Deck 13: How Imperfect Competition Functions

Question 1

In order to maximize profits a monopoly will:

A) charge the highest price possible.
B) produce a level of output at which marginal revenue and marginal cost intersect.
C) produce a level of output at which average total cost and marginal cost intersect.
D) produce a level of output at which average total cost is at a minimum.

Answer 1

produce a level of output at which marginal revenue and marginal cost intersect.

Question 2

Of the following barriers that prevent new firms from entering a monopoly, which is the most difficult to overcome?

A) predatory pricing
B) government legislation
C) ownership of raw materials
D) economies of scale

Answer 2

government legislation

Question 3

Which of the following is the best example of a natural monopoly?

A) a television station
B) natural gas for domestic use
C) a newspaper
D) postal services

Answer 3

natural gas for domestic use

Question 4

A pharmaceutical company will most likely be classified as a monopoly if:

A) it owns the raw materials necessary for production.
B) it has achieved economies of scale and has made it too difficult for competitors to compete.
C) it has a patent in order to make it the exclusive producer of a drug.
D) it has practiced predatory pricing and eliminated the competition.

Question 5

A monopoly:

A) will never leave the industry since it is always in a position to earn a profit.
B) will leave the industry if fixed costs exceed variable costs.
C) will leave the industry if marginal revenue is less than average total cost.
D) will leave the industry if variable costs exceed total revenue.

Question 6

A monopoly firm selling air conditioners to consumers in a small town is currently maximizing profits by charging a price of $230 per air conditioner. It follows that the marginal cost of each air conditioner is:

A) less than $230.
B) more than $230.
C) equal to $230.
D) none of the above.

Question 7

When we say that a monopoly does not produce a socially desirable level of output we mean:

A) the company does not produce goods or services desired by consumers.
B) the company does not break even by producing at the point at which price is equal to average total cost.
C) the company produces too little and does not use enough resources.
D) the company produces too much and wastes scarce resources.

Question 8

If a monopoly is producing at a level of production at which profits are maximized, then:

A) price is greater than marginal cost.
B) price is equal to marginal cost.
C) price is greater than average total cost.
D) price is less than marginal cost.

Question 9

If a firm has a monopoly over the sale of newspapers and seeks to maximize profits, then:

A) it will set the price of the product so that its marginal revenue equals its marginal cost.
B) it adjusts the price of the product until demand becomes perfectly inelastic.
C) it will set the price fo the product equal tot he average total cost of production.
D) it will set the price of the product equal to the marginal cost of production.

Question 10

In its attempt to maximize profits, a monopoly will:

A) produce a level of output at which marginal revenue is zero.
B) produce a level of output in the inelastic portion of the demand curve.
C) produce a level of output at which marginal revenue is negative.
D) produce a level of output in the elastic portion of the demand curve.

Question 11

Which of the following companies is the closest to having a monopoly in its industry?

A) General Motors
B) Microsoft
C) Air Canada
D) Petro Canada

Question 12

Which of the following is not a problem associated with fair-return pricing?

A) there may be no incentive to reduce production costs
B) it is difficult to decide on an adequate rate of return on investment
C) it is difficult to accurately draw a demand curve for the product
D) the firm may not face a downward-sloping demand curve

Question 13

To say that a monopoly misallocates resources means that:

A) a monopoly produces an amount of goods beyond the socially desirable amount.
B) a monopoly produces at the point at which price is greater than marginal cost.
C) a monopoly produces at the point at which price is less than marginal cost.
D) a monopoly produces at the point at which price is greater than average total cost.

Question 14

A monopoly will continue to increase production until:

A) price equals marginal revenue.
B) price exceeds average total cost.
C) marginal revenue equals marginal cost.
D) price equals marginal cost.

Question 15

Which of the following statements is not correct?

A) a monopoly produces a level of output in the elastic portion of the demand curve
B) a monopoly always earns a profit
C) a monopoly produces a level of output at which price exceeds marginal cost
D) a monopoly faces a downward-sloping demand curve

Question 16

A monopoly's demand curve is such that it can sell 100 units at $10 each or 101 units at a price of $9.50 each. The marginal revenue of the one hundred and first unit is:

A) $950.
B) $60.50.
C) -$40.50.
D) $95.

