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profit maximizing under perfect competition and monopoly MCQs

Practise focused profit maximizing under perfect competition and monopoly questions with marked answers for exam preparation and subject revision.

profit maximizing under perfect competition and monopoly Mcqs
1. If a firm has some degree of market power, then output price ?
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A. is determined by the actions of other firms in the industry

B. no longer influences the amount demand of the firms product

C. becomes a decision variable for the firm

D. is guaranteed to be above a firms average cost.

2. In monopolistic competition firms achieve some degree of market power ?
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A. because of barriers to entry into the industry

B. by producing differentiated products

C. because of barriers to exit from the industry

D. by virtue of size alone

3. Maximum profit can be shown on a diagram using ?
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A. the AC and MC curves

B. the MR and AR curves

C. the AC and AR curves

D. the MR and MC curves

4. The slope of marginal revenue curve is ?
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A. the same as the slope of the demand curve

B. twice as steep as the demand curve

C. always equal to one.

D. half as steep as the demand curve

5. Assume that firms in an oligopoly are currently colluding to set price and output to maximise total industry profit. If the oligopolists are forced to stop colluding, the price charged by the oligopolists will _________ and the total output produced will __________?
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A. increase; decrease

B. increase; increase

C. decrease; increase

D. decrease; decrease

6. If the ABC Typing Service is earning a rate of return greater than the return necessary for the business to continue operations, then ?
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A. total costs exceed normal profit

B. the firm is earning are economic profit

C. normal profit is zero

D. total costs exceed total revenue

7. The kinked demand curve model of oligopoly assumes the elasticity of demand ?
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A. is perfectly elastic if price increases and perfectly inelastic if price decreases

B. is constant regardless of whether price increase of decrease.

C. in response to a price increases is more elastic than the elasticity of demand in response to a price decrease

D. in response to a price increase is less elastic than the elasticity of demand in response to a price decrease

8. The formula for average variable cost (AVC) is ?
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A. Dq/DTVC

B. TVC/q

C. q/TVC

D. DTVC/Dq

9. Which of the following statements is False ?
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A. participants in a contestable market are continuously faced with competition or the threat of competition because entry is cheap

B. In a contestable market forces will guarantee that the firms produce efficiently or be driven out of business

C. In a contestable market, economic profits cannot persist in the long run.

D. For a market to be contestable, the product must be produced with a labor-intensive technology
10. If you were running a firm in a perfectly competitive industry, you would be spending your time making decisions on ?
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A. none of these

B. how much of each input to use?

C. how much to spend on advertising?

D. What price to charge

11. Monopolistic competition differs from perfect competition primarily because ?
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A. in monopolistic competition entry into the industry is blocked

B. in monopolistic competition, firms can differentiate their products

C. in perfect competition firms can differentiate their products

D. in monopolistic competition there are relatively few barriers to entry.

12. A firm will shut down in the short run if ?
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A. variable costs exceed revenues

B. it is suffering a loss.

C. fixed costs exceed revenues.

D. total costs exceed revenues

13. In a monopoly, marginal revenue is ?
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A. always greater than price

B. always equal to price

C. less than price at low levels of output and greater than price at high levels of output

D. lower than price for all units other than the first
14. Which of the following statements best describes the outcome under monopolistic competition ?
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A. It is not efficient because too little output is produced and the output that is produced is produced at a cost above minimum average total cost

B. It is not efficient because too little output is produced but is efficient in that the output produced is produced at minimum average total cost.

C. It is efficient because entry is free and economic profits are eliminated in the long run.

D. It is efficient because the right amount of output is produced, but not efficient in that the output produced is produced at a cost above minimum average total cost

15. Diminishing marginal return implies ?
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A. decreasing average fixed costs.

