Competition And Monopoly Full Test Bank Stock Ch.18

c18; Chapter 18: Competition and Monopoly

Learning Objectives

1. Understand how firms determine the optimal level of output
2. Demonstrate the differences in output choices between firms in perfect competition and monopoly
3. Compare profits for perfectly competitive firms and monopolies
4. Assess the economic efficiency of firms in perfect competition versus monopolies
5. Understand why some economists argue for regulation of monopoly power
6. The difference between total revenue and total cost is known as
   1. profit.
   2. marginal revenue.
   3. average revenue.
   4. price.

LO-1

Level: Easy

1. Total costs of production include direct costs of
   1. producing a good or service.
   2. producing a good or service minus depreciation of capital.
   3. producing a good or service plus any opportunity cost.
   4. raw material only.

LO-1

Level: Easy

1. After being employed at Graphics, Inc. you started your own company, Graphics R Us. In addition to your raw materials to produce custom images, you rent your space and are responsible for all utilities and insurance on the building and capital equipment. You employ two assistants. Which of the following is not considered part of the total costs of production?
   1. Costs of raw material to produce a good or service
   2. Utilities for the space
   3. Lost salary for your skills and talents at your former job
   4. Taxes on your building

LO-1

Level: Moderate

1. Which of the following defines marginal cost of production?
   1. TC/Q
   2. TR/Q
   3. ΔTC/ΔQ
   4. ΔTR/ΔQ

LO-1

Level: Easy

1. Consider the information in the table.

The marginal revenue for the fourth unit of output is

• 1. $12
  2. $8
  3. -$4
  4. -$8

LO-1

Level: Moderate

1. The goal of any firm is to
   1. minimize losses.
   2. make a profit.
   3. maximize revenue.
   4. maximize profit.

LO-1

Level: Easy

1. In the short run, a profit-maximizing firm will increase output until
   1. marginal revenue equals marginal cost.
   2. marginal cost equals total revenue.
   3. total revenue equals total cost.
   4. MC>MR.

LO-1

Level: Moderate

1. Grace produces widgets and accepts the market price of $10 per widget. Her marginal cost equals $8.50 per widget. To maximize revenue and produce an optimal amount Grace should
   1. increase output.
   2. decrease output.
   3. shut down.
   4. increase price.

LO-1

Level: Difficult

1. The profit maximizing rule applies
   1. only when a firm is a price taker.
   2. only when a firm is a price maker.
   3. to firms in all market structures.
   4. to purely competitive firms only.

LO-1

Level: Moderate

1. A firm should reduce its quantity of output if
   1. marginal revenue is greater than marginal cost.
   2. total revenue is greater than total cost.
   3. marginal revenue is less than marginal cost.
   4. total revenue is less than total cost.

LO-1

Level: Easy

1. The profit-maximizing level of output occurs where
   1. TR=TC.
   2. TR=MC.
   3. MR=MC.
   4. MR=TC.

LO-1

Level: Easy

1. The demand curve for a firm in a market with perfect competition is
   1. horizontal.
   2. vertical.
   3. downward sloping.
   4. equal to the marginal cost curve.

LO-2

Level: Easy

1. Which of the following statements is true?
   1. A firm in a market with perfect competition is a price taker and must accept the market equilibrium price.
   2. A firm in a market with perfect competition is a price maker and can influence the price of the product with their supply of the product.
   3. A firm in a market with perfect competition can coordinate with other producers to determine a market price.
   4. A firm in a market with perfect competition has considerable freedom in determining market price.

LO-2

Level: Moderate

1. A firm’s price is equal to marginal revenue. What can be said about the firm?
   1. The firm is maximizing profit.
   2. The firm is a monopolist.
   3. The firm is in a market with perfect competition.
   4. The firm should increase production.

LO-2

Level: Easy

1. A firm’s price is greater than marginal revenue. What can be said about the firm?
   1. The firm is maximizing profit.
   2. The firm is a monopolist.
   3. The firm is in a market with perfect competition.
   4. The firm should increase production.

LO-2

Level: Easy

Reference: Use the graphs to answer questions 16-17.

1. Graph A illustrates
   1. a market with perfect competition.
   2. a monopolistic market.
   3. a firm that is a price taker.
   4. a firm that has market power.

LO-2

Level: Moderate

1. Graph B illustrates
   1. a market with perfect competition.
   2. a monopolistic market.
   3. a firm that is a price taker.
   4. a firm that has market power.

LO-2

Level: Moderate

1. In a market with perfect competition, prices are determined by
   1. subsidies and taxes.
   2. consumption patterns.
   3. market demand and supply.
   4. costs of production.

LO-2

Level: Easy

1. The firm in a market with perfect competition is a price
   1. maker because of the ease of entry and exit in the market.
   2. maker because of the ability to hold information from the market.
   3. taker because products are identical and cannot be distinguished one from another, information is complete, and because there are so many sellers in the market none can influence price.
   4. taker because of the lack of buyers in the market.

LO-2

Level: Moderate

1. A firm that is the only seller in a market with a product with no close substitutes is known as a
   1. perfect competition.
   2. perfectly monopolistic.
   3. competitive monopolist.
   4. monopolist.

