Issues in Economics Today Robert Guell 8e - Test Bank

Issues in Economics Today Robert Guell 8e – Test Bank

 

Instant Download – Complete Test Bank With Answers

 

 

Sample Questions Are Posted Below

 

 

 

Multiple Choice

 

 

1. In Figure 5.1, what output would a perfect competitor produce?
   1. Q₁
   2. Q₂
   3. Q₃
   4. Q₄

 

Answer: B

Learning Objective: 05-01

Topic: From Perfect Competition to Monopoly

Blooms: Evaluate

AACSB: Analytical Thinking

Difficulty: 3 Hard

 

 

2. In Figure 5.1, what profit would a perfect competitor earn?

 

1. a profit of zero
2. a positive profit
3. a loss less than its total fixed cost
4. a loss greater than its total fixed cost

 

Answer: B

Learning Objective: 05-01

Topic: From Perfect Competition to Monopoly

Blooms: Evaluate

AACSB: Analytical Thinking

Difficulty: 3 Hard

 

 

3. In Figure 5.2, what output would a perfect competitor produce?

 

Figure 5.2

1. Q₁
2. Q₂
3. Q₃
4. 0

 

Answer: B

Learning Objective: 05-01

Topic: From Perfect Competition to Monopoly

Blooms: Evaluate

AACSB: Analytical Thinking

Difficulty: 3 Hard

 

 

4. In Figure 5.3, what output would a perfect competitor produce?

 

Figure 5.3

 

1. Q₁
2. Q₂
3. Q₃
4. 0

 

Answer: D

Learning Objective: 05-01

Topic: From Perfect Competition to Monopoly

Blooms: Evaluate

AACSB: Analytical Thinking

Difficulty: 3 Hard

 

5. In Figure 5.4, a monopolist would charge which price?

 

 

 

Figure 5.4

 

1. P₁
2. P₂
3. P₃
4. P₄

 

Answer: D

Learning Objective: 05-01

Topic: From Perfect Competition to Monopoly

Blooms: Evaluate

AACSB: Analytical Thinking

Difficulty: 3 Hard

 

 

6. In Figure 5.5, a monopolist would charge which price?

 

1. P₁
2. P₂
3. P₃
4. P₄

 

Answer: C

Learning Objective: 05-01

Topic: From Perfect Competition to Monopoly

Blooms: Evaluate

AACSB: Analytical Thinking

Difficulty: 3 Hard

 

 

7. In Figure 5.5, what profit would the monopolist earn?
   1. zero profit, because it would shut down.
   2. a positive profit.
   3. a loss less than its total fixed cost.
   4. a loss greater than its total fixed cost.

 

Answer: C

Learning Objective: 05-01

Topic: From Perfect Competition to Monopoly

Blooms: Evaluate

AACSB: Analytical Thinking

Difficulty: 3 Hard

 

 

8. In Figure 5.6, a monopolist would charge which price?

 

1. The monopolist would shutdown so no price would be charged.
2. P₂
3. P₃
4. P₄

 

Answer: A

Learning Objective: 05-01

Topic: From Perfect Competition to Monopoly

Blooms: Evaluate

AACSB: Analytical Thinking

Difficulty: 3 Hard

 

 

9. In Figure 5.6, what profit would the monopolist earn? In the figure above, a monopolist would charge which price?

 

1. zero profit.
2. a positive profit.
3. a loss equal to its total fixed cost.
4. a loss greater than its total fixed cost.

 

Answer: C

Learning Objective: 05-01

Topic: From Perfect Competition to Monopoly

Blooms: Evaluate

AACSB: Analytical Thinking

Difficulty: 3 Hard

 

 

10. Which of the following is not an assumption of perfect competition?
    1. Branded products
    2. Many buyers
    3. Many sellers
    4. Identical (or indistinguishable) products

 

Answer: A

Learning Objective: 05-01

Topic: From Perfect Competition to Monopoly

Blooms: Evaluate

AACSB: Analytical Thinking

Difficulty: 3 Hard

 

 

11. Which of the following is not an assumption of perfect competition?
    1. Freedom of entry
    2. Powerful buyers
    3. Freedom of exit
    4. Identical (or indistinguishable) products

 

Answer: B

Learning Objective: 05-01

Topic: From Perfect Competition to Monopoly

Blooms: Remember

AACSB: Analytical Thinking

Difficulty: 1 Easy

 

 

12. Perfect competition means that firms are
    1. Price makers (firms set the price of the market)
    2. Price takers (firms must accept the price of the market)
    3. Powerful sellers
    4. Unable to make normal profits

 

Answer: B

Learning Objective: 05-01

Topic: From Perfect Competition to Monopoly

Blooms: Understand

AACSB: Analytical Thinking

Difficulty: 1 Easy

 

 

13. When firms are in perfect competition the result is that firms charge a price that is always equal to its
    1. Minimum ATC
    2. Minimum AVC
    3. MC
    4. AFC

 

Answer: C

Learning Objective: 05-01

Topic: From Perfect Competition to Monopoly

Blooms: Remember

AACSB: Analytical Thinking

Difficulty: 1 Easy

 

 

14. The typical firm in perfect competition is
    1. An airline
    2. A farm
    3. A fast food restaurant chain
    4. An electrical power company

 

Answer: B

Learning Objective: 05-01

Topic: From Perfect Competition to Monopoly

Blooms: Apply

AACSB: Knowledge Application

Difficulty: 2 Medium

 

 

15. A firm that has a branded product is
    1. Likely in perfect competition
    2. Not likely to be in perfect competition
    3. Always in perfect competition
    4. Always a price taker

 

Answer: B

Learning Objective: 05-01

Topic: From Perfect Competition to Monopoly

Blooms: Apply

AACSB: Knowledge Application

Difficulty: 2 Medium

 

 

16. For a market to be characterized by perfect competition, there must be
    1. a large number of firms with no one able to influence price.
    2. freedom of entry and exit.
    3. indistinguishable products being sold.
    4. all of the options are correct.

