Market Structure: Perfect Competition and Monopoly Sample Questions

1. Market Structure:Perfect Competition and MonopolySample Questions AP Economics Mr. Bordelon

2. The marginal revenue received by a firm in a perfectly competitive market: • is greater than the market price. • is less than the market price. • is equal to its average revenue. • increases with the quantity of output sold. • decreases with the quantity of output sold.

3. The marginal revenue received by a firm in a perfectly competitive market: • is greater than the market price. • is less than the market price. • is equal to its average revenue. • increases with the quantity of output sold. • decreases with the quantity of output sold.

4. Which of the following is true? • If price falls below average total cost, the firm will shut down in the short run. • Price and marginal revenue are the same in perfect competition. • Economic profit per unit is found by subtracting AVC from price. • Economic profit is always positive in the short run. • Economic profit is the sum of total fixed and total variable costs.

5. Which of the following is true? • If price falls below average total cost, the firm will shut down in the short run. • Price and marginal revenue are the same in perfect competition. • Economic profit per unit is found by subtracting AVC from price. • Economic profit is always positive in the short run. • Economic profit is the sum of total fixed and total variable costs.

6. The table describes Bart’s perfectly competitive ice cream-producing firm. If the market price is $67.50, how many units of output will the firm produce? • one • two • three • four • five

7. The table describes Bart’s perfectly competitive ice cream-producing firm. If the market price is $67.50, how many units of output will the firm produce? • one • two • three • four • five

8. To maximize economic profit, this firm should produce quantity _____ where _____ = _____. • q1; MR; MC • q2; price; MC • q2; MR; TR • q1; TR; TC • q2; TR; TC

9. To maximize economic profit, this firm should produce quantity _____ where _____ = _____. • q1; MR; MC • q2; price; MC • q2; MR; TR • q1; TR; TC • q2; TR; TC

10. To the left of point C (e.g., at q1): • economic profit is the vertical distance between Curve B and MC. • the firm should increase output to maximize profits. • the firm is maximizing profits. • the firm should decrease output to maximize profits. • the firm should decrease the price to the break-even point.

11. To the left of point C (e.g., at q1): • economic profit is the vertical distance between Curve B and MC. • the firm should increase output to maximize profits. • the firm is maximizing profits. • the firm should decrease output to maximize profits. • the firm should decrease the price to the break-even point.

12. If a perfectly competitive firm is producing a quantity that generates P < MC, then profit: • is maximized. • can be increased by decreasing the price. • can be increased by increasing production. • can be increased by decreasing production. • is negative and less than total fixed cost.

13. If a perfectly competitive firm is producing a quantity that generates P < MC, then profit: • is maximized. • can be increased by decreasing the price. • can be increased by increasing production. • can be increased by decreasing production. • is negative and less than total fixed cost.

14. If price is currently between average variable cost and average total cost, then in the short run a perfectly competitive firm should: • shut down. • continue to produce to minimize losses. • raise price. • increase production to increase profit. • reduce production to increase profit.

15. If price is currently between average variable cost and average total cost, then in the short run a perfectly competitive firm should: • shut down. • continue to produce to minimize losses. • raise price. • increase production to increase profit. • reduce production to increase profit.

16. During the summer, Alex runs a lawn-mowing service, and lawn-mowing is a perfectly competitive industry. In the short run, Alex will shut down his lawn-mowing service rather than continue with it if: • the total revenues can’t cover the total fixed costs. • the total revenues can’t cover the total variable costs. • the total revenues can’t cover the total cost. • the price exceeds the average total cost. • losses are smaller than the total fixed costs.

17. During the summer, Alex runs a lawn-mowing service, and lawn-mowing is a perfectly competitive industry. In the short run, Alex will shut down his lawn-mowing service rather than continue with it if: • the total revenues can’t cover the total fixed costs. • the total revenues can’t cover the total variable costs. • the total revenues can’t cover the total cost. • the price exceeds the average total cost. • losses are smaller than the total fixed costs.

18. At the profit-maximizing quantity of output in the figure, total revenue is $____, total cost is $_____, and profit is $_____. • 90; 14; 76 • 90; 70; 20 • 30; 42; -12 • 48; 56; -8 • 70; 70; 0

19. At the profit-maximizing quantity of output in the figure, total revenue is $____, total cost is $_____, and profit is $_____. • 90; 14; 76 • 90; 70; 20 • 30; 42; -12 • 48; 56; -8 • 70; 70; 0

20. If this firm’s MR curve is MR1, the firm will profit-maximize by producing _____ units of output and its economic profit will be _____. • Q1; positive • Q2; negative • Q3; positive • Q4; negative • Q2; zero

21. If this firm’s MR curve is MR1, the firm will profit-maximize by producing _____ units of output and its economic profit will be _____. • Q1; positive • Q2; negative • Q3; positive • Q4; negative • Q2; zero

22. If this firm’s MR curve is MR2, the firm will profit-maximize by producing _____ units of output and its economic profit will be _____. • Q1; positive • Q2; negative • Q3; positive • Q4; negative • zero; negative

23. If this firm’s MR curve is MR2, the firm will profit-maximize by producing _____ units of output and its economic profit will be _____. • Q1; positive • Q2; negative • Q3; positive • Q4; negative • zero; negative

24. The shut-down point in the short run is: • the point at which economic profit is zero. • the intersection of the MC and AFC curves. • the intersection of the MC and ATC curves. • the minimum point of AFC. • the minimum point of AVC.

25. The shut-down point in the short run is: • the point at which economic profit is zero. • the intersection of the MC and AFC curves. • the intersection of the MC and ATC curves. • the minimum point of AFC. • the minimum point of AVC.

