Economics Monopolistic Competition Practice

Question 1

 

f

 

Which market structure is shown in the graph above and which letter corresponds to the profit-maximizing level of output?

 

Group of answer choicesPerfect Competition, E

 

Monopolistic Competition, C

 

Perfect Competion, C

 

Monopoly, E

 

Flag question: Question 2Question 2

 

Because of free entry and exit, companies in perfectly competitive markets

 

Group of answer choicescan earn positive or negative economic profits, but in the long run, firms have negative economic profits.

 

can earn positive economic profits, but in the long run, firms have zero economic profits.

 

can earn positive or negative economic profits, but in the long run, firms have zero economic profits.

 

can earn negative economic profits, but in the long run, firms have zero economic profits.

 

Flag question: Question 3Question 3

 

A perfectly competitive firm would be making negative profits if the price is

 

fin

 

Group of answer choicesanywhere below $5.

 

above $5.

 

below $4.

 

below $5 but above $4.

 

Flag question: Question 4Question 4

 

A price taker

 

Group of answer choiceswill always make economic profits.

 

has some control over the price it charges.

 

is a characteristic held by a monopolistically competitive firm.

 

must set the price equal to the price charged by other sellers.

 

Flag question: Question 5Question 5

 

final

 

This firm

 

Group of answer choicescannot make a profit.

 

is in a competitive market.

 

is not a monopolist because its MR<P.

 

can make a profit.

 

Flag question: Question 6Question 6

 

A monopoly charges  ________ prices and produces a ________ quantity than  a competitive market.

 

Group of answer choiceslower; lower

 

higher; lower

 

higher; higher

 

lower; higher

 

Flag question: Question 7Question 7

 

Price discrimination exists when a firm sells ________ goods at more than one price to ________ groups of customers based on their ______.

 

Group of answer choicesexisting; distinct;age

 

discounted; large; age

 

different; similar; willingness to pay

 

identical; different; willingness to pay

 

Flag question: Question 8Question 8

 

When a company successfully price discriminates, it

 

Group of answer choicesis difficult to maintain over the long run.

 

is profitable.

 

increases the welfare of consumers.

 

is sometimes inefficient for the market.

 

Flag question: Question 9Question 9

 

Product differentiation

 

Group of answer choicesonly occurs in monopolistically competitve markets.

 

occurs when a company has a monopoly because they are the only one selling the good or service.

 

may occur in any market structure if the companies advertise to promote the differences in their product.

 

occurs in perfectly competitive markets and monopolistically competitive markets.

 

Flag question: Question 10Question 10

 

If barriers to entry are high and products are very differentiated, then (hint: think about which market structure it would resemble with the given characteristics)

 

Group of answer choicesthe industry will look like monopoly

 

the industry is probably a differentiated monopsony.

 

the industry is probably perfectly competitive.

 

the industry is probably monopolistically competitive.

 

Flag question: Question 11Question 11

 

final1

 

If the firm depicted above is producing the profit-maximizing level of output, they will earn _____.

 

Group of answer choices$20.

 

$66.

 

none; this firm must shut down or lose all of its fixed cost.

 

$272.

 

Flag question: Question 12Question 12

 

Which of the following is true for profit-maximizing firms operating in a competitive market, monopolistic competition, and monopoly?

 

Group of answer choicesFirms earn positive economic profits in the long run.

 

Profits are maximized when marginal cost equals marginal revenue.

 

Price equals marginal revenue.

 

Firms earn zero economic profits in the long run.

 

Flag question: Question 13Question 13

 

People magazine and US magazine are trying to decide how many subscriptions to sell. If they both sell 200, they will each earn $40,000 in profit. If they both sell 400, they will each earn $25,000 in profit. If one sells 200 and the other sells 400, the one who sells 200 will earn $20,000 in profit and the one who sells 400 will earn $60,000 in profit.

 

In this game, selling ________ subscriptions a month is a dominant strategy for People.

 

selling ________ subscriptions a month is a dominant strategy for US.

 

Group of answer choices400; 400

 

200; 200

 

200; 400

 

400; 200

 

Flag question: Question 14Question 14

 

If there are only a few companies in an oligopoly, the total quantity of the good they produce jointly will likely be ________ the total quantity on the market if the market were perfectly competitive and ________ the total quantity on the market if the market were controlled by a monopoly.

 

Group of answer choicesgreater than; greater than

 

less than; greater than

 

less than; less than

 

greater than; less than

 

Flag question: Question 15Question 15

 

Walmart and Target are the only stores in a remote town that currently stock and sell the PlayStation 5 video game console. Managers at both stores are simultaneously deciding whether to charge a price of $1,000 or $1,500 for each console. If both stores charge $1,000, they earn a profit of $100,000 each. If both stores charge $1,500, they earn a profit of $200,000 each. If one store charges $1,000 and the other store charges $1,500, the store that charges $1,000 earns a profit of $250,000 and the firm that charges $1,500 earns a profit of $50,000. The Nash Equilibrium is where Walmart and Target ________.

 

Group of answer choicesengage in spirited price competition and each earn $200,000 in profit

 

collude with each other

 

end up charging $1,000 and $1,500, respectively.