 

Answer: D

Learning Objective: 05-01

Topic: From Perfect Competition to Monopoly

Blooms: Understand

AACSB: Analytical Thinking

Difficulty: 1 Easy

 

 

17. For a market to be characterized by monopoly, there must be
    1. a large number of firms with no one able to influence price.
    2. freedom of entry and exit.
    3. indistinguishable products being sold.
    4. a single seller

 

Answer: D

Learning Objective: 05-01

Topic: From Perfect Competition to Monopoly

Blooms: Understand

AACSB: Analytical Thinking

Difficulty: 1 Easy

 

 

18. For a market to be characterized by monopoly, there must be
    1. a large number of firms with no one able to influence price.
    2. barriers to entry and exit.
    3. indistinguishable products being sold.
    4. good information about sales and costs.

 

Answer: B

Learning Objective: 05-01

Topic: From Perfect Competition to Monopoly

Blooms: Understand

AACSB: Analytical Thinking

Difficulty: 1 Easy

 

 

19. The key difference(s) between perfect competition and monopolistic competition is
    1. the products sold are slightly different in perfect competition.
    2. the products sold are slightly different in monopolistic competition.
    3. there is poor information about prices in perfect competition.
    4. there is poor information about prices in monopolistic competition.

 

Answer: B

Learning Objective: 05-01

Topic: From Perfect Competition to Monopoly

Blooms: Evaluate

AACSB: Analytical Thinking

Difficulty: 3 Hard

 

 

20. The key difference(s) between monopoly and oligopoly is
    1. that there are two in oligopoly rather than one competitor in a monopoly.
    2. there are no barriers to entry with oligopoly.
    3. there must be product differences in oligopoly.
    4. there are no differences between oligopoly and a monopoly.

 

Answer: A

Learning Objective: 05-01

Topic: From Perfect Competition to Monopoly

Blooms: Evaluate

AACSB: Analytical Thinking

Difficulty: 3 Hard

 

 

21. The firm’s supply curve is made up of the
    1. Points where MC=MR
    2. Points where MC=MR and they make a profit
    3. Points where MC=MR and they make at least breakeven
    4. Points where MC=MR above the minimum of AVC

 

Answer: D

Learning Objective: 05-03

Topic: Supply under Perfect Competition

Blooms: Remember

AACSB: Analytical Thinking

Difficulty: 1 Easy

 

 

22. The firm’s supply curve is their
    1. Marginal cost curve above the minimum of ATC
    2. Marginal cost curve above the minimum of AVC
    3. The upward sloping portion of the marginal cost curve
    4. The entire marginal cost curve

 

Answer: B

Learning Objective: 05-03

Topic: Supply under Perfect Competition

Blooms: Remember

AACSB: Analytical Thinking

Difficulty: 1 Easy

 

 

23. Agricultural Products can be modeled best using the model of
    1. monopolistic competition.
    2. perfect competition.

 

Answer: B

Learning Objective: 05-01

Topic: From Perfect Competition to Monopoly

Blooms: Apply

AACSB: Knowledge Application

Difficulty: 2 Medium

 

 

24. Lumber Products can be modeled best using the model of
    1. monopolistic competition.
    2. perfect competition.

 

Answer: B

Learning Objective: 05-01

Topic: From Perfect Competition to Monopoly

Blooms: Apply

AACSB: Knowledge Application

Difficulty: 2 Medium

 

 

25. The fast food industry can be modeled best using the model of
    1. monopolistic competition.
    2. perfect competition.

 

Answer: A

Learning Objective: 05-01

Topic: From Perfect Competition to Monopoly

Blooms: Apply

AACSB: Knowledge Application

Difficulty: 2 Medium

 

 

26. The breakfast cereals industry can be best modeled using the model of
    1. monopolistic competition.
    2. perfect competition.

 

Answer: A

Learning Objective: 05-01

Topic: From Perfect Competition to Monopoly

Blooms: Apply

AACSB: Knowledge Application

Difficulty: 2 Medium

 

 

27. The soft drink (colas in particular) industry can be best modeled using the model of
    1. monopolistic competition.
    2. perfect competition.

 

Answer: C

Learning Objective: 05-01

Topic: From Perfect Competition to Monopoly

Blooms: Apply

AACSB: Knowledge Application

Difficulty: 2 Medium

 

 

28. The personal computer operating systems industry can be best modeled using the model of
    1. monopolistic competition.
    2. perfect competition.

 

Answer: D

Learning Objective: 05-01

Topic: From Perfect Competition to Monopoly

Blooms: Apply

AACSB: Knowledge Application

Difficulty: 2 Medium

 

 

29. The local residential electrical power industry can be best modeled using the model of
    1. monopolistic competition.
    2. perfect competition.

 

Answer: D

Learning Objective: 05-01

Topic: From Perfect Competition to Monopoly

Blooms: Apply

AACSB: Knowledge Application

Difficulty: 2 Medium

 

 

30. There are hundreds of local water companies but economists insist that in each community they are __________ because consumers have no other choices in the local market in which they live.
    1. perfect competition
    2. monopolistic competition
    3. oligopoly
    4. monopoly

 

Answer: D

Learning Objective: 05-01

Topic: From Perfect Competition to Monopoly

Blooms: Apply

AACSB: Knowledge Application

Difficulty: 2 Medium

 

 

31. If you drive on a rural stretch of highway and come upon an intersection in which there is only one gas station and you know it to be the only one for 100 miles, it is a
    2. perfect competitor.
    3. monopolistic competitor.

 

Answer: A

Learning Objective: 05-01

Topic: From Perfect Competition to Monopoly

Blooms: Apply

AACSB: Knowledge Application

Difficulty: 2 Medium

 

 

32. If you drive on a rural stretch of highway and come upon an intersection in which there are two gas stations and you know them to be the only ones for 100 miles, they are
    2. monopolistic competitors.
    3. perfect competitors.

 

Answer: D

Learning Objective: 05-01

Topic: From Perfect Competition to Monopoly

Blooms: Evaluate

AACSB: Analytical Thinking

Difficulty: 3 Hard

 

 

33. Suppose ten companies begin introducing new genetically engineered apples. Each has their own distinctive taste and brand name. This market would be described by
    1. perfect competition.
    2. monopolistic competition.

