Economics Quiz
A.P. Economics - Test #6 Review Name: __________________________ Date: _____________ ___ 1. A monopolistically competitive firm has a downward-sloping demand curve for its product, primarily because: A) there exist no barriers to entry or exit in the long run. B) there are many sellers in the industry. C) the firm sells a product distinct from products sold by competing firms. D) the price is greater than the marginal revenue. ___ 2. Which of the following is most likely to be observed when firms engage mainly in non-price competition? A) actively encouraging the sale of generic, as opposed to brand-name, products B) advertising and product differentiation C) discounts offered through coupons D) low interest rates for financing the purchase
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of bigticket items ___ 3. A monopolistically competitive firm is operating in the short run, is operating at the optimal level of output, and is earning negative economic profits. Which of the following must be true? A) ATC > P > MR = MC B) ATC = P > MR = MC C) ATC > P = MR = MC D) ATC > P > MR > MC ___ 4. Collusive agreements are typically difficult for cartels to maintain because each firm can increase profits by: A) producing more output than the quantity that maximizes joint cartel profits. B) producing less output than the quantity that maximizes joint cartel profits. C) increasing the price above the price that maximizes joint cartel profits. D) engaging in less advertising than the level of advertising that maximizes joint cartel profits. ___ 5. Which of the following factors increases the likelihood that oligopolists collude? A) There are a large number of firms in the industry. B) A firm and its rivals are currently operating at maximum productive capacity. C) One firm has a significant cost advantage over its rivals. D) A firm and its rivals are currently operating at maximum productive capacity and one firm has a significant cost advantage over its rivals. ___ 6. Gary's Gas and Frank's Fuel are the only two providers of gasoline in Smalltown. Gary and Frank decide to form a cartel. Later, Gary summarizes his pricing strategy as, “I'll cheat on the cartel because regardless of what Frank does, cheating gives me the best payoff.” This is an example of: A) a dominant strategy. B) a tit-for-tat strategy. C) an irrational strategy. D) product differentiation. ___ 7. Non-price competition is more prevalent in an oligopoly in which there is (are): B) complex products. C) tacit collusion. D) no product differentiations. A) a Nash equilibrium.
___ 8. Which of the following is true? A) When choosing the profit-maximizing quantity, the short-run decisionmaking process for a firm in perfect competition and a firm in monopolistic competition is the same, since they produce the quantity where P > MC. B) In the long run in perfect competition, economic profits = 0, and in monopolistic competition in the long run, economic profits are very large. C) In perfect competition, P = MC, and in monopolistic competition, MR = MC, but P > MC and there is excess capacity. D) In both perfect competition and monopolistic competition, P equals minimum average total cost in the long run. ___ 9. Which of the following choices is true of firms in both perfect competition and monopolistic competition? A) The long-run price is equal to marginal revenue, marginal cost, and average total cost. B) Long-run economic profits are equal to zero. C) The long-run level of output is at the point where average total cost is minimized. D) Price is equal to marginal cost, insuring the allocatively efficient level of output is produced. ___ 10. Cartels made up of a large number of firms are unstable because each firm in the cartel: A) has a great incentive to cheat. B) is producing a relatively homogeneous product in which entry barriers are also low. C) does not have to worry about losses. D) recognizes that the market is relatively stable in size. ___ 11. Oligopoly is a market structure characterized by: A) independence in decision making. B) a horizontal demand curve. C) a small number of interdependent firms. D) relatively easy entry and exit.
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A.P.
