Multiple Choice – Section 00: Introduction
1.Acompetitivefirm
a.andamonopolistarepricetakers.
b.andamonopolistarepricemakers.
c.isapricetaker,whereasamonopolistisapricemaker.
d.isapricemaker,whereasamonopolistisapricetaker.
2.Aperfectlycompetitivefirmproduceswhere
a.marginalcostequalsprice,whileamonopolistproduceswherepriceexceedsmarginalcost.
b.marginalcostequalsprice,whileamonopolistproduceswheremarginalcostexceedsprice.
c.priceexceedsmarginalcost,whileamonopolistproduceswheremarginalcostequalsprice.
d.marginalcostexceedsprice,whileamonopolistproduceswheremarginalcostequalsprice.
3.Amonopoly
a.cansetthepriceitchargesforitsoutputandearnunlimitedprofits.
b.takesthemarketpriceasgivenandearnssmallbutpositiveprofits.
c.cansetthepriceitchargesforitsoutputbutfacesadownward-slopingdemandcurvesoitcannotearnunlimitedprofits.
d.cansetthepriceitchargesforitsoutputbutfacesahorizontaldemandcurvesoitcanearnunlimitedprofits.
4.Amonopolycanearnpositiveprofitsbecauseit
a.cansellunlimitedquantitiesatanypriceitchooses.
b.takesthemarketpriceasgivenandcansellunlimitedquantities.
c.cansetthepriceitchargesforitsoutputbutfacesahorizontaldemandcurve.
d.canmaintainapricesuchthattotalrevenueswillexceedtotalcosts.
5.Aperfectlycompetitivemarket
a.maynotbeinthebestinterestsofsociety,whereasamonopolymarketpromotesgeneraleconomicwell-being
b.promotesgeneraleconomicwell-being,whereasamonopolymarketmaynotbeinthebestinterestsofsociety.
c.andamonopolymarketareequallylikelytopromotegeneraleconomicwell-being.
d.islesslikelytopromotegeneraleconomicwell-beingthanamonopolymarket.
6.Becausemonopolyfirmsdonothavetocompetewithotherfirms,theoutcomeinamarketwithamonopolyisoften
a.notinthebestinterestofsociety.
b.onethatfailstomaximizetotaleconomicwell-being.
c.inefficient.
d.Alloftheabovearecorrect.
7.Becausemonopolyfirmsdonothavetocompetewithotherfirms,theoutcomeinamarketwithamonopoly
a.isoftennotinthebestinterestofsociety.
b.maximizestotaleconomicwell-being.
c.isefficient.
d.benefitsconsumersmoresothantheproducer.
8.Becauseamonopolistdoesnotfacecompetitionfromotherfirms,theoutcomeinamarketwithamonopoly
a.doesnotillustrateprofitmaximization.
b.isoftennotinthebestinterestofsociety.
c.ischaracterizedbyunlimitedprofits.
d.wouldbeimprovedifthegovernmentproducedtheproductratherthanaprivatefirm.
9.MicrosoftfacesverylittlecompetitionfromotherfirmsforitsWindowssoftware.Whyisn’tthepriceofthesoftware$1,000percopy?
a.becausethegovernmentwouldnotallowsuchahighprice
b.becausestockholderswouldnotallowsuchahighprice
c.becausethecompanywouldsellsofewcopiesthattheywouldearnhigherprofitsbysellingatalowerprice
d.Alloftheabovearecorrect.
10.TheDeBeersCompanyfacesverylittlecompetitionfromotherfirmsinthewholesalediamondmarket.Whyisn’tthepriceofthewholesalediamonds$10,000percarat?
a.becausethegovernmentwouldnotallowsuchahighprice
b.becausestockholderswouldnotallowsuchahighprice
c.becausethecompanywouldsellsofewcopiesthattheywouldearnhigherprofitsbysellingatalowerprice
d.Alloftheabovearecorrect.
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