 

Answer: B

Learning Objective: 05-01

Topic: From Perfect Competition to Monopoly

Blooms: Evaluate

AACSB: Analytical Thinking

Difficulty: 3 Hard

 

 

34. Suppose you can get broadband only from your cable company or your phone company. This market would be described by
    1. perfect competition.
    2. monopolistic competition.

 

Answer: C

Learning Objective: 05-01

Topic: From Perfect Competition to Monopoly

Blooms: Evaluate

AACSB: Analytical Thinking

Difficulty: 3 Hard

 

 

35. Suppose you can get the typical cable channels (ESPN, MTV, Bravo, etc.) from a cable company, from DIRECTV, or from DISH Network. This market would be described by
    1. perfect competition.
    2. healthy competition.

 

Answer: C

Learning Objective: 05-01

Topic: From Perfect Competition to Monopoly

Blooms: Evaluate

AACSB: Analytical Thinking

Difficulty: 3 Hard

 

 

36. Suppose you can fly from your home city to New York but only one airline provides the service. This market would be described by
    1. perfect competition.
    2. healthy competition.

 

Answer: D

Learning Objective: 05-01

Topic: From Perfect Competition to Monopoly

Blooms: Evaluate

AACSB: Analytical Thinking

Difficulty: 3 Hard

 

 

37. Suppose you can fly from LA to New York and 15 separate airlines provide the service. This market would be described by
    1. limited competition.
    2. monopolistic competition.

 

Answer: B

Learning Objective: 05-01

Topic: From Perfect Competition to Monopoly

Blooms: Evaluate

AACSB: Analytical Thinking

Difficulty: 3 Hard

 

 

38. Suppose you can fly from Charlotte to London but only two airlines provide the service. This market would be described by
    1. limited competition.
    2. monopolistic competition.

 

Answer: C

Learning Objective: 05-01

Topic: From Perfect Competition to Monopoly

Blooms: Evaluate

AACSB: Analytical Thinking

Difficulty: 3 Hard

 

 

39. An industry in which there are many competitors with specific marketing niches is likely to be characterized by
    2. monopolistic competition.
    4. perfect competition.

 

Answer: B

Learning Objective: 05-01

Topic: From Perfect Competition to Monopoly

Blooms: Evaluate

AACSB: Analytical Thinking

Difficulty: 3 Hard

 

 

40. An industry in which there are just a few large firms is likely to be characterized by
    2. monopolistic competition.
    4. perfect competition.

 

Answer: C

Learning Objective: 05-01

Topic: From Perfect Competition to Monopoly

Blooms: Evaluate

AACSB: Analytical Thinking

Difficulty: 3 Hard

 

 

41. The usefulness and relative simplicity of the supply and demand model is often used
    1. because nearly every major industry in the U.S. is governed by perfect competition.
    2. because nearly every major industry in the U.S. is governed by monopoly.
    3. even though, strictly speaking, few industries in the U.S. are governed by perfect competition.
    4. even though it has no connection to economic reality.

 

Answer: C

Learning Objective: 05-01

Topic: From Perfect Competition to Monopoly

Blooms: Evaluate

AACSB: Analytical Thinking

Difficulty: 3 Hard

 

 

42. Whether a firm stays in business or shuts down depends heavily on the concept of
    1. economic profit.
    2. actual profit.
    3. market share.
    4. concentration ratios.

 

Answer: A

Learning Objective: 05-01

Topic: From Perfect Competition to Monopoly

Blooms: Understand

AACSB: Analytical Thinking

Difficulty: 1 Easy

 

 

43. Economic theory would suggest that the profitability of an industry would be
    1. directly related to the number of firms competing in the industry.
    2. inversely related to the number of firms competing in the industry.
    3. unrelated to the number of firms competing in the industry.
    4. zero in the long run, regardless of market structure.

 

Answer: B

Learning Objective: 05-01

Topic: From Perfect Competition to Monopoly

Blooms: Understand

AACSB: Analytical Thinking

Difficulty: 1 Easy

 

 

44. An indicator of the degree of competition in an industry is the concentration ratio. It measures
    1. the percentage of sales in the industry by the largest firms.
    2. the percentage of profit in the industry by the smallest firms.
    3. the sales in the industry as a percentage of all consumption in the U.S.
    4. the profitability of the industry.

 

Answer: A

Learning Objective: 05-01

Topic: From Perfect Competition to Monopoly

Blooms: Evaluate

AACSB: Analytical Thinking

Difficulty: 3 Hard

 

 

45. Local telephone service was once an area in which consumers had no choices. Many young people no longer use “land lines” preferring instead to use their cellular phones. This means that the market has moved toward
    3. perfect competition.

 

Answer: B

Learning Objective: 05-01

Topic: From Perfect Competition to Monopoly

Blooms: Evaluate

AACSB: Analytical Thinking

Difficulty: 3 Hard

 

 

46. In Figure 5.7, assuming perfect competition which price(s) is associated with a loss?

 

1. A) MR₁
2. B) MR₂
3. C) MR₃
4. D) MR₁ and MR₂

 

Answer: D

Learning Objective: 05-01

Topic: From Perfect Competition to Monopoly

Blooms: Evaluate

AACSB: Analytical Thinking

Difficulty: 3 Hard

 

 

47. In Figure 5.7, assuming perfect competition which price is associated with profit being exactly normal?

 

1. A) MR₁
2. B) MR₂
3. C) MR₃
4. D) MR₄

 

Answer: C

Learning Objective: 05-01

Topic: From Perfect Competition to Monopoly

Blooms: Evaluate

AACSB: Analytical Thinking

Difficulty: 3 Hard

 

 

48. In Figure 5.7, assuming perfect competition which price is associated with positive economic profit?

 

1. A) MR₁
2. B) MR₂
3. C) MR₃
4. D) MR₄

 

Answer: D

Learning Objective: 05-01

Topic: From Perfect Competition to Monopoly

Blooms: Evaluate

AACSB: Analytical Thinking

Difficulty: 3 Hard

 

 

49. In Figure 5.7, assuming perfect competition and at MR₁ there will be

 

1. short run pressure on the price to rise.
2. long run pressure on the price to rise.
3. no pressure on the price to change.
4. short and long run pressure on the price to rise.

