BAM 040: Managerial Economics

SAS Module #24

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Section: ____________ Date:_______________
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QUIZ # 6 18. Firms in monopolistic often undertake extensive

Test I. True of False. advertising.T
Direction: Write the word TRUE if the statement is 19. Because advertising increase the demand for a
correct, otherwise write the word FALSE before the firm’s product, increasing the amount of advertising
number. shifts the firm’s cost curves downward.F
1. A legal barrier creates a natural monopoly. F 20. Whether monopolistic competition is efficient
2. A firm experiences economies of scale along a depends on the value people place on product variety.T
downward-sloping long-term average total cost curve.T 21. Oligopoly is a market in which a small number of
3. A monopoly always charges all customers the same firms compete.T
price.F 22. The aim of a cartel is to lower price, increase
4. For a single-price monopoly, marginal revenue output, and increase economic profit. F
exceeds price.F 23. In a duopoly, the highest price that the firms might
5. Marginal revenue is always positive for monopoly.F set is the perfectly competitive price.F

6. A single-price monopoly maximizes profit by 24. A duopoly is currently making, in total, the same
producing the quantity at which marginal revenue economic profit as a monopoly. If one firm increases its
equals marginal cost.T output, the economic profit of the other firm increases.F

7. A monopoly charges a higher price than a perfectly 25. A duopoly’s total profit is the largest when it
competitive industry.T produces more than the monopoly level of output.F

8. A monopoly redistribute consumer surplus so that 26. Products sold in purely competitive type of business
consumer gain and the producer loses.F are similar but not identical. F

9. The buyer of a monopoly always makes an economic 27. In pure competition, firms have the power to
profit.F determine the price of their product. F

10. Price discrimination lowers a firm’s profit.F 28. It is difficult to enter in a purely competitive type of
business because it requires a huge capitalization. F
11. Price discrimination converts producer surplus into
consumer surplus.F 29. Barriers to entries are considered obstacles when
one decides to start his own business. T
12. With perfect price discrimination, the firm produces
the efficient quantity of output and has a larger profit 30. Sellers in a purely competitive markets compete by
that it would if it did not ;price discriminate.T quality only. F

13. A firm in a monopolistic competition faces a 31. An example of a purely competitive type of business
downward-sloping demand curve.T are jeepneys with different routes. F

14. The larger the four-firm concentration ratio. The 32. In monopolistic competition, products sold in the
more competitive the industry.F market are identical/homogeneous. F
33. Brand and mixture is an example of product
15. A firm in monopolistic competition can make an differentiation in monopolistic competition. T
economic profit in the short run.T
34. In monopolistic competition, consumers always
16. In a broader view of efficiency, monopolistic prefer the price over brand or quality. F
competition brings gains to consumers.T
35. If prices decrease in a purely competitive type of
17. Firms in monopolistic competition innovate without business, consumers should expect better product
regard to cost.F quality. F

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This document and the information thereon is the property of PHINMA Education
 BAM 040: Managerial Economics
SAS Module #24

Name:_____________________________________________________________ Permit number:

_ _______
Section: ____________ Date:_______________
Schedule:_____________________________________

8. When demand is elastic, marginal revenue is

A. positive B. negative
B. zero D. increasing as output increases
Test II. Multiple Choice. Write the letter of your
answer before the given number. USE CAPITAL 9. To maximize its profit, a single-price monopoly
produces the quantity at which
LETTERS ONLY. A. the difference between the marginal revenue and
1. A monopoly market has marginal cost is as large as possible.
A. a few firms B. marginal revenue equals equals marginal cost
B. A single firm C. average total cost is at its minimum
C. two dominating firms in the market D. the marginal cost curve interacts the demand curve
D. only two firms in it.
10. Once a monopoly has determined how much its
2. Two types of barriers to entry are called _____ produces, it will charge a price that
barriers to entry and _____ barriers to entry A. is determined by the intersection of the marginal cost
A. legal; Illegal C. natural; illegal. and average total cost curves.
B. natural; legal D. natural; rent seeking B. minimizes marginal cost
3. A natural monopoly is one that arises from C. is determined by its demand curve
A. patent law D. is independent of the amount produced
B. Copyright law 11. If a perfectly competitive industry is taken over by a
C. a firm buying all of a natural resource single firm that operates as a single-price monopoly; the
D. economies of scale price will _____and the quantity will _____.
4. A legal barriers is created when a firm A. Fall; decrease B. fall; increase
A. has economies of scale, which allow it to produce at C. rise; decrease D. rise; increase
a lower cost than two or more firms.
B. is granted a public franchise, government license,
patent, or copyright
C. produces a unique product or service
D. produces a standardized product or service.
5. Pizza producers charge one price for single pizza
and almost give away a second one. This is an example
of
A. Monopoly
B. A barrier to entry 12. Figure 12.3 shows the market for gasoline in a
C. behavior that is not profit-maximizing town. If the market is perfectly competitive, the price is
D. price discrimination _____ per gallon and if the market is taken over by
6. For a single-price monopoly, price is a firm that operates as a single-price monopoly, the
A. greater than marginal revenue price is _____. no answer/choices/BONUS
B. One half of marginal revenue A. $1; $2 B. $1; $3 C. $1; $1 D. $2; $1
C. equal to marginal revenue
D. unrelated to marginal revenue 13. Figure 12.3 shows the market for gasoline in a
town. If the market is perfectly competitive, the quantity
7. A single-price monopoly can sell 1 unit for $9. To sell
is
2 units, the price must be $8.50 per unit. The marginal
revenue from selling the second unit is _____ million gallon a year and if the market is taken
A. $17.50 B. $17.00 C. $8.50 D. $8.00 over by a firm that operates as a single-price