Economics - Test #6 Review ___ 12. Which of the following characteristics make an industry more conducive to collusive behavior? A) Firms in the industry have very different marginal costs of production. B) Firms in the industry produce goods with significantly different product attributes. C) Firms in the industry are currently operating at a maximum productive capacity that cannot be easily altered in the short run. D) Firms in the industry serve customers that can easily switch between firms as they search for the best price. ___ 13. Gary's Gas and Frank's Fuel are the only two providers of gasoline in Smalltown. Gary and Frank decide to form a cartel to raise the price of gasoline. The total industry profits are highest when ________ and Gary's profits are highest when ________. A) neither firm cheats on the agreement; neither firm cheats on the agreement B) neither firm cheats on the agreement; Gary cheats on the agreement and Frank does not cheat C) both firms cheat on the agreement; Gary cheats on the agreement and Frank does not cheat D) both Gary and Frank cheat on the agreement; both Gary and Frank cheat on the agreement ___ 14. The kinked demand model of an oligopoly explains why some oligopolists raise prices immediately when they experience an increase in marginal costs. A) True B) False ___ 15. Suppose a monopolistically competitive firm is making a profit, but it can increase its profits by increasing output. Then it must be the case that at the current …show more content…
level of output: A) marginal revenue is greater than marginal cost. B) price is less than marginal cost. C) price is less than average total cost. D) marginal revenue is less than marginal cost. Figure: Monopolistic Competition V
___ 16. (Figure: Monopolistic Competition V) The figure illustrates a firm in the ________; in the ________, the demand and marginal revenue curves will shift ________. A) short run; long run; right B) long run; short run; left C) short run; long run; left D) long run; short run; right Figure: The Market for Gas Stations
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Economics - Test #6 Review ___ 17. (Figure: The Market for Gas Stations) The figure shows curves facing a typical gas station in a large town. Assume that the market is characterized by many firms, differentiated products, easy entry, and easy exit. If the gas station shown here were to raise its price above the profit-maximizing price, it would experience: A) a reduction in total revenue. B) an increase in total revenue. C) no change in total revenue. D) Not enough information is given to answer the question. Figure: Comparing Long-Run Equilibriums
___ 18. (Figure: Comparing Long-Run Equilibriums) In the figure, which of the following statements is false? A) The firm in panel (a) produces where price equals marginal cost, and thus it maximizes profit and breaks even. B) The firm in panel (b) produces where price equals marginal cost, and thus it maximizes profit and breaks even. C) The firm in panel (b) produces where price equals average cost, and thus it maximizes profit and breaks even. D) The firm in panel (a) produces where price equals average cost, and thus it maximizes profit and breaks even. Figure: Firms in Monopolistic
Competition
___ 19. (Figure: Firms in Monopolistic Competition) In panel A, economic profit per unit is amount: C) MN. D) NO. ___ 20. (Figure: Firms in Monopolistic Competition) In panel C, economic loss per unit is amount: C) VW. D) VT.
A) KL.
B) LM.
A) XT.
B) UW.
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A.P. Economics - Test #6 Review
Answer Key
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. C B A A B A C C B A C C B B A C A B B D
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of bigticket items ___ 3. A monopolistically competitive firm is operating in the short run, is operating at the optimal level of output, and is earning negative economic profits. Which of the following must be true? A) ATC > P > MR = MC B) ATC = P > MR = MC C) ATC > P = MR = MC D) ATC > P > MR > MC ___ 4. Collusive agreements are typically difficult for cartels to maintain because each firm can increase profits by: A) producing more output than the quantity that maximizes joint cartel profits. B) producing less output than the quantity that maximizes joint cartel profits. C) increasing the price above the price that maximizes joint cartel profits. D) engaging in less advertising than the level of advertising that maximizes joint cartel profits. ___ 5. Which of the following factors increases the likelihood that oligopolists collude? A) There are a large number of firms in the industry. B) A firm and its rivals are currently operating at maximum productive capacity. C) One firm has a significant cost advantage over its rivals. D) A firm and its rivals are currently operating at maximum productive capacity and one firm has a significant cost advantage over its rivals. ___ 6. Gary's Gas and Frank's Fuel are the only two providers of gasoline in Smalltown. Gary and Frank decide to form a cartel. Later, Gary summarizes his pricing strategy as, “I'll cheat on the cartel because regardless of what Frank does, cheating gives me the best payoff.” This is an example of: A) a dominant strategy. B) a tit-for-tat strategy. C) an irrational strategy. D) product differentiation. ___ 7. Non-price competition is more prevalent in an oligopoly in which there is (are): B) complex products. C) tacit collusion. D) no product differentiations. A) a Nash equilibrium.