 

Answer: D

Learning Objective: 05-01

Topic: From Perfect Competition to Monopoly

Blooms: Evaluate

AACSB: Analytical Thinking

Difficulty: 3 Hard

 

 

50. In Figure 5.7, assuming perfect competition and at MR₂ there will be

 

1. short run pressure on the price to rise.
2. long run pressure on the price to rise.
3. no pressure on the price to change.
4. short and long run pressure on the price to rise.

 

Answer: B

Learning Objective: 05-01

Topic: From Perfect Competition to Monopoly

Blooms: Evaluate

AACSB: Analytical Thinking

Difficulty: 3 Hard

 

 

51. In Figure 5.7, assuming perfect competition and at MR₃ there will be

 

1. short run pressure on the price to rise.
2. long run pressure on the price to rise.
3. no pressure on the price to change.
4. short and long run pressure on the price to rise.

 

Answer: C

Learning Objective: 05-01

Topic: From Perfect Competition to Monopoly

Blooms: Evaluate

AACSB: Analytical Thinking

Difficulty: 3 Hard

 

 

52. In Figure 5.7, assuming perfect competition and at MR₄ there will be

 

1. short run pressure on the price to fall.
2. long run pressure on the price to fall.
3. no pressure on the price to change.
4. short and long run pressure on the price to fall.

 

Answer: D

Learning Objective: 05-01

Topic: Supply under Perfect Competition

Blooms: Evaluate

AACSB: Analytical Thinking

Difficulty: 3 Hard

 

 

53. In a diagram of perfect competition, the marginal revenue line moves up and down when there is exit and entry, respectively, because
    1. the market demand for the good rises and falls when there is exit and entry, respectively.
    2. the market demand for the good rises and falls when there is entry and exit, respectively.
    3. the market supply for the good rises and falls when there is exit and entry, respectively.
    4. the market supply for the good rises and falls when there is entry and exit, respectively.

 

Answer: D

Learning Objective: 05-02

Topic: Supply under Perfect Competition

Blooms: Remember

AACSB: Analytical Thinking

Difficulty: 1 Easy

 

 

54. If MR>MC then when an additional unit is sold the firm’s
    1. profit will be positive.
    2. profit will be negative.
    3. profit will increase.
    4. profit will decrease.

 

Answer: C

Learning Objective: 05-02

Topic: From Perfect Competition to Monopoly

Blooms: Remember

AACSB: Analytical Thinking

Difficulty: 1 Easy

 

 

55. Economic Profit exists whenever
    1. A firm makes even one penny.
    2. A firm makes more than its competitors.
    3. A firm makes more than the minimum required to maintain the incentive to remain in the industry.
    4. A firm makes enough to that it is required to pay taxes.

 

Answer: C

Learning Objective: 05-01

Topic: From Perfect Competition to Monopoly

Blooms: Understand

AACSB: Analytical Thinking

Difficulty: 1 Easy

 

 

56. Normal Profit is what a firm
    1. usually makes.
    2. needs to make to maintain the incentive to remain in the industry.
    3. is zero in the long run.
    4. a) and b)

 

Answer: B

Learning Objective: 05-01

Topic: From Perfect Competition to Monopoly

Blooms: Understand

AACSB: Analytical Thinking

Difficulty: 1 Easy

 

 

57. The assumption under perfect competition of a “homogeneous product” means that
    1. the good one firm produces is exactly the same as the good another firm produces.
    2. the good one firm produces is very different than the good another produces.
    3. that no firm can charge more than another for its product.
    4. that no buyer will pay more for one firm’s good than another’s.

 

Answer: A

Learning Objective: 05-01

Topic: From Perfect Competition to Monopoly

Blooms: Understand

AACSB: Analytical Thinking

Difficulty: 1 Easy

 

 

58. The assumption under perfect competition of a firm that has no market power means that
    1. firms are free to leave the market any time and there is no power keeping them there.
    2. the good one firm produces is very different than the good another produces.
    3. the good one firm produces is exactly then same as the good another firm produces.
    4. that no buyer will pay more for one firm’s good than another’s.

 

Answer: D

Learning Objective: 05-01

Topic: From Perfect Competition to Monopoly

Blooms: Understand

AACSB: Analytical Thinking

Difficulty: 1 Easy

 

 

59. Under perfect competition, the supply curve is
    1. the marginal cost curve for all price quantity combinations.
    2. the marginal cost curve, but only that portion that is downward sloping.
    3. the marginal cost curve, but only that portion that is upward sloping.
    4. the marginal cost curve, but only that portion that is above the minimum of average variable cost.

 

Answer: D

Learning Objective: 05-03

Topic: Supply under Perfect Competition

Blooms: Evaluate

AACSB: Analytical Thinking

Difficulty: 3 Hard

 

 

60. There will be short-run pressure on the price to rise whenever
    1. P>ATC.
    2. P=ATC.
    3. P<ATC.
    4. P<AVC.

 

Answer: D

Learning Objective: 05-03

Topic: Supply under Perfect Competition

Blooms: Evaluate

AACSB: Analytical Thinking

Difficulty: 3 Hard

 

 

61. There will be long-run pressure on the price to rise whenever
    1. P>ATC
    2. P<ATC
    3. P<AVC
    4. b) and c)

 

Answer: D

Learning Objective: 05-03

Topic: Supply under Perfect Competition

Blooms: Evaluate

AACSB: Analytical Thinking

Difficulty: 3 Hard

 

 

62. There will be short-run pressure on the price to fall whenever
    1. P>ATC
    2. P=ATC
    3. P<ATC
    4. P<AVC

 

Answer: A

Learning Objective: 05-03

Topic: Supply under Perfect Competition

Blooms: Evaluate

AACSB: Analytical Thinking

Difficulty: 3 Hard

 

 

63. There will be long-run pressure on the price to fall whenever
    1. P>ATC
    2. P=ATC
    3. P<ATC
    4. P<AVC

 

Answer: A

Learning Objective: 05-03

Topic: Supply under Perfect Competition

Blooms: Evaluate

AACSB: Analytical Thinking

Difficulty: 3 Hard

 

 

64. Very high four-firm concentration ratios characterize the
    1. furniture industry.
    2. beer industry.
    3. clothing industry.
    4. computer and peripherals industry.