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This document and the information thereon is the property of PHINMA Education
 BAM 040: Managerial Economics
SAS Module #24

Name:_____________________________________________________________ Permit number:

_ _______
Section: ____________ Date:_______________
Schedule:_____________________________________

monopoly, the quantity is _____ in million gallons a B. Decreases its economic profit.
year. C. Converts consumer surplu into economic profit
A. 50; 20 B. 50; 30 C. 30; 20 D. 50; 10 D. Converts economic profit into consumer surplus
E. Has no effecton the deadweight loss.
14. Comparing to single-price monopoly to perfect
competition, monopoly 21. When monopoly is able to perfectly prcie
A. increase the amount of consumer surplus discriminate, then consumer surplus is
B. has the same amount of consumer surplus A. Equal to zero.
C. has no consumer surplus B. Maximize
D. decreases the amount of consumer surplus C. Unchanged from what it is with a single-price
monopoly
15. Is a single-price monopoly efficient?
D. Unchanged from what it is in a perfectly competitive
A. Yes, because it creates a deadweight loss
market
B. No, because it creates a deadweight loss.
E. Not zero but is less than with a single price monopoly
C. Yes, because consumers gain and producers lose
some of their surpluses 22. With perfectly price discrimination, the quantity of
D. Yes, because consumer lose and producers gain output produced by a monopoly is _____ the quantity
some of their surpluses produced by a perfectly competitive market.
16. Monopolies _____ fair and _____ efficient. A. Greater than but not equal to
A. Are always; are not B. might be; are always C. B. Less than
might be; might be D. are always; are always C. Equal to but not greater than
D. Not comparable
17. In equilibrium, rent seeking eliminates the
E. Either greated than or equal to
A. Deadweight loss B. economic profit C.
consumer surplus D. demand for the product 23. In a monoplistic competition there
A. Are a large number of firms
18. Which of the following must a firm be able to do to
B. Are several large firms.
successfully price discriminate? No answer/BONUS
C. Is one large firms
I. Divide buyers into different groups according to their
D. Might be many, several, or one firm
willingness to pay
E. Are many firms but only a few buyers
II. Prevent resale of the goods or service
III. identify into which group (high willingness to pay or 24. Product discrimination means
low willingness to pay) a buyer belongs A. Making a product that has perfect substitutes.
A. II only B. I and II C. I and III D. III only B. Making a product that is entirely unique
C. The inability to set your own price
19. Which of the following is (are) price discrimination?
D. Makin a product that is slightly different from
I. Charging different prices based on differences in
products of competing firms.
production cost
E. Making your demand curve horizontal.
II. Charging business flyers a higher airfare than tourists
III. Charging more for the first pizza than the second25. If the four-firm concentration ratio for the market for
A. I only B. II only C. II and III D. I and III pizza is 28 percent, then this industry is best
characterized as
20. When monopoly price discriminates, it
A. A monopoly
A. Increases the amount of consumer surplus.
B. Monopolistic competition
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This document and the information thereon is the property of PHINMA Education
 BAM 040: Managerial Economics
SAS Module #24

Name:_____________________________________________________________ Permit number:

_ _______
Section: ____________ Date:_______________
Schedule:_____________________________________