B. decreasing average variable costs.

C. decreasing marginal costs.

D. increasing marginal costs.
16. An industry that has a relatively small number of firms that dominate the market is called ?
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A. a natural monopoly

B. a merged industry

C. a concentrated industry

D. a colluding industry

17. A group of firms that gets together to make price and output decisions is called ?
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A. price leadership

B. a concentrated industry.

C. a cartel

D. an oligopoly.

18. A market is defined as perfectly contestable if ?
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A. entry to it and exit from it are both costless

B. entry to it and exit from it are both costly

C. entry to it costless, but exit from it is costless

D. entry to it is costly, but exit from it is costless

19. A major weakness of the kinked demand curve model of oligopoly is that ?
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A. The model cannot be tested empirically.

B. it fails to explain how a firm arrived at its price and output decision initially

C. Real-world pricing strategies are more simple than those assumed in this model

D. it assumes that firms believe that their rivals will not respond to any price change they initiate

20. A normal rate of profit ?
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A. is the rate that is just sufficient to keep owners or investors satisfied.

B. Is the rate of return on investments over the interest rate on risk-free government bonds.

C. is zero in a perfectly competitive industry.

D. is the difference between total revenue and total costs

21. Most empirical studies show that firms cost curves ?
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A. slope down to the right and then level off.

B. slope up to the right

C. are U-shaped

D. slope down to the right

22. Which of the following is a correct statement about the relationship between average product (AP) and marginal product (MP) ?
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A. If TP is declining, then AP is negative

B. If AP is at a maximum, then MP is also,

C. If AP exceeds MP then AP is falling

D. If AP = MP, then total product is at a maximum.

23. A firm in perfectly competitive industry is producing 50 units, its profit-maximising quantity. Industry price is 2 and total fixed costs and total variable cost are 25 and 40 respectively. The firms economic profit is ?
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A. 15

B. 35

C. 30

D. 60

24. A firm in a monopolistically competitive industry ?
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A. sells a fixed amount of output regardless of price.

B. must lower price to sell more output.

C. can sell an infinite amount of output at the market-determined price

D. must raise price to sell more output

25. In contestable markets, large oligopolistic firms, end up behaving like ?
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A. a cartel

B. a monopoly

C. perfectly competitive firms

D. monopolistically competitive firms.
26. In the long run ?
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A. all firms must make economic profits.

B. there are no fixed factors of production

C. a firm can vary all inputs, but it cannot change the mix of inputs it uses.

D. a firm can shut down, but it cannot exit the industry

27. Which statement is False ?
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A. There are no fixed costs in the long run

B. Fixed costs are zero if the firms is producing nothing.

C. Fixed costs are the difference between total costs and total variable costs

D. Fixed costs do not depend on the firms level of output

28. When one firm in the breakfast cereal market started an advertising campaign that stressed the nutritional value of its cereals, all other cereal manufacturers started similar advertising campaign This suggests that the breakfast cereal market is ?
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A. monopolistically competitive

B. indeterminate from this information

C. oligopolistic

D. perfectly competitive

29. Relative to a competitively organized industry a monopoly ?
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A. Produces less output, charges lower prices and earns only a normal profit

B. Produces less output, charges higher prices and earns economic profits.

C. produces less output, charges lower prices and earns economic profits

D. produces more output, charges higher prices and earns economics profits

30. The normal rate of profit for relatively risk-free firms will be _________ the interest rate on risk-free government bonds?
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A. approximately one-half

B. smaller than

C. approximately equal to

D. larger than

31. Which of the following statements best describes the outcome under monopolistic competition ?
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A. In monopolistic competition, there are too many firms and each firm produce a slightly different product at a scale that is less than optimal

B. In monopolistic competition there are too few firms and each firm produce a slightly different product at scale that is greater than optimal

C. in monopolistic competition there is the correct number of firm and each firm produces a slightly different product at an optimal scale.

