AP Micro Unit 4 Test Multiple Choice Practice

Q=5; P=65

Profit Maximizing output for profit and minimum losses

Q=6; P=60

Allocative Efficiency

Q=160; P=25

Productive Efficiency

Q=9; P=45

Quantity and Price where TR is maximized

MR>0

Elastic portion

MR<0

Inelastic portion

Q=6; P=60

Perfectly competitive quantity and price

Q=3; P=5.5

Fair Return or TR=TC or Break-even or Zero economic profits (pretend that ATC is touching D because graphs are hard as balls to find)

A

The nondiscriminating monopolist's demand curve:
A. Is less elastic than a purely competitive firm's demand curve
B. is perfectly elastic
C. coincides with its marginal revenue curve
D. is perfectly inelastic

C

If a nondiscriminating, imperfectly competitive firm is selling its 100th unit of output for $35, its marginal revenue:
A. may be either greater or less than $35
B. will also be $35
C. will be less than $35
D. will be greater than $35

C

A nondiscriminating, pure monopolist's demand curve:
A. is perfectly inelastic
B. coincides with its marginal revenue
C. lies above its marginal revenue curve
D. lies below its marginal revenue curve

C

For an imperfectly competitive firm:
A. total revenue is a straight, upsloping line because a firm's sales are independent of product price
B. the marginal revenue curve lies above the demand curve because any reduction in price applies to all units sold
C. the marginal revenue curve lies below the demand curve because any reduction in price applies to all units sold
D. the marginal revenue curve lies below the demand curve because any reduction in price applies only to the extra unit sold

D

For a nondiscriminating imperfectly competitive firm:
A. the marginal revenue curve lies above the demand curve
B. the demand and marginal revenue curves coincide
C. the demand curve intersects the horizontal axis where total revenue is at a maximum
D. marginal revenue will become zero at that output where total revenue is at a maximum

C

When a firm is on the inelastic segment of its demand curve, it can:
A. increase total revenue by reducing price
B. decreases total costs by decreasing price
C. increase profits by increasing price
D. increase total revenue by more than the increase in total cost by increasing price

D

The MR=MC rule:
A. applies only to pure competition
B. applies only to pure monopoly
C. does not apply to pure monopoly because price exceeds marginal revenue
D. applies both to pure monopoly and pure competition

B

In the long run a pure monopolist will maximize profits by producing that output at which marginal cost is equal to:
A. average total cost
B. marginal revenue
C. average variable cost
D. average cost

C

An unregulated monopolist will maximize profits by producing that output at which:
A. P=MC
B. P=ATC
C. MR=MC
D. MC=AC

D

Suppose that a pure monopolist can sell 5 units of output at $4 per unit and 6 units at $3.90 per unit. The monopolist will produce and sell the sixth unit if its marginal cost is:
A. $4 or less
B. $3.90 or less
C. $3.50 or less
D. $3.40 or less

B

Suppose that a pure monopolist can sell 4 units of output at $2 per unit and 5 units at $1.75 per unit. The monopolist will produce and sell the fifth unit if its marginal cost is:
A. $1 or less
B. $0.75 or less
C. $1.75 or less
D. $2 or less

B

Economic profit in the long run is:
A. possible for both a monopoly and pure competitor
B. possible for a pure monopoly, but not for a pure competitor
C. impossible for both a pure monopolist and a pure competitor
D. only possible when barriers to entry are nonexistent

C

Which of the following statements is correct?
A. The pure monopolist will maximize profit by producing at that point on the demand curve where elasticity is zero
B. In seeking the profit-maximizing output the pure monopolist underallocates resources to its production
C. The pure monopolist maximizes profits by producing that output which the differential between price and average cost is the greatest
D. Purely monopolistic sellers earn only normal profits in the long run

C

A single-price pure monopoly is economically inefficient:
A. only because it produces beyond the point of minATC
B. only because it produces short of the point of minATC
C. because it produces short of minATC and price is greater than marginal cost
D. because it produces short of minATC and marginal cost is greater than price

B

Comparing a pure monopoly and a purely competitive firm with identical costs, we would find in long-run equilibrium that the pure monopolist's:
A. price, output, and ATC would all be higher
B. price and ATC would be higher, but output would be lower
C. price, output, and ATC would be lower
D. price and output would be lower, but ATC would be higher

D

A pure monopolist is:
A. any firm realizing economies of scale
B. any firm whose demand curve is downsloping
C. any firm whose demand curve is greater than the marginal revenue curve
D. any one-firm industry with high barriers to entry
E. any firm that can make an economic profit in the long-run