C. An oligopoly C. II and III only.

D. Perfect competition D. I and III only
E. Oligopolictic competitiion’ E. I, II, and III.
26. Oligopoly is a market structure in which
31. A market is a
A. Many firms each produce a slightly differentiated A. place where only buyers come together.
product. B. place where only sellers meet.
B. One firm produces a unique product. C. group of people with common desires.
C. A small number of firms compete D. group of buyers and sellers of a particular good or
D. Many firms produce an identical product service.
E. The number of firms is so small that they do not 32. A monopolistically competitive market is one that
compete with each other. consists of
A. a single seller of the product.
27. A market with only two firms is called a B. a large number of sellers all offering similar but
A. Duopoly different products.
B. Two-firm monopolistic competition C. many buyers and sellers and an identical product.
C. Two-firm monopoly D. a few sellers that do not always compete
D. Cartel aggressively.
E. Two-firm quasi-monopoly 33. The market type known as perfect competition is
A. almost free from competition and firms earn large
28. A demand curve faced by a perfectly competitive profits.
firm is B. highly competitive and firms find it impossible to
A. Horizontal earn an economic profit in the long run.
B. Vertical C. dominated by fierce advertising campaigns.
C. Downward sloping D. marked by firms continuously trying to change their
products so that consumers prefer their product to
D. Upward sloping
their competitors' products.
E. U-shaped
34. The exit of existing firms from a competitive market
29. A perfectly competitive firm definietly makes an will
economic profit in the short run if price is A. decrease market supply and increase market prices.
A. Equal to marginal cost. B. decrease market supply and decrease market prices.
B. Equal to average total cost C. increase market supply and increase market prices.
D. increase market supply and decrease market prices.
C. Greater than average total cost
D. Greater than marginal cost 35. In a perfectly competitive market, the process of
E. Greater than average variable cost entry or exit ends when
A. firms are operating with excess capacity.
30. If a perfectly competing firm is maximizing its profit B. firms are making zero economic profit.
and making an economic profit, which of the following is C. firms experience decreasing marginal revenue.
correct? D. price is equal to marginal cost.
I. Price equals marginal revenue 36. In economics, market power refers to the
II. Marginal revenue equal margina cost A. ability of a firm to influence the market price of the
III. Price is greated than average total cost. good it sells.
A. I only B. ability of the market system to efficiently allocate
scare goods.
B. I and II only.
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This document and the information thereon is the property of PHINMA Education
 BAM 040: Managerial Economics
SAS Module #24

Name:_____________________________________________________________ Permit number:

_ _______
Section: ____________ Date:_______________
Schedule:_____________________________________

C. quality of a firm’s marketing efforts. A. oligopoly. B. monopoly.

D. forces that operate the “invisible hand.” C. monopolistic competition. D. perfect competition.
37. A fundamental source of monopoly market power 44. In an industry with a large number of firms,
arises from A. collusion is impossible.
A. availability of “free” natural resources, such as water B. one firm will dominate the market.
or air. C. each firm will produce a large quantity, relative to
B. perfectly elastic demand. market demand.
C. perfectly inelastic demand. D. competition is eliminated.
D. barriers to entry.
45. All of the following are examples of product
38. Authors are allowed to be monopolists in the sale of differentiation in monopolistic competition EXCEPT
their books in order to A. new and improved packaging.
A. satisfy literary advocacy groups that exercise their B. lower price.
lobbying power. C. acceptance of more credit cards than the
B. encourage authors to write more and better books. competition.
C. correct for the negative externalities that the internet D. location of the retail store.
and television impose.
46. Which of the following is NOT a valuable role of
D. promote a society that thinks for themselves and
government in a free market society?
learns from whichever books they please.
A. To reduce negative externalities.
39. The monopolist’s profit-maximizing quantity of B. To enhance rent-seeking activities.
output is where C. To reduce market power.
A. average cost equals marginal revenue. D. To provide public goods.
B. marginal cost equals marginal revenue.
47. Which of the following is true concerning negative
C. price equals marginal revenue.
externalities?
D. All of the above are correct.
A. Firms tend to produce more than the efficient level
40. In which of the following industries do firms set of output.
prices? B. Society gains because firms do not pay the external
A. competitive markets, but not monopoly markets costs of production.
B. Monopoly markets, but not competitive markets C. Perfect competition is better than monopoly from the
C. competitive and monopoly markets viewpoint of society even in the presence of negative
D. neither competitive nor monopoly markets externalities.
D. With negative externalities, a monopoly will always
41. A price-taking firm
produce an output level less than is socially efficient.
A. cannot influence the price of the product it sells.
B. talks to rival firms to determine the best price for all 48. Which of the following is a public good?
of them to charge. A. National defense
C. sets the product's price to whatever level the owner B. Telephones
decides upon. C. Electricity
D. asks the government to set the price of its product. D. All of the statements associated with this question
are public goods.
42. One of the requirements for a monopoly is that
A. the product cannot be produced by small firms. 49. In order to eliminate the inefficiency brought about
B. there are several close substitutes for the product. by a monopoly, the government wants to impose a price
C. there is a unique product with no close substitutes. ceiling on the monopoly. What is the optimal price to be
D. products are high priced. imposed?
A. The competitive price
43. An industry with a large number of firms,
B. The competitive price, unless it is below ATC
differentiated products, and free entry and exit is called
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 BAM 040: Managerial Economics
SAS Module #24

Name:_____________________________________________________________ Permit number:

_ _______
Section: ____________ Date:_______________
Schedule:_____________________________________

(Average Total Cost)

C. The competitive price, unless it is below MR
(Marginal Revenue)
D. The competitive price, unless it is above ATC.
50. Rent seeking:
A. results in less market share for the rent seekers.
B. involves lobbyists influencing government policies
to benefit their interests.
C. results in more negative externalities.
D. None of the statements are correct.

“Rather failed with honor than succeed by fraud.”

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