Question

1. A cartel is a group of firms that attempts to
a. maximize joint revenue.
b. increase competition.
c. behave independently.
d. maximize joint profit.

2. If a firm's product loses brand loyalty, then the demand curve will:
a. Become less price elastic.
b. Shift to the right.
c. Become more price elastic.
d. Shift to the left.

3. Assume a monopoly confronts the same costs and demand as a competitive industry. In this case, the monopolist produces:
a. Less output and charges a higher price than the competitive industry.
b. More output and charges a higher price than the competitive industry.
c. Less output and charges a lower price than the competitive industry.
d. The same output and charges the same price as the competitive industry.

4. The marginal revenue of a monopolistically competitive firm,
a. Is above price because the demand curve facing the monopolist is inelastic.
b. Falls below price because a monopolist is a price taker.
c. Falls below price because the firm faces downward sloping demand curve.
d. Is equal to price.

5. The soft drink market is dominated by Coke, Pepsi, and very few other firms. The firms often start price wars. The market can best be classified as:
a. Monopolistic competition.
b. Perfect competition.
c. Monopoly.
d. Oligopoly.

6. Both a competitive industry and a monopoly:
a. Use marginal cost pricing.
b. Produce products that have many identical substitutes.
c. Maximize profit per unit where P = MC.
d. Face downward-sloping market demand curves.

7. A monopolistically competitive firm maximizes profits or minimizes losses in the short run by:
a. Producing at the output level where MC equals ATC.
b. Setting price equal to marginal cost.
c. Producing at the output level where ATC is minimized.
d. Producing at the output level where MR equals MC.

8. In a monopolistically competitive market with positive economic profits:
a. Firms will enter until accounting profits are zero.
b. No entry or exit will occur.
c. Firms will enter until economic profits are zero.
d. Firms will exit until economic profits are zero.

9. Industries in which one firm can achieve economies of scale over the entire range of market supply are:
a. Natural monopolies.
b. Monopoly franchises.
c. Contestable markets.
d. Perfectly competitive.

10. Which of the following is likely to be a monopolist?
a. The Boeing Company, which is one of the largest producers of airplanes.
b. A drug firm that has a patent granting it the exclusive right to produce a drug.
c. A large firm like GM, which has a substantial portion of the car market.
d. An Indonesian restaurant in a large city.

11. In the long run a monopolistic competitor  
a. set MR = MC.
b. sets P > MC.
c. produces where P = AC.         
d. all of the above.

12. For a monopoly, marginal revenue is less than price because
a. the firm must lower price if it wishes to sell more output.
b. the demand for the firm's output is perfectly elastic.
c. the firm is a price taker.
d. the firm can sell all of its output at any price.

Answer 1

Ans.1- (D)

Firms in a cartel always try to maximize their joint profits.

Ans.2- (C)

Lower Brand loyalty will make demand curve more elastic. When consumers are very loyal towards the product they will be willing to buy the product even at a higher price so that elasticity will be low and vice versa.

Ans.3- (A)

Monopolist firm producer lower output as compared to the perfectly competitive firm and charges a higher price. P= MC for a perfectly competitive firm and price is set by the monopolist firm to maximize profit at the point corresponding to output where MR=MC.

Ans.4- (C)

Marginal revenue for both monopolist and monopolistically competitive firms falls below price level because they have to reduce their price for all the units if they want to increase the demand for a product.