Chapter 05 – Perfect Competition, Monopoly, and Economic versus Normal Profit
46. In Figure 5.7, assuming perfect competition which price(s) is associated with a loss?
A) MR1
B) MR2
C) MR3
D) MR1 and MR2
47. In Figure 5.7, assuming perfect competition which price is associated with profit being
exactly normal?
A) MR1
B) MR2
C) MR3
D) MR4
48. In Figure 5.7, assuming perfect competition which price is associated with positive
economic profit?
A) MR1
B) MR2
C) MR3
D) MR4
49. In Figure 5.7, assuming perfect competition and at MR1 there will be
A) short run pressure on the price to rise.
B) long run pressure on the price to rise.
C) no pressure on the price to change.
D) short and long run pressure on the price to rise.
50. In Figure 5.7, assuming perfect competition and at MR2 there will be
A) short run pressure on the price to rise.
B) long run pressure on the price to rise.
C) no pressure on the price to change.
D) short and long run pressure on the price to rise.
Chapter 05 – Perfect Competition, Monopoly, and Economic versus Normal Profit
51. In Figure 5.7, assuming perfect competition and at MR3 there will be
A) short run pressure on the price to rise.
B) long run pressure on the price to rise.
C) no pressure on the price to change.
D) short and long run pressure on the price to rise.
52. In Figure 5.7, assuming perfect competition and at MR4 there will be
A) short run pressure on the price to fall.
B) long run pressure on the price to fall.
C) no pressure on the price to change.
D) short and long run pressure on the price to fall.
53. In a diagram of perfect competition, the marginal revenue line moves up and down when
there is exit and entry, respectively, because
A) the market demand for the good rises and falls when there is exit and entry,
respectively.
B) the market demand for the good rises and falls when there is entry and exit,
respectively.
C) the market supply for the good rises and falls when there is exit and entry,
respectively.
D) the market supply for the good rises and falls when there is entry and exit,
respectively.
54. If MR>MC then when an additional unit is sold the firm’s
A) profit will be positive.
B) profit will be negative.
C) profit will increase.
D) profit will decrease.
55. Economic Profit exists whenever
A) A firm makes even one penny.
B) A firm makes more than its competitors.
C) A firm makes more than the minimum required to maintain the incentive to remain in
the industry.
D) A firm makes enough to that it is required to pay taxes.
Chapter 05 – Perfect Competition, Monopoly, and Economic versus Normal Profit
56. Normal Profit is what a firm
A) usually makes.
B) needs to make to maintain the incentive to remain in the industry.
C) is zero in the long run.
D) a) and b)
57. The assumption under perfect competition of a “homogeneous product” means that
A) the good one firm produces is exactly the same as the good another firm produces.
B) the good one firm produces is very different than the good another produces.
C) that no firm can charge more than another for its product.
D) that no buyer will pay more for one firm’s good than another’s.
58. The assumption under perfect competition of a firm that has no market power means that
A) firms are free to leave the market any time and there is no power keeping them there.
B) the good one firm produces is very different than the good another produces.
C) the good one firm produces is exactly then same as the good another firm produces.
D) that no buyer will pay more for one firm’s good than another’s.
59. Under perfect competition, the supply curve is
A) the marginal cost curve for all price quantity combinations.
B) the marginal cost curve, but only that portion that is downward sloping.
C) the marginal cost curve, but only that portion that is upward sloping.
D) the marginal cost curve, but only that portion that is above the minimum of average
variable cost.
60. There will be short-run pressure on the price to rise whenever
A) P>ATC.
B) P=ATC.
C) P<ATC.
D) P<AVC.
61. There will be long-run pressure on the price to rise whenever
A) P>ATC
B) P<ATC
C) P<AVC
Chapter 05 – Perfect Competition, Monopoly, and Economic versus Normal Profit
D) b) and c)
62. There will be short-run pressure on the price to fall whenever
A) P>ATC
B) P=ATC
C) P<ATC
D) P<AVC
63. There will be long-run pressure on the price to fall whenever
A) P>ATC
B) P=ATC
C) P<ATC
D) P<AVC
64. Very high four-firm concentration ratios characterize the
A) furniture industry.
B) beer industry.
C) clothing industry.
D) computer and peripherals industry.
65. Very low four-firm concentration ratios characterize the
A) breakfast cereal industry
B) beer industry
C) furniture industry
D) cellular telephone service industry
66. Midwestern grain farmers are characterized as “perfectly competitive” because they
A) pitch in energetically to help a neighbor raise a new barn.
B) must adjust the price of their product in order to increase the quantity that they sell.
C) are represented by very influential lobbyists in Washington.
D) can increase the quantity that they sell without affecting the market price.
67. Microsoft is a dominant producer of operating system software for personal computers
because
Chapter 05 – Perfect Competition, Monopoly, and Economic versus Normal Profit
A) its Windows product was one of the first to appear in the market.
B) Linux and OS2 were unstable and vulnerable to frequent security failures.
C) the U.S. Justice Department has always encouraged Microsoft to dominate its market.
D) all of the above.
68. A reduction in the market price of the product is least likely to be required to enable
A) Microsoft to sell more copies of Windows.
B) a single Midwestern grain farmer to sell a larger harvest of grain.
C) Apple to sell more of its iPhones.
D) Verizon to increase its number of cellular telephone service subscribers.
69. A reduction in the market price of the product is most likely to be required to enable
A) a single Northwestern logging company to sell a larger quantity of timber.
B) a single Midwestern grain farmer to sell a larger harvest of grain.
C) a single Pacific Coast fishing trawler to sell a larger quantity of tuna
D) Apple to sell more of its iPhones.
