1. Why can't marginal cost decrease forever?
A) Demand is not infinite. B) Because marginal cost can't increase forever either and there must be symmetry. C) Marginal cost is always constant. D) At some point, firms encounter physical limits of production.
2. Which of the following statements is TRUE? I. Monopolists can raise prices as high as they want and still earn economic profits. II. Even with no competitors, firms face a downward sloping demand curve. III. Just like competitive firms, monopolists maximize profits where marginal revenue equals marginal cost.
A) I and II only B) I, II, and III C) II and III only D) I and III only
3. under perfect price discrimination
A) it is easy to arbitrage. B) each customer is charged his or her maximum willingness to pay. C) markets are segmented and each segment is charged a markup inversely proportional to the elasticity of demand. D) each customer is charged the average price that others with his or her characteristics are willing to pay.
4. Karl values Word at $100 and Excel at $70, and Adam values Word at $50 and Excel at $90. If the programs are sold separately, what are the profit-maximizing prices?
A) $20 for Word, $40 for Excel C) $100 for Word, $40 for Excel B) $100 for Word, $90 for Excel D) $70 for Word, $50 for Excel
5. In a perfectly competitive market,
A) total industry costs of production are minimized. B) all firms will produce an equal amount of output. C) marginal costs will be less than average costs. D) market price will equal the total cost of production.
6. Cartels are
A) extremely powerful and able to keep prices and profits high indefinitely. B) firms that face perfectly elastic demand curves and increase profits by restricting output and raising prices. C) like monopolies that try to earn normal or competitive profits. D) unstable and tend to lose market power over time.
7. A market becomes more competitive as there are ______ buyers and ______ sellers.
A) more; more B) fewer; more C) more; fewer D) fewer; fewer
8. A monopolist facing different demand curves in two separate markets, maximizes profit by
A) setting marginal revenue equal to marginal cost for the combined demand curve and charging the maximum price for that quantity on the combined demand curve. B) setting marginal revenue equal to marginal cost and charging the maximum price that demand will bear in each market. C) completely ignoring the market with higher demand. D) completely ignoring the market with lower demand.
9. In April 2011, Procter & Gamble and Unilever received fines of 315 million euros by the European Commission for fixing the price of laundry detergent in eight European countries. They admitted to this cartel, which resulted in a 10 percent discount in the fines. The three-year investigation started because of a tip-off by another competitor, Henkel, who was also part of the price-fixing scheme. Henkel received no fine because of its cooperation with investigators. Besides the fines, how did investigators make maintaining this cartel difficult to continue?
A) by reminding consumers that laundry detergent has a lot of long-run substitutes B) by offering a 10 percent discount on the fine if the parties admit to wrongdoing C) by waiving the fine for just Henkel, which encouraged Henkel to cheat D) by investigating the cartel for three years so they could prosecute
10. The optimal price for a monopolist facing different demand curves in two separate markets will be
A) higher in the market with more elastic demand.
C) higher in the market with less elastic demand.
B) the same in both markets. D) equal to marginal cost in each markets.
11. A profit-maximizing monopolist's total profit can be found by calculating:
A) TR – TC. B) MC – MR. C) MR – MC. D) AR – AC.
12. In the case of a perfectly price-discriminating monopoly, there is
A) zero consumer surplus. B) as much consumer surplus as in the case of a standard monopoly. C) as much consumer surplus as in the case of perfect competition. D) as much consumer surplus as in the case of monopolistic competition.
13. When demand is relatively elastic, monopolists will charge
A) a price equal to marginal cost. B) a higher markup. C) a lower markup. D) the same markup as when demand is relatively inelastic.