WorksheetsAP Microeconomics Unit 4 Review
Total questions: 50
Worksheet time: 39mins
Name
Class
Date
1.
Which market structure is characterized by a single firm selling a unique product with high barriers to entry?
a)
Perfect competition
b)
Monopolistic competition
c)
Oligopoly
d)
Monopoly
e)
Monopsony
2.
A monopolist maximizes profit by producing the quantity where
a)
P = MC
b)
MR = MC
c)
ATC is minimized
d)
TR is minimized
e)
Demand is perfectly elastic
3.
Relative to a perfectly competitive industry, a profit-maximizing monopolist will typically
a)
produce more output and charge a lower price
b)
produce less output and charge a higher price
c)
produce more output and charge a higher price
d)
produce the efficient output but charge a higher price
e)
charge the same price because demand determines price
4.
Deadweight loss from monopoly arises because
a)
the monopolist produces where P = MC
b)
the monopolist charges a price equal to average variable cost
c)
some mutually beneficial trades (where value exceeds cost) do not occur
d)
consumers receive zero surplus in all cases
e)
marginal cost is always increasing in monopoly
5.
Which of the following is the best example of a barrier to entry that can create a monopoly?
a)
Many small sellers
b)
Perfect information
c)
A patent on a production process
d)
Identical products
e)
Free exit and entry
6.
In the standard monopoly model, marginal revenue is
a)
equal to price at all quantities
b)
greater than price at all quantities
c)
less than price for all units after the first
d)
constant and equal to marginal cost
e)
undefined because monopolists do not face demand
7.
If a monopolist is producing where MR > MC, the firm should
a)
increase output to raise profit
b)
decrease output to raise profit
c)
keep output constant
d)
shut down immediately
e)
raise fixed costs
8.
If a monopolist’s profit-maximizing price is $40 and ATC at that quantity is $32, the monopolist is earning
a)
$8 economic profit per unit
b)
$32 economic profit per unit
c)
$72 economic profit per unit
d)
a loss of $8 per unit
e)
zero economic profit
9.
A natural monopoly is most likely when
a)
marginal costs rise rapidly as output increases
b)
average total cost decreases over the relevant range of output due to economies of scale
c)
demand is perfectly elastic
d)
firms face no fixed costs
e)
there are many close substitutes
10.
A key reason marginal revenue is below price for a monopolist is that to sell an additional unit, the firm must
a)
raise price on previous units
b)
lower price on all units sold
c)
increase fixed costs
d)
increase marginal cost
e)
sell only in foreign markets
11.
Perfect (first-degree) price discrimination would allow a monopolist to
a)
charge one price to all consumers and eliminate all consumer surplus
b)
charge each consumer their maximum willingness to pay, converting consumer surplus into producer surplus
c)
eliminate producer surplus by charging marginal cost
d)
set price equal to ATC and eliminate all profits
e)
sell only at prices above the choke price
12.
For price discrimination to be successful, a firm must be able to
a)
ensure identical products
b)
prevent resale between customers
c)
have perfectly elastic demand
d)
face no fixed costs
e)
produce where P = MC
13.
A movie theater charging a lower ticket price to students than to adults is an example of
a)
bundling
b)
two-part tariff
c)
price discrimination
d)
limit pricing
e)
predatory pricing
14.
Which statement about a monopolistically competitive firm is true in the long run?
a)
It earns positive economic profits because it differentiates its product
b)
It earns zero economic profit because entry erodes profits
c)
It earns losses because advertising is illegal
d)
It produces where P = MC = minimum ATC
e)
It faces a perfectly elastic demand curve
15.
Monopolistic competition is characterized by
a)
many firms, differentiated products, and free entry
b)
few firms, identical products, and high barriers to entry
c)
one firm, unique product, and no substitutes
d)
many firms, identical products, and barriers to entry
e)
one buyer and many sellers
16.
In monopolistic competition, firms advertise and differentiate products primarily to
a)
eliminate marginal cost
b)
make demand more elastic
c)
shift their demand curve to the right and make it less price-elastic
d)
guarantee zero profits
e)
reduce fixed costs to zero
17.
Compared with perfect competition, monopolistic competition tends to have
a)
higher price and lower quantity in the long run
b)
lower price and higher quantity in the long run
c)
the same price and quantity in the long run
d)
higher quantity and lower costs due to standardization
e)
no excess capacity in the long run
18.
