MULTIPLE CHOICE. Choose the one alternative that best ...

1 Economics 103 Spring 2012: MULTIPLE choice review questions for final exam. Exam will cover chapters on perfectcompetition, monopoly , monopolistic competition and oligopoly up to the Nash equilibriumMULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the )What is the difference between perfect competition and monopolistic competition ?A)Perfect competition has a large number of small firms while monopolistic competitiondoes )In monopolistic competition , firms produce identical goods, while in perfect competition ,firms produce slightly different )Perfect competition has no barriers to entry, while monopolistic competition )In perfect competition , firms produce identical goods, while in monopolistic competition ,firms produce slightly different )Perfect competition has barriers to entry while monopolistic competition does )2)In a perfectly competitive market, the type of decision a firm has to make is different in the shortrun than in the long run.

2 Which of the following is an example of a perfectly competitive firm'sshort-run decision?A)the profit-maximizing level of outputB)whether or not to change its plant sizeC)how much to spend on advertising and sales promotionD)what price to charge buyers for the productE)whether or not to enter or exit an industry2)3)The firm's over-riding objective is toA)maximize economic )avoid an economic )maximize total )maximize normal )earn a normal )4)The price charged by a perfectly competitive firm isA)higher the more the firm )different than the price charged by competing )the same as the market ) )lower the more the firm )5)A profit-maximizing output for a single-price monopoly is determined by the intersection of the_____ curves and the profit-maximizing price is found on the _____ )total revenue and total cost, total revenueB)marginal cost and marginal revenue; marginal revenueC)demand and supply; supplyD)marginal cost and marginal revenue; demandE)marginal cost and average total cost; demand5)6)A single-price monopoly has marginal revenue and marginal cost equal to $19 at 15 units ofoutput where the price on the demand curve is $38.

3 At this output, average total cost is $ is the total profit earned?A)$225B)$570C)$19D)$285E)$3456)17 )Rate of return regulation is designed to allow a natural monopoly toA)underestimate its average )earn zero normal )earn an economic )earn a normal )compete with any firm entering the )8)Which of the following is true about monopolistic competition but false about perfectcompetition?A)Firms can earn an economic profit in the short )There are a large number of independently acting )There are no barriers to )Firms compete on their product's price as well as its quality and )Firms cannot earn an economic profit in the long )9)What does monopolistic competition have in common with monopoly ?

4 A)mutual interdependenceB)the ability to collude with respect to priceC)a large number of firmsD)a downward-sloping demand curveE)barriers to entry9)10)Firms in monopolistic competition have demand curves that areA) ) )downward ) )upward )211)Kevin owns a personal training gymnasium in Orlando. The above figure shows the demandand cost curves for his firm, which competes in a monopolistically competitive market. Kevinwill train how many clients per day?A)between 2 and 4B)6C)10D)4E)None of the above answers is )12)Kevin owns a personal training gymnasium in Orlando. The above figure shows the demandand cost curves for his firm, which competes in a monopolistically competitive market.

5 Whatprice will Kevin charge per session?A)$20B)$80C)$60D)$100E)$4012)13) In monopolistic competition , the products of different sellers areA)similar but slightly )unique without any close or perfect )perfect ) )either identical or )14)When a monopolistically competitive firm's demand curve shifts leftward, what happens to itsmarginal revenue curve?A)It )Nothing, the marginal revenue curve is )It shifts )It shifts ) None of the above is correct because the effect on the marginal revenue curve depends onwhether the demand was initially elastic or )315)Firms in an independent of each others' each influence the market charge a price equal to marginal )i onlyB)i and iiiC)ii onlyD)iii onlyE)i, ii, and iii15)16)When oligopolies seek to operate as a single-price monopoly , the firms produce at the pointwhere.

