1. One defining characteristic of pure monopoly is that: A. The monopolist is a price taker B. The monopolist uses advertising C. The monopolist produces a product with no close substitutes D. There is relatively easy entry into the industry, but exit is difficult
2. Which is a barrier to entry? A. Close substitutes B. Diseconomies of scale C. Government licensing D. Price-taking behavior
3. Other things equal, which reduces competition in an industry? A. Patent laws B. Freedom of entry for new firms C. An increase in the number of producers D. An increase in the number of buyers
4. The representative firm in a purely competitive industry: A. Will always earn a profit in the short run B. May earn either an economic profit or a loss in the long run C. Will always earn an economic profit in the long run D. Will earn an economic profit of zero in the long run
5. An example of a monopolistically competitive industry would be: A. Steel B. Soybeans C. Electricity D. Retail clothing
6. Firms in an industry will not earn long-run economic profits if: A. Fixed costs are zero B. The number of firms in the industry is fixed C. There is free entry and exit of firms in the industry D. Production costs for a given level of output are minimized
7. Marginal product is: A. the increase in total output attributable to the employment of one more worker. B. the increase in total revenue attributable to the employment of one more worker. C. the increase in total cost attributable to the employment of one more worker. D. total product divided by the number of workers employed.
8. The law of diminishing returns indicates that: A. as extra units of a variable resource are added to a fixed resource, marginal product will decline beyond some point. B. because of economies and diseconomies of scale a competitive firm's long-run average total cost curve will be U-shaped. C. the demand for goods produced by purely competitive industries is downsloping. D. beyond some point the extra utility derived from additional units of a product will yield the consumer smaller and smaller extra amounts of satisfaction.
9. Which of the following is most likely to be a variable cost? A. fuel and power payments B. interest on business loans C. rental payments on IBM equipment D. real estate taxes
10. If average total cost is declining, then: A. marginal cost must be greater than average total cost. B. the average fixed cost curve must lie above the average variable cost curve. C. marginal cost must be less than average total cost. D. total cost must also be declining.
11. The selling of stock is debt financing for a corporation. A. True B. False
12. Average fixed costs diminish continuously as output increases. A. True B. False
13. Patents and copyrights were established by the government to reduce oligopoly and monopoly power. A. True B. False
14. Prices in oligopolistic industries are predicted to fluctuate widely and frequently compared to other market structures. A. True B. False
15. The positive view of advertising suggests that it contributes to economic efficiency in the economy. A. True B. False
16. Price fixing is illegal under Section 1 of the Sherman Act. A. True B. False
17. Rent-seeking behavior refers to activities designed to transfer income or wealth to a particular firm or resource supplier at someone else's or society's expense. A. True B. False
18. A purely competitive firm is a price maker, but a monopolist is a price taker. A. True B. False