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AP Economics:
Monopolies and Theory of the Firm Review MCs
April 30, 2015
1. How does a monopoly differ from a perfectly competitive industry with the same costs?
i. It produces a smaller quantity
ii. It charges a higher price
iii. It earns normal profits in the long run
a. i only
b. ii only
c. iii only
d. i and ii only
e. i, ii and iii
2. Which of the following government actions is the most common for a natural monopoly
in the United States?
a. Prevent its formation
b. Break it up using anti-trust laws
c. Use price regulation
d. Public ownership
e. Elimination of the market
3. A price discriminating monopolist will charge a higher price to consumers with
a. A more inelastic demand
b. A less inelastic demand
c. Higher income
d. Lower willingness to pay
e. Less experience in the market
4. Oligopolists engage in which of the following types of behavior?
i. Quantity competition
ii. Price competition
iii. Cooperative behavior
a. i only
b. ii only
c. iii only
d. i and ii only
e. I, ii and iii
5. Which of the following types of oligopolistic behavior are illegal?
i. Tacit collusion
ii. Cartel formation
iii. Tit for tat
a. i only
b. ii only
c. iii only
d. i and ii only
e. I, ii and iii
For questions 6-8, refer to the graph below.
6. If a monopoly is regulated so as to have it produce the socially optimal output level,
what price should it charge?
a. P1
b. P2
c. P3
d. P4
e. It cannot produce a socially optimal output level
7. If a regulating agency requires this monopoly to charge a price that allows the firm to
have a fair return (where all costs are covered, including a normal profit), the price
would be
a. P1
b. P2
c. P3
d. P4
e. It cannot produce a fair return output level
8. The lowest regulated price the government could expect this monopolist to maintain in
the long run is
a. P1
b. P2
c. P3
d. P4
e. It cannot produce a fair return output level
9. Which of the following is a characteristic of monopolistic competiton?
a. A standardized product
b. Many sellers
c. Barriers to entry
d. Positive long-run profits
e. A perfectly elastic demand curve
10. In the long run, a monopolistically competitive firm will make
a. More economic profit than a perfectly competitive firm
b. Less economic profit than a perfectly competitive firm
c. More economic profit than a monopoly
d. More economic profit than an oligoplist
e. Zero economic profit