6 A)MR = )P = )P < )P = )MC = )17)A cartel is a collusive agreement among a number of firms that is designed toA)expand output and lower prices but not to a predatory )expand output and lower prices to a predatory )restrict output and raise )expand output and raise )restrict output and lower prices to a predatory )18)When oligopolies operate like firms in perfect competition , the firms produce at the point wheretheA)price exceeds the average total cost by the greatest )price exceeds the marginal cost by the greatest )marginal cost equals the average total )price is less than the marginal )marginal cost equals the )19)If one firm in a duopoly increases its production by one unit beyond the monopoly output, thatfirm's profit _____, the other firm's profit _____, and the total profit of the )increases; increases; increasesB)increases; decreases; decreasesC)does not change; does not change; does not changeD)increases; does not change; increasesE)increases; decreases.

7 Does not change19)20)A Nash equilibrium is defined asA)each player taking the action that is best for all the )forming a cartel with strong penalties for )earning zero economic profit in the long )relying on other game players to realize the benefit of )each player taking the best possible action given the action of the other )421)In a prisoners' dilemma game, in the Nash equilibriumA)neither player gets his or her best )both players get their best )one player gets his or her best outcome and the other player does )collusion would not alter the )Either answer A or C might be correct depending on whether the players communicatewith each other or do not communicate with each )22)In the prisoners' dilemma, each player is _____ regardless of the other player's )better off confessingB)forced to confessC)better off denyingD)forced to denyE)going to go free22)23)In an oligopoly, output isA)greater than the output in perfect )somewhere between the output in monopoly and that in perfect competition )in all circumstances the same as the output in perfect )less than the output in )in all circumstances the same as the output in )24)Which of the following is true?

8 In the above figure, if the market isA)a monopoly , output will be Q3 and price will be )perfect competition , output will be Q3 and price will be )perfect competition , output will be Q1 and price will be )a monopoly , output will be Q1 and price will be )perfect competition , output will be Q2 and price will be )525)In the above figure, the output of an oligopoly will range betweenA)Q2 and )0 and )Q1 and )Q1 and )0 and )26)A Nash equilibrium in the duopoly gameA)means that one player has greater market )will always lead to equilibrium in which the firms' total profit is the )can occur only if firms cooperate with each )means that a firm must be able to determine its actions and the actions of its )occurs when each player takes the best possible action regardless of the strategy chosen byother )27)The major dilemma facing Boeing and Airbus is theA)fact that neither will respond to the behavior of the )fact that if each firm separately tries to maximize its profit, it might wind up with lessprofit that )fact that when they collude to maximize their profit, the other firm's profit might be largerthan its )certainty surrounding the reaction of each firm to the behavior of the other ) competition from other firms that drives their economic profit to )628)

9 The above figure shows the market demand curve for long-distance telephone calls. Supposethe marginal cost of a long-distance telephone call is 2 a minute for a call no matter how manyminutes of calls are made and there are 3 firms in the industry. If the firms in the industryoperate as perfect competitors, there are _____ minutes of calls made per )between 0 and 3 millionB)more than 3 million and less than or equal to 5 millionC)more than 5 million and less than or equal to 7 millionD)more than 9 millionE)more than 7 million and less than or equal to 9 million28)729)The figure above shows the market demand curve and the ATC curve for a firm. If all firms inthe market have the same ATC curve, the lowest price at which a firm could stay in business inthe long run is _____ per unit and the quantity demanded in the market at that price is_____ units per )$20; 2,000B)$10; 4,000C)$20; 8,000D)$10; 8,000E)$20; 4,00029)30)The figure above shows the market demand curve and the ATC curve for a firm.

10 If all firms inthe market have the same ATC curve, the efficient scale for one firm is _____ units per )2,000B)4,000C)8,000D)10,000E)more than 10,00030)31)Which of the following is correct?A)In the long run, a firm in monopolistic competition earns zero economic profit and itsprice is equal to the minimum average total )In the long run, a firm in monopolistic competition can earn an economic profit because ofproduct )A firm in perfect competition operates at maximum average total cost in the long )In the long run, a firm in monopolistic competition maximizes its profit at a point whereprice is equal to average total cost but the average total cost is not )A firm in monopolistic competition does not have excess capacity in the long )832)A cartel is most likely to occur inA)perfect competition as firms compete by reducing )