AP Micro Unit 4 Multiple Choice Questions

A pure monopolist is:

any one-firm industry with high barriers to entry

2. What do economies of scale, the ownership of raw materials, and patents have in common?

They are all barriers to entry

3. For a pure monopolist the relationship between total revenue and marginal revenue is such that:

total revenue is positive when marginal revenue is increasing, but total revenue becomes negative when marginal revenue is decreasing

4. Confronted with the same unit cost data, a monopolistic producer will charge:

a higher price and produce a smaller output than a competitive industry

5. Price (Demand) exceeds marginal revenue for the pure monopolist because:

to sell more the monopolist must lower its price

6. For the profit maximizing monopolist in Figure A consumer surplus is:

AEB

7. Refer to Figure B. To maximize profits or minimize losses this firm should produce:

E units and charge price A

8. Refer to Figure B. In equilibrium the firm will realize:

an economic profit of ABHJ

9. Refer to Figure C. Compared to industry represented in (1), the price for the industry represented by diagram (2) will be _______ and the quantity will be _______.

higher, lower

10. Pure monopolists may obtain economic profits in the long run because:

barriers to entry keep other firms from entering the market

11. Avogadro sells avocados in a perfectly competitive industry while purchasing his orchard equipment from Monoglom Hardware Conglomerate (MHC), the only orchard equipment supplier in town. Coincidentally, both Avogadro and MHC face identical demand and cost curves. Compared to Avogadro, MHC's price and output will be which of the following?

Higher Lower

12. Assume that Prescott Pharmaceuticals, which holds patents on Vaxadrin, Vaxadrine, and Vaxadrone is an unregulated monopolist. Its profit-maximizing quantity will always be

in the region of the demand curve where marginal revenue is positive

13. Charles Montgomery "Monty" Burns runs a nuclear power plant that supplies 100% of the electricity for Springfield. As this power plant is a regulated natural monopoly, which of the following is consistent with the conditions of typical natural monopolies within the range of market demand?

Long-run average total cost decreases as output increases

14. Two competing AP tutoring firms, Cromie Corp and Clifford Incorporated, are studying potential locations for new stores in Springfield. Each firm must choose between a location to the west or east of the Twin Pines Mall. The payoff matrix is shown below, with the first entry in each cell indicating Cromie Corp's daily profit and the second entry indicating Clifford Inc.'s daily profit.

$5,500 $5,000

15. McDowell's is one of many fast-food restaurants. You may recognize their "Golden Arcs." The fast-food industry is monopolistically competitive and currently in long-run equilibrium. Which of the following is true McDowell's as it exists in long-run equilibrium?

Price equals average total cost but is greater than marginal cost.

16. GloboMart is the only seller of household cleaning supplies in a certain state and is currently earning economic profits. In order to increase those profits, GloboMart is investigating a policy of price discrimination. In order to implement this policy, GloboMart must be

able to separate consumers into different groups based on demand elasticities

17. Assume that the frozen turkey dinner industry is monopolistically competitive and many firms within the industry are currently earning short-run economic profits. Which of the following describes what will happen to the typical firm as the industry adjusts to the long-run equilibrium?

A. The typical firm will experience a leftward shift of its demand curve and will earn normal profits

18. A patent on Fizzy Lifting DrinkTM allows WonkaCorp to earn economic profits as its sole producer. Assuming WonkaCorp is a profit-maximizing producer, all of the following statements are true EXCEPT

In long-run equilibrium, WonkaCorp's demand curve is tangent to its average total cost curve

19. Which of the following describes the dominant strategy of each firm?

A. Bender's dominant strategy is to cheat; Jibson's is to not cheat

20. Which of the following represents the daily profit for each firm?

$25,000 $20,000