Knowledge - Multiple Choice (1 mark
each)
Identify the best choice that best completes the statement or answers
the question.
You may wish to use this tool
to help you answer some of the questions.
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1.
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Marginal revenue (MR) may be defined as
the:
a. | change in average revenue associated with the sale of one more
unit of output | b. | change in product price
associated with the sale of one more unit of output | c. | change in total revenue associated with the sale of one more unit of
output | d. | difference between product price and average
cost |
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2.
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Fixed costs (AFC) per unit:
a. | Are not influenced by production
levels | b. | Do not vary | c. | Will continuously fall as
more and more is produced | d. | Are items like labour,
materials, and taxes |
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3.
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Which of the following is true?
a. | A firm’s total cost (TC) will not always rise with
production | b. | A firm’t total
variable costs (TVC) will fall at first, but then rise as more and more is
produced. | c. | Total costs per unit (ATC) have a minimum level, because variable
costs will fall then rise. | d. | Total cost per unit (ATC)
will continuously fall as more is produced and a firm benefits from economies of
scale |
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4.
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The behaviour of a firm’s average variable cost curve
(AVC) is explained by:
a. | Economies of scale | b. | Law of supply and demand | c. | None of these is
correct | d. | Economies of scale, then diminishing
returns |
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5.
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If a business in a perfectly competitive industry is
confronted with a price of $5, its marginal revenue:
a. | may be either greater or less than $5 | b. | will be less than $5 | c. | will also be
$5 | d. | will be greater than $5 |
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6.
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The profit-maximizing rule of producing to where MR=MC
applies:
a. | only to perfectly competitive
businesses | b. | to businesses in all types
of industries | c. | only when the business is a
"price-taker", and can’t influence the price at all | d. | only to monopolies |
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7.
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A perfectly competitive business' demand curve
is a:
a. | straight line parallel to the quantity
axis | b. | upward-sloping straight line reflecting the constant value of
price as output increases | c. | straight line parallel to
the price axis | d. | downward-sloping straight
line reflecting the law of demand |
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8.
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A perfectly competitive business reaches its lowest
possible breakeven point where:
a. | normal profits are zero | b. | price equals average total cost | c. | the total revenue line
equals the average variable cost line | d. | marginal cost intersects
the average variable cost curve |
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9.
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Which of the following is a major limitation to the theory
of perfectly competitive markets?
a. | externalities usually don’t apply to small
businesses | b. | effeciency and a small
production scale often don’t co-exist | c. | perfectly competitive firms
don’t make any profit | d. | government involvement
limits the number of firms in most industries, in effect creating barriers to
entry |
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10.
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In the long run for a perfectly competitive firm, resources
are distributed in a way that maximizes the overall satisfaction of consumers and the efficient use
of resources when production occurs at the point at which:
a. | P=MC=ATC (price equals marginal cost) | b. | MC=AVC (marginal cost intersects average variable cost) | c. | P=AVC (price is equal to average variable cost) | d. | P=AR (price is equal to average revenue) |
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11.
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A monopolisticly competitive firm’s marginal revenue
curve is just like a monopoly’s in that it:
a. | is downward-sloping and lies below the demand
curve | b. | is downward-sloping and coincides with the demand
curve | c. | does not exist because the business is a
price-maker | d. | coincides with the demand
curve and is parallel to the horizontal axis
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12.
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A monopolisticly competitive firm maximizes short-run
profits by:
a. | setting price equal to marginal cost | b. | setting the price at the point where average revenue equals marginal
cost | c. | producing at the the quantity of output where marginal revenue
equals marginal cost | d. | equating demand and average
revenue |
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13.
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If an oligopolist is faced with a marginal revenue
curve that has a gap in it, we may assume that:
a. | none of these answers are correct. | b. | it is selling a differentiated product | c. | its demand curve is kinked | d. | it is colluding with its
rivals to maximize joint profits |
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14.
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The kinked demand curve indicates a situation in which an
oligopolist will be:
a. | eager to lower price | b. | eager to either raise or lower prices | c. | interested in maintaining the going price even as costs
change | d. | willing to raise price |
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15.