Excess capacity in monopolistic competition refers to the fact that in the long run the firm produces
a)
where ATC is minimized
b)
less than the output that would minimize ATC
c)
more than the output that would maximize profit
d)
where MR = P
e)
where economic profit is maximized at minimum ATC
19.
An oligopoly is best described as a market with
a)
many firms producing identical products
b)
a single firm with no close substitutes
c)
a few interdependent firms where each firm’s actions affect the others
d)
many firms producing differentiated products with free entry
e)
one buyer of labor
20.
The defining strategic feature of oligopoly is
a)
perfectly elastic demand
b)
interdependence
c)
zero fixed costs
d)
price taking
e)
no barriers to entry
21.
A kinked demand curve model of oligopoly predicts that prices may be relatively stable because
a)
firms ignore rivals’ output decisions
b)
a price increase leads rivals to increase their prices, so demand becomes more elastic
c)
a price cut is matched by rivals, so demand becomes less elastic for price decreases
d)
marginal cost is constant
e)
oligopolists always maximize social welfare
22.
A cartel is most accurately described as
a)
a legal merger of all firms into one company
b)
an agreement among firms to restrict output or fix prices
c)
a government agency that regulates monopolies
d)
a labor union representing workers
e)
a tax placed on imports
23.
Cartels are often unstable because
a)
firms have an incentive to cheat by lowering prices or increasing output
b)
demand becomes perfectly elastic
c)
fixed costs disappear
d)
marginal revenue becomes greater than price
e)
entry is always impossible
24.
In a typical prisoner’s dilemma setting, the dominant strategy leads to an outcome that is
a)
best for both players
b)
worst for both players
c)
best for one player and worst for the other
d)
mutually beneficial compared with cooperation
e)
the same as perfect competition
25.
If two firms in an oligopoly collude successfully, the most likely result is
a)
higher output and lower prices
b)
lower output and higher prices
c)
prices equal to marginal cost
d)
zero producer surplus
e)
perfect efficiency with no deadweight loss
26.
Which behavior is most consistent with noncollusive oligopoly?
a)
Firms set output where MR = MC independently but consider rivals’ likely reactions
b)
Firms are price takers and cannot affect market price
c)
Firms face perfectly elastic demand
d)
Firms have no incentive to advertise
e)
Firms always earn zero profit in the short run
27.
If an industry becomes more concentrated due to mergers, one likely effect is
a)
demand becomes perfectly elastic for each firm
b)
firms may gain more market power and raise price above marginal cost
c)
firms must charge price equal to marginal cost by law
d)
entry becomes easier, so prices fall to zero
e)
products become identical and profits become negative
28.
A monopolist’s demand curve is
a)
the same as its marginal revenue curve
b)
perfectly elastic at the market price
c)
the market demand curve
d)
always above the market demand curve
e)
always vertical
29.
A monopolistically competitive firm chooses its profit-maximizing quantity where
a)
P = MC
b)
MR = MC
c)
P = minimum ATC
d)
MR = ATC
e)
Demand is perfectly elastic
30.
In the long run, a monopolistically competitive firm sets price
a)
equal to marginal cost
b)
equal to minimum ATC
c)
greater than marginal cost
d)
less than average variable cost
e)
equal to zero
31.
Allocative efficiency occurs at the quantity where
a)
MR = MC
b)
P = MC
c)
P = ATC
d)
TR is maximized
e)
MC intersects AVC
32.
Productive efficiency occurs at the quantity where
a)
P = MC
b)
ATC is minimized
c)
MR = MC
d)
price equals zero
e)
demand is unit elastic
33.
Which market structure is most likely to be both allocatively and productively efficient in the long run?
a)
Monopoly
b)
Monopolistic competition
c)
Oligopoly
d)
Perfect competition
e)
Monopsony
34.
Which best explains why a monopolistically competitive firm is typically NOT productively efficient in the long run?
a)
It produces at minimum ATC because entry is free
b)
It produces where MR = MC at an output less than the minimum-ATC output
c)
It sets price equal to marginal cost
d)
It faces a perfectly elastic demand curve
e)
It has no fixed costs
35.