Question 17

If a monopoly and a perfect competitor had exactly the same cost curves, the monopoly:

A) would produce at a lower level of output than the perfect competitor.
B) would produce a greater output than the perfect competitor.
C) would produce the same quantity of output as the perfect competitor.
D) it is impossible to compare outputs unless the corresponding demand curves are known.

Question 18

When comparing a monopoly and a firm in perfect competition, the monopoly:

A) faces a less elastic demand curve.
B) faces a more elastic demand curve.
C) could face a demand curve identical to that of a firm in perfect competition.
D) faces a perfectly elastic demand curve.

Question 19

Which of the following is not a necessary condition for price discrimination?

A) the markets must be kept separate
B) the product is produced under a variety of cost conditions
C) the seller must have some control over the price
D) the elasticity of demand in each market is different

Question 20

Which of the following is not an example of price discrimination?

A) cheaper airline tickets for midnight flights
B) different bus fares for students and senior citizens
C) a luncheon special at a restaurant
D) price discounts for purchasers of large quantities

Question 21

A monopoly will practise price discrimination in order to:

A) reduce marketing costs.
B) increase total revenue.
C) reduce average costs of production.
D) give preferential treatment to customers who purchase large quantities.

Question 22

For a monopoly:

A) the marginal revenue curve and demand curve are identical.
B) the marginal revenue curve lies above the demand curve
C) the marginal revenue curve has a gap at the existing price.
D) the marginal revenue curve lies below the demand curve.

Question 23

Marginal revenue can be defined as:

A) the change in total revenue resulting from the addition of one more worker.
B) the change in total revenue when the price increases.
C) the change in total revenue resulting from the production of one more unit.
D) none of the above

Question 24

The main difference between a socially optimum price and a fair-return price is that:

A) the marginal cost of the former is less than the cost of the latter.
B) the price of the former is less than the price latter.
C) the output of the former is less than the output of the latter.
D) the average total cost of the former is more than the average total cost of the latter.

Question 25

Fair-return pricing is a practical approach to monopoly price regulation but:

A) it is difficult to measure implicit costs.
B) it is difficult to measure explicit costs.
C) it will reduce research and development.
D) the monopoly may not receive a high enough price to cover costs.

Question 26

If a company sells 10 cakes at $9 each and 11 cakes at $8 each, the marginal revenue of the eleventh cake is:

A) -$2.
B) -$11.
C) $8.
D) $2.

Question 27

Price discrimination is least likely to be practiced under conditions of:

A) perfect competition.
B) oligopoly.
C) monopoly.
D) many differentiated sellers.

Question 28

Consumer surplus is defined as:

A) the difference between the price that consumers would be willing to pay for a product and the price that they actually pay for it.
B) the difference between the actual price for a product and the suggested retail price.
C) the difference between the price that consumers pay for a product and the actual cost of making it.
D) the difference between the price that producers get for a product and the marginal cost of Making more of it.

Question 29

The "deadweight loss" occurs under conditions of:

A) perfect competition.
B) many differentiated sellers.
C) monopoly.
D) oligopoly.

Question 30

The deadweight loss triangle shows the costs of monopoly in terms of:

A) social fairness.
B) money spent on lobbying the government.
C) non-price competition.
D) misallocated resources.

Question 31

Producer surplus is defined as:

A) the difference between the price that consumers pay for a product and the actual cost of making it.
B) the difference between the actual price for a product and the suggested retail price.
C) the difference between the price that consumers would be willing to pay for a product and the price that they actually pay for it.
D) the difference between the price that producers get for a product and the marginal cost of making more of it.

Question 32

The sum of the consumer surplus and the producer surplus is maximized under conditions of:

A) many differentiated sellers.
B) oligopoly.
C) monopoly.
D) perfect competition.

