1. Which of the following is an example of a two-part tariff?
a. a regulated firm uses marginal cost pricing for some customers and average cost pricing for other customers
b. price discrimination based on the buyers' willingness to pay
c. different prices based on the cost of production and quantity bought
d. charging a hookup fee plus a monthly charge equal to marginal cost
e. higher sales tax on specific products
2. If a natural monopoly is told to set price equal to average cost, then the firm
a. sets a price that is lower than its marginal cost.
b. will earn a substantial economic profit.
c. is not able to set marginal revenue equal to marginal cost.
d. automatically also sets price equal to marginal cost.
e. will incur an economic loss.
3. Which of the following is a characteristic of monopoly?
a. The firm produces a product that has many close substitutes.
b. The firm's demand curve is perfectly elastic.
c. The firm produces a product identical to that produced by its many competitors.
d. There are barriers to enter the market.
e. The firm faces competition from many other firms.
4. Which of the following industries is most likely closest to achieving perfect price discrimination?
a. the wheat industry
b. the textbook industry
c. the soft drink industry
d. the toilet paper industry
e. the airline industry
5. Suppose that a regulatory agency helps producers maximize economic profit. This type of regulation coincides with
a. a marginal cost pricing rule.
b. the social interest theory of regulation.
c. the capture theory of regulation.
d. an average cost pricing rule.
e. a natural monopoly.
6. Price cap regulation is defined as regulation that
a. uses average cost pricing to ensure costs are covered.
b. uses marginal cost pricing to ensure efficient output.
c. imposes a price ceiling on the regulated firm.
d. encourages firms to exaggerate costs to increase profits.
e. is essentially the same as rate of return regulation.
7. A major characteristic of monopoly is that
a. a barrier to entry keeps out competitors.
b. the product is identical to that produced by other companies.
c. competition is intense.
d. no barriers to entry exist.
e. a few firms compete with each other.
8. For a single-price monopoly, price is
a. greater than marginal revenue.
b. equal to zero because the firm is not a price taker.
c. less than marginal revenue because the firm must lower its price in order to sell another unit of output.
d. less than marginal revenue because the firm cannot increase its total revenue when the demand curve is downward sloping.
e. equal to marginal revenue.
9.Price cap regulation
a. gives firms the incentive to exaggerate their costs.
b. sets the maximum price these firms can charge.
c. does not provide incentives to firms to minimize their costs because firms cannot change prices.
d. Both answers A and C are correct.
e. Both answers A and B are correct.
10. Today, you might be buying from a regulated natural monopoly when you purchase
a. food in a grocery store or in a restaurant
b. a house, a condominium, or a plot of land.
c. a computer, a phone, or a camera.
d. a car, a truck, or a bicycle.
e. natural gas or electricity.
11. Firms in monopolistic competition compete on
i. quality.
ii. price.
iii. marketing.
a. i and ii
b. i, ii, and iii
c. ii and iii
d. i and iii
e. ii only
12. Firms in monopolistic competition
a. face a downward-sloping demand curve.
b. cannot charge a markup because there are no dominant firms.
c. generally have low to nonexistent selling costs.
d. produce at the efficient scale in the long run.
e. definitely do not benefit from advertising.
13. The above figure shows a restaurant engaged in monopolistic competition with other restaurants. The equilibrium price at this restaurant is ________ per meal.
a. $30
b. $20
c. less than $20
d. $50
e. more than $50
14. A firm in monopolistic competition is
a. efficient because it produces where MR = MC.
b. efficient because in the long run it earns zero economic profit.
c. efficient because it produces at the minimum average total cost.
d. efficient because of the ease of entry.
e. inefficient because price exceeds marginal cost.
15. The absence of barriers to entry in monopolistic competition means that in the long run firms
a. earn either zero economic profit or suffer an economic loss.
b. earn an economic profit.
c. earn zero economic profit.
d. incur an economic loss.
e. earn either an economic profit or zero economic profit.
16. Suppose there are 7 firms in the candy industry with the market shares shown below. What is the HHI for the industry?
a. 100
b. 6400
c. 20
d. 1850
e. 2000
17. Excess capacity is the
a. output at the maximum point of the ATC curve.
b. difference between a perfectly competitive firm's and a monopolistically competitive firm's output.
c. difference between a perfectly competitive firm's and a monopoly's output.
d. difference between the price charged by a monopoly and a monopolistically competitive firm with the same costs.
e. None of the above answers is correct.
18. A firm's efficient scale of production is the output at which its
a. profit is maximized.
b. marginal revenue is at a maximum.
c. marginal revenue equals marginal cost.
d. marginal cost is at a minimum.
e. average total cost is at a minimum.
19. In monopolistic competition, a firm can set the price for its product because of
a. the firm's upward sloping demand curve.
b. easy entry and exit.
c. many competitors.
d. product differentiation.
e. economic profits.
20. Product differentiation involves making a product that is
a. very different from the products of competing firms.
b. slightly different from the products of competing firms.
c. no different than the products of competing firms.
d. completely different from the products of competing firms.
e. cheaper than the products of competing firms