A firm that can raise price without losing all customers most likely has
a)
perfectly elastic demand
b)
market power due to product differentiation or barriers to entry
c)
no fixed costs
d)
a vertical demand curve for the market
e)
zero marginal cost
36.
Which scenario best describes predatory pricing (as a strategy)?
a)
A firm charges a higher price to consumers with inelastic demand
b)
A firm temporarily sets a very low price to drive competitors out, then raises price later
c)
A firm sets price equal to marginal cost to maximize total surplus
d)
A firm bundles products to reduce transaction costs
e)
A firm increases quality to shift demand right
37.
If a monopolist faces a demand curve with choke price $100 and constant marginal cost of $20, which output choice is most consistent with profit maximization (conceptually)?
a)
Produce where P = $20
b)
Produce where MR = $20 and then set price from the demand curve
c)
Produce at the quantity that minimizes ATC regardless of demand
d)
Produce until total revenue is zero
e)
Produce where MR = P
38.
Which statement best compares monopoly to perfect competition?
a)
Both produce where P = MC, but monopoly charges a lower price
b)
Monopoly produces where MR = MC, while perfect competition produces where P = MC
c)
Monopoly faces perfectly elastic demand, while perfect competition faces downward-sloping demand
d)
Both face the market demand curve directly
e)
Perfect competition can earn long-run profits while monopoly cannot
39.
An oligopolist that expects rivals to match price cuts but not price increases will likely find that
a)
a small decrease in marginal cost can change price dramatically
b)
the demand curve is kinked, creating a discontinuity in marginal revenue
c)
the firm becomes a price taker
d)
collusion becomes impossible by definition
e)
the firm’s demand becomes perfectly inelastic
40.
Which policy is most directly aimed at reducing market power in monopolies and oligopolies?
a)
Price floors on agricultural goods
b)
Antitrust enforcement against collusion or monopolization
c)
Subsidies for public education
d)
A sales tax on all goods
e)
Tariffs on imports
41.
a)
Neither company has a dominant strategy
b)
Both companies have an incentive to reduce production by %10
c)
Both companies have an incentive to reduce production by %20
d)
Only UA have an incentive to reduce production by %20
e)
Only UB have an incentive to reduce production by %20
42.
What is the profit-maximizing price and quantity?
a)
P1, Q1
b)
P2, Q4
c)
P3, Q3
d)
P4, Q2
e)
P5, Q1
43.
Is the firm in short-run or long-run equilibrium?
a)
Short run, because price is greater than marginal cost
b)
Short run, because the firm is earning a positive economic profit
c)
Long run, because price is greater than average total cost
d)
Long run, because marginal revenue is not equal to zero
e)
Either short run or long run, because the firm is producing where marginal revenue equals marginal cost
44.
The graph above shows a firm's cost and revenue curves. This profit-maximizing firm will
a)
charge a higher price than that necessary to maximize revenues
b)
have many profit-maximizing price and quantity combinations
c)
produce where demand is inelastic
d)
never have a region of falling average total cost
e)
be unable to increase sales and total revenues by lowering its price
45.
What is the Nash Equilibrium?
a)
Both fast-food restaurants should choose to concentrate on fries.
b)
Both fast-food restaurants should choose to concentrate on burgers.
c)
Brewer’s should choose to concentrate on fries, and Royal’s should choose to concentrate on burgers.
46.
How much quantity does an unregulated monopolist produce?
a)
Where D=MC
b)
Where MC=MR
c)
Where ATC=MR
d)
Where MC=ATC
47.
What price does an unregulated monopolist charge?
a)
at D, where it crosses MC
b)
at D, above where MC=MR
c)
at the intersection of S and D
d)
Where MC=ATC
48.
Is this firm experiencing economic profit?
a)
Yes, normal economic profit
b)
Yes, positive economic profit
c)
No, zero economic profit
d)
No, negative economic profit
49.
If this monopoly were regulated to produce at the Fair Return level, it would
a)
Produce where MR=MC at price Pm
b)
Produce where MR=ATC at price Pfr
c)
Produce where D=ATC at price Pfr
d)
Produce where D=MC at Qso
50.
What is the profit-maximizing price and quantity?
a)
P1, Q1
b)
P2, Q4
c)
P3, Q3
d)
P4, Q2
e)
P5, Q1
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