26. If firms are making positive economic profits in the short run, then in the long run: • the short-run industry supply curve will shift leftward. • firms will enter the industry. • industry output will rise and price will rise. • firms will leave the industry. • the price will decrease to where price equals average variable cost.

27. If firms are making positive economic profits in the short run, then in the long run: • the short-run industry supply curve will shift leftward. • firms will enter the industry. • industry output will rise and price will rise. • firms will leave the industry. • the price will decrease to where price equals average variable cost.

28. Suppose that some firms in a perfectly competitive industry are incurring negative economic profits. In the long run, the: • industry supply curve will not shift. • industry supply curve will shift to the left. • number of firms in the industry will not change. • number of firms in the industry will increase. • market price will decrease.

29. Suppose that some firms in a perfectly competitive industry are incurring negative economic profits. In the long run, the: • industry supply curve will not shift. • industry supply curve will shift to the left. • number of firms in the industry will not change. • number of firms in the industry will increase. • market price will decrease.

30. Lilly is the price-taking owner of an apple orchard. Currently the price of apples is high enough that Lilly is earning positive economic profits. In the long run, Lilly should expect: • lower apple prices due to entry of new firms. • higher apple prices due to exit of existing firms. • lower apple prices due to exit of existing firms. • higher apple prices due to entry of new firms. • no change in apple prices.

31. Lilly is the price-taking owner of an apple orchard. Currently the price of apples is high enough that Lilly is earning positive economic profits. In the long run, Lilly should expect: • lower apple prices due to entry of new firms. • higher apple prices due to exit of existing firms. • lower apple prices due to exit of existing firms. • higher apple prices due to entry of new firms. • no change in apple prices.

32. In the long run, firms in a competitive industry will: • minimize average total cost. • earn a positive economic profit. • exit the industry if price is greater than average total cost. • produce an output level at which price is greater than average total cost. • produce a differentiated product.

33. In the long run, firms in a competitive industry will: • minimize average total cost. • earn a positive economic profit. • exit the industry if price is greater than average total cost. • produce an output level at which price is greater than average total cost. • produce a differentiated product.

34. Lenoia runs a natural monopoly producing electricity for a small mountain village. The table shows Lenoia’s demand and total cost of producing electricity. The price effect of increasing production from 3 to 4 megawatts is: • -$150. • $500. • $450. • -$50. • -$400.

35. Lenoia runs a natural monopoly producing electricity for a small mountain village. The table shows Lenoia’s demand and total cost of producing electricity. The price effect of increasing production from 3 to 4 megawatts is: • -$150. • $500. • $450. • -$50. • -$400.

36. Assume there are no fixed costs and AC = MC. In the figure, at the profit-maximizing quantity of production for the monopolist, total revenue is _____, total cost is _____, and profit is _____. • $600; $200; $400 • $1,600; $3,200; $1,600 • $4,800; $3,200; $1,600 • $4,800; $1,600; $3,200 • $1,600; $800; $800

37. Assume there are no fixed costs and AC = MC. In the figure, at the profit-maximizing quantity of production for the monopolist, total revenue is _____, total cost is _____, and profit is _____. • $600; $200; $400 • $1,600; $3,200; $1,600 • $4,800; $3,200; $1,600 • $4,800; $1,600; $3,200 • $1,600; $800; $800

38. The profit-maximizing firm in this figure will produce _____ units of output per week. • 160 • 220 • 250 • 300 • 0

39. The profit-maximizing firm in this figure will produce _____ units of output per week. • 160 • 220 • 250 • 300 • 0

40. This profit-maximizing monopoly firm’s cost per unit at its profit-maximizing quantity is: • $8. • $15. • $16. • $18. • $35.

41. This profit-maximizing monopoly firm’s cost per unit at its profit-maximizing quantity is: • $8. • $15. • $16. • $18. • $35.

42. This profit-maximizing monopoly firm’s price per unit is: • $20. • $26. • $29. • $35. • $16.

43. This profit-maximizing monopoly firm’s price per unit is: • $20. • $26. • $29. • $35. • $16.

44. This profit-maximizing monopoly firm’s profit per unit is: • $5. • $13. • $14. • $20. • $2.

45. This profit-maximizing monopoly firm’s profit per unit is: • $5. • $13. • $14. • $20. • $2.

46. A natural monopoly exists when: • a few firms collude to make one large firm. • economies of scale provide large cost advantages to having one firm produce the industry’s output. • firms naturally maximize profit regardless of market structure. • firms enter the industry as a result of profit incentives. • government creates a natural barrier to entry for other firms.

47. A natural monopoly exists when: • a few firms collude to make one large firm. • economies of scale provide large cost advantages to having one firm produce the industry’s output. • firms naturally maximize profit regardless of market structure. • firms enter the industry as a result of profit incentives. • government creates a natural barrier to entry for other firms.

48. In the figure, the natural monopoly: • would incur an economic profit if regulated to produce where price is less than marginal cost. • would incur an economic profit if regulated to charge a price equal to average total cost. • creates more consumer surplus if regulated to produce either where price equals marginal cost or price equals average total cost. • creates more consumer surplus if regulated to produce where price is above the average total cost. • eliminates consumer surplus if regulated to produce where price is above average total cost.

49. In the figure, the natural monopoly: • would incur an economic profit if regulated to produce where price is less than marginal cost. • would incur an economic profit if regulated to charge a price equal to average total cost. • creates more consumer surplus if regulated to produce either where price equals marginal cost or price equals average total cost. • creates more consumer surplus if regulated to produce where price is above the average total cost. • eliminates consumer surplus if regulated to produce where price is above average total cost.