B

What do economies of scale, the ownership of raw materials, and patents have in common?
A. They are characteristics of perfect competition
B. They are all barriers to entry
C. They explain why a monopolist's demand and marginal revenue curves coincide
D. They explain why the long-run ATC curve is U-shaped
E. They explain why monopolies make profit

C

For a pure monopolist the relationship between total revenue and marginal revenue is such that:
A. the total revenue increases at a constant rate since marginal revenue decreases
B. total revenue is positive when marginal revenue is increasing, but total revenue becomes negative when marginal revenue is decreasing
C. marginal revenue is positive when total revenue is increasing, but marginal revenue becomes negative when total revenue is decreasing
D. marginal revenue is positive so long as total revenue is positive
E. marginal revenue is positive when total revenue is at a maximum

C

Confronted with the same unit cost data, a monopolistic producer will charge:
A. the same price and produce the same output as a competitive industry
B. a higher price and produce a larger output than a competitive industry
C. a higher price and produce a smaller output than a competitive industry
D. a lower price and produce a smaller output than a competitive industry
E. a lower price and produce a larger output than a competitive industry

E

Price (Demand) exceeds marginal revenue for the pure monopolist because:
A. the law of diminishing returns doesn't apply
B. the demand curve lies below the marginal revenue curve
C. the monopolist produces a smaller output than would a pure competitive firm
D. the demand curve is inelastic
E. to sell more the monopolist must lower its price

A

For the monopolist to the right, DWL is:
A. DB
B. CD
C. AB
D. CDB
E. DBA

B

To maximize profits or minimize losses this firm should produce:
A. J units and produce price I
B. J units and produce price P
C. N units and produce price F
D. K units and produce price S
E. L units and produce price S

A

In equilibrium, the firm will realize:
A. an economic profit of P0JD
B. an economic profit of PIJD
C. an economic profit of SIHB
D. a loss of DB per unit
E. a loss of SIHB

B

Compared to industry represented in 1, the price for the industry represented in 2 will be ________ and the quantity will be ________.
A. higher, higher
B. higher, lower
C. lower, lower
D. lower, higher
E. same

C

Pure monopolists may obtain economic profits in the long run because:
A. they advertise extensively
B. marginal revenue is constant as sales increase
C. barriers to entry keep other firms from entering the market
D. diseconomies of scale keep costs low
E. the demand for their products are inelastic

B

Which of the following is most likely to occur if a single-price monopolist (fancy term for a non discriminating monopoly) is replaced by a perfectly competitive market?
A. prices will increase
B. the deadweight loss will decrease
C. profits will increase
D. output will decrease
E. the firm's cost curves will shift upward

C

Which of the following is true of both a monopolistically competitive firm and a perfectly competitive firm in the long-run equilibrium?
A. marginal cost is greater than marginal revenue
B. price is greater than marginal cost
C. price is equal to average total cost
D. price is equal to marginal cost
E. marginal revenue is equal to average revenue

B

Economic profit can e calculated as accounting profit minus which of the following?
A. fixed costs
B. implicit costs
C. marginal costs
D. explicit costs
E. total costs

C

In the figure above, at which of the given quantities is demand most elastic?
A. 80
B. 48
C. 16
D. The elasticity is the same for all points
E. The relative elasticity cannot be determined with the given information

B

Which of the following is necessarily true at a monopolist's profit-maximizing level of output?
A. marginal revenue is equal to marginal cost, but greater than price
B. marginal revenue is equal to marginal cost but less than price
C. marginal revenue is equal to both marginal costs and price
D. average total cost is minimized
E. average variable cost is minimized

A

Which of the following must be true for a firm that is a natural monopoly? (think GA Power)
A. it can produce and supply its product to an entire market at a lower cost than could a number of smaller firms
B. it produces at the minimum of its average total cost curve
C. it has a patent on its product
D. it will not be able to maximize profits unless subsidized by the government
E. it is productively efficient for the government to break up the monopoly into smaller firms

D

Assuming a linear downward sloping demand curve, as a monopoly firm sells additional units of output, its marginal revenue will:
A. increase at an increasing rate
B. increase at first, then decrease
C. decrease at first, then increase
D. decrease continuously
E. remain constant (as in 0 slope)

C

Collusion and price wars are usually observed in which of the following market structures?
A. perfect competition
B. monopolistic competition
C. oligopoly
D. monopoly
E. natural monopoly