 

Answer: B

Learning Objective: 05-01

Topic: From Perfect Competition to Monopoly

Blooms: Evaluate

AACSB: Analytical Thinking

Difficulty: 3 Hard

 

 

65. Very low four-firm concentration ratios characterize the
    1. breakfast cereal industry
    2. beer industry
    3. furniture industry
    4. cellular telephone service industry

 

Answer: C

Learning Objective: 05-01

Topic: From Perfect Competition to Monopoly

Blooms: Remember

AACSB: Analytical Thinking

Difficulty: 1 Easy

 

 

66. Midwestern grain farmers are characterized as “perfectly competitive” because they
    1. pitch in energetically to help a neighbor raise a new barn.
    2. must adjust the price of their product in order to increase the quantity that they sell.
    3. are represented by very influential lobbyists in Washington.
    4. can increase the quantity that they sell without affecting the market price.

 

Answer: D

Learning Objective: 05-01

Topic: From Perfect Competition to Monopoly

Blooms: Remember

AACSB: Analytical Thinking

Difficulty: 1 Easy

 

 

67. Microsoft is a dominant producer of operating system software for personal computers because
    1. its Windows product was one of the first to appear in the market.
    2. Linux and OS2 were unstable and vulnerable to frequent security failures.
    3. the U.S. Justice Department has always encouraged Microsoft to dominate its market.
    4. all of the above.

 

Answer: A

Learning Objective: 05-01

Topic: From Perfect Competition to Monopoly

Blooms: Apply

AACSB: Knowledge Application

Difficulty: 2 Medium

 

 

68. A reduction in the market price of the product is least likely to be required to enable
    1. Microsoft to sell more copies of Windows.
    2. a single Midwestern grain farmer to sell a larger harvest of grain.
    3. Apple to sell more of its iPhones.
    4. Verizon to increase its number of cellular telephone service subscribers.

 

Answer: B

Learning Objective: 05-01

Topic: From Perfect Competition to Monopoly

Blooms: Apply

AACSB: Knowledge Application

Difficulty: 2 Medium

 

 

69. A reduction in the market price of the product is most likely to be required to enable
    1. a single Northwestern logging company to sell a larger quantity of timber.
    2. a single Midwestern grain farmer to sell a larger harvest of grain.
    3. a single Pacific Coast fishing trawler to sell a larger quantity of tuna
    4. Apple to sell more of its iPhones.

 

Answer: D

Learning Objective: 05-01

Topic: From Perfect Competition to Monopoly

Blooms: Apply

AACSB: Knowledge Application

Difficulty: 2 Medium

 

 

70. If a competitive firm routinely earns a larger profit than the “normal profit” for its industry
    1. the firm’s owners are likely to withdraw from the industry in order to retire early.
    2. new firms are likely to enter the industry, pushing up the prevailing market price.
    3. new firms are likely to enter the industry, depressing the prevailing market price.
    4. the firm will continue to earn its “normal profits” far into the future.

 

Answer: C

Learning Objective: 05-01

Topic: From Perfect Competition to Monopoly

Blooms: Apply

AACSB: Knowledge Application

Difficulty: 2 Medium

 

71. Suppose a farmer earns a larger profit than the “normal profit” by producing a special type of vegetable that becomes popular
    1. the farm’s owners are likely to withdraw from the industry in order to retire early.
    2. other farmers are likely to plant the same vegetable, pushing up the prevailing market price.
    3. other farmers are likely to plant the same vegetable, pushing down the prevailing market price.
    4. the firm will continue to earn its “normal profits” far into the future.

Answer: C

Learning Objective: 05-01

Topic: From Perfect Competition to Monopoly

Blooms: Apply

AACSB: Knowledge Application

Difficulty: 2 Medium

 

 

72. Suppose a farmer earns a larger profit than the “normal profit” by producing a special type of milk that becomes popular
    1. the farm’s owners are likely to withdraw from the industry in order to retire early.
    2. other farmers are likely to produce the same milk, pushing up the prevailing market price.
    3. other farmers are likely to produce the same milk, pushing down the prevailing market price.
    4. the firm will continue to earn its “normal profits” far into the future.

 

Answer: C

Learning Objective: 05-01

Topic: From Perfect Competition to Monopoly

Blooms: Apply

AACSB: Knowledge Application

Difficulty: 2 Medium

 

 

73. The first firm in an industry
    1. will always make an economic profit.
    2. may make an economic profit.
    3. will make a loss but want to stay in business.
    4. will make a loss so large that it wants to shutdown.

 

Answer: B

Learning Objective: 05-01

Topic: From Perfect Competition to Monopoly

Blooms: Understand

AACSB: Analytical Thinking

Difficulty: 1 Easy

 

 

74. Under monopolistic competition there are
    1. identical products.
    2. high barriers to entry.
    3. low barriers to entry.
    4. so many firms that no one can control the price.

 

Answer: C

Learning Objective: 05-01

Topic: From Perfect Competition to Monopoly

Blooms: Understand

AACSB: Analytical Thinking

Difficulty: 1 Easy

 

 

75. Under oligopoly there are
    1. identical products.
    2. high barriers to entry.
    3. low barriers to entry.
    4. so many firms that no one can control the price.