D. In monopolistic competition there are too many firms and each firm produce a slightly different product at the optimal scale

32. If firms can neither enter nor leaves an industry, the relevant time period is the ?
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A. immediate run

B. short run

C. intermediate run

D. long run

33. A monopolistically competitive firm that is incurring a loss will produce as long as the price that the firm charges is sufficient to cover ?
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A. advertising costs

B. fixed costs

C. marginal costs

D. variable costs
34. A graph showing all the combinations capital and labor available for a given total cost is the ?
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A. isocost line.

B. expenditure set

C. isoquant

D. budget constraint

35. The rate at which a firm can substitute capital for labour and hold output constant is the ?
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A. marginal rate of production

B. law of diminishing marginal returns.

C. marginal rate of factor substitution

D. marginal rate of substitution

36. In contestable markets large oligopolistic firms end up behaving like ?
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A. monopolistically competitive firms

B. perfectly competitive firms

C. a cartel

D. a monopoly.

37. The costs that depend on output in the short run are ?
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A. total fixed cost only.

B. total variable costs only.

C. both total variable costs and total costs.

D. total costs only

38. If the total product of two workers is 80 and the total product of 3 workers is 90 then the average product of the third worker is ________ and the marginal product of the third worker is _________?
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A. 160; 270

B. 10; 30

C. 10; 3.33

D. 30; 10
39. When ________ substitutes exist, a monopolist has ________ power to raise price?
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A. more; less

B. no; infinite

C. more; more

D. fewer; less

40. A form of industry structure characterized by a few firms, each large enough to influence market price is ?
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A. monopolistic competition

B. perfect competition

C. oligopoly

D. monopoly

41. An industry that realizes such large economies of scale in producing its product that single-firm production of that good or service is most efficient is called ?
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A. a natural monopoly

B. a government franchise monopoly

C. a fixed cost monopoly

D. a economies of scale monopoly

42. A graph showing all the combinations of capital and labor that can used to produce a given amount of output is ?
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A. a production functions

B. an isocost line

C. an indifference curves.

D. an isoquant.
43. In which of the following circumstances would a cartel be most likely to work ?
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A. The fast-food market where there are a large number of producers but the demand for fast food is inelastic

B. The market for copper, where there are very few producers and the product is standardized.

C. The automobile industry, where there are few producers but there is great product differentiation.

D. The coffee market where the product is standardized and there are a large number of coffee growers.

44. Suppose Handels Ice Cream experiences economies of scale up to a certain point and diseconomies of scale beyond that point. Its long-run average cost curve is most likely to be ?
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A. downward sloping to the right

B. U-shaped

C. upward sloping to the right

D. Horizontal

45. The cosmetics industry is not considered by economists to be a good example of perfect competition because ?
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A. there are many EU and government health controls on cosmetic products

B. there are a very large number of firms in the industry

C. firms spend a large amount of money on advertising

D. profit margins are very high for both producers and retailers

46. Engineers for the All-Terrain Bike Company have determined that a 15% increase in all inputs will cause a 15% increase in output Assuming that input prices remain constant, you correctly deduce that such a change will cause ________ as output increases?
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A. marginal costs to increase

B. average costs to remain constant

C. average costs to increase

D. average costs to decrease

47. Form societys point of view, society would be better off if a monopolist ?
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A. produced less and charged a higher price

B. produced more and charged a lower price

C. produced more and charged a higher price

D. produced less and charged a lower price.

48. The short run, as economists use the phrase, is characterized by ?
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A. a period where the law of diminishing returns does not hold.

B. at least one fixed factor of production and firms neither leaving nor entering the industry

C. all inputs being variable

D. no variable inputs that is all of the factors of production are fixed

49. A price- and quantity-fixing agreement is known as?
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A. game theory,

B. collusion

C. price leadership

D. price concentration

50. The long-run equilibrium outcomes in monopolistic competition and perfect competition are similar because in both market structures ?
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A. the efficient output level will be produced in the long run

B. firms realize all economies of scale

C. firms will be producing at minimum average cost

D. firms will only earn a normal profit