Question 33

Students and citizens who are charged lower prices for theater tickets is an example of:

A) first-degree price discrimination.
B) second-degree price discrimination.
C) third-degree price discrimination.
D) none of the above.

Question 34

A sealed bid auction is an example of:

A) first-degree price discrimination.
B) second-degree price discrimination.
C) third-degree price discrimination.
D) none of the above.

Question 35

Purchasing 24 cans of coke at a lower price per can than purchasing 6 cans is an example of:

A) first-degree price discrimination.
B) second-degree price discrimination.
C) third-degree price discrimination.
D) none of the above.

Question 36

The kinked demand curve for a firm in oligopoly assumes that:

A) the firm's competitors do not follow either a price increase or decrease but keep their prices rigid.
B) the firm's competitors follow both a price increase and a price decrease.
C) the firm's competitors follow a price increase but do not follow a price decrease.
D) the firm's competitors follow a price decrease but do not follow a price increase.

Question 37

Which of the following industries is least likely to be an oligopoly?

A) railways
B) steel
C) beer
D) restaurants

Question 38

It is difficult to draw a demand curve for a firm in an oligopoly because the firm:

A) does not know if its competitors' products are perfect substitutes for its product.
B) does not know if the demand for its product is elastic or inelastic.
C) does not know how its competitors will react when it changes its price.
D) none of the above

Question 39

The kinked demand curve is:

A) inelastic above the kink and elastic below it.
B) inelastic above the kink and inelastic below it.
C) elastic above the kink and inelastic below it.
D) elastic above the kink and elastic below it.

Question 40

The kinked demand curve is drawn under the assumption that:

A) the few firms operating in an oligopoly collude on price changes.
B) firms in the industry regularly change prices.
C) competitors' prices are rigid and not subject to change.
D) a firm is uncertain about the reaction of the competition when it changes its price.

Question 41

The steel industry in Canada is an example of:

A) monopoly.
B) oligopoly.
C) many differentiated sellers.
D) perfect competition.

Question 42

Product prices change less frequently under conditions of:

A) monopoly.
B) oligopoly.
C) perfect competition.
D) many differentiated sellers..

Question 43

A cartel is most likely to appear under what type of competition?

A) many differentiated sellers
B) oligopoly
C) perfect competition
D) monopoly

Question 44

Which of the following is not a necessary condition for a successful cartel?

A) an increasing demand for the product
B) agreement by all firms to abide by the decisions of the cartel
C) control over a major portion of the industry's production
D) an elastic demand curve for the product

Question 45

An oligopoly is defined as an industry in which:

A) there are only a few firms.
B) each firm produces a slightly differentiated product.
C) firms follow price increases but not price decreases.
D) cartels are unlikely to appear.

Question 46

Which of the following is not a characteristic of an oligopoly?

A) substantial barriers to entry
B) substantial use of advertising
C) control over the price is present for each firm
D) no control over the price on behalf of each firm

Question 47

Which of the following make it more difficult for a cartel to succeed?

A) a rising demand for the product
B) identical cost curves for each firm in the industry
C) an identical product is produced by each firm
D) a large number of firms in the industry

Question 48

If two automobile manufacturers were to join together to form one firm it would be known as a:

A) horizontal merger
B) conglomerate merger.
C) monopoly.
D) vertical merger.

Question 49

If an automobile manufacturer was to join together with a tire manufacturer it would be known As a:

A) horizontal merger
B) vertical merger.
C) monopoly.
D) conglomerate merger.

Question 50

If an automobile manufacturer was to join together with a company offering financial services it would be known as a:

A) horizontal merger
B) monopoly.
C) vertical merger.
D) conglomerate merger.

Question 51

Which of the following practices is not prohibited by the Competition Act?

A) bait and switch selling
B) quantity price discount
C) retail price maintenance
D) predatory pricing

Question 52

Which of the following is not a characteristic of Canada's Competition Act?

A) the fines levied under the Act are too heavy
B) cases are brought before a Competition Tribunal for a decision
C) mergers that are detrimental to the public interest are illegal
D) agreements among firms to reduce production are prohibited

Question 53

Which of the following is not a characteristic of many differentiated sellers?

