800. Which of the following is true?

• The firm is maximizing profit.

• The firm’s profits would increase if the firm increased the quantity sold.

• The firm’s profits would increase if the firm decreased the quantity sold.

• The firm earns negative economic profit.

• The firm earns zero accounting profit.

In which market structure is there a single seller and no close substitutes for the product?

• Perfect competition

• Monopolistic competition

• Oligopoly

• Monopoly