FINAL MCQ’S

1. Which of the following is true under monopoly?

A. Profits are always positive.
B. P > MC.
C. P = MR.
D. All of the choices are true for monopoly.
Answer: B

2. In a competitive industry with identical firms, long-run equilibrium is characterized by:

A. P = AC.
B. P = MC.
C. MR = MC.
D. All of the statements associated with this question are correct.
Answer: D

26. Which of the following is true under monopoly?

A. Profits are always positive.
B. P > minimum of ATC.
C. P = MR.
D. None of the preceding answers is correct.
Answer: D

27. In the long run, monopolistically competitive firms:

A. charge prices equal to marginal cost.
B. have excess capacity.
C. produce at the minimum of average total cost.
D. have excess capacity and produce at the minimum of average total cost.
Answer: B

28. If a monopolistically competitive firm's marginal cost increases, then in order to maximize profits, the firm
will:
A. reduce output and increase price.
B. increase output and decrease price.
C. increase both output and price.
D. reduce both output and price.
Answer: A

29. Which of the following market structures would you expect to yield the greatest product variety?
A. Monopoly
B. Monopolistic competition
C. Bertrand oligopoly
D. Perfect competition
Answer: B

31. Which of the following industries is best characterized as monopolistically competitive?

A. Toothpaste
B. Crude oil
C. Agriculture
D. Local telephone service
Answer: A
32. Which of the following is an example of monopoly?
A. Shoe industry in the United States
B. Local utility industry in a small town
C. Newspaper industry in New York City
D. Bread industry in New York City
Answer: B

33. Differentiated goods are a feature of a:

A. perfectly competitive market.
B. monopolistically competitive market.
C. monopolistic market.
D. monopolistically competitive market and monopolistic market.
Answer: B

34. Firms have market power in:

A. perfectly competitive markets.
B. monopolistically competitive markets.
C. monopolistic markets.
D. monopolistically competitive markets and monopolistic markets.
Answer: D

38. Which of the following features is common to both perfectly competitive markets and monopolistically
competitive markets?
A. Firms produce homogeneous goods.
B. There is free entry.
C. Long-run profits are zero.
D. There is free entry and long-run profits are zero.
Answer: D

39. The source(s) of monopoly power for a monopoly may be:

A. economies of scale.
B. economies of scope.
C. patents.
D. All of the statements associated with this question are correct.
Answer: D

40. Economies of scale exist whenever:

A. average total costs decline as output increases.
B. average total costs increase as output increases.
C. average total costs are stationary as output increases.
D. average total costs increase as output increases and average total costs are stationary as output increases.
Answer: A

47. A linear demand function exhibits:

A. constant demand elasticity.
B. more elastic demand as output increases.
C. less elastic demand as output increases.
D. insufficient information to determine.
Answer: C
48. Which of the following is NOT a basic feature of a monopolistically competitive industry?
A. There are many buyers and sellers in the industry.
B. Each firm in the industry produces a differentiated product.
C. There is free entry and exit into the industry.
D. Each firm owns a patent on its product.
Answer: D

49. In the long run, monopolistically competitive firms produce a level of output such that:
A. P > MC.
B. P = ATC.
C. ATC > minimum of average costs.
D. All of the statements associated with this question are correct.
Answer: D

50. Chris raises cows and produces cheese and milk because he enjoys:
A. economies of scale.
B. economies of scope.
C. cost complementarity.
D. None of the preceding answers is correct.
Answer: B

53. In the long run, perfectly competitive firms produce a level of output such that:
A. P = MC.
B. P = minimum of AC.
C. P = MC and P = minimum of AC.
D. None of the preceding answers is correct.
Answer: C

54. A monopoly has produced a product with a patent for the last few years. The patent is going to expire. What
will likely happen to the demand for the patent-holder's product when the patent runs out?
A. Demand will increase.
B. Demand will decline.
C. Nothing.
D. None of the preceding answers is correct.
Answer: B