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Which one of the following is usually considered a societal
benefit of a monopoly?
a. | economies of scale | b. | price discrimination | c. | higher
profits | d. | the monopoly can control price through
supply |
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16.
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Because of the market conditions of a monopoly, it
can:
a. | get away with collusion | b. | choose both the quantity produced and the price consumers are willing to
pay | c. | form a perfectly competitive partnership to maximize
efficiency | d. | discriminate between market
segments and set separate prices for each to maximize profits |
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17.
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Which of the following market structures almost always
experiences some economic profits in the long-run?
a. | Perfect Competition | b. | Monopolistic Competition | c. | Oligopoly | d. | None of the
above |
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18.
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Which of the following is true about game
theory?
a. | The views of Adam Smith are correct and complete as they apply to
monopolistic markets | b. | In a monopolistic market
created by collusion, once the colluding equalibrium point is reached, firms have an incentive to
cheat | c. | Collusion (or cooperating) is not in the best interests of
individual firms in the long run, competition is better | d. | When firms collude society is better off |
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19.
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Which of the following is NOT a market condition for a
Monopoly?
a. | Many buyers | b. | Only one
seller | c. | No substitutes exist | d. | There are very few barriers to entry |
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20.
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Assume the XYZ Corporation is producing 20 units of
output. It is selling this output in a perfectly competitive market at $10 per unit. Its
fixed costs are $100 and its average variable cost is $3 at 20 units of output. On the basis of
this information we can say that the corporation is making TOTAL economic profits of how much
money?
a. | $97 | b. | $40 | c. | $140 | d. | $17 per
unit |
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Below is revenue and cost data for a
monopoly:
Price
| Quantity
Produced | Total
Revenue |
Total
Cost
| 6.50 | 3.00 | 19.50 | 5.00 | 6.00 | 4.00 | 24.00 | 6.00 | 5.50 | 5.00 | 27.50 | 6.50 | 4.85 | 6.00 | 29.10 | 7.50 | 4.35 | 7.00 | 30.45 | 9.00 | 3.90 | 8.00 | 31.20 | 11.00 | 3.50 | 9.00 | 31.50 | 14.00 | | | | |
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21.
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The price for the monopoly at the point of maximum profit
will be:
a. | 6.50 | b. | 6.00 | c. | 5.50 | d. | 4.85 | e. | 4.35 | f. | 3.90 | g. | 3.50 |
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22.
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Using the same data for this monopoly, marginal revenue from
a price decrease from $6.00 to $5.50 is:
a. | $0.70 | b. | -$3.50 | c. |
$0.875 | d. | $3.50 | e. | None of these answers is
correct |
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Total
Output | Price | Total Cost | Average
Cost | Marginal Cost | 0 | 20 | 13.5 | | | 1 | 19 | 17.5 | 17.50 | | 2 | 18 | 22 | 11.00 | | | | | | |
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23.
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Using the chart above, find the marginal cost from moving from one unit of
production to two.
a. | $6.50 | b. | 4.5 units | c. | $2.25 | d. | $4.50 |
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24.
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Using the chart above, find the marginal revenue from moving from one unit of
production to two.
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Below is a graph for a perfectly competitive firm operating in the widget
market. The market graph is shown in the top right corner. Answer the questions that
follow.
Pop out this graph by clicking here.
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25.
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Which of the following is true about the state of the MARKET at point #1 in the
graph?
a. | It is the short run | b. | It is not at equilibrium | c. | There are barriers
to entry | d. | None of these answers is correct |
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26.
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Which of the following is true about the state of the FIRM at point #1 in the
graph?
a. | It is at equilibrium | b. | It is producing at the most efficient level of
production | c. | It is not maximizing profits | d. | It is earning economic
profits |
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27.
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Which of the following could be true about the state of the MARKET at point #2
in the graph?
a. | Firms have lowered their prices in the market | b. | New firms entered
the industry | c. | Consumer tastes and preferences changed | d. | The market
experienced a shortage |
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28.