 

both charge $1,000

 

Flag question: Question 16Question 16

 

Which of the following market structures has the greatest incentive to act strategically?

 

Group of answer choicesoligopolists

 

monopolistic competitors

 

monopolists

 

firms in a perfectly competitive market

 

Flag question: Question 17Question 17

 

Economists typically measure the likely level of oligopoly power present in an industry by calculating the

 

Group of answer choicesreserve ratios.

 

concentration ratios.

 

capital ratios.

 

competition ratios.

 

Flag question: Question 18Question 18

 

Karolina owns a small diner, where she works full-time in the kitchen. Her total revenue last year was $200,000, and her rent was $4,000 per month. She pays her one employee $2,500 per month, and the cost of ingredients and overhead averages $700 per month. Karolina could earn $53,000 per year as the manager of a competing diner nearby. Her total economic profit last year was

 

Group of answer choices$60,600

 

0

 

$113,600.

 

$139,800.

 

Flag question: Question 19Question 19

 

Firms in this market structure are likely to advertise because they need to differentiate themselves from the other firms in the market.

 

Group of answer choicesperfect competition and monopolistic competition

 

monopolistic competition

 

perfect competition and monopolistic competition

 

oligopoly, perfect competition, and monopolistic competition

 

Flag question: Question 20Question 20

 

monopolyProfit.jpg

 

What is the profit-maximizing quantity and price for the firm shown above?Group of answer choices150 units; $25

 

100 units; $13

 

150 units; $10

 

100 units; $25

 

Flag question: Question 21Question 21

 

One of the fundamental causes of Perfectly Competitive markets is that

 

Group of answer choicesaccounting profits become zero because of price wars.

 

there are more buyers than sellers, giving the buyers market power.

 

there are more sellers than buyers, giving the sellers market power.

 

there are so many buyers and sellers that each has no impact on the market price and the market output

 

Flag question: Question 22Question 22

 

In both perfect competition and monopolistic competition, each firm

 

Group of answer choicesis likely to advertise.

 

has many competitors.

 

sells a product that is at least slightly different from those of other firms.

 

has some monopoly power.

 

Flag question: Question 23Question 23

 

The law of demand states that, other things equal:

 

Group of answer choicesprice and quantity demanded are inversely related.

 

consumers will buy more of a product at high prices than at low prices.

 

the larger the number of buyers in a market, the lower will be product price.

 

price and quantity demanded are directly related.

 

Flag question: Question 24Question 24

 

If there is currently a surplus of a product in a market, the price of the product

 

Group of answer choiceswill rise in the near future.

 

is below the equilibrium level.

 

is above the equilibrium level.

 

is in equilibrium.

 

Flag question: Question 25Question 25

 

An increase in demand will cause

 

Group of answer choicesthe demand curve to shift to the right, the price to increase, and the quantity to decrease

 

the demand curve to shift to the left, the price to decrease, and the quantity to increase

 

the demand curve to shift to the left, the price to decrease, and the quantity to decrease

 

the demand curve to shift to the right, the price to increase, and the quantity to increase

 

Flag question: Question 26Question 26

 

If there is an increase in supply,

 

Group of answer choicesthe supply curve will shift to the left causing the price to decrease

 

the supply curve will shift to the right causing the price to decrease.

 

there will be a movement along the supply curve

 

the supply curve will be upward sloping

 

Flag question: Question 27Question 27

 

Assuming orange juice and Sunny Delight are substitutes, a lower price for Sunny Delight would result in a(n)

 

Group of answer choicesNone of the above

 

increase in demand for orange juice causing the quantity to decrease and the price to increase.

 

decrease in demand for orange juice causing the quantity to decrease and the price to decrease.

 

increase in supply of Sunny Delight causing the quantity to increase and the price to decrease

 

Flag question: Question 28Question 28

 

A drought in California causes a major decrease in the amount of almonds that are harvested.  As a result of the drought, the consumer surplus in the market for almonds (hint what will happen to the price?)

 

Group of answer choicesincreases, and the consumer surplus in the market for almond milk increases.

 

decreases, and the consumer surplus in the market for almond milk increases.

 

decreases and the consumer surplus in the market for almond milk decreases.

 

increases, and the consumer surplus in the market for almond milk decreases.

 

Flag question: Question 29Question 29

 

PS Graph

 

Producer surplus at a price of $70 will be

 

Group of answer choices$100

 

$50

 

none of the above

 

$175

 

Flag question: Question 30Question 30

 

WelfareFinal.jpg

 

Please use the graph above to CALCULATE the following:

 

Consumer Surplus =

 

Producer Surplus =

 

Flag question: Question 31Question 31

 

Jose and Ali both make salsa and hummus. Jose can make 5 jars of salsa or 6 containers of hummus each day. Ali can make 6 jars of salsa or 6 containers of hummus each day.

 

Jose’s opportunity costs of a jar of salsa  =

 

Ali’s opportunity cost of a container of hummus =

 

To maximize the gains from trade,  should produce salsa, and  should produce hummus.