a. the money you could have earned if you didn’t take time off work
b. the goods that could have been purchased with the money spent on an airline ticket
c. the classes you missed through going on holiday
d. the money you spent on food
2. Which of the following is not a barrier to entry in a monopolized market?
a. A single firm is very large.
b. The government gives a single firm the exclusive right to produce some good.
c. The costs of production make a single producer more efficient than a large number of producers.
d. A key resource is owned by a single firm.
3. Which of the following is not true of short-run costs?
a. The difference between average total cost and average variable cost diminishes as output
increases.
b. Average cost and average fixed cost are U-shaped.
c. Marginal cost cuts average variable cost and average total cost at their minimum point.
d. Marginal cost is above average total cost when average total cost is rising.
4. When firms exit a market, there is
a. a leftward shift of the market supply curve
b. an increase in profits for existing firms
c. a decrease in the equilibrium level of output for the market
d. all of the above
5. According to the law of diminishing returns, beyond a certain output level
a. marginal cost must rise
b. total cost must fall
c. average cost must fall
d. marginal cost must fall
6. Normal profits
a. are a feature of competitive markets only
b. are a characteristic of ‘mature industries’
c. never occur in oligopolistic industries
d. can only occur in the long run
7. If the cross-price elasticity of demand is negative,
a. the two goods are complements
b. demand for one good increases while demand for the other decreases
c. the two goods may be substitutes or complements, depending on the direction of the price change
d. the two goods are substitutes
8. Which of the following is not true in the case of the perfectly competitive firm?
a. Marginal revenue equals average revenue.
b. Marginal revenue is less than average revenue.
c. Price remains constant when quantity sold changes.
d. Firms and buyers are completely informed about the prices of the products of each firm in the industry.
9. If price falls below the minimum of average variable cost, the best a firm can do is
a. increase production
b. reduce production
c. cease production and make a loss equal to variable cost
d. cease production and make a loss equal to total fixed cost
For Questions 10-12 refer below diagram
10. Given the market price, P0, the firm is
a. making a loss
b. breaking even
c. making a supernormal profit
d. making shut-down losses
11. Given price P0, in the long run
a. demand will decrease
b. supply will decrease
c. demand will increase
d. supply will increase
12. Given the market price P0, in the long run
a remaining firms will reduce production
b remaining firms will increase production
c remaining firms will maintain current production levels
d remaining firms will enjoy supernormal profit
For questions 13 and 14 refer below diagram
13. If the monopolistic competitor described above is producing at the profit-maximizing (loss-minimizing) level of output, it
a. is generating zero profits.
b. is generating profits.
c. could be generating either profits or losses depending on what quantity it chooses to produce.
d. is generating losses.
14. The monopolistically competitive market shown above will, in the long run,
a. attract new producers into the market, which will shift the demand faced by incumbent firms to the left.
b. attract new producers into the market, which will shift the demand faced by incumbent firms to the right.
c. cause producers to exit the market, which will shift the demand faced by incumbent firms to the left.
d. cause producers to exit the market, which will shift the demand faced by incumbent firms to the right.
15.
The diagram above represents an industry that was in perfect competition that has become a monopoly. The area that shows the deadweight loss that will result under the monopoly is depicted bya. 7
b. 3
c. 5
d. Both b and c
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