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A set of multiple-choice questions and answers covering key concepts in microeconomics, particularly focusing on market structures like monopoly, oligopoly, and monopolistic competition. It explores topics such as the law of demand, profit maximization, and the impact of market structures on pricing and output decisions. Suitable for students studying microeconomics at the university level.
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Like a competitive industry, a monopoly must: - ANSWERSdeal with the law of demand If a firm is producing in the kink in its demand curve and it decides to increase its price, according to the kinked demand model: - ANSWERSit will lose market share to the firms that do not follow the price increase The long-run average total cost curve of a natural monopolist: - ANSWERSis downward-sloping in the relevant range of production If the government regulated a natural monopolist to achieve price efficiency without substitutes or price discrimination, the monopolist would: - ANSWERSlose money and go out of business Ameritech has a monopoly over local telephone service. If Ameritech is producing where marginal revenue is less than marginal cost, the firm... - ANSWERScould increase profits by reducing output The only structure in which there is significant interdependence among firms with regard to their pricing and output decisions is: - ANSWERSoligopoly The profit-maximizing monopolistic competitor produces where price is... - ANSWERSgreater than both marginal cost and marginal revenue There are five firms in the Pool Sweeper market. The sales for each firm are as follows: Northern Star: $20,000; Hurricane Currents:$16,000; Mr. Clean $10,000; Clear & Shiny: $2000; and Blue Lagoon: $2000. What is the market share of Northern Star? - ANSWERS40% A monopolist is currently maximizing profits. In addition, if P > ATC> MC, then the monopolist... - ANSWERSearns positive economic profits
The marginal revenue curve is below the demand curve if... - ANSWERSa firm must lower its price to sell additional output When firms are interdependent,... - ANSWERSthe profit of one firm depends on how its rivals respond to its strategic decisions Relative to a monopolized industry, a competitive organized industry is more likely to produce... - ANSWERSmore output, charges lower prices, and earns only a normal profit A public agreement between firms or countries to restrict production and raise prices - ANSWERScartel The main difference between perfect competition and monopolistic competition is... - ANSWERSthe degree of product differientiation In a monopolistic competition, a firm's demand curve is tangent to the ATC curve in the long run because... - ANSWERSentry eliminates economic profit, and exist eliminates losses In the short run, a monopolistically competitive firm... - ANSWERSmay make economic profits, but it fails to make economic profits in the long run because of the entry of new firms Monopolistically competitive firms are productively inefficient because long-run equilibrium occurs at an output rate where... - ANSWERSATC is greater than minimum ATC