QUIZ 3

1. The kinked demand curve of an oligopoly is based on the assumption that

A. Competitors will follow a price cut but ignore a price increases.
B. Competitors will ignore a price cut but follow a price increases.
C. Competitors will match both price cuts and price increases.
D. There is no product differentiation.

2. Many people believe that the monopolies charge any price they want without affecting
sales. Instead, the output level for a profit-maximizing monopoly is determined by

A. Marginal cost = demand.
B. Marginal revenue = demand.
C. Average total cost = demand.
D. Marginal cost = marginal revenue.

3. Which of the following is true of a perfectly competitive firm?
A. The firm is a price maker.
B. If the firm wishes to maximize profits it will produce an output level in which
total revenue equals total cost.
C. The firm will not earn an economic profit in the long run.
D. The firms short run supply curve is its MC curve below its AVC curve.

4. Assume a monopolists marginal cost and marginal revenue curves intersect and the
demand curve passes above its average total cost curve. The firm will:
A. Make an economic profit.
B. Stay in operation in the short run, but shut down in the long run.
C. Shut down in the short run.
D. Lower the price.

5. Competitive firms are assumed to
A. Have demand curves that are perfectly inelastic.
B. Attain its equilibrium where marginal cost is minimized.
C. Advertise in order to increase their market shares.
D. Be price takers.

6. Firms which sell differentiated products are
A. Monopolist
B. Monopsonist
C. In perfect competition.
D. In monopolistic competition.

7. Which of the following is NOT a characteristic of oligopoly?
A. Few firms.
B. No barriers to entry.
C. Standardized or differentiated goods.
D. Concern about rivals action

8. If a firm has no ability to decide on the price of its product, it
A. Is a monopolistically competitive market.
B. Is a price maker.
C. Cannot maximise profit.
D. Faces a horizontal individual demand curve.


9. Monopolists demand curve is
A. Perfectly elastic.
B. Perfectly inelastic.
C. Downward sloping and lie above its marginal revenue curve.
D. Downward sloping and the same as its marginal revenue curve.

10. A perfectly competitive firm should always
A. Earn an economic profit.
B. Increase its price if it is experiencing an economic loss.
C. Produce the quantity where its marginal cost equals its marginal revenue.
D. Produce at the productively efficient level of output.

11. An industry with many firms each producing slightly different product is called
A. A monopoly.
B. An oligopoly.
C. Monopolistic competition.
D. Perfect competitive.

12. The demand curve of a perfectly competitive market is
A. Horizontal straight line.
B. Vertical straight line.
C. Downward sloping.
D. Upward sloping.

13. A perfectly competitive firm will shut down production in the short run if
A. P > AVC
B. P < AVC
C. P > AC
D. P < AC


14. Mutual interdependence applies to action of
A. Monopolistic competitors.
B. Oligopolists.
C. Perfect competitors.
D. Monopolists.

15. Assuming a monopoly firms demand curve is down sloping, its total revenue
A. Increase
B. Decrease
C. Either increase/decrease
D. Neither increase/decrease