 

Answer: B

Learning Objective: 05-01

Topic: From Perfect Competition to Monopoly

Blooms: Understand

AACSB: Analytical Thinking

Difficulty: 1 Easy

 

 

76. Monopolistically competitive firms are
    1. Price makers
    2. Price takers
    3. Price excluders
    4. Price includes

 

Answer: A

Learning Objective: 05-01

Topic: From Perfect Competition to Monopoly

Blooms: Understand

AACSB: Analytical Thinking

Difficulty: 1 Easy

 

 

77. If entry is completely free, the demand curve for the leading, profit-making monopolistic competitor will
    1. Become steeper while moving to the right.
    2. Move to the left until where MC=MR is where the ATC curve is tangent to the demand curve.
    3. Move to the left until where MC=MR is where the AVC curve is tangent to the demand curve.
    4. Move to the right until where MC=MR is where the ATC curve is tangent to the demand curve.

 

Answer: B

Learning Objective: 05-02

Topic: From Perfect Competition to Monopoly

Blooms: Understand

AACSB: Analytical Thinking

Difficulty: 1 Easy

 

 

78. What moves when there is entry in monopolistic competition
    1. The supply curve.
    2. The demand curve only.
    3. The demand curve and the marginal revenue curve.
    4. The marginal revenue curve only.

 

Answer: C

Learning Objective: 05-01

Topic: Supply under Perfect Competition

Blooms: Understand

AACSB: Analytical Thinking

Difficulty: 1 Easy

 

 

79. When a firm creates an industry
    1. It is there’s forever. No other firm can enter.
    2. Depending on the ease of entry, the firm’s economic profit is likely to diminish.
    3. The firm’s economic profit will rise because other firms will enter.
    4. The firm’s economic profit will stabilize.

 

Answer: B

Learning Objective: 05-01

Topic: From Perfect Competition to Monopoly

Blooms: Understand

AACSB: Analytical Thinking

Difficulty: 1 Easy

 

 

80. When there are significant barriers to entry and there are few firms in the industry
    1. economic profit will continue for the firms in the industry.
    2. economic profit will go to zero.
    3. normal profit will be garnered by the firms.
    4. at least one will exit until the economic profit disappears.

 

Answer: A

Learning Objective: 05-02

Topic: From Perfect Competition to Monopoly

Blooms: Understand

AACSB: Analytical Thinking

Difficulty: 1 Easy

 

 

81. When there are significant barriers to entry and there are few firms in the industry we label this
    1. perfect competition.
    2. monopolistic competition.

 

Answer: D

Learning Objective: 05-02

Topic: From Perfect Competition to Monopoly

Blooms: Understand

AACSB: Analytical Thinking

Difficulty: 1 Easy

 

 

82. If there are two airlines selling service between city A and city B the best model to analyze this market is
    1. perfect competition.
    2. monopolistic competition.

 

Answer: C

Learning Objective: 05-01

Topic: From Perfect Competition to Monopoly

Blooms: Understand

AACSB: Analytical Thinking

Difficulty: 1 Easy

 

 

83. There are thousands of broadband internet providers in the country, while in a particular city the only way you can get it is through the phone, the cable company, and through        The best model to analyze this market is
    1. perfect competition.
    2. monopolistic competition.

 

Answer: C

Learning Objective: 05-01

Topic: From Perfect Competition to Monopoly

Blooms: Apply

AACSB: Knowledge Application

Difficulty: 2 Medium

 

 

84. There are thousands of electric companies in the country, while in a particular city there is only one. The best model to analyze this market is
    1. perfect competition.
    2. monopolistic competition.

 

Answer: D

Learning Objective: 05-01

Topic: From Perfect Competition to Monopoly

Blooms: Apply

AACSB: Knowledge Application

Difficulty: 2 Medium

 

 

85. There are one-half million grain farmers in the country producing corn. The best model to analyze this market is
    1. perfect competition.
    2. monopolistic competition.

 

Answer: A

Learning Objective: 05-01

Topic: From Perfect Competition to Monopoly

Blooms: Apply

AACSB: Knowledge Application

Difficulty: 2 Medium

 

 

86. There are a quarter of a million dairy farmers in the country. The best model to analyze this market is
    1. perfect competition.
    2. monopolistic competition.

 

Answer: A

Learning Objective: 05-01

Topic: From Perfect Competition to Monopoly

Blooms: Apply

AACSB: Knowledge Application

Difficulty: 2 Medium

 

 

87. There are dozens of sit-down restaurants in a large city in dozens of locations. The best model to analyze this market is
    1. perfect competition.
    2. monopolistic competition.

 

Answer: B

Learning Objective: 05-01

Topic: From Perfect Competition to Monopoly

Blooms: Apply

AACSB: Knowledge Application

Difficulty: 2 Medium

 

 

88. There are two large chain coffee houses and McDonalds that all produce Frappuccinos in dozens of locations in a large city. The best model to analyze this market is
    1. perfect competition.
    2. monopolistic competition.

 

Answer: C

Learning Objective: 05-01

Topic: From Perfect Competition to Monopoly

Blooms: Apply

AACSB: Knowledge Application

Difficulty: 2 Medium

 

 

89. There are fifteen airlines that will take you from New York to L.A. The best model to analyze this market is
    1. perfect competition.
    2. monopolistic competition.

 

Answer: B

Learning Objective: 05-01

Topic: From Perfect Competition to Monopoly

Blooms: Apply

AACSB: Knowledge Application

Difficulty: 2 Medium

 

90. There are hundreds of companies in the business of providing natural gas to residential For the most part, these local gas companies each only serve their local community        and so they buy in very competitive markets but sell locally and without competitors. The         wholesale market is therefore likely to be
    1. perfect competition.
    2. monopolistic competition.

 

Answer: A

Learning Objective: 05-01

Topic: From Perfect Competition to Monopoly

Blooms: Apply

AACSB: Knowledge Application

Difficulty: 2 Medium

 

91. There are hundreds of companies in the business of providing natural gas to residential For the most part, these local gas companies each only serve their local community        and so they buy in very competitive markets but sell locally and without competitors. The         retail market is therefore likely to be
    1. perfect competition.
    2. monopolistic competition.

 

Answer: D

Learning Objective: 05-01

Topic: From Perfect Competition to Monopoly

Blooms: Apply

AACSB: Knowledge Application

Difficulty: 2 Medium

 

92. An industry which has a 4-firm concentration ratio near 0 would best be described as
    1. perfect competition.
    2. monopolistic competition.