LO-2

Level: Easy

1. A monopolist is a price
   1. setter and will select an output where marginal revenue equals marginal cost but charges a price the market will bear.
   2. setter and will select an output where marginal revenue equals demand and charges a price equal to this point.
   3. taker and will select an output where demand equals supply and take the market price.
   4. taker and will select an output dictated by the deadweight loss.

LO-2

Level: Moderate

1. In order to see more output a monopoly must __________ the _________ of its good.
   1. increase; marginal revenue
   2. increase; producer’s surplus
   3. decrease; price
   4. decrease; consumer’s surplus

LO-2

Level: Easy

1. A monopolist produces an output that is ______________ than a market with perfect competition at a price ______________ than marginal revenue.
   1. greater; greater
   2. greater; less
   3. less; greater
   4. less; less

LO-2

Level: Easy

1. A firm in a market with perfect competition has the ability to set _________ but not _______.
   1. marginal cost; price
   2. output; marginal cost
   3. output; price
   4. marginal cost; marginal revenue

LO-2

Level: Moderate

1. Consider the graph. The monopolist will produce at ______ and charge a price of _______.

• 1. Q₁; P₁
  2. Q₁; P₂
  3. Q₂; P₁
  4. Q₂; P₂

LO-3

Level: Difficult

1. For a monopolist
   1. MR = P.
   2. MR > P.
   3. MR < P.
   4. MR has no relation to P.

LO-2

Level: Easy

1. For a market with perfect competition
   1. MR = P.
   2. MR > P.
   3. MR < P.
   4. MR has no relation to P.

LO-2

Level: Easy

1. Monopolists and markets with perfect competition
   1. are similar because both maximize consumer surplus.
   2. are similar because both maximize producer surplus.
   3. are similar because both will find profit-maximizing output where MR = MC.
   4. have no similarities because of structure.

LO-2

Level: Moderate

1. Which of the following statements is true?
   1. In the long run firms in a market with perfect competition earn economic profits.
   2. In the long run firms in a market with perfect competition earn zero economic profits.
   3. Monopolists can earn economic profits in the short run only.
   4. Monopolists earn only normal profits.

LO-3

Level: Moderate

1. Because a monopolist is in the market
   1. barriers to entry prevent the monopolist from earning an economic profit.
   2. the monopoly firm will tend to earn higher economic profits than perfectly competitive firms.
   3. the monopoly firm can increase profit by increasing price in the short run.
   4. the monopoly firm will earn normal profits in the long run.

LO-3

Level: Difficult

1. ___________________ occurs when _________________.
   1. marginal costs; there is a change in price
   2. economic profit; marginal revenue equals marginal costs
   3. normal prices; there is an economic profit
   4. normal profit; there is zero economic profit

LO-3

Level: Moderate

1. Which of the following statements is true?
   1. Normal profits = economic profit
   2. Normal profits = zero economic profits
   3. Economic profit = accounting profit
   4. Economic profit < normal profit

LO-3

Level: Easy

Reference: Use the graph to answer questions 33-34.

1. The loss to society as a result of a monopolist’s output and price decision is represented by the area of
   1. P₀P₂AC.
   2. P₁P₂AB.
   3. P₀P₁BC.
   4. CAB.

LO-4

Level: Difficult

1. Which of the following statements is true?
   1. Price P₂ is optimal and efficient for both the monopolist and the market with perfect competition.
   2. Price P₂ is optimal for the monopolist and socially efficient.
   3. Price P₂ is optimal for the monopolist but is not socially efficient.
   4. Price P₂ is optimal and socially efficient for the market with perfect competition.

LO-4

Level: Difficult

1. The price charged by the monopolist is
   1. optimal and socially efficient because of the output.
   2. optimal but socially inefficient because MR < P.
   3. not optimal nor socially efficient because MC>MR.
   4. not optimal but socially efficient because of the decrease in producer surplus.

LO-4

Level: Moderate

1. Your business wins a patent for a special graphic design construction method. The result in the market because of this patent would include
   1. an increase in consumer surplus and benefits to consumers.
   2. an increase in society’s benefits.
   3. a decrease in producer surplus.
   4. a decrease in consumer surplus.

LO-4

Level: Difficult

1. Laws that promote competition between businesses and prohibit anti-competitive behavior between firms with large control over markets are
   1. price discrimination laws.
   2. discrimination regulations.
   3. antitrust laws.
   4. concentration regulations.

LO-5

Level: Easy

1. The ___________________ led to federal regulation to ensure that firms charged just and reasonable rates.
   1. Sherman Anti-Trust Act
   2. Clayton Anti-Trust Act
   3. FTC Act
   4. Federal Reserve Act

LO-5

Level: Easy

1. The Clayton Anti-Trust Act created the _________________ to “prevent the unlawful suppression of competition.”
   1. Federal Open Market Committee
   2. Securities Exchange Commission
   3. Federal Trade Commission
   4. Federal Board of Trade

LO-5

Level: Easy

1. The goal of antitrust laws is to
   1. promote competition and prevent use of monopoly power on output and price.
   2. stop development of large companies.
   3. monitor and regulate profits of corporations.
   4. regulate economic and accounting profits.

LO-5

Level: Moderate