Download key included - Boise State University

AP Economics
Quiz 05: Theory of the Firm 02
Name: ______________________
Date: _______________________
Here is a quick review of perfectly competitive firms:
Identify the following:
OGKC 1.
Rectangle of Total Revenue for this firm (4 letters)
K
2.
Point where MR=MC (1 letter)
HJ
3.
Per unit average fixed cost (2 letters – line segment)
JK
4.
Per unit profit (2 letters – line segment)
M
5.
Minimum Average total cost (1 letter)
JFGK 6.
Rectangle of economic profit (4 letters)
R
The beginning of the firm’s supply curve (1 letter)
7.
_____ 8. Given the same cost data, a monopolistic producer will charge: ___.
a.
the same price and produce the same output as a competitive firm
b.
a higher price and produce a larger output than a competitive firm
c.
a higher price and produce a smaller output than a competitive firm
d.
a lower price and produce a smaller output than a competitive firm
e.
a lower price and produce a larger output than a competitive firm
Orf/Purpura
AP-IB Econ
2010-2011
_____ 9. Price discrimination refers to: ___.
a.
selling a given product for different prices at two different points in time
b.
any price above that which is equal to a minimum average total cost
c.
the selling of a given product at different prices that do not reflect cost differences
d.
the difference between the prices of a purely competitive seller and a purely
monopolist seller would charge
_____ 10. Which of the following statements is true for a monopolist at the profit maximizing output
level?
a.
price exceeds marginal revenue
b.
marginal cost exceeds price
c.
demand is price inelastic
d.
profit maximization happens when the demand curve intersects the supply curve.
e.
price equals marginal cost, which equals average total cost
_____ 11. A natural monopoly occurs when: ___.
a.
long-run average costs decline continuously through the range of demand
b.
a firm owns or controls some resource which is essential to production
c.
long-run average costs rise continuously as output is increased
d.
economics of scale disappear quickly
e.
minimum average costs are never reached
_____ 12. Which of the following is true in the elastic range of the firm’s demand curve?
a.
the firm should expand output to increase economic profits
b.
an increase in price will also lead to an increase in total costs
c.
a decrease in the price will likely lead to an increase in total revenue
d.
marginal revenue is negative
e.
the firm is maximizing total revenue
_____ 13. The practice of price discrimination is associated with pure monopoly because: ___.
a.
it can be practiced whenever a firm’s demand curve is down-sloping
b.
most monopolists sell differentiated products
c.
monopolists have considerable ability to control output and price
d.
monopolists usually realize economies of scale
e,
these firms sell “special goods”
_____ 14. For a monopoly, allocative efficiency occurs at the point where: ___.
a.
marginal costs intersects with average variable cost (MC=AVC)
b.
price is equal to average revenue (P=AR)
c.
price is equal to marginal cost (P=MC)
d.
price is equal to average variable cost (P=AVC)
_____ 15. Productive efficiency refers to: ___.
a.
any short-run equilibrium position of a competitive firm
b.
the production of the product-mix most desired by consumers
c.
the production of a good at the lowest average costs (P=min ATC)
d.
fulfilling the condition P=MC
Orf/Purpura
AP-IB Econ
2010-2011
____16.
A key characteristic of monopolistic competition is:
a. few dominant firms and low entry barriers
b. relatively large number of firms and substantial entry barriers
c. relatively large number of firms and low entry barriers
d. few dominant firms and substantial entry barriers
____17.
Monopolistically competitive firms:
a. realize normal profits in the short run but losses in the long run
b. tend to incur persistent losses in both short and long run
c. may realize either profits or losses in the short run, but tend to realize only
small economic profits in the long run
d. persistently realize economic profit in both the short run and the long run
____18.
Economic analysis of a monopolistically competitive industry is more complicated than
that of pure competition because:
a. the number of firms in the industry is larger
b. monopolistically competitive cannot realize an economic profit in the long run
c. of product differentiation and consequent product promotion activities
d. Monopolistically competitive producers are mutually interdependent in their
pricing strategies
____19.
A Monopolistically competitive firm has a
a. relatively elastic demand curve
b. perfectly inelastic demand curve
c. relatively inelastic demand curve
d. perfectly elastic demand curve
____20.
The monopolistically competitive seller maximizes profits by producing at the
point where:
a. total revenue is at a maximum
b. average costs are at a minimum
c. marginal revenue = marginal cost
d. price = marginal revenue
e. marginal revenue = average cost
____21.
When a monopolistically competitive firm is in long-run equilibrium
a. production takes place where ATC is minimized
b. marginal revenue equals marginal cost and price is near average total cost
c. normal profits are zero and price equals marginal cost
d. economic profits are zero and price equals marginal cost
____22.
The demand curve of a monopolistically competitive producer is:
a. perfectly elastic and derived from the market price
b. less elastic than that of either a pure monopolist or purely competitive seller
c. less elastic than that of a pure monopolist, but more elastic than that of a purely
competitive seller
d. more elastic than a pure monopolist, & less elastic than a purely competitive
seller
e. more elastic than that of a pure monopolist or a purely competitive seller
Orf/Purpura
AP-IB Econ
2010-2011
____23.
In equilibrium, a monopolistic competitor achieves:
a. neither productive efficiency nor allocative efficiency
b. both productive efficiency and allocative efficiency
c. productive efficiency but not allocative efficiency
d. allocative efficiency but not productive efficiency
____24.
Non price competition refers to:
a. competition between products of different industries
b. price increases by a firm, which is ignored by its rivals
c. advertising, product promotion, and changes in the real or perceived
characteristics of a product
d. reductions in production costs that are not reflected in price reductions
____25.
Concentration ratios measure
a. geographic location of the largest corporation in each industry
b. degree to which product price exceeds marginal cost in various industries
c. percentage of total sales accounted for by the four largest firms in the industry
d. number of firms in an industry
____26.
Mutual interdependence means that each oligopolistic firm
a. faces a perfectly elastic demand for its product
b. must consider the reactions of its rivals when it determines its price policy
c. produces a product identical to the products produced by its rivals
d. produces a product similar but not identical to the products of its rivals
____27.
If the several oligopolistic firms, which comprise an industry, behave collusively,
the resulting price and output will most likely resemble that of
a. regulated monopoly
b. monopolistic competition
c. perfect competition
d. unregulated monopoly
____28.
Which of the following best characterizes the firms in the oligopoly industry?
a. there are more than 2 but less than 10
b. there are more than in a monopolistically competitive industry
c. they are independent
d. they collude to increase their profits
e. they use strategic decision-making
____29.
Game theory is an explanation for the profit- maximizing behavior of a firm under
which of the following market structures?
a. Perfect competition
b. Oligopoly
c. Pure monopoly
d. Monopolistic competition
e. All of the above
Orf/Purpura
AP-IB Econ
2010-2011
____30.
A strategy that gives the player the best outcome regardless of the action of the
other player is called:
a. Nash Equilibrium
b. Dominated
c. Dominant
d. prisoner’s dilemma
Questions 31-33 refer to the payoff matrix below.
ACME
Advertise
Don’t Advertise
Advertise
Acme: 150
AAA: 150
Acme: -100
AAA: 400
Don’t
Advertise
Acme: 400
AAA: -100
Acme: 0
AAA: 0
AAA
Acme and AAA are the two major firms in the industry. Each must decide whether to conduct a television
advertising campaign. The returns from each firm’s decision depend on the decision of the other. The
profits resulting from each possible combination of the firm’s decisions are given in the payoff matrix
above.
___31. If AAA advertises and Acme does not, Acme will make how much as a result of their
advertising?
a.
-$100
b.
$0
c.
$150
d.
$300
e.
$400
___32. If AAA advertises, Acme: ___.
a.
will decide not to advertise because that is its dominant strategy
b.
will advertise because that is its dominant strategy
c.
does not have a dominant strategy
d.
loses money
e.
will increase its profits by $400 if it advertises
___33. Which of the following statements are true?
a.
If AAA advertises, Acme’s dominant strategy is to advertise
b.
If Acme advertises, AAA’s dominant strategy is not to advertise
c.
the two firms are in a “prisoner’s dilemma” game
d.
the two firms would be better off to agree to save their money and not to advertise
e.
a collusive agreement to advertise would benefit both firms
Orf/Purpura
AP-IB Econ
2010-2011
___34. As its output increases, a firm’s short-run marginal cost will eventually increase
because of
(a)
diseconomies of scale
(b)
a lower product price
(c)
inefficient production
(d)
the firm’s need to break even
(e)
diminishing returns
Orf/Purpura
AP-IB Econ
2010-2011