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Which of the following could be true about the state of the FIRM at point #2 in
the graph?
a. | This firm lowered prices and the market followed | b. | This firm must shut
down to save money | c. | This firm should produce more to maximize
profit | d. | This firm is losing money, but not enough to shut
down |
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29.
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Which of the following could be true about the state of the MARKET at point #3
in the graph?
a. | The market demand has increased raising price levels | b. | Less efficient firms
reached their shut down point and left, raising market price | c. | Since no money is
being made, more firms will leave, raising market price further and profits will
return. | d. | None of these statements is true |
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30.
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Which of the following could be true about the state of the FIRM at point #3 in
the graph?
a. | This firm is making no economic profit but will eventually as this is the short
run | b. | This firm will eventually shut down since it’s not making
money | c. | This is the short run condition for this firm where it is still losing
money | d. | This firm is producing at its long-run maximum profit level of
output |
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Ceteris paribus, The following graph is a comparison between a monopoly and a
perfectly competitive firm. NOTE: It assumes these two firms have the same cost structure.
Only revenue-related lines are different. Answer the questions that
follow.
Pop out this graph by clicking here.
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31.
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Does graph depict a comparison between a perfectly competitive firm and a
monopoly in the short run, or in the long run?
a. | Short Run | b. | Long Run | c. | Can’t be
determined |
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32.
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Which price level represents what the monopoly would sell this product
for?
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33.
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What is the quantity produced by the monopoly?
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34.
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Total revenue generated by the monopoly is the shaded area(s):
a. | Orange, Blue, Red, Green | b. | Blue, Red, Green | c. | Blue,
Red | d. | Green | e. | Green, Purple |
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35.
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Total revenue generated by the perfectly competitive firm is the area bounded by
the height by width of:
a. | P1 by Q1 | b. | P1 by Q2 | c. | P2 by
Q1 | d. | P2 by Q2 | e. | The answer is not
shown |
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36.
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The point of profit maximization for the monopoly occurs where its marginal
revenue equals its marginal cost. This occurs at the point:
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37.
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The point of profit maximization for the perfectly competitive firm occurs where
its marginal revenue equals its marginal cost. This occurs at the point:
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38.
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The cost per unit at maximum profit for the monopoly is the point:
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39.
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The cost per unit at maximum profit for the prefectly competitive firm is the
point:
a. | A | b. | B | c. | C | d. |
It is not shown. |
e. | E | f. |
D |
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40.
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The most efficient point of production for either firm is represented by the
point:
a. | A | b. | B | c. | C | d. | D | e. | E | f. | It is not
indicated. |
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41.
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The monopoly at maximum profit will set a price for its product that can be
found by looking at the following point on the its demand curve:
a. | A | b. | B | c. | C | d. | D | e. | E | f. | It is not
shown. |
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42.
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The perfectly competitive firm at maximum profit must accept a market price that
can be found by looking at the following point on the its demand curve:
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43.
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If the government forced the monopoly to produce at the point of maximum
long-run efficiency like the perfeclty competitive firm, what point on its demand curve would
represent this price and output level?
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44.
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Maximum total revenue for the monopoly occurs at:
a. | A point left of Q1 | b. | Q1 | c. | Between Q1 and
Q2 | d. | Q2 | e. | To the right of
Q2 |
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45.
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Total cost for the monopoly is represented by the shaded area:
a. | Green | b. | Red | c. | Blue | d. | Orange | e. | Yellow | f. | Purple | g. | Blue,
Red | h. | Blue, Red, Green |
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46.
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The consumer surplus for the monopoly is represented by the area
coloured:
a. | Orange | b. | Yellow | c. | Blue,
Red | d. | Orange, Blue, Yellow | e. | Can’t be
determined |
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47.
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If the monopoly was forced to produced at the sane level of output as the
competitive firm, then the consumer surplus would be represented by the area coloured:
a. | Orange | b. | Yellow | c. | Blue,
Red | d. | Orange, Blue, Yellow | e. | Can’t be
determined |
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