 

Answer: A

Learning Objective: 05-01

Topic: From Perfect Competition to Monopoly

Blooms: Apply

AACSB: Knowledge Application

Difficulty: 2 Medium

 

93. An industry which has a 4-firm concentration ratio near 20 would best be described as
    1. perfect competition.
    2. monopolistic competition.

 

Answer: B

Learning Objective: 05-01

Topic: From Perfect Competition to Monopoly

Blooms: Apply

AACSB: Knowledge Application

Difficulty: 2 Medium

 

94. An industry which has a 4-firm concentration ratio near 100 would best be described as
    1. perfect competition.
    2. monopolistic competition.
    3. oligopoly or a monopoly depending on the size of the biggest firm.
    4. clearly a monopoly.

 

Answer: C

Learning Objective: 05-01

Topic: From Perfect Competition to Monopoly

Blooms: Apply

AACSB: Knowledge Application

Difficulty: 2 Medium

 

95. An industry which Herfindahl-Hershman Index of 10,000 would best be described as
    1. perfect competition.
    2. monopolistic competition.

 

Answer: D

Learning Objective: 05-01

Topic: From Perfect Competition to Monopoly

Blooms: Apply

AACSB: Knowledge Application

Difficulty: 2 Medium

 

96. An industry which Herfindahl-Hershman Index of 1,000 would best be described as
    1. perfect competition.
    2. monopolistic competition.

 

Answer: B

Learning Objective: 05-01

Topic: From Perfect Competition to Monopoly

Blooms: Apply

AACSB: Knowledge Application

Difficulty: 2 Medium

 

97. An industry which Herfindahl-Hershman Index of 4,000 would best be described as
    1. perfect competition.
    2. monopolistic competition.

 

Answer: C

Learning Objective: 05-01

Topic: From Perfect Competition to Monopoly

Blooms: Apply

AACSB: Knowledge Application

Difficulty: 2 Medium

 

98. If an industry has 100 firms and its Herfindahl-Hershman Index is 100 would best be described as
    1. perfect competition.
    2. monopolistic competition.

 

Answer: A

Learning Objective: 05-01

Topic: From Perfect Competition to Monopoly

Blooms: Apply

AACSB: Knowledge Application

Difficulty: 2 Medium

 

99. Suppose there are 5 makers of tablet computers with market shares of 80%, 5%, 5%, 5%, and 5% respectively. The HHI is
    3. 6,500.
    4. 10,000.

 

Answer: C

Learning Objective: 05-01

Topic: From Perfect Competition to Monopoly

Blooms: Evaluate

AACSB: Analytical Thinking

Difficulty: 3 Hard

 

100. Suppose there are 11 automakers. The top three have 20% of the market each, and the remaining eight six divide remaining market share evenly. The HHI is
101. A) 0.
102. B) 909.
103. C) 1,400.
104. D) 10,000

     Answer: C

Learning Objective: 05-01

Topic: From Perfect Competition to Monopoly

Blooms: Evaluate

AACSB: Analytical Thinking

Difficulty: 3 Hard

 

Figure 5.8

 

101. In Figure 5.8, if the supply curve moves from S1 to S2
     1. The firm will make a smaller economic profit than they used to
     2. The firm will go from making an economic profit to a normal profit
     3. The firm will go from making an economic profit to a loss
     4. The firm will go from making normal profits to a loss

 

Answer: A

Learning Objective: 05-02

Topic: Supply Under  Perfect Competition

Blooms: Evaluate

AACSB: Analytical Thinking

Difficulty: 3 Hard

 

102. In Figure 5.8, if the supply curve moves from S1 to S3
     1. The firm will make a smaller economic profit than they used to
     2. The firm will go from making an economic profit to a normal profit
     3. The firm will go from making an economic profit to a loss
     4. The firm will go from making normal profits to a loss

 

Answer: B

Learning Objective: 05-02

Topic: Supply Under  Perfect Competition

Blooms: Evaluate

AACSB: Analytical Thinking

Difficulty: 3 Hard

103. In Figure 5.8, if the supply curve moves from S1 to S4
     1. The firm will make a smaller economic profit than they used to
     2. The firm will go from making an economic profit to a normal profit
     3. The firm will go from making an economic profit to a loss but one that is not big enough to make it want to shutdown.
     4. The firm will go from making an economic profit to a loss that is big enough to make it want to shutdown.

Answer: C

Learning Objective: 05-02

Topic: Supply Under  Perfect Competition

Blooms: Evaluate

AACSB: Analytical Thinking

Difficulty: 3 Hard

 

104. In Figure 5.8, if the supply curve moves from S1 to S5
     1. The firm will make a smaller economic profit than they used to
     2. The firm will go from making an economic profit to a normal profit
     3. The firm will go from making an economic profit to a loss but one that is not big enough to make it want to shutdown.
     4. The firm will go from making an economic profit to a loss that is big enough to make it want to shutdown.

Answer: D

Learning Objective: 05-02

Topic: Supply Under  Perfect Competition

Blooms: Evaluate

AACSB: Analytical Thinking

Difficulty: 3 Hard

 

 

105. In Figure 5.8, if the supply curve moves from S2 to S3
     1. The firm will make a smaller economic profit than they used to
     2. The firm will go from making an economic profit to a normal profit
     3. The firm will go from making an economic profit to a loss
     4. The firm will go from making normal profits to a loss

Answer: D

Learning Objective: 05-02

Topic: Supply Under  Perfect Competition

Blooms: Evaluate

AACSB: Analytical Thinking

Difficulty: 3 Hard

 

 

 

106. In Figure 5.8, if the supply curve moves from S2 to S4
     1. The firm will make a smaller economic profit than they used to
     2. The firm will go from making an economic profit to a normal profit
     3. The firm will go from making an economic profit to a loss but one that is not big enough to make it want to shutdown.
     4. The firm will go from making an economic profit to a loss that is big enough to make it want to shutdown.