___ 8. Which of the following is true? A) When choosing the profit-maximizing quantity, the short-run decisionmaking process for a firm in perfect competition and a firm in monopolistic competition is the same, since they produce the quantity where P > MC. B) In the long run in perfect competition, economic profits = 0, and in monopolistic competition in the long run, economic profits are very large. C) In perfect competition, P = MC, and in monopolistic competition, MR = MC, but P > MC and there is excess capacity. D) In both perfect competition and monopolistic competition, P equals minimum average total cost in the long run. ___ 9. Which of the following choices is true of firms in both perfect competition and monopolistic competition? A) The long-run price is equal to marginal revenue, marginal cost, and average total cost. B) Long-run economic profits are equal to zero. C) The long-run level of output is at the point where average total cost is minimized. D) Price is equal to marginal cost, insuring the allocatively efficient level of output is produced. ___ 10. Cartels made up of a large number of firms are unstable because each firm in the cartel: A) has a great incentive to cheat. B) is producing a relatively homogeneous product in which entry barriers are also low. C) does not have to worry about losses. D) recognizes that the market is relatively stable in size. ___ 11. Oligopoly is a market structure characterized by: A) independence in decision making. B) a horizontal demand curve. C) a small number of interdependent firms. D) relatively easy entry and exit.
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Economics - Test #6 Review ___ 12. Which of the following characteristics make an industry more conducive to collusive behavior? A) Firms in the industry have very different marginal costs of production. B) Firms in the industry produce goods with significantly different product attributes. C) Firms in the industry are currently operating at a maximum productive capacity that cannot be easily altered in the short run. D) Firms in the industry serve customers that can easily switch between firms as they search for the best price. ___ 13. Gary's Gas and Frank's Fuel are the only two providers of gasoline in Smalltown. Gary and Frank decide to form a cartel to raise the price of gasoline. The total industry profits are highest when ________ and Gary's profits are highest when ________. A) neither firm cheats on the agreement; neither firm cheats on the agreement B) neither firm cheats on the agreement; Gary cheats on the agreement and Frank does not cheat C) both firms cheat on the agreement; Gary cheats on the agreement and Frank does not cheat D) both Gary and Frank cheat on the agreement; both Gary and Frank cheat on the agreement ___ 14. The kinked demand model of an oligopoly explains why some oligopolists raise prices immediately when they experience an increase in marginal costs. A) True B) False ___ 15. Suppose a monopolistically competitive firm is making a profit, but it can increase its profits by increasing output. Then it must be the case that at the current …show more content…
level of output: A) marginal revenue is greater than marginal cost. B) price is less than marginal cost. C) price is less than average total cost. D) marginal revenue is less than marginal cost. Figure: Monopolistic Competition V
___ 16. (Figure: Monopolistic Competition V) The figure illustrates a firm in the ________; in the ________, the demand and marginal revenue curves will shift ________. A) short run; long run; right B) long run; short run; left C) short run; long run; left D) long run; short run; right Figure: The Market for Gas Stations
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Economics - Test #6 Review ___ 17. (Figure: The Market for Gas Stations) The figure shows curves facing a typical gas station in a large town. Assume that the market is characterized by many firms, differentiated products, easy entry, and easy exit. If the gas station shown here were to raise its price above the profit-maximizing price, it would experience: A) a reduction in total revenue. B) an increase in total revenue. C) no change in total revenue. D) Not enough information is given to answer the question. Figure: Comparing Long-Run Equilibriums
___ 18. (Figure: Comparing Long-Run Equilibriums) In the figure, which of the following statements is false? A) The firm in panel (a) produces where price equals marginal cost, and thus it maximizes profit and breaks even. B) The firm in panel (b) produces where price equals marginal cost, and thus it maximizes profit and breaks even. C) The firm in panel (b) produces where price equals average cost, and thus it maximizes profit and breaks even. D) The firm in panel (a) produces where price equals average cost, and thus it maximizes profit and breaks even. Figure: Firms in Monopolistic
Competition
___ 19. (Figure: Firms in Monopolistic Competition) In panel A, economic profit per unit is amount: C) MN. D) NO. ___ 20. (Figure: Firms in Monopolistic Competition) In panel C, economic loss per unit is amount: C) VW. D) VT.
A) KL.
B) LM.
A) XT.
B) UW.
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A.P. Economics - Test #6 Review
Answer Key
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. C B A A B A C C B A C C B B A C A B B D
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