Read each question carefully and select the best response. Circle the appropriat
ID: 1173267 • Letter: R
Question
Read each question carefully and select the best response. Circle the appropriate letter of the response and fill in the corresponding circle on your answer sheet.
1. Monopolistic competition differs from perfect competition in that
a) monopolistic competition has barriers to entry.
b) monopolistic competition allows for economic profits in the long run.
c) monopolistic competitive firms sell a product differentiated through marketing and advertising.
d) all of the above.
2. A firm will hire a resource
a) until the extra revenue from employing that resource is equal to the extra cost of hiring that resource.
b) as long as the resource brings in a positive amount of revenue.
c) as long as its marginal product is positive.
d) both b and c.
3. The demand for automobile workers will rise if
a) the wage of automobile workers rises.
b) the wage of automobile workers falls.
c) the demand for automobiles rises.
d) both b and c.
4. Oligopoly is a market structure characterized by
a) a horizontal demand curve.
b) a large number of small firms.
c) one single firm and many buyers
d) interdependence among firms in decision making
5. If UPS hires another worker, UPS will be able to deliver an additional 20 packages an hour. The price of each package is $5. The marginal revenue product (MRP) of this additional worker is equal to
a) $5.
b) $100.
c) $4.
d) 20 packages.
6. The U.S. Justice Dept. scrutinizes mergers in industries where the HHI index is already
a) over 10,000.
b) over 1800.
c) over 500.
d) over 100.
7. A permanent price differential for a resources across two alternative uses suggests that
a) there are nonmonetary differences between the two uses.
b) there is a market failure.
c) the resource demand curve has shifted.
d) the resource supply curve has shifted
8. Consider the graph above. The profit-maximizing price and output for a firm under monopolistic competition is
a) a price of $2 and a quantity of 30.
b) a price of $1 and a quantity of 20.
c) a price of $3 and a quantity of 30.
d) a price of $3 and a quantity of 20.
9. When the wage increases, a consumer will work more because the opportunity cost of leisure and nonmarket work have risen. This is known as the
a) substitution effect.
b) income effect.
c) leisure effect.
d) backward-bending effect.
10. For a monopoly, the deadweight loss represents
a) the diversion of consumer surplus to producer profits.
b) the loss of consumer surplus due to the lower output of a monopoly relative to perfect competition.
c) the loss of consumer surplus due to price discrimination.
d) the costs of antitrust regulation.
11. All else being equal, earnings are higher for jobs that
a) involve greater risk or injury or layoff.
b) require greater training or education.
c) are unionized.
d) all of the above.
12. For a monopoly,
a) marginal revenue is less than price (MR
b) marginal revenue equals price (MR=P) due to a perfectly elastic demand curve.
c) marginal revenue is greater than price (MR >P) due to price discrimination.
d) marginal revenue is less than marginal cost (MR < MC), guaranteeing a profit.
13. In the anti-trust case of the U.S. vs. Microsoft
a) Microsoft was forced to break up portions of its software, browser and operating system businesses.
b) Microsoft was acquitted.
c) the outcome is currently pending on appeal.
d) the case was settled in 2001, with Microsoft agreeing to certain conditions of behavior.
14. When price discrimination occurs
a) the monopolist charges the same profit-maximizing price to all buyers.
b) the firm attempts to convert consumer surplus to economic profit.
c) the buyers with the most inelastic demand will pay the lowest price.
d) both b and c.
15. When firms collude to act as a single monopolist, this is known as
a) price discrimination.
b) a cartel.
c) monopolistic competition.
d) a natural monopoly.
16. A natural monopoly will result when
a) a firm is granted by the government a patent for the exclusive right to make and sell a product.
b) a firm owns most or all of the natural resources needed to produce a product.
c) there are large fixed costs, so the long-run average cost declines over a wide range of output.
d) all of the above.
17. Under the Clayton Act, it is illegal for firms to prohibit a purchaser from dealing with that firm
Explanation / Answer
1) D
2) D
3) D
4) D
5) B
6) B
7) A
8) graph is not visible but the answer will be the point where M.R curve intersects M.C curve
9) A
10) C
11) D
12) A
13) D
14) B
15) B
16) C
17) D
18) D
19) A
20) C
PART II
1) monopoly is ineffecient because the firm, due to lack of competetition, does not focus on improving quality, does not invest much on R&D, does not take care of customer satisfaction, does not try to reduce its average cost of production, instead it will rise the price of its product inorder to increase its revenue. The potential benefits due to monopoly is control over price, the power it has over the market etc.
2) table can be formed as
a)
L P MP MRP
0 0 -- --
1 10 10 20
2 22 11 22
3 32 10.6 21.2
4 40 10 20
5 48 9.6 19.2
6 53 8.8 17.6
7 57 8.1 16.2
8 60 7.5 15
b) if wage is $7 then units of labor is 7 where the profit is maximum which is $65
if wage is $12 then units of labour is 5 where the profit is maximum which is $36
3) graph is not visible
4)
MONOPOLY MONOPOLISTIC COMPETITION
NO OF FIRMS ONE SO MANY
PRODUCT ONE DIFFERENTIATED
FIRM ENTRY/EXIT DIFFICULT EASY
LONG RUN PROFIT HUGE LESS
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