Answer: C

Learning Objective: 05-02

Topic: Supply Under  Perfect Competition

Blooms: Evaluate

AACSB: Analytical Thinking

Difficulty: 3 Hard

 

107. In Figure 5.8, if the supply curve moves from S2 to S5
     1. The firm will make a smaller economic profit than they used to
     2. The firm will go from making an economic profit to a normal profit
     3. The firm will go from making an economic profit to a loss but one that is not big enough to make it want to shutdown.
     4. The firm will go from making an economic profit to a loss that is big enough to make it want to shutdown.

Answer: D

Learning Objective: 05-02

Topic: Supply Under  Perfect Competition

Blooms: Evaluate

AACSB: Analytical Thinking

Difficulty: 3 Hard

 

 

108. In Figure 5.8, if the supply curve moves from S3 to S4
     1. The firm will make a smaller economic profit than they used to
     2. The firm will go from making an economic profit to a normal profit
     3. The firm will go from making a normal profit to a loss but one that is not big enough to make it want to shutdown.
     4. The firm will go from making a normal profit to a loss that is big enough to make it want to shutdown.

Answer: C

Learning Objective: 05-02

Topic: Supply Under  Perfect Competition

Blooms: Evaluate

AACSB: Analytical Thinking

Difficulty: 3 Hard

 

 

109. In Figure 5.8, if the supply curve moves from S3 to S5
     1. The firm will make a smaller economic profit than they used to
     2. The firm will go from making an economic profit to a normal profit
     3. The firm will go from making a normal profit to a loss but one that is not big enough to make it want to shutdown.
     4. The firm will go from making a normal profit to a loss that is big enough to make it want to shutdown.

 

Answer: D

Learning Objective: 05-02

Topic: Supply Under  Perfect Competition

Blooms: Evaluate

AACSB: Analytical Thinking

Difficulty: 3 Hard

 

 

110. In Figure 5.8, if the supply curve moves from S4 to S5
     1. The firm will make a smaller economic profit than they used to
     2. The firm will go from making an economic profit to a normal profit
     3. The firm will go from making a loss to a bigger loss that is big enough to make it want to shutdown,
     4. The firm will go from making a loss to a bigger loss but one that is not big enough to make it want to shutdown.

Answer: D

Learning Objective: 05-02

Topic: Supply Under  Perfect Competition

Blooms: Evaluate

AACSB: Analytical Thinking

Difficulty: 3 Hard

 

111. Under perfect competition, the firm’s supply curve is made up of the
     1. Points where MC=MR
     2. Points where MC=MR and they make a profit
     3. Points where MC=MR and they make at least breakeven
     4. Points where MC=MR above the minimum of AVC

Answer: D

Learning Objective: 05-03

Topic: Supply Under  Perfect Competition

Blooms: Understand

AACSB: Analytical Thinking

Difficulty: 1 Easy

 

 

112. Under perfect competition, the firm’s supply curve is their
     1. Marginal cost curve above the minimum of ATC
     2. Marginal cost curve above the minimum of AVC
     3. The upward sloping portion of the marginal cost curve
     4. The entire marginal cost curve

Answer: D

Learning Objective: 05-03

Topic: Supply Under  Perfect Competition

Blooms: Understand

AACSB: Analytical Thinking

Difficulty: 1 Easy

 

113. In perfect competition and ____ economic profit will move towards zero
     1. Monopoly
     2. Monopolistic competition
     3. Oligopoly
     4. Natural monopoly

Answer: B

Learning Objective: 05-02

Topic: From Perfect Competition to Monopoly

Blooms: Understand

AACSB: Analytical Thinking

Difficulty: 1 Easy

 

114. In monopolistic competition and ____ economic profit will move towards zero
     1. Monopoly
     2. Perfect competition
     3. Oligopoly
     4. Natural monopoly

Answer: B

Learning Objective: 05-02

Topic: From Perfect Competition to Monopoly

Blooms: Understand

AACSB: Analytical Thinking

Difficulty: 1 Easy

 

115. The assumption for perfect competition and monopolistic competition that enables economic profit to move towards zero is
     1. Freedom of Entry and Exit
     2. Perfect Information
     3. Homogeneous products
     4. Government involvement

Answer: A

Learning Objective: 05-02

Topic: From Perfect Competition to Monopoly

Blooms: Understand

AACSB: Analytical Thinking

Difficulty: 1 Easy

 

116. The freedom of entry and exit is key to pressuring economic profit to zero under
     1. Perfect competition and monopolistic competition
     2. Oligopoly and monopoly
     3. Monopoly and Perfect competition
     4. Monopoly and monopolistic competition

Answer: A

Learning Objective: 05-02

Topic: From Perfect Competition to Monopoly

Blooms: Understand

AACSB: Analytical Thinking

Difficulty: 1 Easy

 

117. The absence of freedom of entry and exit is key to fact that there is no pressure for economic profit to go to zero under
     1. Perfect competition and monopolistic competition
     2. Oligopoly and monopoly
     3. Monopoly and Perfect competition
     4. Monopoly and monopolistic competition

Answer: B

Learning Objective: 05-02

Topic: From Perfect Competition to Monopoly

Blooms: Understand

AACSB: Analytical Thinking

Difficulty: 1 Easy

 

118. In the production of cell phones, Apple and Samsung are ____ and so there is ____ on economic profits to go to zero.
     1. Oligopolists; no pressure
     2. Perfect competitors; pressure
     3. Monopolists; no pressure
     4. Oligopolists; pressure

Answer: A

Learning Objective: 05-02

Topic: From Perfect Competition to Monopoly

Blooms: Apply

AACSB: Knowledge Application

Difficulty: 2 Medium

119. In the production of corn, millions of farmers world-wide are ____ and so there is ____ on economic profits to go to zero.
     1. Oligopolists; no pressure
     2. Perfect competitors; pressure
     3. Monopolists; no pressure
     4. Oligopolists; pressure

Answer: B

Learning Objective: 05-02

Topic: From Perfect Competition to Monopoly

Blooms: Apply

AACSB: Knowledge Application

Difficulty: 2 Medium