55. A monopoly has produced a product with a patent for the last few years. The patent is going to expire. What
will happen after the patent expires?
A. The incumbent will leave the market.
B. The incumbent will retain its status as a monopoly but produce at a lower price.
C. Some firms will enter the industry.
D. None of the preceding answers is correct.
Answer: C

66. You are a manager for a monopolistically competitive firm. From experience, the profit-maximizing level of
output of your firm is 100 units. However, it is expected that prices of other close substitutes will fall in the near
future. How should you adjust your level of production in response to this change?
A. Produce more than 100 units.
B. Produce less than 100 units.
C. Produce 100 units.
D. Insufficient information to decide.
Answer: B
73. Which of the following industries is best characterized as monopolistically competitive?
A. Cereal
B. Crude oil
C. Wheat
D. Local electricity service
Answer: A

74. Differentiated goods are NOT a feature of a:

A. perfectly competitive market.
B. monopolistically competitive market.
C. monopolistic market.
D. perfectly competitive market and monopolistic market.
Answer: D

80. In the long run, monopolistically competitive firms charge prices:

A. equal to marginal cost.
B. below marginal cost.
C. equal to the minimum of average total cost.
D. above the minimum of average total cost.
Answer: D

81. There is a market supply curve in a:

A. perfectly competitive market.
B. monopolistically competitive market.
C. monopolistic market.
D. perfectly competitive market and monopolistically competitive market.
Answer: A

11. "An oligopoly is an oligopoly. Firms behave the same no matter what type of oligopoly it is." This statement
is:
A. true.
B. false.
C. true of homogeneous product industries.
D. None of the preceding answers is correct.
Answer: B

34. Since the end of the war in the Persian Gulf, the world price of oil has fallen. But in some areas, consumers
have seen little relief at the pump. This phenomenon can be explained by the theory of:
A. perfect competition.
B. monopolistic competition.
C. oligopoly.
D. monopoly.
Answer: C

39. Which of the following is NOT a type of market structure?

A. Monopolistic competition
B. Perfect competition
C. Monopolistic oligopoly
D. Monopoly
Answer: C
36. Game theory is especially useful for analysis in the following markets:
A. perfect competition
B. monopolistic competition
C. oligopoly
D. monopoly
Answer: C

3. Which of the following is true for perfect competition but not true for monopolistic competition and
monopoly?
A. MC = MR
B. P = MC
C. Positive long run profits
D. P = MC and positive long run profits
Answer: B

14. Cinemas sometimes give senior citizens discounts. What is the possible privately motivated purpose for
them to do so?
A. Purely because entrepreneurs are benevolent.
B. Senior citizens have a more elastic demand for movies than ordinary citizens.
C. Senior citizens lack recreational activities.
D. None of the preceding statements is correct.
Answer: B

Essay Questions

122. Suppose you are the manager of a medium-sized firm that operates in an industry that has a four-firm
concentration ratio of 100 percent. All firms in the industry are of equal size. In order to determine your firm's
optimal output and price, you must obtain information about how rivals would respond to changes in your
decisions. If you were the manager, how would you obtain this information?

Answer:
One method would be to study the history of how rivals responded to changes in your past pricing policies.

134. In the late 1990s, Chrysler announced a new incentive program on its minivans that included subsidized
interest rates and cash allowances. Under the plan, consumers could enjoy financing rates as low as 4.9 percent,
as well as a $500 cash allowance toward the lease or purchase of a new minivan. What changes in sales would
you anticipate if you were the manager of a Dodge/Plymouth franchise, the official dealer of Chrysler? Why?

Answer:
Other things equal, your sales would rise. However, given the oligopolistic nature of the industry, you should anticipate that
automakers like General Motors and Ford would likely counter with similar incentive programs, which would mitigate to some extent
the sales increase you otherwise would have enjoyed.