Question Bank - Economics

Q1. If marginal cost exceeds marginal revenue at a firm's current level of output, the firm can increase profit if it increases its level of output.

(a) True

(b) False

 

 Q2. The competitive firm maximizes profit when it produces output up to the point where

(a) price equals average variable cost

(b) marginal revenue equals average revenue

(c) marginal cost equals total revenue

(d) marginal cost equals marginal revenue

 

Q3. If a competitive firm is producing a level of output where marginal revenue exceeds marginal cost, the firm could increase profits if it

(a) decreased production

(b) maintained production at the current level

(c) temporarily shut down

(d) increased production

 

Q4. When firms cooperate with one another, it is generally good for society as a whole.

(a) True (b) False

 

Q5. There is a constant tension in an oligopoly between cooperation and self-interest because after an agreement to reduce production is reached, it is profitable for each individual firm to cheat and produce more.

(a) True     (b) False

 

Q6. When oligopolists collude and form a cartel, the outcome in the market is similar to that generated by a perfectly competitive market.

(a) True    (b) False

 

Q7. In long-run equilibrium in a competitive market, firms are operating at

(a) the minimum of their average-total-cost curves

(b) all of these answers are correct

(c) their efficient scale

(d) zero economic profit

(e) the intersection of marginal cost and marginal revenue

Q8. Which of the following is true regarding the similarities and differences in monopolistic competition and monopoly?

(a) The monopolist faces a downward-sloping demand curve while the monopolistic competitor faces an elastic demand curve

(b) The monopolist charges a price above marginal cost while the monopolistic competitor charges a price equal to marginal cost

(c) The monopolist makes economic profits in the long run while the monopolistic competitor makes zero economic profits in the long run

(d) Both the monopolist and the monopolistic competitor operate at the efficient scale

 

Q9. Which of the following firms is most likely to spend a large percentage of their revenue on advertising?

(a) the producer of a highly differentiated consumer product

(b) the manufacturer of an undifferentiated commodity

(c) a perfect competitor

(d) the manufacturer of an industrial product

(e) the producer of a low quality product that costs the same to produce as a similar high quality product

 

Q10. The use of the word "competition" in the name of the market structure called "monopolistic competition" refers to the fact that

(a) there are many sellers in a monopolistically competitive market and there is free entry and exit in the market just like a competitive market

(b) monopolistically competitive firms face a downward-sloping demand curve just like competitive firms

(c) monopolistically competitive firms charge prices equal to the minimum of their average total cost just like competitive firms

(d) the products are differentiated in a monopolistically competitive market just like in a competitive market.

 

 

Q11. Look at the image below

This image depicts a monopolistic competitor

(a) It is impossible to determine from this graph whether the firm is generating profits or losses.

(b) generating profits in the short run

(c) generating zero profits in the long run

(d) generating losses in the short run