A) firms use advertising a great deal
B) entry into the industry is relatively easy
C) the firm has no control over the price
D) tend to break even in the long run

Question 54

The demand curve for a firm in many differentiated sellers is:

A) vertical.
B) inelastic.
C) horizontal.
D) elastic.

Question 55

A firm in many differentiated sellers produces a level of output at the point at which:

A) the marginal revenue is equal to average total cost.
B) the price is equal to average total cost.
C) the price is equal to the marginal cost.
D) marginal revenue is equal to marginal cost.

Question 56

In the long run, a firm in many differentiated sellers can be expected to:

A) leave the industry unless it is earning an economic profit.
B) produce at the point at which price is equal to average variable cost.
C) produce at the point at which price is equal to average total cost.
D) earn an economic profit.

Question 57

If firms in many differentiated sellers are earning economic profits:

A) new firms will enter the industry, and in the long run, all firms will break even.
B) new firms will try to enter the industry but existing firms will lower their prices and keep the new firms out.
C) new firms will try to enter the industry; however, strong barriers to entry will keep them out.
D) new firms will enter the industry and reduce the price until it is equal to marginal cost.

Question 58

When a firm in many differentiated sellers advertises:

A) the firm can be assured of at least breaking even in the long run.
B) the firm's demand curve becomes more inelastic.
C) the firm's demand curve becomes more elastic.
D) none of the above is correct

Question 59

Which of the following industries is the best example of many differentiated sellers?

A) airlines
B) automobiles
C) beer
D) women's clothing

Question 60

If a firm in many differentiated sellers is making zero economic profit:

A) it will increase the price of the product.
B) it will shut down and look for another type of business to enter.
C) it will continue to operate as long as both explicit and implicit costs are covered.
D) none of the above is necessarily correct

Question 61

Which of the following do firms in many differentiated sellers and perfect competition not have in common?

A) there are few barriers to entry
B) there are a large number of sellers
C) both use non-price competition
D) in the long run firms in both tend to break even

Question 62

In which of the following competitive situations do firms not charge a price greater than Marginal cost?

A) many differentiated sellers
B) monopoly
C) perfect competition
D) oligopoly

Question 63

If a firm's marginal revenue is greater than marginal cost at its current level of production, the firm should:

A) increase output in perfect competition, but decrease output in the other types of competition.
B) decrease output in perfect competition but increase output in the other types of competition.
C) decrease output regardless of the type of competition.
D) increase output regardless of the type of competition.

Question 64

The main difference between a monopoly and a firm in perfect competition is:

A) the monopoly faces a perfectly elastic demand curve.
B) the firm in perfect competition sets marginal revenue equal to marginal cost in order to maximize profits.
C) the firm in perfect competition eventually faces increasing average total cost in the short run.
D) the monopoly has some control over the price of its product.

Question 65

A common characteristic of all firms in imperfect competition is:

A) producing at a level of output at which they break even in the long run.
B) attempting to increase sales by lowering prices.
C) producing at a level of output at which price exceeds marginal cost.
D) a desire to use advertising in order to increase sales.

Question 66

If marginal revenue is negative for a certain level of output:

A) it must be an oligopoly.
B) the price being charged is too high.
C) total revenue is increasing.
D) demand is inelastic with respect to price.

Question 67

If a firm is operating at a loss in the short run:

A) it will shut down if it is only covering variable costs.
B) it will shut down.
C) it will shut down if it is only covering fixed costs.
D) it will increase the price of the product.

Question 68

Perfect competition and many differentiated sellers are similar in that both:

A) have firms that tend to break even in the long run.
B) have strong barriers to the entry of new firms.
C) have firms producing slightly different products.
D) have firms that use non-price competition.

Question 69

Under which of the following competitive situations will price be equal to marginal cost at the point of profit maximization?

A) monopoly
B) many differentiated sellers
C) oligopoly
D) perfect competition