70. If a competitive firm routinely earns a larger profit than the “normal profit” for its
industry
A) the firm’s owners are likely to withdraw from the industry in order to retire early.
B) new firms are likely to enter the industry, pushing up the prevailing market price.
C) new firms are likely to enter the industry, depressing the prevailing market price.
D) the firm will continue to earn its “normal profits” far into the future.
73. The first firm in an industry
A) will always make an economic profit.
B) may make an economic profit.
C) will make a loss but want to stay in business.
D) will make a loss so large that it wants to shutdown .
74. Under monopolistic competition there are
A) identical products.
B) high barriers to entry.
C) low barriers to entry.
D) so many firms that no one can control the price.
Chapter 05 – Perfect Competition, Monopoly, and Economic versus Normal Profit
75. Under oligopoly there are
A) identical products.
B) high barriers to entry.
C) low barriers to entry.
D) so many firms that no one can control the price.
76. Monopolistically competitive firms are
A) Price makers
B) Price takers
C) Price excluders
D) Price includes
77. If entry is completely free, the demand curve for the leading, profit-making monopolistic
competitor will
A) Become steeper while moving to the right.
B) Move to the left until where MC=MR is where the ATC curve is tangent to the
demand curve.
C) Move to the left until where MC=MR is where the AVC curve is tangent to the
demand curve.
D) Move to the right until where MC=MR is where the ATC curve is tangent to the
demand curve.
78. What moves when there is entry in monopolistic competition
A) The supply curve.
B) The demand curve only.
C) The demand curve and the marginal revenue curve.
D) The marginal revenue curve only.
79. When a firm creates an industry
A) It is there’s forever. No other firm can enter.
B) Depending on the ease of entry, the firm’s economic profit is likely to diminish.
C) The firm’s economic profit will rise because other firms will enter.
D) The firm’s economic profit will stabilize.
Chapter 05 – Perfect Competition, Monopoly, and Economic versus Normal Profit
80. When there are significant barriers to entry and there are few firms in the industry
A) economic profit will continue for the firms in the industry.
B) economic profit will go to zero.
C) normal profit will be garnered by the firms.
D) at least one will exit until the economic profit disappears.
81. When there are significant barriers to entry and there are few firms in the industry we
label this
A) perfect competition.
B) monopolistic competition.
C) monopoly.
D) oligopoly.
82. If there are two airlines selling service between city A and city B the best model to
analyze this market is
A) perfect competition.
B) monopolistic competition.
C) monopoly.
D) Oligopoly
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
Directv. The best model to analyze this market is
A) perfect competition.
B) monopolistic competition.
C) oligopoly.
D) monopoly.
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
A) perfect competition.
B) monopolistic competition.
C) oligopoly.
D) monopoly.
Chapter 05 – Perfect Competition, Monopoly, and Economic versus Normal Profit
85. There are one-half million grain farmers in the country producing corn. The best model to
analyze this market is
A) perfect competition.
B) monopolistic competition.
C) oligopoly.
D) monopoly.
86. There are a quarter of a million dairy farmers in the country. The best model to analyze
this market is
A) perfect competition.
B) monopolistic competition.
C) oligopoly.
D) monopoly.
87. There are dozens of sit-down restaurants in a large city in dozens of locations. The best
model to analyze this market is
A) perfect competition.
B) monopolistic competition.
C) oligopoly.
D) monopoly.
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
A) perfect competition.
B) monopolistic competition.
C) oligopoly.
D) monopoly.
89. There are fifteen airlines that will take you from New York to L.A. The best model to
analyze this market is
A) perfect competition.
B) monopolistic competition.
C) oligopoly.
D) monopoly.
90. There are hundreds of companies in the business of providing natural gas to residential
users. 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
A) perfect competition.
B) monopolistic competition.
C) oligopoly.
D) monopoly.
91. There are hundreds of companies in the business of providing natural gas to residential
users. 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
A) perfect competition.
B) monopolistic competition.
C) oligopoly.
D) monopoly.
92. An industry which has a 4-firm concentration ratio near 0 would best be described as
A) perfect competition.
B) monopolistic competition.
C) oligopoly.
D) Monopoly.
93. An industry which has a 4-firm concentration ratio near 20 would best be described as
A) perfect competition.
B) monopolistic competition.
C) oligopoly.
D) monopoly.
94. An industry which has a 4-firm concentration ratio near 100 would best be described as
A) perfect competition.
B) monopolistic competition.
C) oligopoly or a monopoly depending on the size of the biggest firm.
D) clearly a monopoly.
Chapter 05 – Perfect Competition, Monopoly, and Economic versus Normal Profit
95. An industry which Herfindahl-Hershman Index of 10,000 would best be described as
A) perfect competition.
B) monopolistic competition.
C) oligopoly.
D) monopoly.
96. An industry which Herfindahl-Hershman Index of 1,000 would best be described as
A) perfect competition.
B) monopolistic competition.
C) oligopoly.
D) monopoly.
97. An industry which Herfindahl-Hershman Index of 4,000 would best be described as
A) perfect competition.
B) monopolistic competition.
C) oligopoly.
D) monopoly.
98. If an industry has 100 firms and its Herfindahl-Hershman Index is 100 would best be
described as
A) perfect competition.
B) monopolistic competition.
C) oligopoly.
D) monopoly.
99. Suppose there are 5 makers of tablet computers with market shares of 80%, 5%, 5%, 5%,
and 5% respectively. The HHI is
A) 0.
B) 20.
C) 6,500.
D) 10,000.
Chapter 05 – Perfect Competition, Monopoly, and Economic versus Normal Profit
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
A) 0.
B) 909.
C) 1,400.
D) 10,000.